The Accelerator Group (TAG)

Entrepreneurs .... you may have Maggie to thank!

2013-04-09T13:46:00.000+01:00

Former British Prime Minister Margaret Thatcher (Photo credit: Wikipedia)

The passing of Margaret Thatcher has caused me to pause and think back on just what a determined leader can accomplish.

Reams have and will be written about her achievements and the changes she brought about. This post is a personal one and not intended as a general tribute.

I never actually voted for Mrs Thatcher - nor for the Tory party who seemed to me to stand for privilege - in any of the 8 elections for which I have been fortunate enough to qualify. I guess at the time I didn't fully appreciate that her rather uncomfortable, uncompromising approach was exactly what was necessary to change a declining, deeply troubled Britain.

We came to the UK from South Africa at the end of 1976...immigrants like many others. Attracted by the relative freedom and open democracy but fearful of my ability to thrive as an entrepreneur.
The liberalism of Britain was like a breath of fresh air but the country was in a dreadful state. Morale was rock bottom. People could not understand why one would choose to come to a country where nothing worked.
British Steel, British Leyland, British Rail, British Airways were a national laughing stock, labour strikes were crippling. The great in Great Britain was entirely absent.
The winter of 78/79, named the Winter of Discontent brought the country to a standstill.

There seemed to be a complete absence of enterprise, the major industries and institutions were run by the great and the good who went to the right schools and belonged to the right clubs (the aristocracy). They were clueless as to how to deal with industrial relations.
In my view, one of Thatcher's greatest and lasting achievements was the ruthless reduction of the power of the aristocracy - from within the Tory party - through deregulation, privatisation and the unleashing of a meritocracy.

The transformation of Britain was not comfortable nor easy - especially for those with a liberal social conscience. A lot of what Mrs Thatcher did was done in an arrogant and heavy handed way and her demise, 11 years later in 1990 was at least partly due to her stubbornness and divisive style.
Interesting how many of her fundamental economic policies were adopted by Tony Blair and new Labour, enabling him to win 3 terms as PM.
Although the grocers daughter would never have allowed Govt spending to get so out of hand as did in the new century. 'Living within ones means' and 'good housekeeping' were among her favourite mantras.

How different is the UK of today. Today, I believe the UK is the best place in Europe to start and build a business. The nation has its pride back and is, by and large, at peace with itself - in it's multi- cultural and cosmopolitan skin.

The challenges that remain are immense and one does have to wonder whether we have the global leaders today with the clarity of purpose and determination to overcome them.

I guess we have a lot to thank Mrs T for.

$1bn has 'gone' in 4 years

2013-02-03T13:00:00.002Z

Diagram of the typical financing cycle for a startup company. (Photo credit: Wikipedia)

Should tech angels stop investing in startups?

The current debate raging in relation to the so-called Series A crunch has highlighted for me the importance of startups and more specifically, angel investors, working more closely with VCs.

The Series A crunch is absolutely nothing new. Sometimes called the ‘valley of death’ for a startup business, the period between raising the initial friends and family or seed round and the first institutional money is a very difficult one and requires very careful navigation.

Sarah Lacy at Pandodaily has called this situation absolutely correctly and referenced a good piece of research from CB Insights who clearly state:

"1000+ STARTUPS WILL BE ORPHANED; $1 BILLION+ LOST"

For me , the question is what should startup companies do to mitigate and how can angel investors minimize the ‘death rate’ of their investments?

At TAG we know a thing or two about the valley of death and the Series A crunch having invested in more than 60 tech startups.

Understandably, startups are obsessed with getting their seed round closed so that they can get on and make their first hires and building their products and markets. A bit more work and thought needs to go into where to get their seed funding and just how much cash is necessary.

A lot has been written about the so-called ‘signaling effect’ of taking seed funding from a top tier VC. The phenomenon and the concern is easy to understand. An investment from a top VC at Seed who then does not follow-on (for any number of reasons) provokes suspicions in prospective Series A investors.

The research by CB Insights proves the fallacy of this widely held theory.

“On average, 39.4% of seeded companies go onto raise follow-on financing. Interestingly and contrary to what the punditry have often said, seed deals in which VCs participate have a historically higher rate of getting follow-on financing as compared to seed deals in which VCs are not participating.”

This result makes perfect sense to me. VCs are better at predicting what VCs are likely to want to invest in at Series A.

This truism has been at the cornerstone of the TAG Seed philosophy from the very start and is largely the reasons why more than 70% of our seed investments have gone on to raise Series A.

Raising a Series A is, of course, no guarantee of building a decent business. Many companies need further rounds of capital to get to the point where they are generating cash. Getting a VC to back your series A is just the beginning. Sustaining and building on the relationship by delivering results is what will cement the partnership.

No fewer than 4 of the current TAG portfolio are generating profits in excess of £1m per MONTH and another 7 of them have reached profitability while growing strongly.[No prizes for guessing the names, list excludes profitable 'sold' companies].

The majority of these companies are less than 6 years old.

These companies have had the financial and other support to get them there – as well as the necessary talent and hard work – but their focus on being capital efficient and on profitable revenue marks them out.

Raising funds for startups is generally much more difficult in Europe than it is in the US – particularly in the valley. As a result, the companies that do get funded tend to be more conservatively managed and focus on getting to breakeven quicker and on revenue and profitability at the expense of growth in users/customers.

During tough fund raising cycles, this approach has its advantages – but also leads to better habits and company culture – in my experience.

In addition to the usual criteria for investing in great entrepreneurs addressing large markets etc, angel investors really need to look at the opportunities with “VC eyes”.

A good understanding of the workings of Series A investors is a decided advantage. My time at Atlas Ventures in London – a day a week as Venture Partner - and more recently with Index has given me insight as to what to look for in a solid venture backed opportunity.

How will the founders play to an investment committee of a top tier VC firm? Can you envisage the business being large enough to ‘move the needle’ for the fund which is likely to be a candidate for series A?

Will we have sufficient runway to hit the milestones necessary to make it clear that product/ market fit has been achieved? Will we have the time and the resources necessary to ensure that the “go to market” strategy has been tested and validated?

So, Angels should definitely NOT stop investing in tech startups but do need to define their entry criteria really well.

It should seldom be about valuation but always revolve around the person or people being backed, their vision and how they are thinking of going about building something big. The initial valuation should take into account what has been achieved with scant resources but more importantly must reflect what the ultimate value of the company is likely to be.

Angels need to cultivate strong relationships with a few VCs and take time to understand them and their needs.

In turn, most VCs are on the lookout for active angels – often their best source of quality dealflow.

A big dose of mutual respect goes a long way.

Returns available for angel investors who take the time to study the markets and apply the appropriate disciplines are really very strong indeed and the opportunities available today exceed anything I have seen in 15 years of active investing.

European Tech companies are ready to show their mettle

2012-10-21T22:09:00.000+01:00

...and why Institutional Investors need not be wary of Venture-Backed Tech Companies

The ‘campaign’ to kickstart the London tech IPO market has kicked off. The blog posts that Neil Rimer and I both published have attracted a lot of press attention. The engagement we’ve had with No10 and the LSE should result in some small but important regulatory changes that should be seen as important steps towards making London a major hub for tech IPOs.

As we have consistently said, however, regulation is not the primary barrier to a robust IPO market. A number of other parts of the ecosystem need to evolve simultaneously. Over the past month, I've heard a number of concerns that Europe’s public markets are not ready for international tech companies. What rot!

Below I list a number of the specific concerns and, where relevant, address them. The main takeaway, to my mind, is that institutional investors should not be wary of venture-backed tech companies—indeed, they should seize on the opportunity to learn more about and invest in this space, a rare ray of light in an otherwise gloomy economy.

1. How good are the governance structures and procedures?

Companies that are backed by venture capital firms have strong governance built in from their first investment, which is typically a Series A funding round. Formal board meetings are held, usually monthly. Compensation and Audit committees are commonly set up and meet at least annually. Key decisions will normally need Investor Director approval or shareholder approval. The governance rules are set out in the companies articles and shareholders agreement. By the time the typical fast growth technology company is ready to come to the market, governance would have been refined and tightened. Good governance is in the DNA.

2. Are there dominant shareholders, directors or founders who run the company?

Tech companies seeking IPO will typically not have any controlling shareholder. All preference shares would be converted to common stock. The founders will generally own less than 50% and there will be at least 2 VCs, often 4 or more. The company will typically have little or no debt. Venture backed companies are, by nature, equity funded. The distinction between this and the typical PE backed company could not be clearer?

3. How difficult will it be for founders to adapt to life running a public company?

Clearly this is a challenge for founders who have never been in that position before. But these challenges will not be those of being accountable to a board or shareholders. Founder/CEOs and CFOs will have raised multiple rounds of finance, involving many detailed presentations to investment committees and will have been required to take investors through detailed accounts, budgets and 3 - 5 year plans. Missing quarterly targets cause real consternation and are frequently damaging to valuations achieved at funding rounds - so managing expectations and getting forecasts right are very important.

