Manoj doesn't look too happy in this picture, and he didn't look too happy tonight after a string of mishaps hit these events tonight. But they weren't significant problems, and the event was a great success. The audience was full of interesting people and the presentations punchy and clear. I'm looking forward to the next one!
Thursday, 6 December 2007
Tuesday, 4 December 2007
Posted by Ed French at 16:47
Sunday, 2 December 2007
OK I exaggerate- but let me explain!
Over the years I’ve seen a few boardroom conflicts in early stage technology companies, and on reflection I think there’s a pattern to some of these conflicts. They arise when the company is looking to allocate resources and to plan ahead. There’s a very natural contradiction between maintaining focus on the primary business plan, and maintaining momentum towards some alternative/contingent outcome, a “Plan B” if you like.
Some characteristics of a good CEO
Joining a tiny company, perhaps with no sales, virtually no staff, the vaguest of customer relationships and a VC investor is only attractive if you have something of an optimistic outlook on life! That’s not to say that such people aren’t also very conscious of balancing and mitigating risk, just that you think you can see a route to a good outcome.
Also, in my experience, good CEOs tend to be furiously focused individuals. Maybe the CTO can be distracted with wild ideas about the next innovation, but the CEO has to be delivery focused.
Characteristics of an experienced VC
VC’s need a degree of optimism too, but they have the advantage of a portfolio and expect each individual investment to be as likely to be a failure as a success.
Moreover, they have been “backseat driving” to some extent on many, many, more companies that the CEOs have (I’ve been personally involved with around 25). That means that, whilst not at first hand, they’ve seen “the head of terms that didn’t make it through to cash”, the “Series A rounds that ended up as a nasty down-round”, and the “strategic partnerships that never delivered”.
What’s more the VC has probably experienced the effect that many if not most of their portfolio will change direction during the early years.Fred Wilson of Union Square Ventures puts so well in his recent post:
Of the 26 companies that I consider realized or effectively realized in my personal track record, 17 of them made complete transformations or partial transformations of their businesses between the time we invested and the time we sold.
It’s therefore hardly surprising that VC’s will have a tendency to constantly want to seek out the alternative route or contingency plan, whilst CEO’s will want to keep the company focused.
My only proposal to try and resolve some of this tension is to make sure that contingency planning is something that:
• Takes place outside the normal board meetings, where everyone has the space to think a little harder about the what-ifs
• That, after considering lots of options you try to focus on as few contingencies as possible: two is good!
• One of these contingencies should, as far as possible, only rely on events and progress the company can, as far as possible, control directly
So you can see why I believe that sometimes entrepreneurs have deficiencies in planning, and VC’s can suffer from deficiencies of focus!
Posted by Ed French at 08:47
Thursday, 29 November 2007
I very much enjoyed spending most of yesterday at the Connect Yorkshire investment forum. Over the years I think I’ve been to nearly all these conferences; they’re a great way of seeing some of the companies that are around, and in bringing the technology community into one place too.
I suspect that Nick Butler and Glen Hopkinson who lead the team at Connect Yorkshire don’t have the easiest of tasks; but they do a great job of making it look easy! They have to screen lots of potential companies to select and coach/cajoale/coax those who present towards the best way of pitching their proposals. Today the companies represented ranged from a device to detect leaks, to a cancer drug targeting technology.
As usual you could rely on the Connect process to have helped the presenters make their proposals clear and reasonably thought out, whatever one thinks of their individual commercial prospects.
I tried to talk to as many of the presenting companies as I could; whether or not I was interested in them as a potential investee. This is really important to me; I find I can learn so much from these people and their intimate knowledge of either technology or market niche, and I think that in return I owe it to them to be as frank as possible about what I think lies ahead for them. As usual, the reaction to the feedback varied from the heatedly defensive, to the open and constructive, which tells you something else about how that team would be post-investment!
The format of all these kinds of events still doesn’t seem quite right to me; somehow the idea that someone stands at the front for half and hour and tells you about their business and its plans is a very one-way process, and there is a tendency for the candidates to want to talk far more about their plans, which after all are pretty fluid, than they do about their product and market opportunity/competition. I’ve suggested to Glen that something like a IRC backchannel might be the way to go, but you might need some house rules about only asking questions. Given the UK hasn’t adopted the laptops-in-sessions culture to the extent that the US has, you might need some kind of SMS based thing…?
P.S. I found this interesting commentary about backchannels on Techcrunch
Nick and Glen were also busy promoting www.mydealmaker.co.uk: their initiative to bring the community together between their events. Those involved in forming, managing and funding technology companies always benefit from becoming more of a community and learning from each other. Bringing people together on the internet has proved to be an amazingly powerful way of breathing life into specialist communities elsewhere and I really hope that Glen’s initiative can do the same for this group.
Over the years I suspect we’ve backed more teams that we first met at Connect than anyone. On this occasion I had the opportunity to meet again a company I was introduced to a little while ago, which I think has some of the characteristics to develop really well. Hopefully I’ll learn over the next few weeks if we can work with the team to develop a really exciting business with them.
Wednesday, 31 October 2007
Lee Strafford and friends have established project Sahara and thenetstart with the aim of establishing a community of internet companies across the North of England. It meshes with initiatives such as dotnorth.org which have compatible aims in this area.
What Lee evangelises, and rightly so, is that the most successful internet companies in the UK were those that sprung up in the North of England: he's therefore brought together some of the leading players in those companies to build a repeatable model around this opportunity.
I admire Lee's energy, and am hopeful that his experience and track record will help bring the various parties together to create a set of really exciting new enterprises; this may be challenging but it's surely a challenge worth serious pursuit.
In our own small way I think we could claim to have been the most active investor in this sector across the North in recent years, and we're looking to do more in future. I think we'd suggest that the problems Lee is addressing are important and prevalent. Most start-ups in this sector do have the feeling of being "on their own", and they'd benefit greatly from being part of a community in many different ways. The powerpoint embedded below gives more detail on the problems the project is addressing and what is being built.
I'm keen to see the project grow and succeed. There seems to be a growing momentum behind the initiative and I'll be keen to contribute where I can. In recent months Mashup, GeekUp, Opencoffee and now Project Sahara and DotNorth have exposed the size of the pool of both entrepreneurs and technical experts interested in this area of activity, and I'm looking forward to seeing us play our role as an active early-stage investor to help nurture the companies that will surely emerge.
