Is there not just a hint of xenophobia in the way the British press has set against US private equity house TPG Capital, the key investor in a restructuring plan for troubled Bradford & Bingley?
This week, as B&B’s UK Shareholders Association advised retail investors to consider voting against the TPG offer at B&B’s upcoming general meeting, TPG has been on a charm offensive in the City of London to win round investors. With its wide experience of turning round struggling financial institutions, it proposes to parachute in two senior executives to head the rescue bid. But with several major institutional investors unimpressed by the terms, British financial entrepreneur Clive Cowdery has been lined up behind a rival offer – giving newspapers a chance for “Plucky Brit versus US Giant” headlines.
The world of private equity is a very different place to venture capital, of course. PE firms typically look to buy out established companies in need of a cash injection, and take them on to the next stage of growth before splitting them up or selling them on. VCs, meanwhile, look for medium- to long-term equity positions in high-growth companies. But in both areas, US money is still readily available – and US buyout firms are thought to be circling UK companies en mass. So why is the prospect of US investment so often seen as a bad thing?
Research from Library House shows how the investment picture is changing. Last year’s report, “Funding Growth in a Changing World: The UBS UK Venture Backed Report 2007”, found 1,668 venture-backed businesses in the UK, which had raised a total of £1.4bn in 2006. According to its preliminary figures for 2007, Library House estimates that the total investment fell to around £1bn, still a sizeable chunk of money but back to the levels experienced in 2003. It also found that outside the UK, US-based investors were the principal source of finance for these UK venture-backed companies. And although China is overtaking the UK as a recipient for US finance with India soon to follow suit, the UK still leads the rest of Europe.
These findings were reinforced by new research from the BVCA (now known as the British Venture Capital and Private Equity Association). It found that investments by UK-based VCs fell by almost half last year from £1.3bn to £683m. The total number of early stage deals completed by its 214 members remained pretty constant at 584, however, indicating that average deal size is falling. These figures were no doubt influenced by the much-publicised exit of 3i and Panmure Ventures from the early stage investment sector.
Overall – including private equity – the BVCA recorded a 45% rise in 2007 investment activity to £31.6bn. So clearly it’s the buyout sector that’s most buoyant for UK investors, particularly for AIM-listed companies.
So what should entrepreneurs make of the continuing interest from US firms, whether private equity or VC? Firstly, US firms are particularly excited about the UK’s mobile sector, seeing it as a gateway into Europe – but interest across the whole of the technology sector is strong, as well as certain areas of life science and of course, our much-vaunted creative industries. One company founder at a recent Library House event professed to be taken aback at the level of interest from US funds, while UK investors were noticeable by their absence. “There were wall-to-wall VCs and many were American,” he told me. “They said they were coming over to get the deals because we are more innovative.”
Although he was in the market for angel rather than VC investment, he was positive about his experiences with US investors. “UK investors tend to look at your business and ask: ‘What are the risks involved?’ whereas the US investors are much more concerned with the opportunities.”
Buoyed by this kind of attitude, the US route has been taken by several UK start-ups over the past few years. As Toby Strauss, chairman and co-founder of IT skills marketplace Orderwork, told g2i, the difference in attitude between the two countries is marked. “We found that the UK continues to be averse to investing in start-ups, whereas in the US, leading financiers are prepared to put seed money into ideas and see what happens. That difference in philosophy became apparent early on.”
There are of course some challenges to dealing with US money. There’s the small matter of the large pool of water that separates you from your investor, although many US VCs with a strategic interest in the UK either have offices in London or work with partners. Entrepreneurs and advisors who’ve dealt with US investors also advise you to set realistic expectations and keep on communicating your delivery against pre-agreed goals – which is good practice with any investor.
Most importantly, entrepreneurs need to ask what they’re getting out of the relationship, whether it’s strategic advice from a top US investor who’s been through the process of helping establish other start-ups, or a longer-term opportunity to access the US market. Whatever the value proposition, if the deal works for you at a strategic level, the colour of the money probably shouldn’t matter.
By David Longworth, Webster Buchanan Research
Friday, October 24, 2008
Thursday, July 24, 2008
Looking abroad for Business Investment
Frank Lavin, under secretary for international trade at the US Department of Commerce, knows as well as anyone how difficult it is for tech entrepreneurs to market their wares internationally. Dubbed 'America's salesman-in-chief', part of his job is to help US businesses partner and collaborate abroad.
Speaking at a briefing this week focused on clean technology opportunities in the Nordic region, Lavin pointed out that many businesses with disruptive technologies don't have the scope to handle international opportunities. For one thing, it's not part of their corporate culture - and for another, they tend not to be structured in a way that lets them market systematically around the world. It's down to his International Trade Administration team, with 2200 people around the world, to help US companies take advantage of those opportunities.
The breakfast briefing - hosted in San Francisco by law firm Heller Ehrman and, unusually, featuring three US ambassadors on a roadshow in their home country - was designed to focus attention on clean tech opportunities in Denmark, Sweden, Finland and oil-rich Norway. There's no shortage of entrepreneurs in the region and no shortage of technology - in fact, James Cain, US ambassador to Denmark, described it as the most wired market in the world, the most tech savvy of its size anywhere, and highly innovative in alternative energy. But what many entrepreneurs in the region lack, according to participants at the event, is both the capital and marketing expertise to turn great ideas into great businesses.
That, in theory, presents a big opportunity for foreign investors and tech companies looking to partner and collaborate. And while the whole focus of the briefing was on the Nordic region's relationship with the US, the opportunities aren't purely transatlantic. Just as Germany is a global leader in the adoption of solar energy, so the Nordic regions are making great strides in areas such as wave and wind power, biofuels and carbon sequestration - and that's got to present opportunities for London clean tech entrepreneurs as well.
In fact, proximity may even give UK entrepreneurs an advantage over their US counterparts, particularly in their awareness of the cultural differences between the four Scandinavian countries. Although the ambassadors urged attendees to consider the four countries as one region, they acknowledged local cultural rivalries. Benson Whitney, US ambassador to Norway, couldn't resist telling how he'd been approached by a Swedish woman asking him what Norway had that Sweden didn't. 'I was thinking oil', he mused, to laughter. 'Then she said: 'Good neighbours.''
By Keith Rodgers, Webster Buchanan Research
Speaking at a briefing this week focused on clean technology opportunities in the Nordic region, Lavin pointed out that many businesses with disruptive technologies don't have the scope to handle international opportunities. For one thing, it's not part of their corporate culture - and for another, they tend not to be structured in a way that lets them market systematically around the world. It's down to his International Trade Administration team, with 2200 people around the world, to help US companies take advantage of those opportunities.
The breakfast briefing - hosted in San Francisco by law firm Heller Ehrman and, unusually, featuring three US ambassadors on a roadshow in their home country - was designed to focus attention on clean tech opportunities in Denmark, Sweden, Finland and oil-rich Norway. There's no shortage of entrepreneurs in the region and no shortage of technology - in fact, James Cain, US ambassador to Denmark, described it as the most wired market in the world, the most tech savvy of its size anywhere, and highly innovative in alternative energy. But what many entrepreneurs in the region lack, according to participants at the event, is both the capital and marketing expertise to turn great ideas into great businesses.
That, in theory, presents a big opportunity for foreign investors and tech companies looking to partner and collaborate. And while the whole focus of the briefing was on the Nordic region's relationship with the US, the opportunities aren't purely transatlantic. Just as Germany is a global leader in the adoption of solar energy, so the Nordic regions are making great strides in areas such as wave and wind power, biofuels and carbon sequestration - and that's got to present opportunities for London clean tech entrepreneurs as well.
In fact, proximity may even give UK entrepreneurs an advantage over their US counterparts, particularly in their awareness of the cultural differences between the four Scandinavian countries. Although the ambassadors urged attendees to consider the four countries as one region, they acknowledged local cultural rivalries. Benson Whitney, US ambassador to Norway, couldn't resist telling how he'd been approached by a Swedish woman asking him what Norway had that Sweden didn't. 'I was thinking oil', he mused, to laughter. 'Then she said: 'Good neighbours.''