4. Won’t share prices be volatile if market capitalisation is low and only 10% of a company is floated?

This is undoubtedly true and will probably eliminate many investors from the share register – at least at floatation. Since a number of the early shareholders (Seed, Series A, Employees) will want to exit at some time in the subsequent year or 2, the float will inevitably rise and opportunities to build stakes will present themselves.

The initial low float should not be a reason for a company not to be listed.

5. Is the floatation designed to allow founders and other shareholders a quick exit?

The main reason for our pushing for the minimum float rule to be reduced from 25% to 10% is to align founders’ longer-term interests with incoming investors in terms of floatation price. 25% dilution is a large one for a founder to take whose business is growing at more than 50% per annum. It feels more like 'selling out' than another funding round on the road to building a large successful company.

VCs and other early stage investors will undoubtedly wish to exit over time and a consistent strong performance from the company will facilitate this.

6. Are there really enough suitable tech IPO candidates in Europe?

Quoting from Neil's blog post that kicked off this whole debate:

"We’ve seen over the past few years how most of the successful exits by European companies in our portfolio have been trade sales (MySQL, Skype, Playfish, Lovefilm, Net-a-Porter, Last.fm, PanGenetics, etc.) while only a few went public (Genmab, Betfair, Asos, Addex). We hope the future will tell a different story however. At the Index Ventures annual meeting last week, we presented some data to our LPs (yes, VCs have investors too) that reminded us of the depth of the value pool in Europe. We counted 20 companies (Criteo, Adconion, Photobox, Moleskine, JustEat, King, to name a few) born in Europe, that are at or fast approaching a point of being IPO-ready. "

Just looking at the Tech Track 100, published by the Sunday Times, we see that the 100 fastest growing tech companies in the UK:
- had average growth from 2010 to 2011 of 81%
- had Total Revenues of £2.7bn (what will the total be in 2012?)
- Employ 11,000 people (adding 7500 in the year)
- 75% of them had operating profits - as well as rapid growth
- 51 companies are still majority owned by their founders
- 40 are backed by VCs (6 by TAG and Index) or PE firms

The tech IPO market in the US is heating up again - post the Facebook debacle. It really is time to get the first steps taken here in Europe!

What were the most significant (>$250m) tech exits in Europe in the past 3 years?
http://www.quora.com/What-were-the-most-significant-250m-tech-exits-in-Europe-in-the-past-3-years-And-who-were-some-of-the-main-investors

Wonga: a successful British tech company worthy of UK Government support

2012-09-16T13:44:00.000+01:00

Errol Damelin, CEO of Wonga,

How often do we hear the refrain “why doesn’t the UK produce the $bn companies that are churned out in Silicon Valley?”

Reams have been written about this issue and many hours have been spent in think-tanks – in and out of Government – figuring out how we can get the universities to commercialise their innovations, how we can pump more money into start-ups, how we should be training more engineers, more entrepreneurs, or how we can create effective clusters etc.

Successive governments have created enterprise schemes including NESTA, The Technology Strategy Board and, more recently, Tech City. Countless millions have been spent too – some of it to good effect, but much of it wasted. This Government has adopted a supportive and pro-active approach and some of the initiatives are having a very positive effect [see my post: http://the-accelerator.blogspot.co.uk/2011/03/i-think-uk-government-is-listening-to.html ].

It is widely acknowledged that one the major factors encouraging innovation and entrepreneurial activity is the celebration of success and the making of ‘celebrity’ entrepreneurs. We need the Zuckerbergs, the Bezos’, the Elon Musks. And we do have Richard Branson, James Dyson and Stelios – all great business innovators – but where are the new tech heroes (who have not sold their businesses) whom young entrepreneurs can aspire to emulate?

Based here in London, Wonga is one of the fastest growing companies Europe has yet seen. It may well rank in the top five growth businesses of all time by these measures. After less than five years, it is employing more than 300 people and is still growing at an enormous pace. What’s more, it is continuing to innovate and develop new products spending millions a year on its NPD (new product development) and R&D activities.

Its results for the year ended 31st December 2011, just announced ... just serve to emphasise how strongly the company is growing and just how many customers it is now serving.

Revenue growth, up 225% to £184.7m
Net income up 225% to £45.8m
Number of loans provided up 296% to 2.46m

It employs engineers, mathematicians and statisticians (more than 20 in its risk team alone, including several PhDs). It is a truly international business employing people from more than 40 nationalities. And in its founder and CEO, Errol Damelin, there is a charismatic, thoughtful and hard-working leader and entrepreneur - in many ways just the role model the UK Government should want to embrace and promote - or at the very least endorse.

In addition, Wonga is exactly the type of company that we love to hail – disruptive of a failing, oligopolistic industry and doing so using really smart technology to make its processes super-efficient and its service designed around its many customers. Independent research shows they generally love using it as a result and its Net Promoter Score consistently exceeds 70. UK Banking average is Zero.

It is either helping to solve a problem which has existed and been ignored for many years – or is facilitating and empowering hundreds of thousands of consumers. Probably both.

Yet there is a problem. Regulation of the financial services industry is complex and difficult, lags behind product innovation and is highly political. It was not designed for entirely new products such as very short term loans offered on the web in ‘real-time’ and with interest applied daily. The entirely inappropriate Representative APR measure, which is required to be prominently displayed, despite the average duration of these loans being little more than a couple of weeks (16 days), has been more of a focus than the innovation or customer feedback.

It is difficult to think of a more certain way to potentially mislead or confuse consumers, than to show them a calculation based on an annual loan and a daily compounding of interest. The real test is customers being told in clear terms – and up front - how much the loan will cost including all interest and charges in a transparent way .Would that all financial services companies provided that information.

Wonga’s APR has been a lightning rod for virulent and often completely unjustified criticism from sections of the media and some politicians. Many assumptions based on a nonsense number or instances of the company making mistakes has made it a ‘controversial’ company.

But rather than be blinded by hype and headlines, this Government should be looking at the real facts, reading the customer research and hailing Wonga as a triumph of British technology innovation and entrepreneurial brilliance. They should accept the advice of the recent BIS Select Committee that included the strong suggestion that “APR should no longer be used to measure and compare the cost...” Rather than relying on APR, they should enforce clear and upfront indication of the total amount to be repaid as the minimum requirement for all providers and [implicitly] endorse the important role that Wonga is playing in the modern economy.

Wonga has developed an important service, which has enabled many hundreds of thousands of users to manage tricky cash flow situations and not be left in long-term debt or paying a price they weren’t expecting. It’s a difficult subject, but this company really ought to get the credit it deserves. Instead, I have read many column inches on Wonga, most of it regurgitated from snippets of factually incorrect or grossly misleading reports.

Wonga recently opened a new site: www.openwonga.com on which they have published a raft of statistics relating to its business - these provide real insight into the scale of the business, the profile of its customers and details of the loans its makes.

I do understand the government’s dilemma. Speaking at the Times CEO summit earlier this year, George Osborne ticked off the CEOs and chairmen present for not making the case for free markets and wealth creation to a ‘public that badly needs to hear it’. The current climate, he argued, makes it difficult for the Chancellor to cut corporation tax and offer other inducements to business.

Wonga is not asking for either. Just for some recognition for the outstanding achievement of building a world-leading technology company here in Britain … and the modernisation of the regulation of financial services to create a level playing field (*) and recognition of new financial products unlike any previously offered.

(*) Banks providing unauthorised overdrafts have a 'carve out' in the regulations which does not require them to publish the effective APR of these 'loans' which would run into many thousands in most cases.

Techs and the City

2012-07-30T13:49:00.000+01:00

The post below first appeared on the Index Ventures blog and formed the basis for articles in the Telegraph and City AM

At Index and TAG we feel strongly that a healthy IPO market is an important element of maintaining the strong tech startup momentum that has been building in Europe over the past 5 years.

Together we can get the Tech IPO market going in London

From our vantage point at Index, the centrality of the Tech sector to economic growth -- particularly during the economic slowdown of the last few years -- is all too clear.

A recent piece in the FT reiterated this point. Ed Hammond, the paper's property correspondent reviewed the shifting make-up of the City and the steady transformation of the tenant mix in the Square Mile.

Examples Ed quotes of recent office moves help to illustrate the point:

Bloomberg: 500,000sq ft on Walbrook Square
Skype: 88,000 sq ft on Waterhouse Square
Expedia: 81,000 sq ft on St John St

Those of us working in the tech world or, more accurately, the tech-enabled sectors, have known for some time that the Old Economy is being slowly replaced by the New Economy. Retail is being replaced by eCommerce, Old Media by New Media, enterprise software by SaaS. While industries like law and finance have experienced sluggish growth over the past 5 years, companies in the tech sector are seeing revenue growth of at least 30%/annum, and frequently upwards of 100%/annum. Both start-ups and larger companies like Moshi Monsters and King.com are beneficiaries of this explosive growth. In fact, one of our portfolio companies, Moo.com, has moved or expanded office space seven times in as many years to accommodate its rapid and continuous expansion.

