Tag Archives for Business

Booming or Busting?

A view of downtown San Jose, the self-proclaim...Image via Wikipedia

Very strange reading the papers in the UK and hearing news from the USA about budget cuts and contrasting it with the talk by Paul Graham at the Y Combinator Startup School 2010.

Graham’s talk is all about lots of clever money seeing the quick returns on startups in Silicon Valley and wanting some of the action.  The angels are forming Super Angel groups and the VCs are prepared to invest smaller amounts for first rounds of £300k.  The valuations are going up and up so it is a good time to raise funds providing, as always, you make great progress and can justify a higher valuation at the next round.  Lack of progress can lead to a lower valuation and a dreaded downround or no round.

Ignore the gloom about budgets and get out and start a great company.  But whatever funds you are offered, use a great business plan resource and keep exceeding the targets.  Graham pointed out the recent effect of small startups funded by angels being bought up early giving returns of 10x to angels in one year.  As returns have to be related to time, these 10x returns in one year are way ahead of the returns angels received in even Google where they had to wait five years.

Are you Booming or Busting?

But take great care as ever!

PS Do listen to Ron Conway et al talking at Startup School.

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Let the good times roll again! Convertible debt for angels

Fred WilsonImage via Wikipedia

Fred Wilson write a great blog and not much needs to be added to it except that he is one person who got in early and will make a ton of money out of spotting the social network space.  Amazing to have the simple vision to use the tools and then be able to relate to entrepreneurs.  All so simple but he does hide away..  Ooops no he does not as one of his companies, Zemanta, has just popped his photo up!

In his post on convertible debt for angels in the first round, he puts the other case that he prefers agreeing a price and investing.  But he understates the great increase in value he brings to the new company when he says “I can negotiate a fair price with an entrepreneur in five minutes and have done that for a seed/angel round many times.”  We can all agree a price but most entrepreneurs do not bite off our hands!

Fred Wilson operates in a very different environment than Cambridge Enterprise, the arm of the University of Cambridge which “exists to help University of Cambridge inventors, innovators and entrepreneurs make their ideas and concepts more commercially successful for the benefit of society, UK economy, the inventors and the University“.   Their recent News and Events Bulletin states that “Sixteen Cambridge Enterprise portfolio companies are included in Business Weekly’s “Killer 50” list of the most disruptive technology companies in the East of England”.  Amazing companies that will change our lives in the years to come.

But in the mission statement of Cambridge Enterprise there is no mention of angel investors.  Are angels the best investors to start disruptive technology companies?  Do they have deep enough pockets?

Perhaps angels in Cambridge need to entice the entrepreneurs in Cambridge to follow the path of Fred Wilson as demonstrated so well by Rahul Vohra and Rapportive.  A very different business plan resource approach is required.  Perhaps Cambridge Enterprise should establish a new division to support the likes of Rahul Vohra – after all the experience, skills and opportunities given to Rahul Vohra served him well until he upped and offed to Silicon Valley.

The only worry to me as a low-grade angel is that the convertible debt stacks the cards too much in the favour of the entrepreneur and the second round investors.  The first round investors need a great big uplift to justify the huge risk we take.  We might not fund a company to revenue but we fund social network companies to their first major step of customer engagement with hundreds of thousands of users.

Will all this help The Entrepreneurs Graphic Novel when it is is published as an app?

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The Way to Win!

I found this on the web about the short history of VCCP, an advertising company:

“Chime announced yesterday that it was paying £14.5m in cash and shares for VCCP, the group behind the successful marketing strategy for the O2 mobile phone brand as well as campaigns for Coca-Cola, the financial services group ING Direct and Dyson vacuum cleaners. A further £15.5m will be paid to VCCP depending on future performance. The company’s founding partners – Charles Vallance, Rooney Carruthers, Adrian Coleman and Ian Priest – each own 20 per cent of VCCP, with the remaining fifth held by 19 senior managers.”

So started in 2002 and sold in 2005.  Interesting two of the founders of VCCP had been through the loop before: “VCCP was founded in 2002 by the four partners, who previously worked for other London ad agencies. Chime also owns 51 per cent of the ad agency HHCL, where Mr Coleman and Mr Priest used to work.”