By Keith Rodgers, Webster Buchanan Research
Show me the money
A quick flick through the sheer multiplicity of grants on offer is enough to make any entrepreneur’s mouth water. And unlike VC money, grants don’t have to be repaid and they don’t – big sigh – dilute your shareholding. So it’s worth spending a bit of time considering this funding option, whatever your viewpoint on “free” money.
But grants come with a couple of downsides. The first is that the terms and conditions can be excruciatingly restrictive. While it’s not a common occurrence, it’s certainly not unheard of that a start-up will go through all the hassle of finding what they think is the right award scheme, filling in the application forms and going through due diligence, only to find at the last minute that something in the small print – like the fact that part of their R&D is conducted overseas - disqualifies them.
Secondly, as we’ve pointed out before, many awards schemes are actually run as competitions – including one of the most lucrative in the UK, the Technology Strategy Board, which includes the wonderful Knowledge Transfer Partnerships. Want to get your research done by some whiz kid PhD students at a University department specialising in your particular field? Then a KTP is the thing for you. The only snag is you’ve got to prove you’re more deserving than your competitors (which could be many or few, depending on when you apply) and there’s a strict timeline you have to adhere to.
So if you haven’t got the time to find the right award scheme and jump through hoops to meet the application criteria, take the advice of one entrepreneur we recently spoke to. He used an outside adviser to secure an award from the DTI, working on a no-win-no-fee basis. “It worked well for us because it can be difficult when you’re already working an 18-hour day to find the time to identify which awards are right for you,” he points out. Of course, you can’t shift responsibility for funding entirely to a third party, but if you can devolve much of the grunt work to them – and incentivise them in a way that means you don’t lose money if they fail – then you should be onto a winner. And better still, you might get to meet Stelios in the process.
For South African Business Invetment Opportunities and Capital check out SA Investors Network
But grants come with a couple of downsides. The first is that the terms and conditions can be excruciatingly restrictive. While it’s not a common occurrence, it’s certainly not unheard of that a start-up will go through all the hassle of finding what they think is the right award scheme, filling in the application forms and going through due diligence, only to find at the last minute that something in the small print – like the fact that part of their R&D is conducted overseas - disqualifies them.
Secondly, as we’ve pointed out before, many awards schemes are actually run as competitions – including one of the most lucrative in the UK, the Technology Strategy Board, which includes the wonderful Knowledge Transfer Partnerships. Want to get your research done by some whiz kid PhD students at a University department specialising in your particular field? Then a KTP is the thing for you. The only snag is you’ve got to prove you’re more deserving than your competitors (which could be many or few, depending on when you apply) and there’s a strict timeline you have to adhere to.
So if you haven’t got the time to find the right award scheme and jump through hoops to meet the application criteria, take the advice of one entrepreneur we recently spoke to. He used an outside adviser to secure an award from the DTI, working on a no-win-no-fee basis. “It worked well for us because it can be difficult when you’re already working an 18-hour day to find the time to identify which awards are right for you,” he points out. Of course, you can’t shift responsibility for funding entirely to a third party, but if you can devolve much of the grunt work to them – and incentivise them in a way that means you don’t lose money if they fail – then you should be onto a winner. And better still, you might get to meet Stelios in the process.
For South African Business Invetment Opportunities and Capital check out SA Investors Network
Tuesday, June 24, 2008
Date with a Investor
More and more matching services for investors and entrepreneurs are springing up. The 2007 launch of SA Investors Network Angels Den was followed last month by the opening of Venture Giant: and on the international stage, last year’s launch of pan-European network Easy followed in the footsteps of AngelSoft, which was founded in 2004 by legendary New York investor David Rose. According to Angel Investor magazine, there are estimated to be upwards of a dozen matching services in the UK alone.
The matching of investors and couples bears many similarities – both sides often struggle to seek each other out, they each find a neutral venue like a website a less intimidating environment to flaunt their “wares”, and in both instances a certain amount of “filtering” is required before the actual, ahem, transaction can be completed. Angels Den even holds popular speed dating events. But it’s fair to say that investor matching services, like dating websites, have so far enjoyed a somewhat patchy reputation.
When asked his opinion on matching services, Nick Halstead, founder of blog aggregator and g2i company Favorit, is none too complimentary about angel networks: “My experience with angel networks has been ‘avoid unless you have to’. When I first raised money, I ignored all of them. In fact, at a lot of the networking events I went to, I started to see them as sharks.”
He does concede that there are good and bad matching services, but categorises one of the larger networks as “big but terrible. I used them in a previous company and they just spam out your plan and take your money.”
The matching of investors and couples bears many similarities – both sides often struggle to seek each other out, they each find a neutral venue like a website a less intimidating environment to flaunt their “wares”, and in both instances a certain amount of “filtering” is required before the actual, ahem, transaction can be completed. Angels Den even holds popular speed dating events. But it’s fair to say that investor matching services, like dating websites, have so far enjoyed a somewhat patchy reputation.
When asked his opinion on matching services, Nick Halstead, founder of blog aggregator and g2i company Favorit, is none too complimentary about angel networks: “My experience with angel networks has been ‘avoid unless you have to’. When I first raised money, I ignored all of them. In fact, at a lot of the networking events I went to, I started to see them as sharks.”
He does concede that there are good and bad matching services, but categorises one of the larger networks as “big but terrible. I used them in a previous company and they just spam out your plan and take your money.”
The good, the bad and the ugly
The raison d’etre of these sites is that they take the legwork out of contacting multiple angels to piece together a funding round. The latest set of figures from the National Endowment for Science, Technology and the Arts (Nesta) shows the level of investment from both the early-stage VC market and angel investors to be erratic, although in both cases there’s been a general trend towards a larger number of smaller deals, and an increased level of co-investment, whether that be with public funds, or, increasingly, other angel investors.
According to Nesta’s September report, “Shifting Sands: The changing nature of the early stage venture capital market in the UK”, investments below £2 million accounted for between 70% and 80% of all venture capital investments between 2001 and 2007. However, the average investment shrank sharply between 2002 and 2006, from £700,000 to £393,000, although it recovered in 2007 to £705,000. What this skewing means is that entrepreneurs are increasingly having to piece together deals from a number of different sources.
That trend is only likely to continue as sources of finance dry up in the credit crunch. Rishi Anand, founder of Venture Giant and a successful entrepreneur himself, says: “It’s a difficult process. When I first started, I remember how much running around I had to do. The site is just a way to develop leads and contacts, to create a dialogue and keep in contact. If you don’t use it, then you’re restricted to friends and family and your own network of contacts.”
So why the poor reputation among entrepreneurs? In some cases, complaints about the performance of matching services stem from the fact that people expect too much from them – Anand himself points out that Venture Giant is no replacement for old-fashioned networking, but rather complements it. That said, criticism of the matching services come from three main areas: first, that the networks usually take an upfront fee, regardless of their success; second, that they often apply only limited sophistication to the matching service; and third, that there’s a lack of transparency, which makes it difficult to know where you’re going wrong with your proposition.
To many, the upfront fee feels rather like the fee you would pay for taking out a classified ad in a local newspaper. It’s got a low price tag compared to, say, a page of display advertising, but you don’t really know who’s going to see it or what impact it might have. That said, there are some differences between the services on offer. Angels Den, for example, charges a one-off fee of £99, while Venture Giant charges the same figure, but only when you’ve been contacted by an investor. "We’ve changed the business model to pay on performance,” says Anand. “In today’s economic climate, I would not take money upfront for any service.&rdquo.
Database Filtering
Anand also believes it’s the filtering of entrepreneurs and investors that lies at the heart of the proposition. Investors who sign up to Venture Giant fill in a self-certification form which indicates the minimum and maximum amount they are looking to invest, and which industry and region they’re interested in. Entrepreneurs’ regions, industry types, investment range and expectations are then matched to investors and an introduction effected.
