investment – ɔimoɈɒ

Forcing Serendipity: not the oxymoron you might imagine

13 years ago, while the economy was in the grips of the inexorable slide into recession, I wrote a short article about them need for entrepreneurship in the face of adversity. In this current world, restricted by pandemic conditions, this is probably needed more than ever.

Here’s a sub quote by John F Kennedy (the journalist, not the President):

Enterprise and entrepreneurship are the antidote for unemployment and recession. Encourage people to use computers and broadband to beat the recession, they can work for anyone from anywhere. They can create businesses based on anything from selling stuff on eBay to using their intelligence to write, provide consultancy services or develop technology. This is the way out. Failure to provide them with the tools is economic sabotage. Let’s hope intelligence prevails.

In a Covid-restricted world, none of this is surprising. We have had the technology, if not the means to provide everything that’s been asked for and with business leaders claiming that productivity is up when workers are working from home, this could be a rare opportunity.

But it’s not all roses.

One of the things I’ve noticed from working and studying from home exclusively for nearly a year is that there is a noticeable decimation of serendipity. Those moments which can be inspirational are not happening. The water cooler moments. The flashes of inspiration when two workers collide. We can do our best to emulate these however through direct intervention, even when the only facetime we get is over a videoconferencing call.

My solution when working with startups and larger companies is that serendipity can be forced. This isn’t like trying to force creativity – and yes – I’ve been in the room when a senior manager has walked in and demanded everyone be creative for the next two hours, as they’ve just brought in the sandwiches. You can’t force creativity (it’s a muscle, just like every other muscle, you need to exercise it regularly), but we can force….or engineer serendipity.

We can provide the grist for the mill of creativity by making sure everyone has the opportunity to mix up with everyone. That includes reducing the enforcement of unreasonable company policies about being “online all the time or forcing everyone to turn their cameras on for the company Zoom meeting. It is absolutely about engaging people when they’re in their comfort zone to speak and helping realise that their discomforts are the engine of change.

Equity Egality

Following on from the announcement that Mapbox just secured $10M in Series A and conversations this morning with a NISP EIR, I am left wondering how Northern Ireland can justify selling Series A of the scale of £200K with a 10% fee return and equity stakes of up to 30%? Doesn’t that just end up … Continue reading “Equity Egality”

Doesn’t that just end up de-motivating the founders? Don’t you just end up with an institutional stakeholder who has difficulty following on especially when the expectation of the return on the fund is less than zero?

Doesn’t it push valuations down when our geography would indicate that to approach your Series B (which will be a year away) you will need to look beyond these shores and spend a chunk of your Series A funding that process (and not focusing on product)?

Doesn’t it mean the job of the CEO becomes the endless search for further capital and not the development and expression of the team vision? How much runway does £200K provide for a globally focused startup compared to $10M?

And what is the purpose of public backed funds? I would expect them to be tasked with the role of creating value-added startups who will be fit to employ others, equipped to challenge anyone and financed to play on a global stage? I would not expect term sheets that were predatory, equity stakes that were nausea inducing, valuations that were humbling and anti-founder clauses (including an insistence of a hostile board member) that caused founders to disengage from the process early.

The point of public-backed funds is not to get as much value for money as possible (in terms of startup equity and founder enmity) but to accelerate the development of these companies to some sort of exit, up to and including merger, acquisition or even IPO. Inadvertently we have incentivised exactly the wrong activity in our public venture funds. I would be curious to see if it happens again.

After a decade of intervention…

Got this in iMessage just now. Describing frustration with trying to kick off a startup in Northern Ireland. I’ve met with a few private investors, a couple of angels, a few venture capitalists, lots of public sector funding managers and a few deal brokers. I’ve read a few term sheets – enough to realise when … Continue reading “After a decade of intervention…”

Got this in iMessage just now. Describing frustration with trying to kick off a startup in Northern Ireland.

I’ve met with a few private investors, a couple of angels, a few venture capitalists, lots of public sector funding managers and a few deal brokers. I’ve read a few term sheets – enough to realise when I need help but also, thanks to three friends in particular, read enough to realise when someone is being shafted. We’re a long way from having this fixed. And, if I am honest, after a decade of intervention, I don’t think we’re any closer to the answer.

Why?

Because the intervention was In the wrong direction. It was top down and not bottom up.

Market Research

Tomorrow I’m off to the InvestNI Business Information Centre to do some research in mobile and games for the planned Games Development Cluster, BLOC54. The problem is that you end up looking at market data reports from companies like Forrester: “The iPhone will not substantially alter the fundamental structure and challenges of the mobile industry,’” … Continue reading “Market Research”

“The iPhone will not substantially alter the fundamental structure and challenges of the mobile industry,'” Charles Golvin, an analyst at Forrester Research Inc., said in a report this month. (link)

or pay attention to the geniuses at Bloomberg:

The iPhone is nothing more than a luxury bauble that will appeal to a few gadget freaks. In terms of its impact on the industry, the iPhone is less relevant. (link)

This puts the researcher at a bit of a crossroads. Interested parties (whether that’s InvestNI or private investors) will want to see some market research. They’ll want to see predictions on where the market is going, thoughts on what niche you’re going to play in and they’ll want these verified by companies like Forrester, Gartner, Deloitte. The dilemma is that when the numbers from these companies agree with what you want to present then they are visionaries. And when they disagree, they’re buffoons.