It just goes to show the strength of the advertising cluster in London.  Perhaps the Cambridge Cluster could learn from it.  I wonder what business plan resource the London advertising enterpreneurs use?  They seem to be single round financing deals but with the founders realising the importance of including as many as possible in the equity.

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Mid Sussex Auctions – good for clothes but competition for laptops

A long day at the South of England Showground attending the monthly general auction run by Mid Sussex Auctions.  With over 1,500 lots it looked like being a very long day with a late finish but fortunately the auctioneer knocks the lots through with little patter – you either buy or miss out – and alos offers buyers the option to buy similar following lots.  Suddenly you have jumped fifty lots so you need to stay awake to catch your number.

This general auction offers a broad range of items mainly from distressed sales and lost property.  Clothes and bedding comes in big bundles but computers and mobile phones are sold individually.  Amazingly there was little interest in SLR cameras but bidding for the Mac Book was fierce.  Someone bought it untested and with no extras such as power supply for over £250.

I had hoped for a bargain with a “lost” laptop but the CEO of Dragoon Solutions chased us all away.  He told me afterwards that they buy all laptops at auction on the south coast.  So better to go direct to Dragoon Solutions and see if they have what you want and they may even offer a guaratee.

One other key point – bring your own chair.  The sofas and chairs can be removed as soon as sold so some unfortunate bidders had to stand for a long time.  Lots of gold and watches for sale but one dealer just took them all.

Another great day watching entrepreneurs at work and wondering what sort of business plan and business plan resource they all used.  Our Dragoon man must have found it worth spending his time bidding rather than enjoying the seaside!

By the way, bring a large van to take all your lots away!

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Red Gate Software and Springboard v Brent Hoberman and PROFounders v CfEL v Government Venture Fund

Brent HobermanImage via Wikipedia

Red Gate Software is one of the rising stars of the Cambridge Cluster and now they are helping the next wave.  Entrepreneurs are provided with a desk, Internet and the biggest draw of all, FREE DELUXE FOOD.  We all know that an army marches on it’s stomach but geeks build great businesses powered by sensible nibbles.  If you are working 100 hundred hour weeks you need a sensible diet, some exercise and deep sleep.

In Neil Davidson’s blog post The Accidental Incubator there are more details.  It fits in well with his recent takeover of the Cambridge Network and contrasts with the way CfEL has moved their Summer School into a general management programme called Ignite which no longer concentrates on entrepreneurs but “corporate innovators” prepared to pay the hefty fee.

Both make mention of the importance of a business plan but little mention is made of a business plan resource.  If you do not take your equity seriously then stick to the corporate world.

Or you can try Brent Hoberman’s PROFounders Fund which has culled a list of 500 applicants to 5, I think.  The first investment is in TweetDeck with less than 10% share.  Later investments should be more ambitious and the stake higher.  Great set of entrepreneurs including the impressive Michael Birch of Bebo fame.

But perhaps avoid the Capital for Enterprise Fund backed by the Government and “administered” by the likes of fund managers Octopus Capital.

If the Government wants to encourage investment in small companies, do it via the EIS scheme with entrepreneurs been given higher and higher tax breaks to put in their cash and time.  It is a fact of the Venture Capital world that only the top tier firms spot the winners so fund managers will never make it work; well, hardly ever as the old song goes!

Hope one day to be invited to discuss Equity Fingerprint with the Red Gate Software Springboard aspiring entrepreneurs and take a bite of deluxe food.  Or perhaps Hoberman will serve a tasty dish to tempt me.

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Tr.im goes dark without angels

This was written before Tr.im reversed the decision and decided to keep open.  However the issues discusses are still valid – no money, no business.

Tr.im announces that it is ceasing the service of trimming the size of a URL.  The blog post says that they have not been able to find a way of making money out of tr.im (I do not like the word monetise) and they are being hit by the cost of running and developing the system.  They have lost out in the race to provide the service to Twitter.

Duncan Bannatyne of Dragons’ Den fame says that the he has lost count of the times he has said “It’s not a business, so I’m out”.  He means that “any budding entrepreneur must have a robust business plan and clear profit-making projections for their enterprise to stand a chance of success”.

The Dragons only pick the easy companies in which to invest; ones with sales and profits.  The flaw normally being that the entrepreneur does not have what it takes to turn the initial success into a large company.  This gives the Dragons easy pickings after the really hard yards have been won.