Yet a disconnect remains between the economic vigor in the tech world and the dynamism of the City. My partner, Neil Rimer, wrote an interesting and challenging post recently decrying the fact that the door to London’s IPO market is shut tight for tech companies. Little wonder, then, that despite London’s place as a global financial centre, so many European tech companies like Yandex and Qlik Technologies ended up listing in New York.

What makes this trend even more remarkable, and even more regrettable, is the fact that the UK’s internet economy is one of the most vibrant in the world. Online retail accounts for 13.5% of total UK retail sales, a higher percentage than in any other G-20 country, according to a recent BCG report. The UK is also dominant in online advertising, which accounts for 28.9% of total advertising spend in the country. By comparison, in the G-20 country with the next most developed online advertising market, Japan, only 21.6% of the advertising market has gone digital.

It just does not seem right to me that the City of London, with all its smart investors, would allow the largest seismic shift in the economy to take place without their active participation. Particularly when evidence of this shift can now be found in the buildings outside their back door.

Our sense at Index is that a collective effort needs to be made to kick-start the IPO season for tech companies. And so, in an attempt to invigorate companies, policymakers and the City alike, we’ve put together some recommendations. All it will take is a three-pronged attack from policy-makers, entrepreneurs, and the City alike to make this happen, but it will only work if all the pieces come together.

For the companies capable of listing:

An approach to an IPO needs to be one which recognises that the listing is a fund raising and liquidity event on the way to building a large and great company. It is NOT an exit.
It is important to be IPO ready. This means having the right governance structure in place: an appropriate board with an independent head of audit committee, and well-established remuneration and nomination committees. A well-drilled quarterly rhythm to re-forecasting and a good history of hitting the numbers is also essential.
It is important to communicate a company’s story to the market with clarity and precision.
Ideally VCs will help their company get ready, and be willing and able to hold the stock post float for at least one year. It is the price one year from the float that is most relevant to inside shareholders, so the pricing of the floatation shouldn’t be optimized to the nth degree.

For the policymakers:

The minimum public float requirement of 25% is too high to create a healthy IPO market. Entrepreneurs don’t want to give away so much of their company, particularly when equity is given to the bankers hired to help list the company as well. It would behoove both Europe’s tech companies as well as the public markets if the minimum threshold either dropped to 10%, or a minimum valuation was assigned to companies interesting in listing. The public float is likely to grow over time as early investors (VCs and others) sell their shares.
The stamp duty on shares should be revoked, given that the UK has the joint highest rate of stamp duty in the world. This puts London at a competitive disadvantage when it is competing with New York.

For the Institutional Shareholders and Fund Managers:

It is important to understand the fundamental difference between PE-backed companies and VC-backed companies. PE houses are generally seeking to exit their investments through an IPO or replace debt in the company. VCs generally fund their portfolio without debt and a listing is often seen as a way of raising the company's profile and providing access to further capital.
Strategic investments by city firms are needed to build up specialist analysis and the research required to properly evaluate hyper-growth tech companies and become familiar with the diverse business models and KPIs.
There is a big difference between 2000's tech stocks and 2010's growth stocks. Whilst many of the tech companies will not offer sufficient market liquidity and be sub scale at this stage, it is not hard to see that this situation will not pertain for too long.

Finally, I should add that the motivations for investors like Index in helping strengthen the London IPO market is very similar to those we applied when we began to help build the European start-up ecosystem ten years ago. We believe that a healthy tech sector needs funding at all stages of a company’s life. Without an active IPO market, there is bound to be less capital for startups and early stage businesses.

Follow Robin Klein on Twitter @robinklein

A National Grid for Banking - radical thinking by Errol Damelin

2012-07-18T11:57:00.000+01:00

The article below is an extract from an opinion piece published in the Times of London from Errol Damelin, founder, CEO of Wonga. It appeared on Monday July 16th. The complete article is here: http://thetim.es/NcY9Ee

Image by Wonga.com via CrunchBase

What Errol proposes here would require a radical shake up of the way in which banking works in the UK - or anywhere else for that matter.
Radical does not, however, mean it is impossible to achieve. The idea, is in essence, the reverse of privatisation and suggests that the infrastructure, the backbone, the networks of the banking system be placed in public ownership (or at least independent ownership from incumbent FS companies) thus creating a level playing field for businesses to build services on top this infrastructure. A little like the National Grid - for bits, bytes and packets rather than for electricity and Gas.

Wonga as a business has begun by shaking up and transforming the murky world of unsecured consumer lending and I would not bet against Errol and the team at Wonga doing similar to other financial services.

Errol writes (in part) as follows:
"It would help to think of high street banking services in the same way as basic utilities such as water or electricity.

Just as millions of us depend on the water companies to keep the water flowing and our lives working, so we rely on the banks in the same way. Indeed, when a bank's computer system fails and customers cannot get hold of their money, we feel it as keenly as a burst water pipe.
And just as water that flows from our tap comes from a sprawling network of tunnels and pipes, so our ability to withdraw cash at an ATM depends on vast interconnected information networks

There is a strong case, given the convergence of these computerised systems, to create one single super-bank to look after our basic banking needs. Just as we have one interconnected network for water and energy, or standardised systems for road, rail and air transport, or uniform protocols for the internet and phone systems, so we could have a single, transparent and easy-to-access platform for basic banking services.
This super-bank could be founded and overseen by the Treasury. It would only provide bread and butter services such as a safe place to deposit your money.
You could think of this super-bank in the same way as iOS, the operating system for Apple's iPhones. It is always there, running smoothly in the background, and most people don't even know about its existence.
Similarly, this super-bank would flawlessly send and receive data, facilitating everyday banking needs.

Of course, customers also have more specialised needs — they want mortgages, pensions, loans and ISAs. As individuals we need a wide array of services to suit all kinds of situations. That's why we would need a second layer of services, developed by private companies, on top of the super-bank's superstructure. These companies would compete with each other to offer products at different rates.

Just as the smartphone platform has unleashed apps for everything from telling you when the next bus will arrive to ordering groceries, so the super-bank platform would stimulate cost-efficient solutions to everyday needs on a vast scale. For Wonga, linking our technology systems to a super-bank would let us make consumer and business loan decisions even faster and allow us to bring ideas for new products to market in a fraction of the time.
Our expectations have rocketed since the advent of the internet. We expect to have 24/7 access, to easily be able to make comparisons, to crowd source, order or apply online, pay electronically and receive goods at our home the next day. Although online banking has brought improvements, there has been a lack of fundamental change in banking overall.

At this time of economic torpor, we need to inject new life into the finance sector more than ever.
Ever since the establishment of the Bank of England in 1694, Britain has led the way in financial innovation, and the country has profited from it. Surely it's time to take the lead again."

For the complete article in the Times go to: http://thetim.es/NcY9Ee
TAG is an investor in Wonga

Related articles

Getting your foot in a VC's door

2012-07-01T13:58:00.000+01:00

This post first appeared in the Financial Times on Saturday 2nd June and was written specifically for the FT.

A lot of start-ups ask me how to get a meeting with a venture capitalist. The first question I would ask them is why they would want a meeting with a VC firm.

The obvious answer is to raise capital for their venture. However, the more important question might be whether a VC is the best, most appropriate partner and source of funds at this stage – or at all.

Assuming their analysis of this point results in the conviction that venture capital is the way for them to go and they have figured out approximately how much they wish to raise (yet another subject) then here is how I suggest they proceed.

Firstly, take a highly targeted approach. A scatter gun will not only not yield the desired meeting but if by chance it does, then it is very unlikely to result on an investment from a suitable partner. What you want is a well aimed rifleshot.

Secondly, review the landscape of funding available. VC firms come in many different shapes and sizes. However, they can broadly be categorised along three dimensions: size of typical investment, geographical focus and sector or theme within sector.

Having narrowed the candidate VC firms down by these rough parameters, look very carefully at their most recent investments. How many have they made? What types of companies did they invest in? If possible estimate the size of their investment.

How many partners are there in the firm? Do they tend to specialise?

Next, read what the firm says about such things as their investment philosophy, approach and sector focus, and see how closely this matches with their most recent investment.

Remember that not all VC firms invest at early stage or do seed investment. The majority of what are called VC firms should probably be better described as private equity investors because they prefer providing growth capital to established companies.

Once you have identified the three or four candidate VC firms, you now really need to dig in to the data and start your networking research. Note that no approach should yet be made. An unsolicited approach will invariably fail. It is not rudeness for even the most well crafted email, letter or other communication to be ignored.
If my inbox is anything to go by, it is simply impossible to reply to all – many look like they’ve been sent to multiple investors and being unqualified in any way have to be filtered out. A polite, but canned response is of no value to the recipient.

The best way to approach a VC firm is to identify the partner, principle or associate most likely to be a match to your requirements. Find out all you can about this person. Read their blog, follow their tweets, check out their LinkedIn profile and find anyone you know who may know them, been funded by them, know someone who knows them. Try also to get hold of another founder who has been funded by them.