Monday, 8 October 2007
Nic Brisbourne at Esprit has put together a really concise post about the market entry strategy of Enterprise 2.0 companies. I totally agree with his premise and have thought it's one of the most exciting opportunities in the current arena. Maybe I've just missed it, but I'd really like to see a great example of this having worked. Please point me to any great examples, excepting perhaps Salesforce.com, which seems to be used as an exemplar for every enterprise software strategy in the last five years!
Monday, 1 October 2007
|Everyday Financial Solutions, a subsidiary of Littlewoods Shop Direct Group is to deliver business efficiency improvements with Blue Prism Automate.|
It's great to see another endorsement for Blue Prism's technology- well done Alastair, David and the team!
Thursday, 27 September 2007
The Yuuguu guys did a great demo of their free service, and the new browser-based viewing at DEMOfall in San Diego yesterday. They've had a great reaction and have been really pleased with the response they've had.
Tuesday, 25 September 2007
Canon's subsidiary Fontango had created something really interesting in "Zimki", a platform for building scalable applications- a kind of David vs Goliath approach to the space Amazon EC2 is trying to pursue.
Whilst the management at Fotango were keen to opensource the platform, Canon felt differently, with the result that the project has been pulled. Anyone who can explain how this was a good outcome for Canon I'd love to know!
Gervase Markham points out that by Canon pulling the platform, ironically, they've helped prove one of the main reasons why the platform needed to be opensource to work. Simon Wardley, Fotango's now ex-COO must feel thoroughly justified.
Monday, 17 September 2007
Manoj has again done a great job of preparing the next Startup 2.0 event in Manchester on Wednesday night. Annoyingly I have to be in Glasgow, but otherwise I'd be looking forward to hearing from Lee Strafford, CEO of PlusNet which was recently sold to BT for lots of money. He's got some really interesting plans to help web startups: I'm sorry I can't be there to heckle ;-)
Manoj has lined up a VC, Peter Leather, and Billa Bhandari who runs a biometrics company and has lots of tech startup experience, to complete his line-up.
It's great that KPMG continue to support this event, I'm looking forward to the next one!
Thursday, 30 August 2007
Blue Prism just got a great write up about their work with the Co-operative Bank, where their software is increasingly being used to automate processes.
It's great when a large company is willing to help spread the word for a relatively young company like Blue Prism, it's a simple and comparatively painless way in which a large company can support a supplier.
What I find slightly disappointing is that it seems to me that very often the large purchaser will not offer their vendor this kind of support. For example, Blue Prism has some other similar companies who appear more reluctant to go on the record about their work with the company.
Wednesday, 29 August 2007
|Class of barrier||Characteristics|
|Tech Heavy||Some piece of technology is strikingly difficult to do, perhaps requiring realtime communication or tricky client software to make it work. These companies can take a little longer and can raise money earlier in the adoption lifecycle due to the inherent IP. We've got a couple of these in the works, but they're in no hurry to tell the world what they're up to!|
|Execution orientated||In these cases the company is not doing anything that technically that groundbreaking, but they're getting the business model, user experience, pricing etc. right in a way incumbents with more inertia would struggle to do. Here the key is about speed and quality of execution. I think I'd probably put Yuuguu in this category at the moment...|
|Critical mass orientated||Lots of web1.0 gravestones here! This is where you have to find ways to get the kind of critical mass of users which means that the service can gain a strong lead. This is more like the Facebook model. To be honest we've only tried this once and we ran out of capital before we reached critical mass. You can't sell these early and the key is probably to find ways to reach that early audience cheaply. I believe that Facebook did this early by getting links with US colleges.|
Perhaps it's interesting to think which model fits your company best, and then what that implies for strategy?
Friday, 24 August 2007
I'm delighted that Yuuuguu are presenting some great new stuff at Demo in September. I think it'll be really well received. If you're thinking of going there's a useful discount if you click via the following Yuuguu off to DEMOfall 07.
Monday, 20 August 2007
Back from hols :-)
Over the years a number of useful tips about how to manage cash in early stage tech companies. It's really commonplace for such companies to have sticky moments waiting for cash to come in from customers, investors etc. and it can be very handy to know some of these hints....
If you're this close to being out-of-cash then knowing the solvency situation of the company at any time becomes important, and as a board it should be considered carefully and frequently. I can't endorse the use of any or all of these in any situation on a blanket basis- it's more complicated than that!
Please let me know any improvements or changes to this list via the comments- I'll update it accordingly. Thanks.
