Another great interview by Robert Scoble with the founder of Angel Pad. What they look for in entrepreneurs and how they fit them with great angels and VCs.
Makes IdeaSpace in Cambridge, UK, look fast asleep. But then Angel Pad and Y Combinator are run by entrepreneurs with skin in the game. When will IdeaSpace and Cambridge Enterprise learn? And Imperial Ventures and every other public funded group trying to start businesses.
No skin -no pain - no gain!
Fred Wilson started his talk on employee equity with a quote from Jeff Minsch (JLM) “If anyone goes to the pay window, everyone goes to the pay window”.
So everyone in a high-growth technology company started in a Cluster - Silicon Valley, Cambridge, UK - should have founder shares, founder employee shares or employee options. It is a key difference between these companies and the 99% of companies started which are owned by one or two people.
I remember asking such rich Indian kids (they could have been from any country but they would have to be rich) how do you feel that your family is so rich and yet the people who joined the company just after it was founded have no share in the capital wealth? That is they do not have rich kids… Guess no one had asked them the question. It is an interesting moral and economic question.
How many rich kids will Facebook produce and how many will be so rich that the wealth will be great even after a few generations? Will that be good for the inheritors twice or more removed from the founders? Guess that many great philanthropists come from these families.
Another link from www.avc.com.
This time all about Twitter from the CEO.
Fred Wilson of www.avc.com gives a great presentation about equity on his first Livestream show. He divides equity up between founders, founder employees (who receive %ages) and employees (who receive value or number of shares). Always make the shares of founders vest so if they leave early, the company can retain some of their shares to attract good people.
So many points:
- in awarding equity to employees, the sooner you can stop talking about percentage and start talking about value ($,£) the more equity you will retain
- (47:04) award options as soon as possible so price is a as low as possible - larger gain to employees
- (48:00) remember you are competing with other start-ups for great people
- (50:24) award retention grants (without cliff) so that employees keep receiving options
The link to the talk:
http://new.livestream.com/Skillsharelive/MBAMondays/videos/490550
Rapportive is sold to LinkedIn for $15million giving a windfall to Cambridge University Alumni.
Rahul Vohra, Sam Stokes and Martin Kleppmann met in Cambridge, UK, and crossed the pond to join Y Combinator to start Rapportive. Rapportive “shows you everything about your contacts right inside your gmail inbox” by bringing together info from Facebook, Twitter, LinkedIn and others.
Rapportive was started in January 2010, battled through Y Combinator and in August 2010 raised over $1million from an impressive list of investors: “Gmail creator Paul Buchheit, Scott Banister, Jason Calacanis, Gary Vaynerchuk, David Cancel, Dharmesh Shah, Shervin Pishevar, and Roy Rodenstein. Also participating are Dave McClure’s new fund 500Startups, Nivi & Naval Ravikant’s VentureHacks, Charles River Ventures, Kima Ventures, Zelkova Ventures, and BOLDstart Ventures.” I think that the founders had to leave the USA to gain their visas - reminds me of the start of Duofertility but this time with the founder having to return to New Zealand to apply for a work visa in the UK.
Not one Cambridge Angel appears in the list of investors despite some of them funding Rahul Vohra in at least one of his two earlier start-ups.
Do you have to go to Silicon Valley to start a social network company? Should you go?
As I keep saying in these posts, the most interesting fact is the number of investors involved in the round - I count 14 investors. Spread the risk, crowd the expertise and so offer a high valuation for the talented founders. Too many people in Cambridge, UK, talk down investors.
Let us try and reverse engineer the Equity Fingerprint.
Round 1: Founders have one third each.
Round 2: Y Combinator invests $20k for 10% - I think that is their normal term - leaving the founders with 30% each.
Round 3: Now for the guessing; what terms did the 14 investors go for? Y Combinator companies have done well and Martin Kleppmann had already started and sold a business (I think to Redgate Software). I guess for between 20% and 40% so let us go with 30% valuing the company around $2million pre and $3million post investment.
Note: no mention of great number of staff hired so guess that there were no options offered and all was achieved by the three founders.
Payday: The Founders started with 33% each, diluted to say 30% after Y Combinator and then down to say 20% after the investment round. So each founder ends up with 20% of $15million, around $3million, for two years work and no doubt lots of pizzas and sleeping on floors! Let us hope that they remain good friends.
Interesting for me as I suggested to Rahul Vohra that he should finish his PhD as starting companies was a risky business. So he made it third time lucky - not that I believe in luck except for health. He upped and off’d to Silicon Valley and the “boy done good” to use a phrase. Certainly puts the pressure on some of his contemporaries who are still building and some who can only dream of selling.
Also shows the strength of the social network business where you can scale a business with few employees or in this case, zero!
Come back to Cambridge, UK, soon and reveal all the secrets so people can stay in Cambridge, UK, be funded by angels and other investors in Cambridge, UK, and so help pollinate the Cambridge Cluster.
LinkedIn was started by Reid Hoffman, a great supporter and founder of Silicon Valley comes 2 Cambridge.