The next step is the key that unlocks the door. Get an introduction from a trusted third party. Someone who has recent and better still frequent contact with your target and whose judgement they are likely to respect.

If yours is a technology startup, there is an enormous amount of data available today and resources like Google, LinkedIn, Techcrunch (Crunchbase), Seedcamp, Angelist, to name but a few, are invaluable.

All of this desk research and networking is time consuming but will save an awful lot of wasted hours cold calling, mailing and meeting one potential investor after another.

If all this sounds difficult or impossible, remember it is easy compared with building a great business, which is what you want to do, is it not?

Trust Me .....

2012-02-21T13:36:00.000Z

This is a Guest Post from Martin Lee, Partner, Acacia Avenue, a leading Market Research company with a different approach to discovering how brands interact with their customers.

Martin Lee and Wendy Gordon (co-founder) are very experienced researchers whose clients include Barclays, eBay and PayPal, BP, EDF Energy and many others.

I'm particularly interested in their work on 'trust'. As regular readers will know, I believe strongly that putting customers/users at the centre of product development and service delivery is a powerful approach to building strong brands.

The question of trust has always been at the heart of commerce on the web. Will the goods I'm ordering live up to the great photography? Will they delivered on time? or at all? Are my credit card details safe?

Funny how one thinks less about these things when ordering from John Lewis, Amazon, ASOS - these brands have earned the trust.

“Trust me.” The two least trustworthy words you can hear somebody say. But why?

Nearly all our clients have become absorbed with the issue of brand trust recently, to the point where it’s often become a dedicated project brief in its own right. It’s not surprising. Look at what’s happening: the banking crisis; MPs’ expenses and Catholic Church sex scandals. All erode trust in public institutions.

As we listen to the public talk about trust, we’re hearing emphatic messages, and it turns out that how trust operates with brands is very similar to how it operates with people. The most important thing to emerge is the distinction between trust and trustworthiness. A person (or brand) can come across as trustworthy, based on what you see of them from remote observation or hearsay. But trust itself only happens when you get to know that person or brand. And crucially, trust is only conferred upon you or your brand by the person who chooses to trust. This is why “trust me” is such a bad thing to say. We all recoil from this, and effectively say, “I’ll be the judge of that.”

I’ve highlighted the word ‘chooses’ deliberately. The other vital thing we’ve learnt about trust from consumers is that trust operates in environments where people have a choice. I’ll maybe trust BA more than Virgin, or Barclays more than RBS, for my own reasons. But the choice to trust involves risk. In choosing your brand, I’m turning away from alternatives.
And here is the nub of it. What if the trust turns out to be misplaced (e.g. over charging or poor service)? The loss of trust that follows is not just about that experience, but makes me feel bad about myself as well – I could have made a better choice. This is why it’s so important not to betray customers’ trust and why lost trust is so hard to win back. You’re not just letting them down; you’ve made them let themselves down. And that’s a lot harder to recover from.

The cult of the founder

2012-01-02T18:48:00.001Z

In the world of technology, the founder is rightfully 'top dog'. Founders are put up on pedestals, its a badge of honour, the most admired of roles.
Settling for co-founder is certainly a better moniker than even CEO.

Founders take the risk, make the leap, make the sacrifices.
And we need the heroic and iconic founders - the Steve Jobs, Jeff Bezos, Marc Andreessen, Nikolas Zennstrom et al to inspire future ones. Their tales are the stuff of legends.

We all know, however, that it is far more complicated than that.
Seldom has a founder been able to realise a dream (or even formulate that dream) without the commitment, blood, sweat and tears of at least a few others. Think Steve Wozniak, Paul Allen, Kevin Colleran (who??) and bunch of others, Janus Friis, Craig Silverstein.

Founders often get disproportionate rewards - both financial and in terms of recognition.

Most recently, I have been consulted - along with many others - by the UK Government asking for ideas as to how to stimulate further the growth of entrepreneurialism in the tech sector.
The Government has been listening and have implemented some important tax and visa changes which are most helpful in this regard. Two of the policies illustrate just how founder focused they have been - and where there is room for further important enhancement.

Firstly, UK capital gains tax - the tax on the first £10m for entrepreneurs is now only 10%.
However, if you did not have founder shares, but joined after the founding of the company and have an option package, then providing its an approved scheme - eg EMI - then you'll be taxed at 28% - or if unapproved then possibly at 50%. Doesn't seem right, does it?
Often senior execs in a startup have taken considerable risk, leaving highly paid jobs, accepting far lower salaries in the expectation of making a significant capital gain.
We need to attract more of this type of talent to our startup companies and a change to the CGT rules will help significantly.

Secondly, the Entrepreneurs Visa. A big step forward enabling non EU entrepreneurs, with recognised backing to enter the UK. This does not yet apply to talented people - non founders.

So, lets hear it for the unsung backup teams - its tough to build a great company but doing it on your own is simply impossible.

Breakfast at No10 Downing Street

2011-11-11T15:16:00.001Z

This is a guest post from Rob Keve, Founder, CEO of Fizzback Group Ltd, a company backed by TAG and others.

"Last week I was invited to present to some MPs over breakfast in Parliament, about UK start-ups. In the first few minutes, their full English fry-up was clearly winning the battle for their attention.
The only serious question on all MPs lips is how to stimulate economic growth and they didn’t see the relevance of a venture capital backed start ups on economic growth.
I told them that we were only a five year old business having raised modest amounts of funding but had created over 100 jobs in the UK alone – they stopped sipping their tea from the exquisite House of Commons porcelain teacups.
Next I explained we had generated more in direct tax income for the economy than the amount we raised in the first place and had just injected a further $80M indirectly into the economy by way of sale pro-ceeds from an overseas buyer – they put down their forks and put away the HP sauce.
Finally, I explained that a small group of brethren calling themselves Fizzback had won some of the world’s largest brands as clients, was improving these brand’s competitiveness all whilst putting British technology on the global map – they looked up to see who was talking.
Tonight, when they go home, I hope that as they are pulling up the draw-bridge they will ‘get it’. Economic growth comes from innovation and self-initiative. It comes from a just a few dozen individuals in a few square feet of space designing a unique solution, garnering deep in-sight, selling & servicing to the top brands in the world.
That creates growth. That is economic leverage. The answer isn’t to be found in public sector spending, in UK policy board rooms or in banking regulation.
The answer is to be found at Fizzback and the other ground breaking start-ups like us. We create economic activity, jobs and wealth."
Rob Keve

Fizzback does a NICE deal

2011-09-19T11:05:00.000+01:00

Readers of this blog may have noticed that Fizzback, an investment we made in 2005, gets lots of coverage – here in and in tweets @robinklein. Aside from the fact that I’m passionate about customer service being a fundamental competitive advantage and one of the pillars of a great brand, I have a strong personal connection with the company.

Today we are announcing that a sale of Fizzback to Nice Systems (NASDAQ: NICE) for approximately $80m has been agreed. The transaction is scheduled to close in a few weeks.

In many ways this is a great result for the team and the investors to be celebrated. Nice is a very good home for Fizzback and Fizzback is going to add considerably to Nice (see product/market details below)

On the other hand, its a disappointment that a company which had begun to make a global impact in the world of Customer Experience Management, had captured some of the largest corporate clients worldwide, is not going solo ‘all the way’.

The TAG philosophy has always been to support founders and to recognize that entrepreneurs’ own motivation must ultimately be the deciding factor in these types of decisions.

Some history of this super company is relevant and I think interesting.

Our relationship with Rob Keve, Fizzback's founder, goes back about 15 years and we invested in IMI (Instant Market Intelligence – its former iteration) in 2005 - as part of the company's small seed round. I well remember the 4 hours Rob and I spent driving to and from the Cotswolds every month during 2003 for the Cotswold Company's board meetings. Rob was thinking about starting IMI.

Like many successful companies, the vision for Fizzback made a few pivots along the way.

Its initial vision was to address demand for rapid market research and new forms of customer insight- kind of vox pop via SMS. Selling a product to the market research community didn’t seem to me to be a place where we’d find good sized budgets. Rob had another much more appealing idea which he was running in parallel. A service to retailers and service providers which enabled consumers to provide feedback at the point of experience – in store, on the train etc – via their mobile phones – via SMS. IMI would interpret the message (using NLP appropriate to SMS ‘speak’), categorise and direct the message to the appropriate department for action.

This latter idea got me excited. I agreed to invest and join the board as Chairman.

Rob and I pulled together a small group of angels – including Jonathan McKay – and what a great decision that was! Jonathan, who is a real enterprise software/services guru, took over the Chair in 2008 and helped Rob build the stellar sales team and been an invaluable guide to the business.

Step one back in 2005 was hire a small team. Tech head was Herx Fisherman who conceived and built the original Fizzback Enterprise platform. Operations head was Jonathan Morris (my son-in-law) – still the Operations Director of the group, often holding things together …. another reason for the soft spot for this company.