|Managing Ordinary Creditors||Paying late||Careful, you mustn't favour some creditors over others, but generally you should look to the timing of each creditor payment to see what really needs to be paid when. (OK that one was obvious!)|
|Paying erratically||One FD I know favours paying erratically from the outset, but paying reliably. So, if sometimes you pay at 10 days, sometimes at 30, other times at 50, then your creditor may get used to the fact that you're inconsistent but reliable. this could give you a bit more slack when you need it most. Contrast this with the company who always pays bang on 30 days. If you don't pay by 31 the credit controller will be on the phone!|
|Early payment terms||I've found that many start ups are so keen to impress their customers, and so keen not to draw attention to their small size that their reluctant to go for strong payment discounts. Likewise they tend to favour rental models over upfront models in the face of the economics (see below and here.)|
|Salaries etc.||Transferring cash||If the new cash is very close, but is going to miss the BACS payment deadline for the salary, it's handy to know that you can usually pay your staff using a same-day payment mechanism from the bank (for a fee). The extra few days saved can occasionally be a lifesaver.|
|Staff late payments||If some of your staff are willing to work on the promise that they'll be paid shortly after the transaction that can be great. Watch out though, because there's a chance that you'll still have to pay the PAYE and NI. It can be helpful to get a formal waiver from the staff of some kind- so the company accrues the cost but doesn't necessarily trigger the tax.|
|Payment date||During the early optimistic days companies often like to offer their staff a relatively early payment date in the month. Pushing that back as a matter of routine early can make sense and saves you having to ask the staff for the concession at a key time.|
|Cost of directors||If things are tight the directors may be willing to work for nothing- make sure you keep accruing the costs otherwise the next round investor may get shirty if you want to pay them the back fees post transaction.|
|Banks and investors etc.||Bank||Banks need attention well in advance of the cash demand if you expect them to be sympathetic. Especially important if you've a loan already as bad news can give them the jitters.|
|Investor bridge||Keeping your investors fully up-to-speed and informed is the key to this one, but if there's real evidence of close cash from either customers or investors it's useful, if unlikely to be cheap!|
|Director's loan||Not really where anyone wants to be!|
|Other etc.||R&D Tax Credit||I'm no expert on R&D tax credit, but it's proved a godsend to companies on tight cash on several occasions (thanks Gordon!). Two caveats- you can only claim as cash up to the limit of the previous years PAYE+NI, so if you've been mean and lean and had no full-timers then it's not going to help much. Second, you CAN do a short financial year to claim early, but remember that you can't keep doing short years from a Companies House PoV- hence never change year end for convenience reasons, keep it up your sleeve for rainy days. It takes a couple of months minimum to go through the process of closing your year and making the claim, but handy none-the-less.|
|Grants||Frankly, unless you saw it coming months earlier this is only likely to help around the edges.|
|The ingenious amongst you will probably have a whole set of crafty ways to extract cash from your customers wallets. One particularly appealing idea is to offer to convert existing rental customers to perpetual licenses for a tempting once-off price.(see this post.|
Wednesday, 1 August 2007
So Sir Alan Sugar has 'fired' his creation Amstrad for what has been reported to be £ 125m gbp -(around $ 260m usd) on a PE of about 6. I can see why he'd want out- Amstrad may be concerned about commoditisation and the threat from the Chinese entrants. But even the Ovuum analyst on the news last night was struggling to find a reason why Murdoch's Sky would want to buy them. In the Guardian piece various analysts provide rather weak justification about improved time-to-market, but it'd be hard to see that Sky is currently competing with Virgin media on that basis at the moment anyway.
Sky has had a reputation for being a canny buyer of set-top-boxes and is in a position to drive a hard bargain from its suppliers- surely it didn't need to own one just to get suppliers to do what it wants quickly.
The only reason I can think makes sense is that Sky's purchase is not to get their mits on this generation of product but because they are looking to the next. This might seem sort of obvious, my speculation however is that it's because they need to own the STB company. That would let them build their own "locked-down proprietary" set-top boxes, and might help Sky persuade Hollywood that it's really secure. At that point they might be able to get access to the kind of premium content that the AppleTV box carries. Better yet- they have a delivery channel via the satellite to send over high popularity High Definition content that'd struggle to get down the narrow ADSL pipe.
These kind of changes may seem tectonic to our portfolio companies, but that doesn't mean they're irrelevant.
NB the above is no more than a theory compounded on speculation- I have no actual knowledge of the situation or link with either company! If you know/think better (or can corroborate!) please do so below.
Posted by Ed French at 12:02
Monday, 30 July 2007
Scoble points out that there's a difference between "not having a business plan" and not telling the world what your business plan will emerge to be. I like the term "Business plan obfuscation" too- that's a handy label! However I'd suggest that there's a halfway house between investors backing the eventual business model, and investors backing the public business model: it's not that uncommon for a company to have several business models available to pursue, some more ambitious and flaky, others more concrete and modest.
I've seen investors back the same company, but on different expectations of which business model will pan out- that can be OK if there's enough cash to properly reach a decision, but generally it's better if everyone has the same goal.
Sometimes the plan VC's actually bought into at the start is the same as the plan the company wants to tell the world about at that time, and the same as the plan that produces first revenue and also the plan that results in the big exit. However, often it doesn't quite work out that way! I think most VC's get this; I'm sure that when Fred Wilson quotes what he said about Del.icio.us being the same for Twitter: "The question everyone asks is "What is the business model?" To be completely and totally honest, we don't yet know.", then the key here is the "the",Twitter may today show the world only a "geek-trendy" product, but I'd suggest that they may be several business models in the works, with different revenue streams, different risk profiles and different work profiles.
However, it's interesting to note that when Yuuguu launched its truly free screensharing service there was suspicion from some potential users about the company's business model. If you're "free" it can be important that people understand if there's some "hook" that will kick in if they start using the service. Now that Yuuguu has launched it's low-cost international conference call service everyone can see their long-term business model, or maybe they are just seeing the first revenue model...
Friday, 27 July 2007
The Role of a chairman in early stage tech. companies is a little different from the standard in a small company due to the emphasis on growth and support of a growing team.
|Team Building|| |
|Financial Governance|| |
|Representing Shareholders Interests|| |
|Proceedings at Board Meetings|| |
Obviously all this is in addition to the normal obligations of any director!
Posted by Ed French at 10:07
Saturday, 21 July 2007
Nic Brisbourne from Esprit Capital has a thought provoking post about outsourcing development for early stage consumer internet companies. I think this is a useful discussion as the issues are clearly a little different for this kind of company than they are for a mature enterprise working in a more stable competitive environment.
We've had portfolio companies try various places on the spectrum from "mainly outsourced" to "nothing outsourced"- and we have CEO's who'd advocate strongly taking particular positions. My own instinct is that core "difficult" bits of software (like perhaps some kind of ranking agent or P2P engine) are best inhouse. Also, stuff which might have to change rapidly and frequently as you develop your service (e.g. some kind of web scraping thing), might work more easily in-house.
On the other hand stuff which can be simply and robustly defined at the start and are which is more "commodity" coding (e.g. replicate this competitor feature) might be better outsourced, partly to keep the company's fixed costs down, but also to help keep the core team focussed.
Something else that might form part of the equation for this kind of company is that the cost of capital is so high for most early start companies that time to delivery (including time specifying,negotiating & contracting) can be more important that it'd be for an established company looking at taking the same choices.
Finally, I'd suggest that we've seen companies where outsoucing has helped because during development stages the balance of development skills changes. Perhaps the company's built an inhouse team expert in standard ajax, php and database stuff, but there's a key element which requires skills in developing search agent stuff. Often the inhouse team will prefer the idea of building up their own skills in this area, but that can mean the company is paying (in cash and time) for learning curve towards a skill which is not expected to be a long term requirement.