Halstead agrees this is an important component of the service: “The good networks put more work into the filtering process on both sides so that the final meet is more focused on the right matching. Too many angel networks require you to pay up front.”
Anand insists that because Venture Giant only takes a fee once an entrepreneur has been contacted, it’s more reliant on the quality of its database. He points out that high net worth individuals are difficult to define and even harder to find – he hired consultants to extrapolate data on millionaires or individuals with strong shareholdings and invite them to join. Only two weeks in, he already has 127 registrations from entrepreneurs with limited marketing – and other networks report similarly high levels of interest.
Ultimately, any investor grouping is only as good as the quality of investors in the network. They should be judged by the investments that have been made as a result of their match making, so it’s always worth checking out their track record. Unlike dating, there’s little pleasure in the dalliance between an investor and entrepreneur – so you do want to use a service that stands a good chance of getting the whole thing sorted out quickly.
For South African Business Invetment Opportunities and Capital check out SA Investors Network
What lies on the horizon
Most software is bloated, hard to use and ill-equipped for the task it’s designed to tackle. That’s the view of one Silicon Valley entrepreneur who’s taking a strikingly different approach to development by deliberately keeping his products simple and his team small – despite multimillion dollar growth.
Jason Fried, founder and CEO of 37Signals, is already something of a legend in Internet circles. Basecamp, the popular project management software developed by 37Signals, was the first ever package to be written using the Ruby programming language on the web-based Rails framework. In fact, it was Fried’s company that took the work it had done with the framework in Basecamp and released it to the open source community as Rails.
According to IT industry analyst group Gartner, Ruby will reach 4 million programmers in the next five years, positioning it as a mainstream programming language to rival the likes of Java. Unlike Microsoft’s C++, Ruby is a dynamic language making the code more “expressive” and potentially easier to read – it’s like the difference between reading lines of code and reading English. Ruby also gives developers the ability to more easily modify and extend it while it’s running –and it’s this power that the Rails framework exploits in a big way.
Basecamp was originally built in February 2004 to manage projects internally for 37Signals, which at the time was a web design company. But as the company started using it with clients and showing it to colleagues, it became clear that people needed something to manage their own projects. Fried says: “The lightbulb went off and we started thinking that we could make a product out of it. So we polished it up, named it Basecamp, slapped some prices on it and put it out on the market.”
Fried says the company’s early ambitions were modest, telling himself that if he made $5,000 a month in recurring revenue after 12 months he would be happy. “We hit that number in six weeks, so we knew we were on to something. The rest is history.”
'We love small teams... no keeping people busy just because they are on the payroll'
The company has made a lot of improvements to Basecamp since it launched, adding file sharing, the wiki-like writeboards, time tracking and images, but Fried says the “spirit” of Basecamp is all about keeping it simple. “We’ve received thousand of feature requests but we only add the ones we feel are in the best spirit of the product. It’s easy to mess up a good thing by doing too much. Most software is slow, complicated and bloated because the developers aren’t disciplined to know when enough is enough.”
Microsoft, of course, has always taken a different tack, forever adding new features and interfaces to its products and tackling new business challenges. So how can companies in the user-oriented Web 2.0 world hope to compete with the mighty development resources coming out of Redmond? The answer is that some of them don’t actually want to. “Basecamp is intentionally simple,” says Fried. “We don’t compete against other software products but against habit. Most people still manage projects via e-mail, phone, paper and fax. That’s why keeping Basecamp simple is so important – when the alternative is habit, simple is the only possible victor.”
This does of course mean that at some point you’re going to outgrow Basecamp, but that’s a fact that Fried and other web 2.0 start-ups are more than comfortable with. “We love small teams, we love simple software, we love stuff that just works. Most software sucks because it’s too hard to use, too packed with stuff you don’t need and too tailored for huge teams and people with technical backgrounds. Our stuff is simple, clear, intuitive, hosted and so easy to use you can get started in 30 seconds. No manuals to read, no IT staff required. It just works.”
It’s a philosophy that’s been extended to the company itself, which still has a headcount of 10, even though it’s poised to double its multimillion dollar revenue this year. “No management required, no muddled communication, no keeping people busy just because they’re on the payroll. Just focused happy people working on exactly what needs to get done.” Fried says the company could have 50 people by now, but he believes small is beautiful and intends to stay as small as possible “forever”. How long he can keep that up is an interesting question – it’s a wonder he even has time to answer my questions – but if small, focused teams are the future, then he’s certainly pointing the way.
By David Longworth, Webster Buchanan Research
Jason Fried, founder and CEO of 37Signals, is already something of a legend in Internet circles. Basecamp, the popular project management software developed by 37Signals, was the first ever package to be written using the Ruby programming language on the web-based Rails framework. In fact, it was Fried’s company that took the work it had done with the framework in Basecamp and released it to the open source community as Rails.
According to IT industry analyst group Gartner, Ruby will reach 4 million programmers in the next five years, positioning it as a mainstream programming language to rival the likes of Java. Unlike Microsoft’s C++, Ruby is a dynamic language making the code more “expressive” and potentially easier to read – it’s like the difference between reading lines of code and reading English. Ruby also gives developers the ability to more easily modify and extend it while it’s running –and it’s this power that the Rails framework exploits in a big way.
Basecamp was originally built in February 2004 to manage projects internally for 37Signals, which at the time was a web design company. But as the company started using it with clients and showing it to colleagues, it became clear that people needed something to manage their own projects. Fried says: “The lightbulb went off and we started thinking that we could make a product out of it. So we polished it up, named it Basecamp, slapped some prices on it and put it out on the market.”
Fried says the company’s early ambitions were modest, telling himself that if he made $5,000 a month in recurring revenue after 12 months he would be happy. “We hit that number in six weeks, so we knew we were on to something. The rest is history.”
'We love small teams... no keeping people busy just because they are on the payroll'
The company has made a lot of improvements to Basecamp since it launched, adding file sharing, the wiki-like writeboards, time tracking and images, but Fried says the “spirit” of Basecamp is all about keeping it simple. “We’ve received thousand of feature requests but we only add the ones we feel are in the best spirit of the product. It’s easy to mess up a good thing by doing too much. Most software is slow, complicated and bloated because the developers aren’t disciplined to know when enough is enough.”
Microsoft, of course, has always taken a different tack, forever adding new features and interfaces to its products and tackling new business challenges. So how can companies in the user-oriented Web 2.0 world hope to compete with the mighty development resources coming out of Redmond? The answer is that some of them don’t actually want to. “Basecamp is intentionally simple,” says Fried. “We don’t compete against other software products but against habit. Most people still manage projects via e-mail, phone, paper and fax. That’s why keeping Basecamp simple is so important – when the alternative is habit, simple is the only possible victor.”
This does of course mean that at some point you’re going to outgrow Basecamp, but that’s a fact that Fried and other web 2.0 start-ups are more than comfortable with. “We love small teams, we love simple software, we love stuff that just works. Most software sucks because it’s too hard to use, too packed with stuff you don’t need and too tailored for huge teams and people with technical backgrounds. Our stuff is simple, clear, intuitive, hosted and so easy to use you can get started in 30 seconds. No manuals to read, no IT staff required. It just works.”
It’s a philosophy that’s been extended to the company itself, which still has a headcount of 10, even though it’s poised to double its multimillion dollar revenue this year. “No management required, no muddled communication, no keeping people busy just because they’re on the payroll. Just focused happy people working on exactly what needs to get done.” Fried says the company could have 50 people by now, but he believes small is beautiful and intends to stay as small as possible “forever”. How long he can keep that up is an interesting question – it’s a wonder he even has time to answer my questions – but if small, focused teams are the future, then he’s certainly pointing the way.