This isn’t really a problem because the smart money will know the story and it’s likely that while you’re making your pitch the panel will be unlikely to be reading reports from competing organisations to try and find you out. They’re going to give you the benefit of the doubt – at least during your 3 minute pitch.

The important thing is that, positive or negative, you need to do the research.

So why not Kickstarter

I got this question yesterday. If I want to do this, why not use Kickstarter as it’s been such a success for heaps of stuff. The world famous Double Fine Adventure sets a precedent. A small team of dedicated people can achieve great things. But, ultimately we’re not ready for that. We’ve got the start … Continue reading “So why not Kickstarter”

I got this question yesterday. If I want to do this, why not use Kickstarter as it’s been such a success for heaps of stuff.

The world famous Double Fine Adventure sets a precedent. A small team of dedicated people can achieve great things.

But, ultimately we’re not ready for that. We’ve got the start of a team with Aidan and Willem. We’re trying to raise some cash for assets – images, music, animations, movies. We have our Lo-Fi movie, a wiki that’s growing with game design features and background and we’re talking to Northern Ireland Screen about what they can do to help.

We’re not ready for something like Kickstarter because we don’t have the twelve year background of Double Fine Productions, the reputation of Tim Schafer, the back catalogue of 2 Player Productions. Kickstarter is a big step and we’re not ready because we don’t have anything to show.

We’d like help to get there.

Crowd funding Investment: I have a bad feeling about this.

From Gamasutra: Newsbrief: In the wake of Double Fine’s astonishingly successful Kickstarter campaign, industry trade body UKIE called for legislation changes that would allow UK video game companies to use crowd funding to finance their projects. UKIE explained that the UK’s current legal and regulatory framework puts too many restrictions on crowd funding, and the … Continue reading “Crowd funding Investment: I have a bad feeling about this.”

From Gamasutra:

Newsbrief: In the wake of Double Fine’s astonishingly successful Kickstarter campaign, industry trade body UKIE called for legislation changes that would allow UK video game companies to use crowd funding to finance their projects.

UKIE explained that the UK’s current legal and regulatory framework puts too many restrictions on crowd funding, and the group promised to release a report that outlines the ways in which the laws should change to better suit game developers and the entertainment industry at large.

I view this with some discomfort. There is nothing stopping UK video game developers using crowd funding to finance their projects. Nothing. Beginning their position with a straw man argument sets the scene for a document filled with repetition and obfuscatory prose.

The restrictions of the UK’s current legal and regulatory framework are in place to protect people from shysters. It’s not always possible and some people get burned but it’s the best thing for everyone.

There is nothing stopping Kickstarter from being in the UK as-is. But this paper from UKIE is attempting to effect serious change in the way securities are dealt by permitting crowd funding from “small holders” to purchase securities in bulk and I’m extremely wary of it for two reasons:

they’re using Kickstarter as an example. This is disingenuous in my opinion as its saying “look what donations/pre-ordering can accomplish, now let us sell shares this way” and nearly every discussion seems to revolve around selling investments. Kickstarter proves this isn’t required. And their opening argument is utterly defeated.
in my own investment dealings (helping to advise local companies), I’ve had to deal with venture capitalists who have been nothing short of shysters. Term sheets which could drive their own truck through them, legals which are not only different to the terms laid out in the term sheet but actual opposites which, when discovered are resulting to more more than an apology.

So, the mother of all unintended consequences would be to permit this and allow investment managers to punt junk companies on the Internet for pennies. In effect, doing a pre-IPO IPO. With the number of companies out there and the number of potential investors, this becomes an administrative nightmare. While the fund managers laugh all the way to the bank, you have thousands of shareholders wondering why they bothered considering the bulk of the money goes on fees and you’ve got such a micro-percentage of the company that you can’t control anything anyway. Ending up with a heap of shares in a worthless company isn’t the only potential outcome. Are they seriously going to have shareholder meetings with thousands of shareholders when a company is worth £100K?

I might be spending too much time worrying about the motivations of strangers. In my opinion, these people are not to be trusted.

Pivot? No, Tack and Gybe!

This weekend I was entertained by the news that Color, a social media startup, was moving from “mobile” to “FaceBook” as their primary platform. Whether you think that’s a good idea or not or whether the only thing Color has going for them was the $40million they received in venture capital, it represent a pivot … Continue reading “Pivot? No, Tack and Gybe!”

My second company pivoted. I didn’t like it much. We started out doing products, bootstrapping due to the complete lack of seed funding in the region (something that has been fixed) and ended up selling our souls to contract development. Yes, we were bootstrapping but only due to lack of choice. And I hated it.

I spent last weekend sailing with Ballyholme Yacht Club and earned my RYA Level 2 “Start Sailing” certificate. The core concept of sailing is summed up by five essentials:

Trim
Balance
Sail setting
Centreboard
Course Made Good

Trim and Balance are all about keeping yourself in the boat while the wind and waves are trying to throw you out. In dinghy sailing, keeping the boat at flat as possible means you can eke out the best performance. Plow the bow in too far and you lose speed, similarly too much weight on the stern causes excessive drag.