I guess putting this together means that our experience favours mostly in-house, but I'm sure there's much more to talk about on this issue!
Tuesday, 17 July 2007
Talking to a former exec from an IM supplier to SMEs I gleaned some useful insight today. His company had sold a fairly standard type of secure IM to SMEs. To start off with they'd sold the software, installed on the customer's servers, on a rental model, mimicking the "Software-as-a-Service" approach which is now so popular with startups. However, he explained that the company had gained much more sales traction with customer when, after some time, they reverted to a classic upfront software licence and downstream support payment model.
Whilst I could understand one or two customers feeling this way I was initially surprised that it was such a transformational change. I was surprised that customers weren't fairly uniformly delighted with being able to link the timing of the cost to the timing of their benefit.
Without knowing the details I can only speculate, but it did strike me that the USP for this provider's product was really about helping them feel secure in an application, IM, where their particular customers were less comfortable (otherwise I'd argue that there are loads of similar alternatives). So to some degree they were selling to maybe the "late majority" rather than "early adopters". Maybe these people in particular could be said to be rather slower to adapt to new models for buying software, but also perhaps to be characterised by a different cost of capital.
Cost of Capital
In economic terms most SME's, but especially early-stage technology companies, have a VERY highcost of capital (I've seen it figured out to be around 80%), whereas the customer's cost of capital- particularly if it is itself stable/mature (i.e. late majority), maybe more like 12-20%. It therefore makes little sense from a purely economic standpoint for an early stage company to use a "rental" type payment model for software provided to a customer who's an established business. Perhaps more simply put, an early-stage company may have to pay precious early-stage venture equity rates for money to fund the working capital element of providing a "rental model".
Summary of differences
I've attempted to put together what I could think were the key selection differences between a "rental" model and an "upfront" model.
|"up-front" model||"rental" model|
|Favourable where vendor has higher cost-of-capital||Favourable where the vendor has lower cost-of-capital|
|Suits better laggard customers||Suits better early-adopter customers|
|High investment can make for reluctance to change out||Contractual commitments can keep customers "locked-in"|
|"Capital" budget can be harder for vendor to access||Contractual details on termination, rate increases etc can be harder to negotiate through purchasing|
|Upfront revenue particularly helpful where costs of acquiring customers are high||Rental revenues helpful where costs of supporting customers are high|
(Please use the comments section below- I'm sure this is far from exhaustive- and I'll add your contributions into this table as best I can.)
You may be surprised to realise how strong the Cost-of-capital effect is in practice. Take the following example:
- Company A sells their system on a rental model for £10,000
- Company B sells the same thing on an upfront plus support basis for £15,000 upfront and £2,500 annual support charge.
As always your comments are very welcome.
Monday, 25 June 2007
Alastair Bathgate raises the excellent question of whether Enterprise 2.0 is missing something?. I think that in general there is a bit of a tendency to suggest that taking a web2.0 businesses like Facebook ,and then suggesting it to enterprise customers, doesn't really make it "enterprise grade". There's a whole set of essential enterprise needs such as searchable archives, recognition of organisational structure, management access and access control as a minimum. But Alastair also points out that more abstract ideas like processes, audit and compliance really matter in this context too.
Thursday, 21 June 2007
There's a great post over at Marc Andreesson's blog. It tries to help entrepreneurs understand why VC's say no, and how to interpret their responses. Marc points out that it's not uncommon to be being turned down due to the investor's view of the management team- but pretty exceptional, if they ever, that they tell you!
Why VC's wont tell you about a management "issue"The analogy used by Marc and others is that telling someone their startup is no good is like telling the founder that their "baby is ugly". I'm not quite sure what the analogy is for when we have to let them know that we don't think they themselves are not right for their role! I've certainly always tried to find ways to be as honest as possible, but frankly it's tough, in particular because when you do tell them:
- They just put it down to the the VC being an idiot anyway and carry on regardless.
- After the first few words, no matter how you dress it up, they stop listening and you never get a second chance to explain.
- It gets translated into all sorts of random reasons when the entrepreneur relays the story to others- when I gave the bad news to one entrepreneur he relayed it to everyone as we "weren't interested in high risk ventures"- I've no idea where that had come from!
An anecdote about giving honest feedbackI remember early in my investing meeting an interesting firm run by a very bright and young software guy and his mate. The team was supplemented by a the father of one of the founders who had a successful track record in an early stage company. We visited and explored the possibilities with them, but somewhat awkwardly we rated the two young founders highly, but had lots of issues with the dad! Being a somewhat blunt northern type, I had the cheek to suggest that maybe the company would be better off without the dad, but with a new CEO instead (the dad was pushing his son to be CEO when the body language suggested he was much happier as CTO). We heard from them again about 4 years later, looking again to raise money!
How to tell what the VC really thinks...Here's a few tips (please add any more in the comments)
- Benchmark first
Ask around to find out what experience/track record other management who did raise funding had already. If it's your first time in a startup, or first time in a C-level post then it'll need checking especially hard.
- Aim low
This is the hardest perhaps, but if you're in any doubt put the person in as interim CEO for instance, if the VC's happy they might still suggest there's no need for a change.
- Look for indirect feedback
Perhaps your chairman, non-exec, existing investor etc. could make a phone call, maybe a few days later. We're only human and it's a lot easier to give honest feedback indirectly!
- Look for consistency
If you get inconsistent responses from the VC then maybe there's something else behind their decision.
Something about human nature perhaps, but a question is a great way to find out!