Where was Cambridge Enterprise? Supporting entrepreneurs who generously donate to the University or backing patents?
Hat tip: Crunchbase
Wonderful walk to Chapelporth and onion soup in the cafe on New Year’s Day.
Started talking to the guy who appeared to barge to the front of the queue - he did not really but took his girlfriend’s place! Tom is one of the five founders and two investors of Finisterre Clothing based in St Agnes, Cornwall, UK. I told Tom did he realise that it was very unusual to start a company outside the Cambridge Cluster with more than two founders? He looked puzzled!
But even more puzzled when I said that I was very pleased to hear that Holly who worked for him is moving to London to work for Philip Treacy the most sought after milliner in the world.
Holly has been designing and selling hats for a few years and now has her dream job with Philip Teacy. But should Tom have appreciated her talents and offered her an opportunity? Yet another tough decision for the entrepreneurs.
Let us hope that Holly triumphs at Treacy’s titfers and Tom flourishes at Finisterre!
Interesting article concluding:
The key to promoting innovation (and productivity in general) lies in allowing vigorous new companies to grow big and inefficient old ones to die.
So support efficient start ups and efficient big companies.
Big companies do have three advantages over small companies:
- economic activity is driven by big ecosystems
- globalisation puts a premium on size
- challenges for innovation involve vast systems such as education and health care.
So start in the Cambridge Cluster and sell to a big company - what we have always done?
Hat tip: Schumpeter in The Economist 17 December 2011, page 122
Founded by three university friends from the University of East Anglia, Travel Republic has ridden the wave of the move away from traditional package holidays to “dynamic” packaging - where customers assemble their own trips - on the back of the rise of low-cost airlines. 75% of the company has been bought by Dnata, Emirates’ air service subsidiary.
There is no mention in the article of an option package for staff nor of any of the 200 employees owning any shares. They may receive some comfort from the assurance that there will be ”zero redundancies”. Not quite the same as sharing in the value they have created.
What a joy it is to be part of the Cambridge Cluster where share options are common and share in the winnings. Pity that they founders did not use a business plan resource such as Equity Fingerprint.
Hat tip: The Times 4 January 2012, page 31
It is not until the USA companies file for their IPOs that you can find out the shareholding structure. Zynga is big and has raised big sums and is raising some $1billion at the IPO. More details at All Things D and other sites such as Dealb%k.
It is good to see that the big winner is the CEO and founder Marcus Pincus. He has done it before at Support.com. He cashed in some $109.5million before the float and collects some pocket money (for him) by being the company’s landlord.
Do go and read all the details and when people in Cambridge, UK, say that VCs only do wash out rounds, add Zynga to the list of great companies they have helped create.
Good to see that Fred Wilson and Union Square Ventures have done well investing in the second VC round. With Fred Wilson no doubt sharing 20% of the gain with his business partner at USV he will be able to rent some more bikes on holiday. Strange that Fred is always shy about talking up his successes. I read his blog most days and whenever he is cashing in, you get no posts or updates on his blog. Nice that he behave so well!!
Also the founder of Silicon Valley Comes to Cambridge (UK), Reid Hoffman is listed as a shareholder. I guess we hear about the home runs and not the washouts!
Then there is the interesting aspect of the Russian VCs buying shares before the IPO and allowing the founders and others who created the business to cash in without raising the number of shareholders. It looks so easy and they do it so well - the investors!
I was listening to one of the motormouths of the Cambridge Cluster talking about washout rounds. Why does he not concentrate on the many companies that have been built by VCs in the Cambridge Cluster? One of the troubles, an example is Xensource, that everyone goes very quiet in Cambridge, UK, when things go well.
I warned the founder of a company I am trying to invest in that a potential angel is a high class act. Please do not be taken in by his diffident manner and just grab him as an investor. But let me in first, please!
Merry Christmas and happy new year. Wishing good luck to all entrepreneurs and never forgetting the billions of people not so lucky. But hopefully one of the products of our success will be a better world.
Met a good guy running a tech hub in Germany. We talked about equity and about the number of angels required to fund a start up in Cambridge, UK and Silicon Valley. He called it “crowd funding”.
Apparently it is very difficult to do in Germany as every new shareholder in a company requires formal approval. Guess they learnt some pretty tough lessons in the past so they have tough rules on shareholders. So to get round this problem, one shareholder makes an investment and then sets up something like a trust in which other investors can take a “stake”.
Of course you need some rules but the more rules the greater the constraints on the entrepreneur who has enough on his plate to get a start up off the ground.
My new friend from Germany also told me that he had lost a lot of his families money in a start up and was now running a hub. Nice guy and hope things work out for him.
Perhaps our Prime Minister was right to keep out of Europe. If we had these crazy rules our City would not be the creative hub it is and the key part of the UK economy. We certainly would not have the Cambridge Cluster or Cambridge Phenomenon as some like to call it. It is a cluster really as Prof Porter identified with all the people working together without too many rules and bureaucracy.
Sometimes we forget how lucky we are to live in Cambridge, UK. And never forget the beautiful church music especially at this time of the year. As I had to remind a friend - it is a service not a concert!