By David Longworth, Webster Buchanan Research
Thursday, May 15, 2008
The Billion Dollar Entrepreneur
How do you take an ambitious idea that everyone tells you can’t possibly succeed and turn it into a successful business? What are the key facets of building that business that you should focus on from day one? And what does it mean to be a visionary leader, without losing your grip on reality?
When you’ve nurtured three billion-dollar businesses, two of those from start-up, and sold a fourth to a competitor for $10bn, you’re entitled to think you might have some of the answers to these questions. What’s refreshing about Mike Harris, former CEO of FirstDirect, Egg, Mercury Communications and now Garlik, and former chairman of Mercury One2One before it was sold to TMobile, is how down to earth his responses are. Indeed, far from seeing himself as some visionary guru (although he has acted as mentor to many leading entrepreneurs) he repeatedly insists one of his greatest talents is his enthusiasm.
In his book, “Find Your Lightbulb: How to Make Millions from Apparently Impossible Ideas”, Harris describes the spur that finally got him moving on FirstDirect, which was initially just a research project for Midland Bank (now HSBC). He was out walking in the Cotswolds town of Chipping Camden with his wife, Sue, who was unhappy with his preoccupied state. They went into an antique shop and she handed him an ornament bearing an inscription from the German philosopher Goethe. “Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it, begin it now.” Sue, who Harris dedicates his book to, said: “There you are – there’s your answer. Stop making a fuss and get on with it.”
“Just do it” is a common theme for Harris, but not in a Nike kind of way – more a pragmatic, let’s-make-this-happen context. Not many billion-dollar business leaders are so down-to-earth, yet Harris’ words continue to inspire many of his peers, including Innocent Drinks founder Richard Reed, and David Kelley, founder of design consultancy Ideo. Both are among several examples in the book, which is designed, as its title suggests, to explore how you take a big idea and make millions from it.
Stealing ideas
Speaking to a gathering of entrepreneurs in Milton Keynes this week, Harris maintained that being successful is all about the “mastery of ideas”. “If you can find ideas that work, stretch them, shape them, fund them and implement them, then you can generate economic success out of that.”
Harris isn’t precious about ideas; his heroes Bill Gates and Steve Jobs both got their best ideas from elsewhere. “Leaders don’t have to have the idea. Don’t be proud. Steal any idea you can get your hands on. I claim no ownership over Egg, Mercury One2One or Garlik, but I will tell you how I stretched them and became accountable for making them happen.”
He does, however, offer a framework for how ideas are developed – and it’s not just about building what customers want. “If I’d listened to my customers I never would have invented FirstDirect. They didn’t want to queue up in branches that were only open from 9 until 3, but their solution would have been more branches and more staff. FirstDirect was a solution they needed but not one they would have come up with.”
Harris’ framework for ideas is based around unmet needs, and it’s focused on the customer, the industry and technology. From the customer perspective, he says, you ask what would you buy that just doesn’t exist today? From a technology perspective, what can we do more efficiently? And from an industry perspective, it’s about how you can beat competitors and redefine how an industry operates. “You’ve got to tick all the boxes to make it work. I get ideas sent to me all the time and 90% of them don’t tick any boxes, and they very rarely tick all three. Most aren’t even in the game, but if you tick the boxes, then that’s your ticket to the game.”
Playing the game
Once you’ve refined your idea, the next step is how you put the pieces in place to make it a success. To begin with, you need to stretch the concept. “Ideas are powered up by a big vision, something that will enthuse yourself and others,” said Harris. “You need to drive yourself, attract people and communicate something big with passion.” This may come down to a statement: for example, Egg was “the first bank for the digital age”.
Next, you need a leader. “A leader has to take accountability for making it happen, who says it will happen because of me and without me, it won’t happen.” Harris also notes the leader doesn’t have to play to the end – witness Gates at Microsoft; “as long as it’s a big game, and you play long enough to make some money”.
There are, however, certain traps for a leader – including the precariousness of the position. On the one hand, you need to have strong belief in your business, but not too much to make you delusional – and on the other side, you need to have a rationality in approach, but not too much to lead to resignation. Harris portrays this as a balancing act, and the danger is that you can lose your balance.
Another trap is to listen to the sceptics too much who say your idea will never work. At FirstDirect, Harris says his mother was his greatest critic, with her hatred of waiting on hold at call centres before talking to agents who couldn’t deal with her queries. Harris says he used this to inform his model, designing FirstDirect to answer calls within three rings, with smart agents on the line who, if they could not answer your query, would follow processes to route it to someone who could.
Similarly at Egg, Prudential commissioned McKinsey to produce a report on its investment and the consultants delivered two volumes on why it should not invest in Egg. History tells us that didn’t stop the Pru investing, and Harris used the criticism to inform his subsequent business model.
Finally, Harris says companies should take their journey one step at a time, lay out a 12-month plan of what they’re going to develop in the short term – and only take smart risks, asking questions such as: What will it take to pull it off? Is the upside worth the investment? Do we back ourselves to pull it off? What would you have to believe for it to work – and do we? And can we afford to fail?
While the genius of any business is in the important decisions you make at critical times, it’s easy to see Harris – who admits to flying by the seat of his pants in his first billion-dollar venture at FirstDirect – as someone who has learnt by experience. In which case, perhaps the real secret is that he’s just an ordinary bloke who saw an opportunity and went for it.
For South African Business Invetment Opportunities and Capital check out SA Investors Network
When you’ve nurtured three billion-dollar businesses, two of those from start-up, and sold a fourth to a competitor for $10bn, you’re entitled to think you might have some of the answers to these questions. What’s refreshing about Mike Harris, former CEO of FirstDirect, Egg, Mercury Communications and now Garlik, and former chairman of Mercury One2One before it was sold to TMobile, is how down to earth his responses are. Indeed, far from seeing himself as some visionary guru (although he has acted as mentor to many leading entrepreneurs) he repeatedly insists one of his greatest talents is his enthusiasm.
In his book, “Find Your Lightbulb: How to Make Millions from Apparently Impossible Ideas”, Harris describes the spur that finally got him moving on FirstDirect, which was initially just a research project for Midland Bank (now HSBC). He was out walking in the Cotswolds town of Chipping Camden with his wife, Sue, who was unhappy with his preoccupied state. They went into an antique shop and she handed him an ornament bearing an inscription from the German philosopher Goethe. “Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it, begin it now.” Sue, who Harris dedicates his book to, said: “There you are – there’s your answer. Stop making a fuss and get on with it.”
“Just do it” is a common theme for Harris, but not in a Nike kind of way – more a pragmatic, let’s-make-this-happen context. Not many billion-dollar business leaders are so down-to-earth, yet Harris’ words continue to inspire many of his peers, including Innocent Drinks founder Richard Reed, and David Kelley, founder of design consultancy Ideo. Both are among several examples in the book, which is designed, as its title suggests, to explore how you take a big idea and make millions from it.
Stealing ideas
Speaking to a gathering of entrepreneurs in Milton Keynes this week, Harris maintained that being successful is all about the “mastery of ideas”. “If you can find ideas that work, stretch them, shape them, fund them and implement them, then you can generate economic success out of that.”
Harris isn’t precious about ideas; his heroes Bill Gates and Steve Jobs both got their best ideas from elsewhere. “Leaders don’t have to have the idea. Don’t be proud. Steal any idea you can get your hands on. I claim no ownership over Egg, Mercury One2One or Garlik, but I will tell you how I stretched them and became accountable for making them happen.”
He does, however, offer a framework for how ideas are developed – and it’s not just about building what customers want. “If I’d listened to my customers I never would have invented FirstDirect. They didn’t want to queue up in branches that were only open from 9 until 3, but their solution would have been more branches and more staff. FirstDirect was a solution they needed but not one they would have come up with.”