Tuesday, 19 June 2007
Interviewing a potential CEO for one of the portfolio companies today was really thought provoking. He's run and grown technology companies and is a great engineer by heart, therefore I was really surprised when he told us that you "can't use engineers to sell new technology". My gut was screaming "no!", but on reflection I think maybe he had a really sound point. His argument seemed to come down to some prejudices about engineers which might have some grounding:
- Bright sales people can communicate the product well enough for bright engineers at the customer company to work out how/where to apply it
- Engineers have a tendency to dive too quickly into the details of the technology before really getting a good picture of the company's needs- so they don't give themselves the chance to listen properly
- Sales people in the front line tend to be more reassuring to the non-technical contingent of the customers and send the right messages about the nature of the vendor
Further thoughtOn dicussion with a colleague, we wondered if perhaps the distinction is:
|Technically capable customer looking to understand how he can use your technology/product||Send a technically literate salesperson to first meeting|
|Technically ignorant customer looking for help understanding what he/she needs||Send a sales engineer to first meeting|
BluePrism, one of our investees has just conducted a survey into "Rogue IT". It was a surprise to me on first inspection that "complex Excel spreadsheets were Rogue"! On reflection, I guess that's understandable, you can build a great deal of mission-critical stuff in Excel, even without doing Macros/VB (I know we do!).
Sunday, 17 June 2007
Wednesday, 13 June 2007
A former CEO of one of our portfolio companies complained to me recently that "we spent 60% of our time in the company marking time whilst we raised more funds", and he expressed great enthusiasm to raise a large round and then spend all his time on the business next time round. Certainly the founders at Me.dium will be glad that they've got $15m in the bank, but back in the real world I'd suggest that a CEO of an early stage company is always raising new money. My view is that the right time to put together the business plan for the next round is the Monday morning after you closed the last lot! Recently we've suffered a couple of follow-on rounds taking more than 12 months to complete- so to have a little headroom you need to plan a long way ahead.
Tuesday, 12 June 2007
|A Japanese company (Toyota) and an American company (General Motors) decided to have a canoe race on the Missouri River. Both teams practiced long and hard to reach their peak performance before the race. On the big day, the Japanese team won by a mile. The Americans, very discouraged and depressed, decided to investigate the reason for the crushing defeat. A management team made up of senior management was formed to investigate and recommend appropriate action. Their conclusion was the Japanese team had 8 people rowing and 1 person steering, while the American team had 8 people steering and 1 person rowing. So American management hired a consulting company and paid them a large amount of money for a second opinion. They advised that too many people were steering the boat, while not enough people were rowing. To prevent another loss to the Japanese, the Americans' rowing team's management structure was totally reorganized to 4 steering supervisors, 3 area steering superintendents and 1 assistant superintendent steering manager. They also implemented a new performance system that would give the 1 person rowing the boat greater incentive to work harder. It was called the "Rowing Team Quality First Program," with meetings, dinners and free pens for the rower. There was discussion of getting new paddles, canoes and other equipment, extra vacation days for practices and bonuses. The next year the Japanese won by two miles. Humiliated, the American management laid off the rower for poor performance, halted development of a new canoe, sold the paddles, and canceled all capital investments for new equipment. The money saved was distributed to the Senior Executives as bonuses and the next year's racing team was outsourced to India!!!!|
Posted by Ed French at 12:11
Open coffee Leeds was buzzing today- about 20 people I think. Starbucks had kindly provided a "meeting room", which turned out to be a small formal meeting room with board table and chairs- about right for 6 people- but not very "opencoffee". Very interesting conversations with a few startups, technology folk and entrepreneurs. I'll be doing my best to go again to this one- well done to Imran Ali for organising it!
Monday, 11 June 2007
I really like Marc Andreessen's recent post: How to hire the best people you've ever worked with- it should be essential reading for everyone involved in startups.
In particular Marc's comment: "beware in particular people who have been at highly successful companies", rings very true:
Our portfolio companies are always looking to raise new cash, and in the UK in particular, management with a track-record is a key attraction for much of this follow-on money. So we can be very tempted by someone who has a CV which shouts "prior blue-chip success" and helps drive a positive fundraising round.
But, we've learnt in practice that such candidates must be approached with caution:
- No-brainer CV's usually involve larger companies- and in some of these the main attribute for success can be the person's ability to manage "work politics"- something we'd hope to avoid in our tiny investee companies
- Attribution of success can be very unreliable- the number of people who claim responsibility for successes, strangely, seems to be somewhat larger than those who'll admit to the mistakes!
- Serendipity matters! It's dangerous to assume that someone who was lucky once will, NECESSARILY be lucky in the startup.
Our biggest (avoidable!) hiring mistakes have been when we've been tempted to bring in management who had "no-brainer" CV's to help raise follow-on funding, but where we harboured doubts ourselves.
Friday, 8 June 2007
I answered a question recently from a linkedin connection, to see if it sparks any debate I thought I'd repeat it here:
How should Web 2.0 companies value their businesses when looking for investment?
For what it's worth my answer was...
|This is really crude but really meant to be a framework for you to do your own numbers...|
Tuesday, 5 June 2007
- Ajaz Ahmed - Look back at Freeserve, his current portfolio and investment opportunities that interests him including finding the next Freeserve opportunity.
- Sam Sethi - Creation of blognation, the technology scene and raising money and Commercialising blogging.
- Alain Falys - Strategy of OB10, beyond OB10 and the value Omnis Mundi brings
- David Ingram - Fund raising and market launch through bloggers in Silicon Valley.
Ajaz enjoys being rude about VC's- so that's always good fun ;-) and Sam has an encyclopedic knowledge of everything web2.0If you fancy going along then please sign up at this page..
Techfold have done a nice review of Yuuguu's screensharing and IM service:Yuuguu - lightweight desktop screensharing and collaboration
Posted by Ed French at 16:44
Monday, 4 June 2007
Most entrepreneurial managers I know are deeply uninterested in anything like insurance- and it seems strange that in a company where the chance of serious success is pretty small that it could ever be very relevant.
What is keyman insurance
A particular example of insurance that's relevant to early stage companies is the so-called "key man insurance". This provides, usually the company, with a lump sum of cash in the event that death or serious disablement causes a nominated individual to become unable to work for the company. As such it seems to cost a little more than the standard domestic life insurance, but is very dependent upon the age and health of the individual concerned.
Why it is contentious
- From the "keyman's" point-of-view the insurance doesn't benefit him/her- although arguably if it helps preserve the value in the company which could ultimately flow back to them or their dependents then maybe that's relevant.
- If the individual was unavailable it'd be "game-over" for the company- therefore there'd be no benefit other than to the creditors.