Step two was creating a brand which would define a category. With the help of Phil Ley of Branded, Fizzback emerged. This was not about market intelligence, it was about actionable feedback.

The learnings gleaned from early clients like Butlins, National Express and others helped the evolution of the product.

The 2 relatively modest funding rounds – first from Advent £2.5m in October 2006 and later, at the end of 2009 £1.6m from Advent, Nauta and TAG helped focus the company on bravely targeting giant accounts like Tesco, Carphone Warehouse, BT, Vodafone, Virgin, O2, Waitrose, Eurostar and the rest.

These kinds of customers ensured that the Fizzback platform was always at full stretch – not just in terms of scaling but in their demands for enhanced functionality. Great customers demand great products and service!

The support from our VC backers has been magnificent – in the very early days from our good friends at Advent - first Frederic Court and then from Mike Chalfen – who is a master at the insightful intellectual challenge and has been an active practical support all the way.

Jordi Vinas, the Nauta board member provided the Euro perspective and his knowledge of the mobile vertical in particular has been hugely valuable.

So another great European company gets sold to a foreign company just 6 years after its foundation. No problem with that -and I do expect we'll see more of the proceeds being re-cycled and re-invested in the growing Euro tech eco-system.

Extracts from the press release:

The Fizzback SaaS offering is a real-time operational VoC solution. It sends consumers requests for feedback relating to a specific interaction or transaction via mobile, web or social media. The consumer is engaged at the point of experience, for example in the contact center, branch, point of sale (POS), mobile application, or web. The feedback is analyzed by the system to determine a relevant response, and automatically conduct a dialog with the consumer in natural language rather than a survey format.

Fizzback’s unique approach generates game-changing response rates of up to 50%, significantly higher than industry norms at under 10%, as it motivates consumers to provide relevant feedback, at the moment of interaction. Additionally, consumers provide feedback about their experience rather than only about what was asked in a survey. With more than 150 million feedbacks collected annually, Fizzback enables organizations to better understand their customers’ perceptions, and be agile across the organization, while improving customer experience at the various enterprise touch points.

The combination of Fizzback and NICE will both improve CEM as well as operationalize VoC both for the contact center and across the enterprise. Correlating customer feedback to specific interactions or transactions helps improve performance enterprise-wide with statistically validated responses, as well as enhance quality management and processes. Key efficiency metrics that can be significantly improved include First Contact Resolution (FCR) and Average Handle Time (AHT) in the contact center and employee performance in direct customer facing roles.

Capturing, analyzing and acting on the Voice of the Customer (VoC) is critical to the success of any Customer Experience initiative. NICE’s cross-channel analytics solutions support VoC programs by: (1) analyzing customer interaction content (indirect feedback), whether the customer is interacting with the organization or talking about the organization through the contact center, social media, or other channels, and by extracting insights from these interactions; and (2) by analyzing customer behavior (inferred feedback), such as transaction and web browsing patterns or their journey along different touch points. By adding direct customer feedback with the Fizzback solution, NICE now provides a complete CEM solution that delivers a holistic understanding of the customer by combining on one platform the VoC from each of the three feedback dimensions: direct, indirect and inferred.

Zeevi Bregman, President and CEO of NICE said, " The adoption of and demand for CEM solutions, at all levels of the organization, including Marketing, Finance and Operations, is on the rise. With the addition of Fizzback, NICE is expanding the scope of its capabilities of Impacting Every Customer Interaction by introducing a Customer Experience Management solution with the most complete Voice of the Customer offering. This enables our customers to more effectively capture, understand and leverage VoC as the foundation to a cross-enterprise CEM strategy.”

Rob Keve, CEO of Fizzback said, “Our unique solution has been enabling our customers to achieve exceptionally high response rates from their customers, and to receive feedback in real-time. This combination allows them to take immediate action for increasing customer loyalty and driving efficiency across the enterprise. This has resulted in extremely high usage rates for our customers, making Fizzback a strategic part of how our customers make decisions and run the business. Thus, we are proud to have experienced rapid growth and high rates of product adoption. We are looking forward to combining these capabilities with NICE’s real-time, cross-channel analytics to provide both NICE and Fizzback customers greater access to even broader capabilities with a more complete VoC solution.”

Under the terms of the agreement, NICE will acquire Fizzback for a total cash consideration of approximately $80 million. Subject to certain conditions and satisfaction of terms, the transaction is scheduled to close in the beginning of the fourth quarter of 2011 with 2 to 3 cents dilution of fully diluted Non-GAAP EPS for that quarter. In 2012, the acquisition is expected to add approximately $20 million to NICE’s non-GAAP revenues, to be slightly dilutive, and to become accretive to fully diluted Non-GAAP EPS within four quarters post closing.

http://www.marketwatch.com/story/nice-to-acquire-fizzback-introducing-the-most-complete-customer-experience-management-offering-with-the-integration-of-revolutionary-real-time-voice-of-the-customer-solution-2011-09-19

About Fizzback

Founded in 2004 headquartered in the UK and backed by Advent Venture Partners, Nauta Capital and TAG, Fizzback is a global provider of Voice of the Customer solutions, providing software solutions for Real-Time Customer Feedback that drive customer loyalty and employee performance. The award winning Fizzback solution helps companies listen, respond and act in real-time to their customers’ comments. Fizzback customers include tier-1 organizations from a variety of vertical industries, including, British Telecom (BT), O2, Best Buy Europe, Everything Everywhere, National Express Virgin Media, Tesco and several Tier 1 North American telecom carriers.

About NICE Systems
NICE Systems (NASDAQ: NICE), is the worldwide leader of intent-based solutions that capture and analyze interactions and transactions, realize intent, and extract and leverage insights to deliver impact in real time. Driven by cross-channel and multi-sensor analytics, NICE solutions enable organizations to improve business performance, increase operational efficiency, prevent financial crime, ensure compliance, and enhance safety and security. NICE serves over 25,000 organizations in the enterprise and security sectors, representing a variety of sizes and industries in more than 150 countries, and including over 80 of the Fortune 100 companies. www.nice.com.

Previous posts re Fizzback:
http://the-accelerator.blogspot.com/search?q=fizzback
http://the-accelerator.blogspot.com/2009/01/strong-momentum-for-fizzback.html
http://the-accelerator.blogspot.com/2008/07/fizzback-tops-them-all.html

TAG commits another 250K Euros to extend runway for Seedcamp companies

2011-09-12T14:33:00.000+01:00

Seedcamp is obviously in our bones at TAG, but for a little colour,
I remember:

brainstorming the concept while it was a twinkle in Saul and Reshma’s eye
being on the first Board with Mattias, Sara, Paul, Sumon and Jason
pitching to new investors and writing the first cheques to Seedcamp I and II
funding Zemanta, MyBuilder and Kublax in 2007; Toksta in 2008; Erply in 2009 and Editd in 2010
going to Mini Seedcamps in Ljublianga, New York, Tel Aviv, Paris, Copenhagen
working closely on Seedsummit and the latest Term Sheet program

So we love Seedcamp - that's a given.

But having just spent the week at Seedcamp in London, its clear that the Seedcamp platform and network has moved to a new level and finally there is also serious capital available.

But most importantly the latest group of Seedcamp companies are totally inspiring by:

the progress they have made,
the scale of their ambition
the amount they have achieved with little to no money.

Seedcamp has never shied away from the fact that to build something great takes time - and to building an ecocystem takes decades.

We still have a long way to go in the markets we operate, TAG is not ready to buy a tracker (and also we are fundamentally "stock pickers").

We’ve had our successes and failures at TAG, that’s part of investing and its especially so at the earliest stages. However, we are inspired by the progress we’re seeing - especially from Eastern Europe - and want to make sure that at least some of this year's 20 teams will have at least double their run-way and be able to take some more time to develop the right product, find the right customers and discover which investors share their vision and values.

So we are offering €50k as a convertible loan to 5 teams from this week’s Seedcamp in order to help extend their runways further and look forward to contributing in a small way to the continuation of their journey from seed to start-up to superstar.
As frequently happens, Techcrunch got a sniff and published this offer here:
http://eu.techcrunch.com/2011/09/12/seedcamp-week-2011-meet-the-finalists-the-winners-and-one-good-samaritan/
We would of course invite any other investors - European or otherwise to join us in this funding - this is a promising group and they deserve our support

Here are some edited highlights of Seedcamp Week.