Harris’ framework for ideas is based around unmet needs, and it’s focused on the customer, the industry and technology. From the customer perspective, he says, you ask what would you buy that just doesn’t exist today? From a technology perspective, what can we do more efficiently? And from an industry perspective, it’s about how you can beat competitors and redefine how an industry operates. “You’ve got to tick all the boxes to make it work. I get ideas sent to me all the time and 90% of them don’t tick any boxes, and they very rarely tick all three. Most aren’t even in the game, but if you tick the boxes, then that’s your ticket to the game.”
Playing the game
Once you’ve refined your idea, the next step is how you put the pieces in place to make it a success. To begin with, you need to stretch the concept. “Ideas are powered up by a big vision, something that will enthuse yourself and others,” said Harris. “You need to drive yourself, attract people and communicate something big with passion.” This may come down to a statement: for example, Egg was “the first bank for the digital age”.
Next, you need a leader. “A leader has to take accountability for making it happen, who says it will happen because of me and without me, it won’t happen.” Harris also notes the leader doesn’t have to play to the end – witness Gates at Microsoft; “as long as it’s a big game, and you play long enough to make some money”.
There are, however, certain traps for a leader – including the precariousness of the position. On the one hand, you need to have strong belief in your business, but not too much to make you delusional – and on the other side, you need to have a rationality in approach, but not too much to lead to resignation. Harris portrays this as a balancing act, and the danger is that you can lose your balance.
Another trap is to listen to the sceptics too much who say your idea will never work. At FirstDirect, Harris says his mother was his greatest critic, with her hatred of waiting on hold at call centres before talking to agents who couldn’t deal with her queries. Harris says he used this to inform his model, designing FirstDirect to answer calls within three rings, with smart agents on the line who, if they could not answer your query, would follow processes to route it to someone who could.
Similarly at Egg, Prudential commissioned McKinsey to produce a report on its investment and the consultants delivered two volumes on why it should not invest in Egg. History tells us that didn’t stop the Pru investing, and Harris used the criticism to inform his subsequent business model.
Finally, Harris says companies should take their journey one step at a time, lay out a 12-month plan of what they’re going to develop in the short term – and only take smart risks, asking questions such as: What will it take to pull it off? Is the upside worth the investment? Do we back ourselves to pull it off? What would you have to believe for it to work – and do we? And can we afford to fail?
While the genius of any business is in the important decisions you make at critical times, it’s easy to see Harris – who admits to flying by the seat of his pants in his first billion-dollar venture at FirstDirect – as someone who has learnt by experience. In which case, perhaps the real secret is that he’s just an ordinary bloke who saw an opportunity and went for it.
For South African Business Invetment Opportunities and Capital check out SA Investors Network
Thursday, April 24, 2008
The Girls are Comming
Female-led businesses are on the increase both in South Africa and around the world, but better access to financial networks and enterprise training are key to catching up with their male counterparts.
The gender pay gap may have narrowed over the last 30 years, but it will be another 150 years before women enjoy equal pay with men, say analysts at the London School of Economics. Girls are outperforming boys in the classroom, yet the number of women appointed to boardroom positions in FTSE 100 companies is falling.
So what's a woman to do? Leave the corporate posturing to the men and set up her own business, by the looks of this year's London Annual Business Survey (LABS). Produced by the London Development Agency and Business Link for London, the survey found that female-owned businesses in London accounted for one in six of all businesses last year, compared to less than 10% in 2003.
And the majority of female entrepreneurs love being their own boss, says business support organisation, Everywoman. Its research reveals that 94% of women running their own businesses had 'no regrets' and said it 'exceeded' or 'lived up to' their expectations.
'Application, tenacity and believing you can do it,' are the ingredients of a successful entrepreneur, says Marcia Lazar, founder of clothing software start-up F2IT, who taught herself to programme rather than struggle to impart her 30 years' of fashion industry experience to a programming team.
Having decided to seek investment to further develop her software, Lazar then spent three months writing the 'ultimate business plan', following 'very intense but superb' training through the g2i programme. She's therefore surprised at the LABS's finding that women-owned businesses are far less likely than their male counterparts to have business planning tools in place. 'Women are more organised and better at multi-tasking than men,' Lazar says, 'and more likely to look after the budget at home.'
Connie Sprague, external communications manager at Business Link, agrees that women make good entrepreneurs because they're more efficient, adaptable and better able to juggle work and life demands. But their companies tend to be smaller - averaging 3.8 employees compared to 7.7 for male businesses - and therefore require less management structure. 'Women are playing catch-up,' she says. 'And not having a business plan reduces their chances of getting funding.'
Just 3% of venture capital goes to women-owned businesses, says women's business support network Aurora, with most of their start-up capital coming from personal savings and loans from friends and families.
Women are also more risk-averse and cautious, typically asking for a third less capital than men, according to the Global Entrepreneurship Monitor (GEM). Female-owned businesses start with, on average, capital of �10,000 against �15,000 for men, and, at start-up, expect to have an annual turnover of �20,000 against �50,000 for men. Five years on, they expect their turnover to have reached �40,000 compared to �130,000 for men.
Sarika Patel, director of enterprise and technology at g2i partner Grant Thornton, argues that the problem is not so much that women are less prepared, but that they're less plugged into financial networks. 'I go to lots of corporate finance evenings and they're very male-dominated. Women don't fit investors' typical role model of what they think an entrepreneur is.' One exception is the UK's first investment fund for women-owned businesses. Founded by Gita Patel, StarGate Capital Management's Trapezia fund closed last month after pulling in �5 million of capital for female-led businesses, including a web-based health club and an online villa booking service.
While technology has traditionally been less female-focused, Sarika Patel says the increase in internet-led technology businesses is helping to redress the balance. 'These are often more about networks - such as Mykindaplace [the teenage girls' website sold earlier this year to BSkyB].'
Aurora also reports that women are increasingly starting technology-based businesses in high-income countries. It says women-led firms tend to raise more than 10% of the total investment in several sectors including biotech, healthcare, HR and business software, imaging technologies, and email/messaging software.
While the GEM reports a growing desire to start their own business among 18 to 24-year-olds, the gender gap is greatest in this age group. However, women who had undergone some enterprise training were twice as likely to be engaged in entrepreneurial activity.
In addition, while only 17% of UK computer science degree entrants are currently from women (mostly from overseas), research from the British Computing Society shows that two thirds of girls found their computer lessons interesting, while a quarter would consider a career in computing.
All the same, female enterprise in general still lags some way behind male-led businesses. According to the latest GEM, there's nowhere in the world where women are more likely to set up in business than men. And, across the UK, female-owned businesses comprise just 15% of companies, compared to 30% in the US, where women-owned firms are growing at twice the rate of their male counterparts.
At last week's Women's Enterprise Day, Margaret Hodge, minister of state for the DTI, said she wanted to see the UK emulate the US in terms of the numbers of female business owners. Announcing the appointment of two chairs to lead the DTI's Women's Enterprise Task Force - launched a year ago to encourage more women to set up their own businesses - Hodge said the Task Force's objective is to take the UK closer to US levels of entrepreneurship. She added that if those levels were matched, it's estimated there would be at least 700,000 more businesses in the UK.
By Alison Hjul, Webster Buchanan Research
The gender pay gap may have narrowed over the last 30 years, but it will be another 150 years before women enjoy equal pay with men, say analysts at the London School of Economics. Girls are outperforming boys in the classroom, yet the number of women appointed to boardroom positions in FTSE 100 companies is falling.
So what's a woman to do? Leave the corporate posturing to the men and set up her own business, by the looks of this year's London Annual Business Survey (LABS). Produced by the London Development Agency and Business Link for London, the survey found that female-owned businesses in London accounted for one in six of all businesses last year, compared to less than 10% in 2003.
And the majority of female entrepreneurs love being their own boss, says business support organisation, Everywoman. Its research reveals that 94% of women running their own businesses had 'no regrets' and said it 'exceeded' or 'lived up to' their expectations.
'Application, tenacity and believing you can do it,' are the ingredients of a successful entrepreneur, says Marcia Lazar, founder of clothing software start-up F2IT, who taught herself to programme rather than struggle to impart her 30 years' of fashion industry experience to a programming team.