- "Investors' risk is spread across a portfolio of investments, so why should they insist the company is burdened with a premium
Tests for the use of keyman insurance
In my view part of the confusion here is that there are two distinct ways in which "keyman" insurance is being used:
- to protect investors capital against the loss of a pivotal individual who is deemed to be irreplaceable
We've suffered one example of this in the life of the fund, where within 4 months of investment the technology lead on a project died quite unexpectedly. In this instance the individual concerned had developed the ideas and done the research behind the company's technology, and there was little prospect that we could go out and hire someone else to "fill those boots". In this instance, had it been in place by that date, keyman insurance to cover our investment would've been helpful- and given the unexpected nature of the death not too expensive either.
- To protect the company against the loss of a replaceable individual at a really bad time
There are probably relatively few "completely irreplaceable" people in our portfolio companies, but there are lots of people who's departure would leave a huge void which would take some time to fill. In my opinion, it is in the interests of everyone concerned that the company is sufficiently insured that it could stand the time and the cost of recruiting a replacement even if the timing was pretty unfortunate. For example, if the company was about to complete a follow-on round and perhaps was rather low on cash, the loss of the individual could cause investors to hesitate. In this instance I'd suggest that everyone involved would like to see that the insurance was sufficient to allow the company to trade on for perhaps 3-4 months whilst a suitable individual was found.
If you accept my view that there are these two types of keyman insurance, I think there's a logical position to be adopted:
|Replaceable with time||Irreplaceable|
|Cost to insure||Low||At least 6 months net burn||Cover for cost of investment|
|High||At least 3 months net burn||Contentious- Cost of investment- but maybe worth succession planning as an alternative approach|
Who should pay
Where keyman insurance is being provided to protect the investors capital, it seems reasonable that this cost might be borne by the investors directly. This can clearly be an emotive issue, but on closer inspection, certainly for our kind of investment, it doesn't make a great deal of difference. In practice the premium comes from investor capital in both cases, and so adding it into deal terms could reasonably be expected to result in the same net situation. However, in my experience VC funds do not retain earmarked funds against each investment, so the only practical solution is for the company to pay the premium- effectively part of their cost of raising money. There's also the consolation that we'd certainly try to keep the use of truly irreplaceable people to a minimum and then usually only for a transitional period.
Thursday, 24 May 2007
Posted by Ed French at 13:39
Thursday, 17 May 2007
Joe McKendrick has an interesting piece about the cultural issues of implementing SOA in an enterprise- this got me thinking about successful IT projects more generally: he's based much of his commentary on a challenging article "Finding the Real Barrier to SOA Adoption" by Ronald Schmelzer.
My observation is that everyone seems to accept that enterprise implementations fail between 30% and 80% of the time. However, we've made around 20 investments in very early stage software companies and ALL OF THEM delivered the product both on time and on budget.
I don't think this is too hard to understand: these companies have some common characteristics:
- They're small teams of very very good programmers (you can hire them more easily/cheaply in the North of England!)
- They live very close to the customers
- Their motivation is very highly geared towards their customers' satisfaction
- They have brilliantly supportive investors ;-)
Finally, what I think large companies often neglect is that the "failure risk" of that small innovative vendor is strongly linked to the small vendors ability to sign up the large enterprise (on good payment terms!)
Posted by Ed French at 12:34
Wednesday, 2 May 2007
Early stage investors like backing "platform" technologies, but everyone knows these are rather rare beasts. On the other hand customers buy solutions to their problems- especially if they're looking at using a cutting edge technology. This can put an early stage technology company in a bind that's particularly frustrating for company and potential investors alike.
Without naming-names, obviously, I've seen quite a few companies who are falling into this gap. A particular example I saw a few years ago, but with huge parallels to a much more recent applicant for funding, was looking at a sensor technology. This company had a technology with a particular set of USPs which took it well beyond the existing sensors. It also had some early customers keen to use their technology. So, the company believed, we should've been keen to pursue the investment. However, the problem was that the early customers had applications which didn't really use the USPs of the sensor. Indeed the main reason that the customers were so enthusiastic was that their inventor was willing to explore doing a relatively small volume sensor with a specification a little different from the off-the-shelf sensors from the big manufacturers. In essence then, although pitching as a "platform" they were addressing early customers who were buying because of the "application engineering" they could obtain from the hungry start-up.
Still, revenue is a good thing, so surely this "application engineering" model should've made the proposition more investable not less? Well, for us at least, it wasn't that simple. The company was tooling up in terms of management, team and core-competencies to match the "applications engineering" model, and that made us at least a little nervous that they'd be able to point the company towards the platform opportunity in a reasonable timescale.
I don't think there's an easy solution to this conundrum- at least I've not come across it yet- but I still believe it is a problem worth recognising when it makes itself known.
Thursday, 26 April 2007
I've been struggling with the whole backup issue for some time. Everything I've seen proposed has weaknesses; the biggest of which is usually me getting round to it!
- offsite backup over the web- it was too painful on my internet connection and was costing quite a bit in data transfer.
- I've used the CD and DVD rewriter approach, but frankly it's a pain.
- I backup photos to picassa web albums, and to the ipod too, but that leaves plenty of other stuff still reliant on my diligence.
- The best is the work stuff, which I backup by synchronising that part of the hard disc with the work server; but this is still manual, a bit slow, and can't be done over the web.
Crashplan's approach, which I intend to try soon, is that you first do a backup onto a USB hard disk. You then take this disc to a friend or relatives house and connect it to their PC- meantime your friend's done the same thing in reverse.
Once both PC's are running the proprietory crashplan software and connected to each other via the web, incremental updates happen on both backups on a continuous basis.
If the worst happens and you have to restore, you can just go fetch the USB disc and, so the theory goes, you've got a complete mirror.
I'll post when I've tried the practice and seen how it compared to the theory!
Posted by Ed French at 22:24
Tuesday, 27 March 2007
This seems perhaps a little idealistic- but maybe that's a really good thing! Coworking / CoworkingManchester. Any takers?
Posted by Ed French at 09:58
I read an interesting piece by Dion Hinchcliffe on Enterprise 2.0 strategies the other day which reviewed the various levels of service. But as far as Enterprise 2.0 market entry issues are concerned I really liked the insight from Euan Semple, which I'd paraphrase brutally as being there's little space for companies to adopt in between the extremes of total control and total free-for-all! Update:I also liked the comment from Andrew Burton of the Viking Fund: he likened selling conventional enterprise software as a long term courtship followed by marriage- whereas Enterprise 2.0 was something closer to "casual sex" by comparison!