Daily Video Highlights:
- Day 1 Founders - (Yandex) - http://www.youtube.com/watch?v=PnRBUCCWTE4
- Day 2 Product - (Mozilla, Soundcloud etc) - http://www.youtube.com/watch?v=A1TJ_TZ7pK8&feature=related
- Day 3 Growth - (FON, McClure) - http://www.youtube.com/watch?v=9ygYMB58FO8&feature=related
- Day 4 Demo Day - http://www.youtube.com/watch?v=xffj0TcXUf0&feature=related
Some of the news coverage:
Seedcamp announcements:
- Teams: http://www.seedcamp.com/2011/09/seedcamp-week-breaking-records-yet-again.html
- New partnerships: http://www.seedcamp.com/2011/09/seedcamp-partners-experts-and-angels.html
- New advisors & investors: http://www.seedcamp.com/2011/09/our-new-advisory-board-and-investors.html
- New corporate relationships: http://www.seedcamp.com/2011/09/seedcamp-founders-pack-sponsors-and-seedhack.html
- Investors at Demo Day: http://www.seedcamp.com/2011/09/top-20-seedcamp-teams-present-at-demo-day.html

Do we need more engineers in government?

2011-08-30T20:23:00.000+01:00

Its very interesting that the number of students applying for Engineering and Science courses at University has - at last - started to rise. In the UK anyway.

Have you ever thought about why it is that there are so few engineers and scientists in UK and US government.

The UK’s cabinet has six PPE (Politics, Philosophy and Economics) degrees, five history degrees, three law degrees, and plenty of other arts and humanities graduates.

The fact that most come from a couple of universities concerns me less than the fact that the 'gene pool' in terms of education, experience, ways of thinking
and problem solving seems very narrow indeed.
Politicians in the UK are often heard decrying the fact that we don't have enough engineers - they presumably don't mean in Government. They mean in industry.

Countries like China on the other hand have its politburo full of scientists and engineers. Hu Jintao, the country’s president, graduated with a degree in water conservancy engineering, while the rest of the group consists of chemical, electrical and radio engineers and the the odd geologist.

I'd like to advance a theory as to why this very obvious disparity between some western democracies and China in the people we get to lead us and take the profound decisions which affect our and our children's lives.

In the UK and the US, to get elected you need to be an orator, have the 'gift of the gab', be charismatic, media friendly, articulate, persuasive. Not necessarily the strengths of the average engineer or scientist - or anyone else with left-brain hemi-spherical dominance.

Does our democratic process unfairly disadvantage the engineers and the scientists?

In China, those that get top marks in the Sciences, its seems, get to the top.

Stick or Twist. Sell or swing for the fences.

2011-08-11T16:46:00.000+01:00

A number of the companies in the TAG portfolio are at very tricky junctions in their lives. Its the point where they are now faced with multiple options. I'm guessing there are many companies at this particular point.
None of these options is bad - but deciding on which to take is not at all easy.
Many startups of the 2006-2008 vintage are reaching the point where they are real businesses, generating cash and growing well.
So what is the problem?
Simply put - where to next?
The options broadly fall into these 4 categories:
1. Sell
2. Continue building with cash internally generated
3. Raise more cash at a good valuation and go for growth
4. A combination of 1 and 3 - ie take some cash off the table, raise more funds for the company and really go for it. [This can be done by an IPO or raising VC/Private Equity funds - but that's another issue]

Many entrepreneurs - mostly those outside of the US - are criticised for selling too early. I'm pretty sympathetic to a first time entrepreneur who having sweated for 5 years or more is sorely tempted to convert his/her shares into cash.
The amounts of cash a founder will receive for a good business are literally life changing - in a good way.

Investors often see the situation very differently. Especially if the company is still growing rapidly and is addressing a large market. There is frequently great frustration at the lost opportunity to build something really big - something fund returning.

Increasingly, enlightened investors are working closely with founders to enable option 4 - ie allow founders to sell ordinary shares - at nominal (or no) discount to the price paid for new preferred shares.

This would seem to be a good way forward for a founder who still has 'fire in the belly', wants to continue to build a huge company but also has the need to get their personal finances on a sound footing.

The lesson in all this for startups is that choosing investors who can help navigate through this rather tricky phase is pretty important.

A Bubble? - Chinese Style.

2011-05-02T19:52:00.000+01:00

You think we are experiencing a bubble? Sure we are - but in China, everything is bigger – much bigger.

I've just returned from China and made a couple of illuminating visits.

First to Innovation Works. The brain-child of Kai-Fu Lee, Innovation Works is an incubator, Beijing style.

Lee, having been with Apple and Silicon Graphics in the US, Microsoft China and then Google China, Kai-Fu knows a thing or two about identifying, attracting and nurturing talent.

He tells me that they have 120,000 graduates on their database on which to call to help staff the dozens of companies being incubated in his Beijing offices, a few blocks from Beijing University.

Innovation Works houses 400 young people working away at building a wide range of companies. About 30 of these are directly employed by Innovation Works and are called the ‘platform team’. These folks (average age I guess about 27/28) are business, finance and marketing graduates whose job it is to attend to the formation, funding, administrating, recruiting for the start-up companies and helping them with their ‘go to market’ plans.

In fact, they do everything other than build the product itself.

This was how incubators were meant to work during the ‘first bubble’ of the late 90’s and 2000.

The difference – as we all know - is that now the cost of building a product and getting it market tested is a fraction of what it once was AND in China it is a fraction of what it costs in the US or Europe.

Not only is working space extraordinarily cheap but engineers and graduates generally earn 1/5^th of their US/Euro counterparts – AND are apparently of high quality and in plentiful supply.

The effect of this is that the $200,000 which Innovation Works invests in these start-ups takes them a very long way indeed. So far that a typical Series A, Kai-Fu tells me, commands a $50m post money Series A.

Yes, that's $50m! I checked twice. Not $15m but $50m.

Given the number of $1bn+ funds which have been raised recently in China [Sequoia etc etc], it is not surprising that VCs aren’t much interested in placing a couple of million in a number of start-ups.

During my visit, Chris Evdemon, who runs the incubator, was just finalizing the judging for next crop of start-ups to join the line – following what I understood was a Seedcamp type application and review process.

It was difficult to get a good picture of what all these start-ups were working on and how their evolution may impact on world markets but my impression was that the vast majority (approx 90%) were aimed at the Chinese market – in ecommerce, mobile apps, social, Android development platforms and games.

The latter category being the most likely to be reaching global markets any time soon.

I expect that retaining star talent and building large, meaningful companies will become challenging as it becomes ever easier for talent to get their own backing and the skills required to build serious global businesses go beyond engineering and towards marketing, finance and management.

My second visit was to a relative veteran of the Chinese ecommerce world – Diane Wang, founder and CEO of DH Gate.

DH Gate is a B2B marketplace matching (with a number of important added value elements) SME buyers worldwide to Manufacturers in China.

DHgate.com was founded in early 2004. Before founding DHgate, Diane was one of the founders of Joyo.com, where she successfully led the company through the Internet boom, downturn and revival. After a year of its establishment, Joyo became the top B2C brand in China. Diane was also the Country Marketing Director of Cisco Systems. From 1993 to 1999, Diane was the Marketing Service Manager and Head of Business Development Department for Microsoft (China).

Thus far in her career, Diane has received "Outstanding Woman of China" and "Outstanding Woman of Beijing" awards—two of the highest forms of recognition given to professional women in China.

TAG was fortunate in investing a small amount in DH Gate’s $6m Series B round in 2007. At the time its gross monthly trading volume was around $1m. Today its at least 15X that and employs over 700 people.

Its interesting that the Chinese Government, as part of its recently published 5 year plan, has included information technology as a fundamental part of their strategy for stimulating internal demand and as a driver of growth. The focus on infra-structure development is truly astounding and with it will inevitably come very rapid growth.

Driven by ongoing urbanization, improving broadband infrastructure, and an influx of affordable smart devices and applications, China’s mass market consumers are starting to take up applications in Internet entertainment, e- commerce, digital content, and mobile Internet.

With an expected 750m netizens by 2015 and the Chinese telecom operators competing to take up broadband speed, and promote 3G wireless data with attractive tariff plans, subsidized smart phones and tablets for consumers the future looks bright for the Chinese technology sector.

[ref Jeffreys Asia Equity Research, April 2011]

Comparing China’s adoption of the web to the rest of the world is instructive.

Almost one quarter of everyone on the planet connected to the web is resident in China.

They have twice the web population of the US and 9 times that of the UK- today.

That said, the market to foreign web services is pretty inaccessible (unlike luxury goods)– as Google and others are finding. Local companies are adept at replicating, improving and adapting to their market.

Where are all the Euro talent acquirers?

2011-04-03T07:13:00.000+01:00

Facebook, Google, Microsoft et al routinely make 'talent acquisitions'.
In the last 10 years, Google has made 93 acquisitions
- the majority of these have been to get their hands on the talented founders and teams who have built some technology or have demonstrated such a capability. 75 of these acquisitions have been in North America and most of these in the San Francisco Bay Area.
Microsoft have made 140 acquisitions in the last 20 years - again the vast majority in the US.
Yahoo made 62 acquisitions in 15 years - only 10 outside the US.

Even the new kid on the block, Facebook, has made 14 buys - 10 in the US.