Having decided to seek investment to further develop her software, Lazar then spent three months writing the 'ultimate business plan', following 'very intense but superb' training through the g2i programme. She's therefore surprised at the LABS's finding that women-owned businesses are far less likely than their male counterparts to have business planning tools in place. 'Women are more organised and better at multi-tasking than men,' Lazar says, 'and more likely to look after the budget at home.'
Connie Sprague, external communications manager at Business Link, agrees that women make good entrepreneurs because they're more efficient, adaptable and better able to juggle work and life demands. But their companies tend to be smaller - averaging 3.8 employees compared to 7.7 for male businesses - and therefore require less management structure. 'Women are playing catch-up,' she says. 'And not having a business plan reduces their chances of getting funding.'
Just 3% of venture capital goes to women-owned businesses, says women's business support network Aurora, with most of their start-up capital coming from personal savings and loans from friends and families.
Women are also more risk-averse and cautious, typically asking for a third less capital than men, according to the Global Entrepreneurship Monitor (GEM). Female-owned businesses start with, on average, capital of �10,000 against �15,000 for men, and, at start-up, expect to have an annual turnover of �20,000 against �50,000 for men. Five years on, they expect their turnover to have reached �40,000 compared to �130,000 for men.
Sarika Patel, director of enterprise and technology at g2i partner Grant Thornton, argues that the problem is not so much that women are less prepared, but that they're less plugged into financial networks. 'I go to lots of corporate finance evenings and they're very male-dominated. Women don't fit investors' typical role model of what they think an entrepreneur is.' One exception is the UK's first investment fund for women-owned businesses. Founded by Gita Patel, StarGate Capital Management's Trapezia fund closed last month after pulling in �5 million of capital for female-led businesses, including a web-based health club and an online villa booking service.
While technology has traditionally been less female-focused, Sarika Patel says the increase in internet-led technology businesses is helping to redress the balance. 'These are often more about networks - such as Mykindaplace [the teenage girls' website sold earlier this year to BSkyB].'
Aurora also reports that women are increasingly starting technology-based businesses in high-income countries. It says women-led firms tend to raise more than 10% of the total investment in several sectors including biotech, healthcare, HR and business software, imaging technologies, and email/messaging software.
While the GEM reports a growing desire to start their own business among 18 to 24-year-olds, the gender gap is greatest in this age group. However, women who had undergone some enterprise training were twice as likely to be engaged in entrepreneurial activity.
In addition, while only 17% of UK computer science degree entrants are currently from women (mostly from overseas), research from the British Computing Society shows that two thirds of girls found their computer lessons interesting, while a quarter would consider a career in computing.
All the same, female enterprise in general still lags some way behind male-led businesses. According to the latest GEM, there's nowhere in the world where women are more likely to set up in business than men. And, across the UK, female-owned businesses comprise just 15% of companies, compared to 30% in the US, where women-owned firms are growing at twice the rate of their male counterparts.
At last week's Women's Enterprise Day, Margaret Hodge, minister of state for the DTI, said she wanted to see the UK emulate the US in terms of the numbers of female business owners. Announcing the appointment of two chairs to lead the DTI's Women's Enterprise Task Force - launched a year ago to encourage more women to set up their own businesses - Hodge said the Task Force's objective is to take the UK closer to US levels of entrepreneurship. She added that if those levels were matched, it's estimated there would be at least 700,000 more businesses in the UK.
By Alison Hjul, Webster Buchanan Research
The Power of Collaboration
Citizen Space bills itself as ‘a nice place to work in San Francisco’ – and for many of the people who take advantage of its central location, it’s also a free place to work. Espousing the principle of ‘co-working’ – where self-employed people come together to exchange ideas and enjoy the community aspects of a traditional office – it’s one example of a new approach to working practices that’s gaining ground in the US and to a lesser extent, around the world. For some businesses, it holds out the promise of cracking one of the toughest challenges of workplace management – balancing the upsides of remote working, including employment flexibility and cost control, with the social and creative benefits that come when people get together and interact.
Remote working has become much more of a viable option for businesses over the last few years. In part that’s down to improvements in broadband connectivity and wireless coverage, which keep people connected whether they’re at home, at an airport or in a coffee shop. In part, too, it’s down to the plethora of web-based collaborative tools that have emerged under the banner of Web 2.0. It’s now possible to run your company with a combination of traditional PC software and shared applications accessed over the web, avoiding all the hassles that come with running and maintaining office servers.
Webster Buchanan Research does just that, connecting employees, contractors, partners and even clients together from their homes or offices around Europe, the US and Hong Kong. We collaborate on research documents, media plans and sales forecasts using Google Docs and Spreadsheets, a ‘hosted service’ that’s run on Google servers and available over the Internet to anyone we give access to. We store documents and manage projects with a hosted application from Huddle, a UK-based company that’s participated in the g2i programme (see Huddle case study). We use web-based email systems, and we’ve experimented with hosted customer management systems to track sales and marketing activities. We’re hoping to persuade at least one of our accountants to convert to hosted services as their favourite software packages are converted to the web. We even use an outsourced receptionist service in the UK, Moneypenny, which takes calls via a London number and reroutes them around the world.
In Silicon Valley, where vast numbers of technology entrepreneurs are looking to take advantage of Web 2.0 as a business opportunity, this kind of approach raises few eyebrows. While the first dot com boom was all about flash office space and indescribable wealth, the second mini-boom is a much more measured affair. Home-working is de rigeur - angel investors and VCs are much happier to see their funds spent on product development or sales and marketing than sunk into office rent, and many customers also buy into the argument that they’re getting a better deal if the bills they pay go towards knowledge, skills, services and products rather than fixed overhead.
With every new initiative, however, there are always downsides, and remote working has plenty of its own. Professor Timothy Golden, from the Lally School of Management & Technology at Rensselaer Polytechnic Institute, recently published research in ‘Human Relations’ (http://hum.sagepub.com/cgi/content/abstract/60/11/1641) showing that the greater the percentage of telecommuters in a workgroup, the less satisfied their office-bound colleagues were. Golden explained to the Wall Street Journal (http://blogs.wsj.com/biztech/2008/01/16/telecommuters-make-work-rougher-for-the-office-bound/) that this was partly because people miss the social interactions with their remote peers, and partly because of the greater logistical challenges of getting hold of people who are out of the office.
For remote workers, meanwhile, life can get lonely. It’s not just the idle chatter that people miss over coffee – it’s the chance to vent when sales calls go badly, bounce ideas around, find things out and benefit from the general buzz that comes from impromptu conversations.
That’s what Citizen Space and other similar organizations are setting out to change, creating a space that combines office with coffee shop. Regular visitors can pay $350 a month to rent a desk – but if you’re just looking for space on a casual basis, you can simply drop in and use the facilities for free. The venture is built around the core principles of collaboration – working with people to share skills and knowledge – community and openness. “In a world where people are free, but ideas are not, only a few benefit,” says its website. “When ideas are free, everyone benefits. Therefore, we encourage open spaces and discussions. Sorry, no NDAs allowed.”
This kind of service is likely to become increasingly common as more entrepreneurs look to encourage home and remote working, particularly as the potential business benefits become clearer. Cost is a big driver in a tightening economy – the fewer people you have in a traditional office set-up at any one time, the less desks and floor space you need. But letting employees work remotely also allows you to tap into non-traditional talent pools, hiring people whose family or other commitments make daily commuting an unviable option. If you encourage these employees to seek out coworking set-ups, you’ll help to provide some of the social and creative infrastructure they miss out on when they work from home – and if the collaboration with strangers really works, you may even be able to tap into valuable knowledge sources without paying a penny.