Sail Setting is about keeping the wind in your sails. When sailing, your primary method of locomotion is through the wind. While you can make some progress on the currents, surfing the odd wave and negotiating the tides, it is with the wind that you make progress.

Centreboard, also known as a daggerboard or keel, provides resistance to the wind driving you sideways and off course. It also helps in keeping you in a boat. You have to know when to set the centreboard hard or when to pull it in a little to reduce drag.

Course Made Good is figuring out which way you have to point your little boat in order to arrive at the destination, taking into account the current and tides, waves, obstacles, other vessels and, of course, the direction of the wind. Sometimes the most direct route is impossible (sailing upwind) and you may have to tack or gybe your way through the wind to reach your desired goal.

So what are tacking and gybing?

Tacking is moving your boat against the wind to change direction. As you face the wind, the power is lost from the sails. You lose some speed but the manoeuvre is controllable, predictable and if things go wrong, the worst thing that can happen is that you slow to a stop.

Gybing is moving your boat through the wind to change direction. The wind is always fully in the sails, the process is much quicker and much more violent but there is much more risk of losing control and ending up in the water.

Knowing when a tack is needed and when only a gybe will do is something that is gained through experience. It depends on what direction you are going, where you want to go and what direction the wind is heading. it depends on what risks you are taking. Our instructor, Alice, related a tale of how she was forced to tack multiple times during a race when one gybe would have completed the turn because the high winds and risk of capsize would have lost her the race.

I can’t help but relate the concepts of tacking and gybing to startups who feel the need to pivot. In fact, all of the five essentials of sailing can be related in some way and would, in my opinion, go well in a business plan.

The Investor is a Customer

One final note: investors who want business plans are probably not your target market, if you’re founding a high growth technology startup. We had lots of great followup conversations with the angels who wanted them, but ultimately none of them turned in to investors A bit of sense from Dan Shapiro which is worth reading … Continue reading “The Investor is a Customer”

One final note: investors who want business plans are probably not your target market, if you’re founding a high growth technology startup. We had lots of great followup conversations with the angels who wanted them, but ultimately none of them turned in to investors

A bit of sense from Dan Shapiro which is worth reading in its entirety.

The problem I see at the moment is a heap of self-labelled entrepreneurs who won’t write anything down. They have obviously spent too much time watching Dragons Den or making pointless elevator pitches at BarCamp (where most people are too polite to be honest) and reckon that by sheer force of personality they’ll get what they want. Because, obviously, this has happened. Deals can be made on the back of a napkin, the investor wants to invest in you as a person so they’re not interested in the detail. And I’m not even talking about a 30 page operations plan, folk won’t even put the time n to do the executive summary which is, after all, the most minimum of effort and the only thing worth writing.

I say this after writing a dozen business plans, after finishing an executive summary and now having to write the accompanying 30 pages of supporting materials for a strategy document. I’m currently on page 11 with that one. But you have to choose your battles and suit them to the audience. And by audience I mean customer.

The customer is the person who gives you money. The customer may change over the life cycle of your business and you’ll need to change your pitch accordingly.

The customer as private investor

– will want a story about markets and returns and how you’re going to achieve them. You are competing with golf, drinking cocktails by the pool and sailing in the Aegean so your pitch needs to be short, snappy and exciting.

The customer as public sector

– a very different story when accessing public funds. The risk-aversion will go deep and wide and you’ll have to address every concern. And it’ll need to be written down.

The customer as VC

– in many ways like the private investor but with fewer bikinis and sailboats. You have to outline possibility and opportunity and, to be honest, make I seem like you can deliver.

The customer as Punter

– way too many variables depending on where the market is, how much it’s going to cost, whether it’s a hit model or a slow burn, buy once or forever subscribe. Arguably these are the second most important customer.

Your punter customers don’t necessarily want to see your entire business plan and it’s likely that your initial investors don’t either. But they’ll want to see something and the more institutionalised they are, the more paper they’ll want to see.

At the moment, Northern Ireland is awash with startup supports. There are more than 10 startup incubators either in planning or in execution. All of them will require you to do more than an elevator pitch.

Greylock launches Fund II in Europe/Israel

From Techcrunch: Well known US VC house Greylock Partners is launching a brand new $160 million fund aimed at internet technology companies, with the fund being deployed between Europe and Israel. .. We’ve confirmed that the fund will be run from London by Laurel Bowden, a Partner, and will cover investments from early stage and … Continue reading “Greylock launches Fund II in Europe/Israel”

From Techcrunch:

Well known US VC house Greylock Partners is launching a brand new $160 million fund aimed at internet technology companies, with the fund being deployed between Europe and Israel.
..
We’ve confirmed that the fund will be run from London by Laurel Bowden, a Partner, and will cover investments from early stage and beyond.

As the fund is being run from London, I wonder how many of our local digital content companies will take advantage of the cheap flights and go and present themselves to Laurel Bowden, the Partner and manager of the fund. And if not, why not?

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