The possible answers to why the predominance of targets are US based are these:
1. They have better engineers in the US. [this I very much doubt - though no doubt I'll be corrected]
2. Tech companies in the US are building stuff targeted to be bought by one of the big boys.
3. If you're going to buy a company for their talent - you want to keep that talent and integrate it with your own operations or development teams.
4. The eco-system is such that the corporate development teams know the startups and vice versa. Not just know them but meet regularly at the many events and in the coffee bars on University Avenue and elsewhere.
5. Buying a talented team elsewhere (ie outside the US) is risky - there is the cultural gap, the legal hurdles, the distance, the time shift etc

These transactions - 250 of them between just the 3 mentioned - power the whole ecosystem. The funds generated for the founders, the VCs, the LPs are considerable and get recycled in a sometimes perfect virtuous circle.

So, where are all the Euro based talent acquirers?

I think the UK Government is listening to us

2011-03-25T17:54:00.001Z

Following hard on the heels of the Home Office's announcement relating to Entrepreneur visas, this week's budget had a distinctly enterprise supportive flavour.

I had very much hoped this would be the case and certainly the signals coming out of the Department for Business (in the shape of Mark Prisk - who attended Seedcamp's SeedSummit for a full hour and half), the PM in his Tech City announcement and No10's enterprise task force including treasury officials, gave one hope.

Government has the loudest megaphone in the land and once they 'discovered' Silicon Roundabout at Old Street it moved swiftly into the vernacular and the media have been making regular trips east ever since.

Its easy to be cynical when it comes to politics but I do believe we have a tech friendly Government determined - and able - to keep Britain as the best place to start a business in Europe.
I have reason to believe too, that the personal pressure which David Cameron has applied to Google, Facebook, Cisco and co to heavily invest in Tech City is being taken very seriously by those companies.

The details of the budget are well covered elsewhere but its worth summarising some of the key points which will directly impact early stage technology companies and entrepreneurship.

1. Expansion of Entrepreneurs Relief: limits capital gains tax to
10% on business sales under certain conditions. The “lifetime” limit on capital gains which can qualify for entrepreneurs relief will be doubled from 6 April to £10 million.

2. Changes to the Enterprise Investment Scheme
offers income and capital gains relief for investors in growth businesses.
The rate of income tax relief on EIS investments will rise from 20% to 30% from 6 April 2011.
This means if you invest £100,000 in a qualifying company, you immediately benefit from an income tax
deduction of £30,000. ..and the qualifications and type of shares are to be made much simpler and wider - limits now to 250 employees rather than 50. The annual allowance for individuals doubles to £1m

3. Corporation Tax:

The main rate of corporation tax will be reduced from 28% to 26% from April 2011.
The rate will then be reduced by a further 1% in each of the following three years, giving rise to a corporate tax rate of 23% by 2014. This will give the UK one of the lowest rates of corporate tax in Europe.
The small profits rate of corporation tax will fall from 21% to 20% from April 2011.

4. R&D Tax Credits:

There is a major boost in the Budget for small businesses investing in research and development. The rate of relief on qualifying R&D expenditure rises to 200% from April 2011, with a further increase to 225% from April 2012.

All in all there has never been a better time for start-ups in the UK!

UK Budget - not all bad for Entrepreneurs

2011-03-23T20:06:00.000Z

With thanks to Graeme Burnham of Complete Tax Solutions .....[the comments in italics are mine]
The highlights extracted from the Chancellor's 2011 Budget are as follows:

· Corporation tax rate is reduced to 26% [for those making profits]
· EIS relief will increase to 30% from 20% [Great boost for Angels]
· Entrepreneurs relief lifetime allowance has doubled to £10m [Excellent news for founders]
· Non-domiciles may be able to remit income/capital gains without
charge if invested in qualifying businesses [haven't examined the detail but this could bring a lot of non - dom cash into the eco-system]
· The business rate – relief holiday for small businesses will be
extended to October 2012 [All helps]
· Small businesses (less than 10 employees) will face less
regulation [must be good - again, lets see the detail]
· The small companies R&D tax credits will rise from 175% to 200%
to 225% [Excellent!]
· Short life asset allowance to increase to 8 years from 4 years
· National insurance will (at some point in time) be combined
with income tax
· Gift aid will be simplified and administration will be taken
on-line
· A 10% reduction in the inheritance tax rate if 10% of a legacy
is given to charity to be implemented in April 2012

London is a magnet for talent -update

2011-03-08T11:05:00.002Z

Image via Wikipedia

March 16th: UK Government introduces new visa rules ..... http://goo.gl/rKfOc

At a recent meeting at Fizzback, I became aware of the large number of non-Brits on the team. They may be an exception because after all they do a fair amount of semantic analysis using natural language processing in half a dozen languages but 38 out of a total of 66 Fizbackers were born outside of the UK.
That's 58%.

The non-UK nationalities represented are:

AMERICAN, ARGENTINIAN, CHINESE, DANISH, DUTCH, GEORGIAN, GERMAN, GREEK, INDIAN, INDONESIAN, IRISH, ISRAELI, IRANIAN, NIGERIAN, PORTUGESE, RUSSIAN, SWISS, SWEDISH, SERBIAN, SPANISH

That's pretty impressive - don't you think?

Looking around the London office of Index, there are only 6 British born - out of a total complement of 18.

At a time when Governments around the world are pushing for enterprise, start-ups, small businesses and technology to lead their economies back to health, its more important than ever that talented people who want to participate in a country's economy are encouraged and allowed to come.

Organisations like Seedcamp and SeedSummit have been lobbying the UK Government to make non-EU Visas easier to obtain to allow this very phenomenon to flourish. This is important and I hope that the strong words that the PM is using about enterprise and growth extends to ensuring that talent wanting to come to the UK will find it easy to do so.

[update, 16th March 2011 ...

Government 'rolls out the red carpet' for entrepreneurs and investors ...http://goo.gl/rKfOc ]

Just this past week, Techcunch ran a story entitled "Why Silicon Valley Immigrant Entrepreneurs Are Returning Home"

London clearly has some extra-ordinary pulling power despite the weather (which by comparison with many places is not that bad anyway)....and is producing some super companies. Saul wrote an interesting piece on this a couple of months ago.

The Prime Minister, David Cameron said yesterday: "Where there has been an aversion to risk, there needs to be boldness.

"I'm telling you today that your job under this government is not to frustrate local people and local ideas, it is to enable them."

If the Government can follow through on this rhetoric and continue to foster and develop an enterprise culture, there is no reason why London will not continue to be the startup capital of Europe.

If you have some stats on % of non-Brits in your London based startup, let me know.
Perhaps someone needs to pull together a comprehensive data set.

Best Practice - series

2011-03-05T10:28:00.000Z

Yesterday morning - March 4th - I received the fist of the monthly stats packages from a TAG portfolio company - for analysing February's results. In the next day or two, I'll get the full set of management accounts - P&Ls, Balance Sheet, commentary, the works. That's really good.

That same morning, I received the accounts package from another profitable and well run company - but for January.
It made me think about the very privileged position I have in being able to compare and contrast and draw conclusions as to best practice across a whole range of companies at different stages, with different priorities.
Having made more than 70 early stage investments in my 15 years of active investment, there is a certain pattern recognition which emerges and which I'm going to attempt to crystallise as 'Best Practice Tips'.

The best way to disseminate these - in the hope that they'll be useful to some - is to 'tweet a tip' every day.

The output will not be organised in sections or subject heads - nor will they necessarily follow logically one to the other but will be randomly put out - as they occur.

Two tweets have already gone out 'on test' - and I intend persisting with them as long as people are commenting.
Sometimes the 'best practice tip' (bpt) will be tough to get into 140 characters without being too obtuse or cryptic, in which case, deck.ly will do the job.

The 2 tips put out thus far are:
Tip1: know your cash balance every day
Tip 2:Get management accnts out by 10th of month,closing KPIs on the 1st. So Feb KPIs ar… (cont)http://deck.ly/~VZ17o

Want to keep getting the best practice tips? Follow me on Twitter ... @robinklein

Great Entrepreneurs focus on their mission rather than their competitors

2011-02-16T14:53:00.000Z

I’ve noticed a tendency of some early stage tech companies to be excessively distracted by what their competitors are doing, or what they think they are doing.

Understanding the landscape and differentiating your product – or approach to the market - is of course essential and there could be a number of areas of head-on competition. Competing for key words on Google as key distribution channels are examples of these.

But, the overriding focus of the CEO must be the customer/user not the competitor.

The questions to be answered are:

· What is our real mission
· What would make a better experience
· How can we deliver our service/product better, cheaper, faster? Than we are currently doing.

My own experiences have brought home the importance of this focus.

Joe Corre, co-founder of Agent Provocateur, never looked at a competitor’s product! I well remember the occasion that a new member of the design/marketing team went out and bought a pile of competitor’s bras for price, quality comparison. Joe absolutely flipped and practically threw both the offending garment and the unfortunate member of staff out of the office. He and Serena, his partner, had our clear vision of what the product should be like and they wanted no distraction of that vision.

This may be extreme but during my 5 years I was associated with AP I was able to see firsthand how this unfettered vision was instrumental in making AP one of the worlds admired fashion brands.