By Keith Rodgers, Webster Buchanan Research
Remote working has become much more of a viable option for businesses over the last few years. In part that’s down to improvements in broadband connectivity and wireless coverage, which keep people connected whether they’re at home, at an airport or in a coffee shop. In part, too, it’s down to the plethora of web-based collaborative tools that have emerged under the banner of Web 2.0. It’s now possible to run your company with a combination of traditional PC software and shared applications accessed over the web, avoiding all the hassles that come with running and maintaining office servers.
Webster Buchanan Research does just that, connecting employees, contractors, partners and even clients together from their homes or offices around Europe, the US and Hong Kong. We collaborate on research documents, media plans and sales forecasts using Google Docs and Spreadsheets, a ‘hosted service’ that’s run on Google servers and available over the Internet to anyone we give access to. We store documents and manage projects with a hosted application from Huddle, a UK-based company that’s participated in the g2i programme (see Huddle case study). We use web-based email systems, and we’ve experimented with hosted customer management systems to track sales and marketing activities. We’re hoping to persuade at least one of our accountants to convert to hosted services as their favourite software packages are converted to the web. We even use an outsourced receptionist service in the UK, Moneypenny, which takes calls via a London number and reroutes them around the world.
In Silicon Valley, where vast numbers of technology entrepreneurs are looking to take advantage of Web 2.0 as a business opportunity, this kind of approach raises few eyebrows. While the first dot com boom was all about flash office space and indescribable wealth, the second mini-boom is a much more measured affair. Home-working is de rigeur - angel investors and VCs are much happier to see their funds spent on product development or sales and marketing than sunk into office rent, and many customers also buy into the argument that they’re getting a better deal if the bills they pay go towards knowledge, skills, services and products rather than fixed overhead.
With every new initiative, however, there are always downsides, and remote working has plenty of its own. Professor Timothy Golden, from the Lally School of Management & Technology at Rensselaer Polytechnic Institute, recently published research in ‘Human Relations’ (http://hum.sagepub.com/cgi/content/abstract/60/11/1641) showing that the greater the percentage of telecommuters in a workgroup, the less satisfied their office-bound colleagues were. Golden explained to the Wall Street Journal (http://blogs.wsj.com/biztech/2008/01/16/telecommuters-make-work-rougher-for-the-office-bound/) that this was partly because people miss the social interactions with their remote peers, and partly because of the greater logistical challenges of getting hold of people who are out of the office.
For remote workers, meanwhile, life can get lonely. It’s not just the idle chatter that people miss over coffee – it’s the chance to vent when sales calls go badly, bounce ideas around, find things out and benefit from the general buzz that comes from impromptu conversations.
That’s what Citizen Space and other similar organizations are setting out to change, creating a space that combines office with coffee shop. Regular visitors can pay $350 a month to rent a desk – but if you’re just looking for space on a casual basis, you can simply drop in and use the facilities for free. The venture is built around the core principles of collaboration – working with people to share skills and knowledge – community and openness. “In a world where people are free, but ideas are not, only a few benefit,” says its website. “When ideas are free, everyone benefits. Therefore, we encourage open spaces and discussions. Sorry, no NDAs allowed.”
This kind of service is likely to become increasingly common as more entrepreneurs look to encourage home and remote working, particularly as the potential business benefits become clearer. Cost is a big driver in a tightening economy – the fewer people you have in a traditional office set-up at any one time, the less desks and floor space you need. But letting employees work remotely also allows you to tap into non-traditional talent pools, hiring people whose family or other commitments make daily commuting an unviable option. If you encourage these employees to seek out coworking set-ups, you’ll help to provide some of the social and creative infrastructure they miss out on when they work from home – and if the collaboration with strangers really works, you may even be able to tap into valuable knowledge sources without paying a penny.
By Keith Rodgers, Webster Buchanan Research
Monday, March 24, 2008
Working with Corporates
If you’re talking to a corporate venture partner on the other side of the Atlantic and are worried about protecting your intellectual property (IP), then maybe you shouldn’t be having that conversation in the first place. That at least was the message from IBM’s Claudia Fan Munce when asked what safeguards her Venture Capital Group could provide to small partners concerned about “opening the kimono” and sharing their IP secrets.
“If people come and say they can’t tell us anything unless we sign our life away, my response is don’t show us then,” she said in a recent web seminar on partnerships between corporates and venture-backed start-ups, run by the US National Venture Capital Association. “It might be arrogant, but if there is concern or mistrust then we would prefer not to engage with a company at that stage.”
She added that a start-up that was primarily concerned with commercialising its innovation – rather than incorporating it into a broader solution that IBM could bring to market – would not be a suitable partner anyway. “If your only asset is IP then I don’t think you would make a very interesting partner for us. We are looking to build solution partners.”
Many smaller companies do operate successfully in the ecosystems that exist around larger vendors – and the vendors themselves realise the importance of cultivating such ecosystems to plug gaps in their offerings. And in fact, Fan Munce argues that organisations like the VC Group she heads are designed to insulate everyone involved from the prying eyes of rivals. “We’ve had seven years of bringing thousands of companies into revenue-sharing partnerships and we’ve acquired 28 of them,” she says. “We’ve never had a case where there’s been a violation of IP and when you look at the wording of our IP contracts, that tends to shut down the situation. You should see the venture capital group as a ‘firewall’ so to speak.”
But since all large corporates talk to thousands more companies than they eventually buddy up with, what happens to the secrets of the ones that don’t make it to partnership status? The reality is that in some cases, the corporate may already be working on similar products to yours in its own labs: the attraction of a partner might simply be that they could get to market quicker, or they have a specific vertical market twist. In other cases, if you’re not a good fit, it’s probably safe to assume that a large company isn’t going to spend time reinventing a wheel it doesn’t need. The bottom line is that any time you have to open the lid on your IP, there’s an element of risk: the question is, how far is it outweighed by the potential reward?
By David Longworth, Webster Buchanan Research
For South African Business Invetment Opportunities and Capital check out SA Investors Network
“If people come and say they can’t tell us anything unless we sign our life away, my response is don’t show us then,” she said in a recent web seminar on partnerships between corporates and venture-backed start-ups, run by the US National Venture Capital Association. “It might be arrogant, but if there is concern or mistrust then we would prefer not to engage with a company at that stage.”
She added that a start-up that was primarily concerned with commercialising its innovation – rather than incorporating it into a broader solution that IBM could bring to market – would not be a suitable partner anyway. “If your only asset is IP then I don’t think you would make a very interesting partner for us. We are looking to build solution partners.”
Many smaller companies do operate successfully in the ecosystems that exist around larger vendors – and the vendors themselves realise the importance of cultivating such ecosystems to plug gaps in their offerings. And in fact, Fan Munce argues that organisations like the VC Group she heads are designed to insulate everyone involved from the prying eyes of rivals. “We’ve had seven years of bringing thousands of companies into revenue-sharing partnerships and we’ve acquired 28 of them,” she says. “We’ve never had a case where there’s been a violation of IP and when you look at the wording of our IP contracts, that tends to shut down the situation. You should see the venture capital group as a ‘firewall’ so to speak.”
But since all large corporates talk to thousands more companies than they eventually buddy up with, what happens to the secrets of the ones that don’t make it to partnership status? The reality is that in some cases, the corporate may already be working on similar products to yours in its own labs: the attraction of a partner might simply be that they could get to market quicker, or they have a specific vertical market twist. In other cases, if you’re not a good fit, it’s probably safe to assume that a large company isn’t going to spend time reinventing a wheel it doesn’t need. The bottom line is that any time you have to open the lid on your IP, there’s an element of risk: the question is, how far is it outweighed by the potential reward?
By David Longworth, Webster Buchanan Research
For South African Business Invetment Opportunities and Capital check out SA Investors Network
Tuesday, January 22, 2008
When to Cut Your Losses
Do you really need all the funds you're asking for - or would you take less in exchange for a quick deal? It's the kind of dilemma you might have to square up to when you're seeking VC investment
Imagine the scenario. You're standing in front of a VC you've never dealt with before, you've presented your business plan, and you've concluded with a detailed explanation of why you need ₤2m funding. The VC thanks you, pauses - and asks what you could do with a quarter of that amount if it was with you by the end of the week. Would you take the bait?
