Tuesday, 30 June 2009

RisingStars Portfolio Seminar

I really enjoy the RisingStars Portfolio Seminars: it's always great to see gathered together the portfolio company directors and to see the value they get from talking to each other. Jonathan opened proceedings pointing out that there are differences between some of the doom-and-gloom in the current Private Equity market compared to some of the solid progress recently in the RisingStars portfolio. In particular pointing out that the increase in valuations for RSGF1 over the last 6 months is unusual in the market. Second up was Julie Meyer, famous for founding First Tuesday, and now CEO of Ariadne Capital spoke about entrepreneurs with some really interesting quotes. Some key trends she highlighted included:

  • A move to smaller A-rounds due to the lower cost of getting started- e.g. £1m.
  • Changes in the way early-stage companies align to their ecosystem. In particular startups are taking advantage of "largeco's" inability to take advantage of the changes from social networking generally.
  • There are categories left to be built- not all done
  • Speed of innovation becoming ever more important
On market entry Julie pointed to Spinvox as pioneering an increasingly important approach. She described the way that they had engaged directly with consumers, building 100,000 users, before then engaging seriously with the mobile operators. A particular observation that resonated with me was about exits, where, despite the general downturn in deals, she sees that "M&A is the new R&D". That where many larger companies have been decreasing in-house R&D, they are now looking to get a faster competitive advantage by looking at acquisition of technology companies as a potential solution. An idea that was new to me entirely, was to wrap up the ideas of increasing consumer power, citizen participation, individual entrepreneurship can be wrapped up in an idea of "Individual Capitalism". She suggested that this had some implications for the need for companies to think a little differently about their key employees. She described the audience as "Super-glossy VC backed stars"- um! Finally, Julie highlighted some of their recent work. In particular:
  • bview as their local directory play
  • gnuTrade- a blend of gaming and financial market trading
  • Monetise, a mobile payment play.
  • Near, virtual world retail.
  • Qire, a Liverpool based enterprise voice messaging play
  • SliceThePie, an unsigned artist music site.
Julian Viggars, our Head of Technology opened up by cheering us up with some economic facts of life- thanks Julian! But within the data were some interesting gems:
  • UK companies are cheap to acquire at the momement due to the exchange rate
  • Tech acquisitions have dropped less than others (17%)
Whilst last seminar we were largely speculating over the effect of the market changes on our portfolio, Julian observed that we'd seen some of those effects come through in practice. In particular, the increasing importance of cash, on extending cash runway, and on making solid product progress had been anticipated and were now observed. Julian provided some detailed numbers on the fund progress, which obviously are private so can't be repeated here, suffice it to say that it was great to see the collected progress in terms of fund-raising and commercial traction for the portfolio generally. Julian showed his conviction in believing that now was a good time to invest in technology companies. Some years ago, Alison Kibble the CEO of Femeda, introduced what was then an early-stage investment, so it was great for her to come back and explain the progress that the company had made with their disposable home treatment for one of the most prevalent medical conditions; female urinary incontinence. She was able to report a staggeringly positive response to their medical trial, although I wouldn't have minded if she'd found a better example of the support she's had from investors than posting adverts for the trial in our office toilets! She was able to illustrate well the way in which the large FMCG companies are interested in the way that Femeda, and companies that ilk, can move much faster towards new products being on the market, and hinted at the potential for a corporate transaction to take the product to a global market. Finally, Alison finished up by describing the desperate stories from the comments on the company's blog which illustrated just how far the product can go to improve people's lives. Ben Hookway is one of our "serial entrepreneurs". He provided some war stories from NextDevice, the issues they faced with selling their mobile UI software company into the handset value chain. In particular the difficulties of taking the decision to sell at that time. He pointed out how important some key aspects of the exit process had been:
  • It's vital to have clearly documented any reliance and usage of opensource code.
  • Mentor had purchased as a third option, after playing with software deal, or investment.
  • Ben admitted to being a bit seduced by the earn-out on the table from the acquisitor. Although as part was pre-paid it worked out OK, he'd be much more wary another time.
  • Ben counselled to watch for the way the options appear to narrow as the deal proceeds. The people he had to deal with changed and increasingly it can become the only deal in town- very tense. One way of mitigating this Ben suggested was vital was to make friends with the person tasked to do the deal on the corporate acquisition team, don't rely on your existing internal champion.
  • It felt like they were approaching a finish-line, but "you gotta take a holiday" because this is the start of an intense process of trying to make the product work for the corporate. You find out just how un-bought-in the vast bulk of the company is going to be- they've not been involved. It's political and tough to get things moving in the largeco. It took 3 months to get a part number, without which the sales guys couldn't actually get any of the sales people to work on it.
  • Ben provided plentiful advice on how to deal with some of the internal politics- expectations you have no knowledge about have been set internally- "a tough world".
  • Finally, with a knowing grin, Ben advised not to try and change the company culture to be more like the start-up. You've got to embrace the experience. He's really enjoyed it, but now...
Ben described his next role, as CEO of Vidiactive- more of this later... In the question and answer session, Stuart McKnight observed the gradual return of some of the top tier investors during Q2 who had been quiet in Q1. Julian responded that we've seen an increased level of interest, but still a little shaky and uncertain. Jonathan observed that he'd seen an institutional realisation that technology had been a bit neglected in the rush to increase Private Equity funding. "Attitudes have changed", he observed.