Nic Brisbourne's view from London on technology and startups

Valuation trickle down

By | Startup general interest, Venice Project | 2 Comments
I’m back to the bubble question this morning.
First up we had an interesting post from Fred Wilson arguing that frothy activity is restrictred to Series B rounds and later in private companies, whilst Seed and Series A and public markets are still rational. He used this chart as evidence:
median-pre-money
Second, I read Josh Kopelman’s/First Round Capital’s Open Letter to Investors from May this year which says that seed valuations are up 3x from 2007-2015 without a corresponding increase in exits. Note that we can see a similar increase in Series A valuations in Fred’s chart above.
Third, I was talking with a potential investor in our fund yesterday about market conditions here in the UK. He was asking whether with all the new funds in town valuations are rising and returns are likely to suffer. My view is that the market here is the healthiest I’ve seen it. When I joined the VC industry in 1999 there was too much money in the market, and then over the course of 2000 that flipped to too little money a position from which we are only just recovering now.
Whilst the odd deal is getting done that looks a little bubbly there isn’t much of that at idea and seed stage here. The valuations Forward Partners is paying haven’t moved in the last couple of years and nor are deals getting done in dangerously short timescales. I sat down with our investment team this morning and talked through some of the hotter deals that have been done in our sectors lately and how investors are responding to the deals we bring to them and we aren’t seeing anything other than isolated pockets of investors getting irrational.
Pulling it all together, I think that unless there is a correction in late stage private investing the frothy activity will trickle down to earlier and earlier stage rounds. Fred Wilson’s chart shows that US B and C rounds have already caught the bug and Josh Kopelman’s letter shows that seed markets are also getting hot. The trickle has two dimensions – down to smaller and smaller rounds, and across to other geographies. The trickle down happens faster than the trickle across, but absent a correction in the US valuations will start to rise here at some point in the next couple of years.
If the public markets maintain their discipline I think a late stage correction is more likely than irrational activity trickling all the way down to UK seed investing. If not, not.

 

Film and TV distribution startups please roll up

By | Startup general interest, Uncategorized | No Comments

I’ve just read an awesome description of the disruption going on in all the major storytelling media by one Hugh Hancock. I haven’t come across Hugh’s writing before, but he gets right inside the worlds of film, TV, games, prose, virtual reality and comics, with an insider’s knowledge and a light and witty style.

It’s the TV and film pieces that got me the most. In both cases production is changing at an unbelievable pace with new technology driving down cost and opening up new possibilities. This paragraph from Hugh’s post gives you a good sense of what’s going on:

Cameras are becoming cheaper, sure, but they’re also becoming lighter. At the same time, brushless motors and cheap IMUs mean that robot camera stabilisers are taking over from Steadicams for stable moving shots. And all of that means that a shot which used to require a guy who’d trained with a Steadicam can be done to 90% of the same quality by some untrained muppet (me) with a basic knowledge of how to walk smoothly and a magic box that does the rest of the work. And that magic box means that directors can rethink the rest of their shoot too, changing dolly shots (big pile of kit, couple of big hairy grips to work it) into a shot with a gimbal and a $200 self-balanced scooter. But all that might be irrelevant too because who the hell needs to wobble about on a scooter when you can probably just get a drone to do the shot?

And I could have chosen a couple of other paragraphs describing a similarly dazzling but very different array of changes.

So far so amazing. But the problem is that distribution hasn’t changed and we are now in a world where it is apparently a cliche to say:

There’s never been a better time to get your movie made, and never been a worse time to get anyone to watch it.

That’s a situation that can’t persist for very long, hence the title of this blog post.

That said, media distribution startups aren’t easy. It’s been obvious for some time that the legacy world of TV channels and movie studios is ripe for disruption and lots of entrepreneurs have had a crack at it, yet the old world remains largely unchanged. The biggest reason for that is money. TV and film makers need money to fund their production and the people who control distribution are in the best place to cut those cheques precisely because they control distribution. New distribution platforms have faced the catch 22 of needing to cough up lots of money to get good content to get an audience and needing an audience to get the money to cough up for good content. Netflix cracked the code by building a big DVD rental business and using the cash from that to fund rights acquisition but others have found it more difficult, including many startups that used VC dollars to buy rights and try to crack the code that way.

Still, difficult problems require creative solutions and that’s where entrepreneurs excel, and the growing imbalance between production and distribution can only be making this problem space more tractable over time.

Ray Kurzweil on the future of employment

By | Ray Kurzweil | No Comments

 

In this ten minute video Ray Kurzweil explains his view that as robots and AI automate low skilled jobs new higher skilled jobs will be created. In other words human labour will move up the skill ladder, as we have done before when we moved from agriculture to manufacturing and from manufacturing to knowledge work.

I think he’s right about that, but as I’ve written before I’m worried that the job destruction might happen much faster than the job creation and we will suffer major dislocation during the transition. Ray makes two interesting points in this area that made me feel a little better, one is that 65% of Americans are now employed as information workers, a category that didn’t exist 25 years ago – so job creation has happened quickly in the recent past, and the other is that the explosion of online education is making it easier for people to re-skill.