It's worth thinking through the answer, because it really could happen. Among other people, it's a technique favoured by Howard Hartenbaum, general partner at San Francisco-based VC firm Draper Richards. And it works. According to Hartenbaum, some entrepreneurs quickly concede that they'd asked for more than they really need and go on to explain just what they could do with a fraction of the funding. If he and his colleagues like the answers, they'll offer a deal on the spot and secure their stake. As he points out with just a hint of exaggeration, entrepreneurs sometimes leave his meetings unsure whether they've been 'blessed or screwed'.
Hartenbaum's story was just one example of the deal-maker's mentality that emerged during a panel discussion at IBF's 18th Annual Venture Capital Investing Conference in San Francisco earlier this month. From the merits of receiving investment in tranches to the steps entrepreneurs need to take to ensure they don't end up losing their shirt, dealing with VCs can get pretty complex. As Vince Occhipinti, managing director of Woodside Fund, wryly pointed out: 'If you could get manna from heaven and not deal with a VC, you probably would choose that option.'
Not surprisingly, trust was a recurrent theme among the panellists - and VCs acknowledged that it works both ways. While most of the focus during fund-raising cycles is on how companies can impress potential investors, entrepreneurs also need to do a little due diligence of their own. Panellists advised companies to check out VCs' references, for example, calling their portfolio companies to see what it's like to work with them and getting the inside view on how they respond when things go wrong. Some VCs, in fact, actively encourage you to find out the worst about them. George Ugras, general partner at Adams Capital Management, tends to work with first time entrepreneurs and is blunt about the difficulties of growing a relationship from scratch: 'How can you build trust with someone who's on a boat with you and never sailed before?' he asked. That's why his firm specifically puts new CEOs in touch with entrepreneurs from previous deals that didn't go well. 'We tell them our mistakes first. We have never lost a deal in ten years where those calls are made - we really expose everything about ourselves,' he said.
VCs also warned that an efficient investment model often depends on them bringing in new senior people. That doesn't necessarily mean a new CEO - although entrepreneurs whose passion is more in the technology than building a business shouldn't be too surprised if their investors want a change of leadership. As Ugras pointed out, part of the VC's role is to reduce the risk of their investment, so if the technology team looks a little shaky or the company's struggling to set up an effective sales channel, that's where talent has to be brought in. 'Upgrading the management team is always something you've got to do,' he argued. Ajit Nazre, general partner at Kleiner Perkins Caufield & Byers, agreed: 'We will find the best person, no matter what it costs, even for Series A [funding] - it doesn't matter.'
Where VCs were split, however, was on the controversial practice of handing over investment in tranches, usually built around milestones. A perennial topic at VC conferences and one that frequently divides panellists, tranching is preferred by some investors as a way of drip-feeding funds to minimise their exposure. Occhipinti at Woodside Fund does it if the right syndicate is in place, where all the partners agree on the business goals and there's no danger of anyone losing patience mid-cycle. 'Having an extra $5m in the bank - believe me, there is a tendency to spend it,' he pointed out. For his part, Nazre argued that if he could, he'd tranche every month. 'It gives the company an internal goal to accomplish something,' he said. 'It's not a question of trust - it's discipline, for the entrepreneur and us.'
But not everyone agrees with that philosophy. Hartenbaum at Draper Richards said the firm rarely takes the tranching route unless there's a disagreement over valuations. 'In my experience, it's generally been a negative for the company - it causes a lot of stress and a lot of angst,' he said. He believes that tranching can actually make it harder for a company to hire new people - if you have less cash in the bank, you offer less security to a new recruit. Just as important, to his mind it's not a good reflection of the VC's role.
'We're a service provider,' he concludes. 'The entrepreneur provides the blood, sweat and tears - and we put in the money.'
By Keith Rodgers, Webster Buchanan Research
Imagine the scenario. You're standing in front of a VC you've never dealt with before, you've presented your business plan, and you've concluded with a detailed explanation of why you need ₤2m funding. The VC thanks you, pauses - and asks what you could do with a quarter of that amount if it was with you by the end of the week. Would you take the bait?
It's worth thinking through the answer, because it really could happen. Among other people, it's a technique favoured by Howard Hartenbaum, general partner at San Francisco-based VC firm Draper Richards. And it works. According to Hartenbaum, some entrepreneurs quickly concede that they'd asked for more than they really need and go on to explain just what they could do with a fraction of the funding. If he and his colleagues like the answers, they'll offer a deal on the spot and secure their stake. As he points out with just a hint of exaggeration, entrepreneurs sometimes leave his meetings unsure whether they've been 'blessed or screwed'.
Hartenbaum's story was just one example of the deal-maker's mentality that emerged during a panel discussion at IBF's 18th Annual Venture Capital Investing Conference in San Francisco earlier this month. From the merits of receiving investment in tranches to the steps entrepreneurs need to take to ensure they don't end up losing their shirt, dealing with VCs can get pretty complex. As Vince Occhipinti, managing director of Woodside Fund, wryly pointed out: 'If you could get manna from heaven and not deal with a VC, you probably would choose that option.'
Not surprisingly, trust was a recurrent theme among the panellists - and VCs acknowledged that it works both ways. While most of the focus during fund-raising cycles is on how companies can impress potential investors, entrepreneurs also need to do a little due diligence of their own. Panellists advised companies to check out VCs' references, for example, calling their portfolio companies to see what it's like to work with them and getting the inside view on how they respond when things go wrong. Some VCs, in fact, actively encourage you to find out the worst about them. George Ugras, general partner at Adams Capital Management, tends to work with first time entrepreneurs and is blunt about the difficulties of growing a relationship from scratch: 'How can you build trust with someone who's on a boat with you and never sailed before?' he asked. That's why his firm specifically puts new CEOs in touch with entrepreneurs from previous deals that didn't go well. 'We tell them our mistakes first. We have never lost a deal in ten years where those calls are made - we really expose everything about ourselves,' he said.
VCs also warned that an efficient investment model often depends on them bringing in new senior people. That doesn't necessarily mean a new CEO - although entrepreneurs whose passion is more in the technology than building a business shouldn't be too surprised if their investors want a change of leadership. As Ugras pointed out, part of the VC's role is to reduce the risk of their investment, so if the technology team looks a little shaky or the company's struggling to set up an effective sales channel, that's where talent has to be brought in. 'Upgrading the management team is always something you've got to do,' he argued. Ajit Nazre, general partner at Kleiner Perkins Caufield & Byers, agreed: 'We will find the best person, no matter what it costs, even for Series A [funding] - it doesn't matter.'
Where VCs were split, however, was on the controversial practice of handing over investment in tranches, usually built around milestones. A perennial topic at VC conferences and one that frequently divides panellists, tranching is preferred by some investors as a way of drip-feeding funds to minimise their exposure. Occhipinti at Woodside Fund does it if the right syndicate is in place, where all the partners agree on the business goals and there's no danger of anyone losing patience mid-cycle. 'Having an extra $5m in the bank - believe me, there is a tendency to spend it,' he pointed out. For his part, Nazre argued that if he could, he'd tranche every month. 'It gives the company an internal goal to accomplish something,' he said. 'It's not a question of trust - it's discipline, for the entrepreneur and us.'
But not everyone agrees with that philosophy. Hartenbaum at Draper Richards said the firm rarely takes the tranching route unless there's a disagreement over valuations. 'In my experience, it's generally been a negative for the company - it causes a lot of stress and a lot of angst,' he said. He believes that tranching can actually make it harder for a company to hire new people - if you have less cash in the bank, you offer less security to a new recruit. Just as important, to his mind it's not a good reflection of the VC's role.
'We're a service provider,' he concludes. 'The entrepreneur provides the blood, sweat and tears - and we put in the money.'
By Keith Rodgers, Webster Buchanan Research
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