Cambridge Cluster

 The Cradle of Mankind is the Olduvai Gorge in East Africa, but the Cradle of M-PESA (mobile money) is not in Africa but in the Cambridge Cluster as set out below in the comment made on my previous post on M-PESA.  The comment is by Chris who was on the original founding team of what became M-PESA.  I hope that he will come forward and provide his contact details – I have them on the comment but not quite sure if he has given me permission to release them.  The Internet is all about trust so we await his permission.

From the point of view of my interest in equity funding of technology companies, the problem with a skunkwork project is that it takes place in one or a group of companies.  The risk is taken purely by the large companies and not by the employees so it is unlikely that they will share in the wealth generated from their creation.  The people are employees not entrepreneurs unless they generate a CSR type spinout of their company (in CSR this was Cambridge Consultants).  The Sagentia team moved to IBM.

Chris says, at the end of his post, that people are always interested in the later stages but not in the birth of the idea.  I find this all the time with Equity Fingerprint.  People are interested in the sophisticated later funding rounds with established metrics of products and markets.  Academics are not inerested in the changing ownership structure of the early days of companies.  I guess that if you have not been there, you have no idea of how the Equity Split is made and changed in the very early days.  The film Social Network, about the early days of Facebook, gives some of the flavour of the chain of events and differing personalities which govern the equity distribution which is so important in later stages and the sale or flotation of the business.  What would have happened at Abcam if Analysis had not extended credit at a critical time or David Cleavely risked his pension pot?  It is all about people like any cradle in Africa or the Cambridge Cluster.

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M-PESA won’t be coming to the UK primarily because the banks are well established here so there isn’t such a need for the service as in developing countries and also because the banks do everything they can to prevent the mobile network operators muscling in.

The second video shows attempts at mobile payment in a customer present scenario. You don’t really need a mobile phone for that. A simple card, possibly NFC, will do. M-PESA can be and is used for customer present transactions but was primarily intended for quick money transfer at a distance, usually about 7 seconds, the time taken for an SMS to be delivered. The initial marketing campaigns showed remittance to parents in the country from children in the city. In developed countries this can be done via web banking.

Another reason M-PESA won’t come to developed countries is the patent situation. The mobile and financial spaces are so filled with patents that any attempt to establish a commercial operation in countries covered by those patents will bring out the patent trolls and tie it up in litigation. M-PESA never had to concern itself with patents.

The technical standards for payments via mobile phone were established years ago but depend on phones supporting the SIM as a trusted element and having a trustworthy browser. NFC is an associated requirement. Then there was a classic chicken and egg situation where the manufacturers wouldn’t produce the phones until there were services that would use them and there couldn’t be services until the phones were widely available. This situation has been exacerbated with the introduction of smartphone platforms from Apple, Google and Microsoft, three companies from a PC background that show little understanding of telephony. They each want a share of the mobile cash market so we now have a three cornered battle between the banks/card companies, MNOs and smartphone manufacturers. From a consumer perspective this will be a confusing situation for some time yet.

To clarify this article’s title linking M-PESA to Cambridge, nearly all the technology behind M-PESA was imagined and developed by Sagentia at Harston from 2005 to 2009. When the team moved to IBM they worked in Histon for some months until moving to Stevenage in 2010. Although the intention was to move all work to India and repeated attempts were made, the level of expertise required has led to the retention of the UK team. (Somebody might like to do a study on this to identify the practical limits to outsourcing due to differences in skill levels.) M-PESA’s early development was very much a skunkworks project consisting of five people stuck in a small room over a hot summer. There were no design documents but there was fantastic commitment, very capable people and great direct communication between everybody from the various partner companies from those working on the ground in Kenya to those in a backroom. This is something that the various academic studies (at times there seemed more people and money studying M-PESA than developing it) tend to miss. They concentrate on the system once it was running rather than looking at the seeds from which it sprang.

As promised by the Mayor of London…… The Jubilee, the Olympics and so much more.

Come to the UK for party time but book your tickets as the parks will fill up. The UK will be a great happy Cluster!

Hat tip: Dan from London

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!

Another link from www.avc.com.

This time all about Twitter from the CEO.

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