Posted by Ed French at 09:18
Monday, 26 March 2007
Last time I looked there was reason to believe the assertion by Fred Wilson that Seed Investing Is Less Risky Than Later Stage Investing. In the UK at least the variability of early stage tech returns was MUCH LOWER than the variability of Dev Cap or PE funds- although mean returns were lower too :-(
Posted by Ed French at 16:13
Emre Sokullu over at Read/WriteWeb has written a really thoughtful, and frankly helpful guide: How To Market Your Web App . I couldn't quite get my head around the three categories Emre proposes; if a site is ready to be promoted it can get such a wide audience so rapidly surely there's never any reason to "Walk"? I'd therefore suggest there's really two categories:
|Walk||Mass of users does not yet make the site compelling on first visit DON'T promote yet|
|Run||Mass of users already enough to make the site useful: ready to scale already|
Posted by Ed French at 09:33
Friday, 23 March 2007
Glen over at Connect Yorkshire has an interesting piece on on the effect of the budget's change on VCT rules. It'd be great to see some VCT interest in earlier/smaller deals, but I wont hold my breath!
Posted by Ed French at 15:15
Wednesday, 21 March 2007
It seems to be accepted wisdom that enterprise orientated web-services can't be funded by ad revenue to any serious extent. I believe the new google aps for your domain gives you the choice as to whether your staff see adverts or not- it'd be interesting to know how this is taken up. In general I can see some pro's and con's to this approach:
What do you think?
Posted by Ed French at 21:23
A great presentation by Paul Kedrosky on Enterprise 2.0. I particularly liked the quote:
"The opposite of an imposed structure is not chaos. With Web 2.0 tools, the opposite of an imposed structure is an emergent structure, one that forms over time based on the interactions of a lot of people."
The presentation is well worth reading, largely for its valid deflation of some of the hype around Enterprise 2.0 as an idea.
My own view is the key to Enterprise 2.0 is not in the technology or usage, but by the sales process.
Finally, I got round to putting up a skeleton of a wiki with useful bits and pieces for startup tech companies:"Techgain.net Tech Start-ups Wiki". Please feel free to help me add to the contents! I'll post here when it has another burst of activity.
Posted by Ed French at 10:03
Tuesday, 20 March 2007
In my previous post I implied that I reckoned that investor interest in "Web 2.0" had peaked. Looks like Paul Kedrosky's also Dinging the Web 2.0 Bell, and Peter Rip notes that The next wave of innovation isn't going to be as easy.
Posted by Ed French at 06:16
Sunday, 18 March 2007
I had a brief spot at the NW Start Up 2.0 event organised by Manoj Ranaweera in Manchester and hosted by KPMG the other night. The requirement was for me to talk about the sectors that VC's were most interested in as investment targets at the moment- in 5 mins. It was perhaps a bit too flippant but I couldn't resist the temptation to make some points under the guise of an "Index of Buzz Words for internet/software investments". It's totally unscientific but I hope it made the talk a little less dry!
Posted by Ed French at 23:24
Thursday, 4 January 2007
According to Elliot Noss, CEO of Tucows(c/o TalkCrunch) more than half of users now use webmail, I wouldn't be the least bit surprised to find out that many don't even know that they do. When you take into consideration the (non-caching, typically business) users of MS Outlook/Exchange, I would guess that having your email locally is likely to become the exception rather than the rule. So if web-based applications can gain user acceptance, then there are plenty of reasons to argue that most of our desktop applications could migrate to the web over time. But at the same time there is a contrary movement towards people chosing laptops instead of desktops, with "Two in three retail PCs being notebooks". Implicit is that, at least to some extent, users are now more likely to be working without fast access to web-based applications. Whilst some would see the gap between these two situations being bridged with technologies like HSDPA or WiMax, the other option is to "simply" cache the data between the offline and online data stores- as Outlook can. But this makes it MUCH harder to program the application, and more or less impossible (?) for a purely browser based application. I listened to the TalkCrunch podcast "Here Comes Adobe Apollo". Adobe are placing an interesting bet with their Apollo technology to allow a common "Ajaxy" application to work between the offline and online world, but it sounds from this podcast that quite a lot of the detail on database synchronisation is likely to be left to the developer. Taking a slightly different technical approach, today I spotted this "Dojo Offline Toolkit Kicks Off" on Ajaxian. Somehow this sounds cleaner to me, even if it is more restricted. This is clearly a hot area, and therefore I'm sure that there are others working on tools to bridge rich webbased applications with offline use (suggestions please?). My own view is that early-stage VC's and business angels are likely to favour such approaches to building product because:
- Lower development costs (potentially) esp. if cross-platform is important
- Lower support costs (probably)
- More choices on monetisation (ad supported, premium, subscription etc.)
- Improved lock-in; it's going to be hard to get your data out in some cases
- Alternative route(s) to market
- Different exit options
Over at TechDirt there's a piece titled:Universities Get Into Patent Trolling Game; Sue Over Bluetooth, the post and comments all suggest, without knowing the context, that a university pursuing IP is fundamentally wrong. I don't think this issue is quite so simple, not just because Bluetooth was pretty groundbreaking and I wouldn't be the least bit surprised to find out there's some inventive stuff in it, but also because of the implied alternative. From time-to-time it's suggested that Universities should put all their IP in the public domain, but my own experience is that this has proved to help no-one. The stuff Universities tend to brew is usually very early stage and needs loads of further R&D to be proved, let alone turned into products. If no-one sees a way of getting some return for the work, then in my experience they really wont spend the dollars to do so. A few years ago I tried to get a piece of really clever radio-frequency technology developed, unfortunately it's origin meant that all the major telecom companies could get equal rights to the core patent. The result was that we couldn't get a commercial position to do the research needed to find out if it would really work.
