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.

Ensembli launch at Demo

We now have the proper video of Ensembli's launch at Demo. They've had great feedback and I'm delighted with progress (although there's always lots more to do!). Well Done Mike, Ian and everyone behind the scenes.

How "recession-proof" is your business?

The most popular boast now from entrepreneurs seeking funding is that their business is, to some degree, "recession proof". Whilst it will be some time before we know the magnitude and implications of the economic situation, we can attempt to help our portfolio companies understand how vulnerable they may be. Fred Wilson had an excellent post on the strength of his portfolio using something he dubbed The Survival Matrix. I thought I'd extend this a little by putting together a kind of recession-proofness-test that draws in some of the other issues. Please take the precise numbers with a big "pinch of salt": I am not planning on defending any of the weightings or rankings. I'd welcome any debate about what's included, but my purpose is to highlight issues and help give people a feel for where they stand. When I tried this test on a few portfolio companies it certainly showed a wide disparity. At the lowest 45 points and the highest 109 points out of a theoretical maximum of around 220. My view is that companies upto perhaps 50/60 points really need to think hard and urgently about making what might be quite big departures from plan. Whereas around "100 points" perhaps a slightly more considered view makes more sense even if the actions taken are still pretty firm. I can't imagine many VC-backed companies will get anywhere close to 200! I hope this test helps a little for companies to focus on just how much and how urgently their plans need to adapt. I'm doing a presentation around this stuff at our portfolio seminar this morning which I'll post up too. You can find the calculator here.

RisingStars Portfolio Seminar- A constructive look at technology companies in the recession

Jonathan Diggines our CEO opened the event with a view of the state of the economy generally: hard to make this part positive looking, but Jonathan pointed out that there's no reason to think that tech sector will be worse effected, and some reason to think it might be better than most. Julian Viggars looked then at our portfolio in more detail, and about technology generally. It was great to hear a summary of some of the great progress in terms of further fundraising and commercial progress drawn together. He produced some interesting comments from some of the top-tier tech companies: Cisco, SAP, Google. The key thing was a big disparity between how different sectors saw the outlook. Stuart McKnight, the Managing Director of Ascendant Corporate Finance, after the obligatory quick plug, provided lots of current data on the state of the tech financing market. With 282 live technology investors who did deals in 2007 over £0.5m last year. With 2/3rds of deals being 2nd round or later, then that left only 78 first rounds above £0.5m. By the end of Q3 2008 it looked like the rate of capital investment was slightly faster than 2007, with very little sign of any negative change in the first 3 quarters of the year at least. Stuart's view is that the Limited Partnership structure means that is still plenty of reason for funds to keep on investing. Reckons the market will be at around £900m in 2009- up a bit from the current rate, with a continued rise in "cleantech" as a sector through that period with several new funds having closed. He said lovely things about Acal and their team, which is nice, but observed that the fundraising had been more challenging that anticipated because so many of these new funds are late stage and there's a gap beneath this level. Stuart was concerned that there was a shift away from small scale investing, with a drop in the proportion of deals in the £200k-£1m range. He thinks that companies are finding seed funding, but hitting a gap at the first proper VC round. He speculated that maybe the recession will push some of the VC's to decrease deal size, pushing down total value faster than volume. Looking at regional patterns, I was surprised that the Thames valley, including Oxford, was a really small area, less than half that of the Northern region. So far London is the only region where volume and value have started to show a downturn. Stuart thinks that 2009 will be strongly indicated by the impact on Q4 2008. He knows of four funds that have said they have no intention of investing in the quarter, claiming that they want to hang on to cash to support portfolio. Stuart summed up with a great set of conclusions- more and better of the usual good stuff likely to be required by companies seeking finance. He sees that the best stuff will still raise money, but that you need to expect everything to be a bit slower and tighter in the next 12 months. You need to expect to double the work on fundraising- maybe 40-50 VC's approached, 20 or so first meetings, and spreading your net wider than might once have been required. Richard Young told the seminar about his experiences of the last recession, and reflected on how one of our companies, Blue Prism, is adapting to the new reality in Enterprise Software by adapting their customer messaging and propositions. They are conserving cash and looking to exploit their fast ROI as a differentiation in a cost-orientated market. I liked Richard's comments that in the last recession, "it was noticeable that you knew when it was over because it was when people stopped talking about when it would end"! My turn next, and I covered the stuff in my last post about how to think about the scale and rapidity with which early-stage companies should be reacting. If you have a look at that post there's a calculator where you can work out just how vulnerable your company might be. We finished off with a lively debate on the impact and reactions that tech companies will feel over the next year.

Littlewoods Subsidiary adopts Blue Prism Technology

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!

The kind of feedback tech startups need

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.

Yuuguu off to DEMOfall

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.