Steve Jobs at Apple clearly comes from a similar school.

Wonga, one of Europe’s start-up superstars, was founded and is run by two entrepreneurs (Errol Damelin and Jonty Hurwitz) who designed their business, product and service without any regard to competitors but rather by recognising a consumer need and filling it with precision and dedication to a great user experience.

The same can be said of Daniel Ek at Spotify.

Look around and I’m sure you’ll recognise the characteristics in most of the great new companies.

Great entrepreneurs and companies don’t spend large amounts of time and money refining and defining nuances of differentiation from competitors or indulging in feature wars with them.

Quite often the real competitor is NOT the other on line (or pure play) company but the off-line incumbents putting the user at the centre of the thinking, immediately flushes out who the real competitor is.

Index Seed Investments

2010-11-29T18:42:00.000Z

Following my post yesterday which presented an overview of Index Seed - 6 months after launch, I've been asked a few times to list the companies which we have invested in - that is, those which are not still in stealth.
Here they are:

Freejit is still in stealth but announced.
5 other announcements due soon.

Related articles

6 months on .....

2010-11-28T10:04:00.000Z

There is a tiny bit of PR wisdom to which I have tried to adhere most of my working life: "refrain from talking publicly about what you are going to do, talk about what you have done".

When we made the Index Seed announcement, it was clearly necessary to indicate what we were going to do. This was so that entrepreneurs and fellow travellers had some sense of our plans and could propose working together.

Now, given that it is almost exactly 6 months since we announced that TAG and Index were getting together to launch Index Seed, it is time to review what we've done and how well or otherwise we've done it.

All the leading technology VCs do some seed stage investing, the questions to be asked are: how many do they do? what resources are applied? what are the processes involved in getting from A to Z ? (ie from trying to get a date in the diary to cash in the bank) and how involved are they once the investment is made?

We set out to invest in a style that blended the best of TAG’s angel and Index’s institutional approaches.

So, what has been achieved?:

We have an active investment committee comprising 5 partners who meet weekly to review potential investments. Saul Klein, Neil Rimer, Mike Volpi, Danny Rimer and myself (Robin Klein)
We are supported by a dedicated Seed Associate, Terrence Rohan, by Alex Gezelius (Associate at Venture - who has been invaluable to us) and by Thai Tran - a brilliant engineer who has been an EIR at Index and has acted as our Technology advisor.
We have backing from the full Index Partnership as well as the operations team including, Legal and Admin - Nicola, Andre, Sayula, Nina and Pet
We have reviewed over 750 plans and met with over 250 companies
We have made 12 seed investments so far in 2010 (5 in London, 3 on the West Coast, 2 in Israel, 1 in Estonia and 1 in New York). Many are still in stealth so will only be announced at a time to suit the company's needs.
Amounts invested have ranged from $100k to $1m
We have a standard seed term sheet, refined and made founder friendly, closing deals at minimal legal cost
Every investment has been made with fellow travellers including: Chris Sacca, Dave McClure, Quincy Smith, Ariel Poler, Simon Levene, Aydin Senkut, Marten Mickos, Robert Dighero, Stefan Glaenzer, Alex Zubillaga, Jerry Yang, Yaniv Golan, Avichay Nussbaum, Fabrice Grinda, Michael van Swaaij, Seedcamp, Redpoint, First Round Capital, Betaworks, True Ventures, Polaris, Ron Conway, Joi Ito, Matt Cohler
Together with the other investors interested in supporting the earliest stage businesses like Eden, Notion Capital, Lars Hinrichs at HackFwd, we have actively backed Seedcamp with investment and attendance at events

What we're still working on:

Consistently providing a definitive answer to founders within 3 weeks of our first contact. We achieve this often but not always
Encouraging founders to get pre-endorsed by someone we know

We are really excited at the volume and quality of new start-ups coming from all geographies and fully intend keeping this pace of investment going during 2011.

KPIs - a really powerful tool

2010-09-27T11:56:00.000+01:00

"Not everything that can be counted counts, and not everything that counts can be counted."
Albert Einstein, (attributed)
US (German-born) physicist (1879 - 1955)

Image via Wikipedia

Deciding on a set of KPIs is one of the most important things we normally do when starting to work to build the business with a founding team.
What to measure? how frequently? what to publish? and to whom? are all good questions to be thought about.

Key Performance Indicators are a fundamental tool, the dashboard by which the company is monitored, guided, controlled and managed. It is surprising how frequently this really simple device is not properly used.

In many traditional businesses, the monthly management accounts serve as the barometer of corporate health and comparisons to budget help to drive actions by the philosophy of 'management by exception'. This approach is completely out-dated and inadequate for fast moving web businesses capable of generating vast amounts of meaningful data in real time.

Distilling all this data down to the key numbers and tracking them against expectations is where the effort needs to go in setting up the set of KPIs that are going to drive the business.

No board should burden the management team with data requirements beyond those which are needed to run and plan the business, so an agreement as to the KPI set - should be sought as soon as possible.

Make sure that everyone in the senior team 'owns' one of the KPIs. The big goals of the business which are agreed by the board should be represented at the targets against which the KPIs are measured.

I like to get an email containing KPIs at least once a week (preferably auto generated, untouched by human hand) and in some cases every day! I find this no burden at all - its easy enough to glance at the headline (in the subject line) and delete.

Some teams prefer to give non-execs access to the analytics or admin dashboards inviting them to look up the numbers when it suits.
For me this misses a very important point. That of being 'top of mind' for your board. Most NEDs sit on multiple boards and if you want them to think about your business and provide meaningful, helpful advice, contacts etc then its best that you keep reminding them of your existence.

You'd be amazed at how efficient your board meetings can become when everyone is up to date with the performance, has lived through the month's ups and downs through the KPIs and has a good idea of where the issues lie.
You will spend less time reviewing the month past and more time discussing the issues and planning the future.

Am I just naive? Or is this type of stuff just 'par for the course'?

2010-09-23T16:18:00.001+01:00

One of the things I really enjoy about the early stage technology scene is its collaborative nature. Companies routinely compete and co-operate and "frenemies" co-exist pretty happily.
Lots of people give freely of their time and expertise understanding that we are all part of a larger eco-system with many mutual dependencies.
There is a time to compete really strongly - and this is normally done by being faster and smarter.

I was shocked recently by the behaviour of one of MyBuilder's competitors - namely MyHammer.
This German company, with operations now in the UK has behaved in a way that is frankly very difficult to understand or justify.
[I need to declare a direct interest in this matter as a board member and investor in MyBuilder]
Firstly, MyHammer registered the MyBuilder trademark in the UK - back in June 2008, AFTER MyBuilder had launched their site in May 2008. Clearly this was an 'own goal' on MyBuilder's part and is a lesson to all startups to register your brand as soon as possible.

Then,recently, MyHammer initiated a PPC campaign / new affiliate site, my_builder.com (ie my underscore builder), just when MyBuilder's TV advertising campaign launched. See screen grabs below -

Following a strenuous complaint by MyBuilder, MyHammer agreed to take down the offending site - no doubt having hoovered up a decent number of potential customers. I would also hope that they would hand back to MyBuilder their brand registration and URL - the goodwill in which has been built by MyBuilder at considerable cost and over a number of years.

I'm interested in what people think about such practices and how widespread they are. Certainly there is no board that I sit on which would sanction such an approach to competition.

This is the TV commercial which is helping to build the MyBuilder brand:

The Accelerator Group (TAG)

Entrepreneurs .... you may have Maggie to thank!

Related articles

$1bn has 'gone' in 4 years

"1000+ STARTUPS WILL BE ORPHANED; $1 BILLION+ LOST"

Related articles

European Tech companies are ready to show their mettle

Related articles

Wonga: a successful British tech company worthy of UK Government support

Related articles

Techs and the City

A National Grid for Banking - radical thinking by Errol Damelin

Getting your foot in a VC's door

Related articles

Trust Me .....

Related articles

The cult of the founder

Breakfast at No10 Downing Street

Fizzback does a NICE deal

TAG commits another 250K Euros to extend runway for Seedcamp companies

Do we need more engineers in government?

Stick or Twist. Sell or swing for the fences.

A Bubble? - Chinese Style.

Related articles

Where are all the Euro talent acquirers?

Related articles

I think the UK Government is listening to us

Related articles

UK Budget - not all bad for Entrepreneurs

Related articles

London is a magnet for talent -update

Government 'rolls out the red carpet' for entrepreneurs and investors ...http://goo.gl/rKfOc ]

Related articles

Best Practice - series

Related articles

Great Entrepreneurs focus on their mission rather than their competitors

Related articles

Index Seed Investments

6 months on .....

If you're interested to hear more about the activities of Index Seed and TAG, please subscribe to this blog or follow me on Twitter @robinklein

Related articles

KPIs - a really powerful tool

Related articles by Zemanta

Am I just naive? Or is this type of stuff just 'par for the course'?

Related articles by Zemanta