Scarcely a week goes by without some story emerging of a failed technology company pressing to extract money from others on the grounds of their "infringed intellectual property". The latest example being: Company Gets Patent On Digital Downloads; Sues Everyone. I often take a look at the actual patent issued in these cases, after all most of our investees are looking to make money from their IP. Although the blogosphere generally treats such stories with loud cries that amount to patents being evil, as someone who backs entrepreneurs, inventors and tiny start-up companies I can see the benefits of having a strong patent system. When you look closely you often find that there is a nugget of truth in the claimants case: after all, how do you tell the difference between an inventor/start-up which has been trampled on by it's competitors paying no attention to its genuine innovations, or a "patent troll". However, in this case I have to say the claim 1 seems outrageous to me as I seem to recall that such things were being widely discussed before the September 2001 filing date:Wikipedia suggests that "The big record companies were apprehensive to license their catalogs to outside companies and refused the late 90's requests of MP3.com, Cductive and eMusic (then called Goodnoise) to sell digital song downloads.".
I'm really interested in some of the hybrid business models being pursued in the US, where code is licensed under both something like the GPL, and also on a commercial licence in parallel for those that need it. It seems to me that there's a challenging line to draw between being too commercial to be accepted and to build a community, and between limiting your upside by going down the support model. However, in the UK Open-Source businesses do not (as far as I can find) succeed in raising Venture Capital, unlike the US (I'd be delighted to be shown how ignorant I am on that!) I've been trying, without luck so far, to track down someone in the UK who really understands these models as it's applicable to a number of our current and potential invstees- please let me know if you know anyone.
Wednesday, 3 January 2007
Alarm:Clock is reporting that Plastic Logic have raised a $100m round. They've taken the ambitious switch up from providing just the backplane (a few $10 in value) to the whole display (maybe $100) and are setting up a production line. This raises a general issue that crops up again and again with technology companies, do you license a pure technology, do you develop a component, or do you develop the whole system. Cynically, I think the answer is often that you start off doing whichever you can get backing from investors to pursue- and that can be as much fashion as anything else, but the key is to keep the other routes open until you're sufficiently far down the line as you can choose- hopefully that's where Plastic Logic are now! Good luck to them.
Over at AskTheVC there's a useful post on "What Is The Relevance of Life Terms of VC Funds?". This reflects on a comment made to me by a one of the largest European Tech specialist VC's the other day. I was told that although his fund had closed only recently they had already lined up the fundamental materials/basic technology investments for that new fund and they would make up their first year or two's activity on the 10 year fund due to the long "time to realisation" of this kind of work. They were looking then to move on to investments that were more software orientated for years 3-5 of the fund as these are "further up the stack", and therefore had a shorter exit timeframe. This is a rather stark position, but I suspect it's not too different from most funds, and well worth bearing this in mind if you're approaching investors.
I just heard on a podcast from VentureVoice about Kiva, a web-based microlending not-for-profit service- if that isn't too much of a mouthful! I've made a tiny loan to a farmer in Africa to see what happens, if it works well I'll probably do more of these. She needs to raise another £300 so you might like to join me supporting GRACE WANJIRU MUNGAI. Thanks. Update I just had my first repayment of a loan; it's kind of funny feeling in that you know that it's good, and that you will re-lend the money again, but on the other hand you really hope the borrower can afford it!
Tuesday, 2 January 2007
In setting up this blog I was reminded of a regular issue for our investees: choosing a suitable company name (and no I don't think that TechGain is a great name!). Over the years I've helped quite a few companies with this process, and it usually starts being fun, then gets increasingly frustrating. As an aide memoir as much as anything else, I thought I'd tabulate some of the issues that need checking, but more importantly the order that I think eliminates them most quickly:
- Won't degenerate into a TLA*
In the UK we have a particularly insidious problem that results from the way we stick "Limited" on the end of (most) of our company names. If you decided to call yourself, for the sake of argument "Blue Prism" you're very likely to find it degenerates into becoming "BPL" in lieu of "Blue Prism Limited" unless you work hard to avoid it (as this company has!). Not only does that kind of invalidate your careful efforts to select those two names, but it also tends to mean that you can't register a meaningful domain name. *TLA is an ironic term for a Three Letter Acronym
- It's Google-able
Doing a web-search on the name is vital, if you've chosen something with loads of existing close company names, brand names, websites, blogs etc. it'll be a real struggle for anyone who remembers your company name but not the URL to find your site. A good example of this is the great guys at First Capital, I really struggled to "Google" their website- I should've just guessed (www.firstcapital.co.uk)
- You can get the domain name
Goes without saying that it's much better to be able to get the obvious domain name, less obvious are that names such as aardvarkuk.com are potentially a big problem if the "aardvark" bit is not easily google-able (see 2 above). I've heard stories that some less domain name registrars look through the queries people make of potential domain names and bag the good ones first, maybe I've just never come up with a good name but it hasn't happened to me yet, does anyone know if this is just an urban myth? I've used uk2.net to search for availability, and recently used GoDaddy.com as they seemed a bit cheaper.
- It doesn't catch the zeitgeist
Poking a little fun at the great guys at GP Bullhound, the original name of the UK incubator from which it in part sprung was Gorilla Park, 'nuf said! More recently I suspect that companies that have copied flickr.com's style of domain name might look a little dated before long.
- Not someone else's
If you've got this far the chances are you're not going to bump up against any really meaty issues with someone else having rights over the name- after all it makes no sense at all to register or claim a trademark and to fail to register the equivalent domain name.However you should check:
- No bad history
One of our investees considered a company name, which I shall not mention for now, which turned out to have been previously used by a company which met an "unfortunate" end. Again google searches should help show this up.
- Unambiguous Spelling
Some great names you could choose don't work so well when spoken, or have multiple possible spellings. nCapsa suffers from this problem, with enCapsa being a different company entirely, and there are plenty of worse examples!
- Not too Anglo-saxon!
It was pointed out to me recently that English words that have their roots in Anglo-Saxon/Germanic can be more problematic, than latin-based words which are much more likely to travel well.
Having noticed over the holidays that Microsoft hands out free laptops to top bloggers, how could I resist starting a blog ;-) Seriously, I've noticed that whilst loads of US VC's post regularly, and a few Europeans, there don't seem to be too many in the UK yet. This blog will start, and is likely to remain, highly personal and is not in any way endorsed by my employer Enterprise Ventures.