It will be sometime, if ever, before the Dragons have the nerve to join the angels in Cambridge – you do not have to be a member of the Cambridge Angels – backing ideas a long way from the market and the with sketchy business plans.  It is a very high risk world investing in people and technologies ahead of the game.  It would be fun to present a Google, Flickr or Twitter type deal to the Dragons let alone ARM, CSR and ARTVPS.

But where we can agree with Bannatyne is his condemnation of smoking.  Seen as fun when I was young, the consequences are well known nowadays.  Bannatyne quotes figures of 20% of the population (presumably the UK and not his beloved Scotland) smoking with many more affected by passive smoking.

In the geek world in Cambridge, smoking is almost taboo so perhaps we do have something in common with those fearsome dragons after all even if we may have to tr.im their egos!

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The new Count Palentine of golf

A golf ball directly before the holeImage via Wikipedia

In an article on Ross Marshall, 27, c0-founder and CEO of yourgolftravel.com, there is no mention of the holding company, Palatinate Leisure Group Limited formed in 2007.

Ross met Andrew Harding at Durham University and after trying other careers decided to follow their passion for golf and set up yourgolftravel.com in 2005.  Turnover reached £8m in 2008 and is expected to double this year – no recession in the golfing world!  They now have over 50 staff, nearly 90,000 clients and represent 1,200 golf courses in 26 countries.

In the article, Diary of a Golf Venture, mention is made of £250,000 loan taken in January 2006 for expansion.  Is the loan convertible and what kind of business plan resource have they used? Did they uses their background in banking and the profession to go for an Active Equity Company?

Buried in the website is a little bit of knowledge(!) about the origins of the word Palatinate.  I wonder if they make their customers members of the Order of Palatinates?

Another great case study

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Cronto makes a sale

Thin Air At Over The AirImage by Rija 2.0 via Flickr

I first met Igor and Elena, the Cambridge, UK, based husband and wife team that runs Cronto (simple strong security), a couple of years ago when they first started working on their new encryption service.  It is a very simple idea and relies on people keeping their mobile phones handy.  Apparently they are rarely more that two metres from us!  When you access your bank account, a pattern appears on a screen, which you photograph with your mobile phone.   The Cronto software decodes the pattern and you key in the code; very simple and very secure.

It always amazed me that you could travel and access your bank account without informing the bank that you were away from home.  With Cronto,  you feel your bank account is safe.

Looking at the website, there is no sign of a VC and so I wonder what business plan resource they are using?  As they are based in the University of Cambridge’s William Gates Building, do Cambridge Enterprise have any involvement?

The website is very busy and Grant Dain, internet marketing Cambridge, might suggest that it is simplified with clearer calls to action.

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Remember ’87, ’97, ’07

mobile social networkingImage by Will Lion via Flickr

Friends Reunited is now valued as little as £20m to £40m compared to the price paid by ITV of £175m.  Perhaps it is time for the Founders to buy it back or else think that social networks have moved on and Facebook has won with 200million users.

It is why you need an outside investor onboard to keep you in touch with the market; it is so easy to keep a life-style or passive equity company chugging along but it is not the role of entrepreneurs.

I remember the words said in ’87, “We could work for another ten years and not be as well off”.  And not just us, all the staff with their options and all the investors.

So essential and so difficult to do; build a business and keep a watchful eye on the value you are creating.  Of course, it takes special people to be busy building a business and going through the tortuous route of due diligence and closing the biggest deal of their lives.

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Twitter fills up whilst in control

Fred Wilson makes the point that Twitter raised funds:

“But there’s a saying that I heard early on in my tenure in the venture business that still rings true.

The best time to raise money is when you don’t need it”

Interesting that Fred says “I am thrilled that Twitter will be working with Todd Chafee and his partners at IVP and Peter Fenton and his partners at Benchmark. The list of investors in Twitter just keeps getting better and better.”

That is the way to build an Active Equity Company.

Of course, Twitter like CraigsList, seems to provide a platform on which so many others can build and keeps it’s own headcount down, way down with a very small team (some 30+ people I think).

So often I hear people say things like “Why do I need to raise money when I am doing so well”.  Look at Geneva Technology and the late, great Stephen Thomas.  Plan raising money using a business plan resource, not when your backs are against the wall.

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