Ray finishes with a discussion on what you could call ‘post scarcity employment’, when our material needs are provided for and we only work for enjoyment.

Enjoy.

 

Marketing platforms for startups

By | Advertising | One Comment

US internet audience

This chart shows where audiences are accumulating by number of users and average amount of time spent. Multiply the two together and you have total number of hours spent by property, which is a rough proxy for the size of the advertising opportunity.

New advertising platforms are best for startups when they are growing from big to very big. When they become huge traditional brands move in driving prices up and they become less useful.

For most startups these days Facebook is best whilst it’s harder to make the customer acquisition costs vs life time value equation work on Google. CPCs have held steady at Facebook over the last year, and even declined in ecommerce, but it’s only a matter of time before they go up from their current average of $0.53 (ecommerce $0.43).

Looking at the chart above you’d expect Whatsapp, Snapchat, YouTube and Gmail to be the next places for startups to go, but none of these has really opened up their platforms well yet. Amongst the smaller players Twitter is perhaps the most advanced with it’s ad platform, but as you can see the product of their audience size and time spent is not that significant.

Thanks to Tom MacThomas, our Head of Marketing, who helped with this post.

Old brands weren’t built for trust

By | Startup general interest | 3 Comments

Americans Trust

This chart has me wondering if the nature of what makes a good brand has changed. Nowadays consumers want authentic brands that they trust have their back. Younger and tech savvy brands like Paypal, Amazon, Google and Apple have the culture and the understanding to give consumers what they want, whilst older brands like the banks shown above find it much more difficult.

We see a similar phenomenon in UK politics where followers of newer parties like the SNP and UKiP trust their politicians and are seemingly more loyal than followers of the Conservative and Labour parties.

Going back 30-40 years or more brands were built by buying media and controlling the airwaves, but the social media revolution has revealed the brittleness of this approach. The billion dollar question now is whether these old brands can adapt to live in the new world. Change like that is tricky, especially in regulated industries.

In politics I hope that the old brands can adapt. In business I hope not.

Advice on writing from the original “Mad Man”

By | Startup general interest | 2 Comments

The best writing is clear and concise. Easily said, but difficult to do – which is why it’s popular to say “If I had more time I’d have written a shorter letter”. Practice helps, but only if you concentrate on writing high quality prose.

David Ogilvy, founder of Ogilvy and Mather had this to say on the subject in an internal memo sent to all Ogilvy staff:

Good writing is not a natural gift. You have to learn to write well. Here are 10 hints:

  1. Read the Roman-Raphaelson book on writing. Read it three times.
  2. Write the way you talk. Naturally.
  3. Use short words, short sentences and short paragraphs.
  4. Never use jargon words like reconceptualize,demassification, attitudinally, judgmentally. They are hallmarks of a pretentious ass.
  5. Never write more than two pages on any subject.
  6. Check your quotations.
  7. Never send a letter or a memo on the day you write it. Read it aloud the next morning — and then edit it.
  8. If it is something important, get a colleague to improve it.
  9. Before you send your letter or your memo, make sure it is crystal clear what you want the recipient to do.
  10. If you want ACTION, don’t write. Go and tell the guy what you want.

I’m not sure that waiting a day before sending (no. 7) or favouring in person conversations when action is required (no. 10) stand the test of time, but the others do. I especially like 2. Write the way you talk. Naturally. I see so many people afraid of not writing “properly” that end up not writing at all, or at least not for wide consumption. That’s BS. In my opinion good writing is writing that communicates effectively, and natural writing generally achieves that far better than writing which is formally correct according to some ageing standard. Much better to let the spirit shine through.

Thoughts on curated marketplaces and perfect competition

By | Startup general interest, Uncategorized | One Comment

Jeff Jordan, now a partner at Andressen Horowitz, and previously CEO of OpenTable and senior exec at Paypal and eBay, has a post up on the A16Z blog about online marketplaces. He argues that all online marketplaces are fundamentally the same and hence should be managed by the same principle of “nurturing and managing perfect competition”.

Jeff offers a full definition of perfect competition in his post that’s worth reading. …. If you want the quick version, perfect competition is when the market is totally open, with full price transparency, full information for buyers and no concentration of either supply or demand.

I agree with Jeff, but only about half the time. For marketplaces like eBay, Craigslist and Etsy he is right. The more they can nurture perfect competition the stronger the proposition will be for consumers and the easier it will be for high quality sellers to rise to the top.

But there are plenty of marketplaces where pursuing perfect competition isn’t the best answer.

Uber is perhaps the most visible example of such a marketplace right now. If they were promoting perfect competition they would allow drivers to set their own prices, but they found that consumers prefer consistency and convenience over price transparency and went for a different model.

Another example is Lexoo, one of our portfolio companies. They are a marketplace connecting businesses with legal services. Perfect competition isn’t the best model for Lexoo because the services from different lawyers aren’t equivalent and buyers prefer to be connected to pre-screened quality lawyers than go through the difficult process of working out for themselves which lawyers are best.

Lexoo and Uber are both curated marketplaces – i.e. marketplaces where the marketplace does some work on behalf of the buyer and doesn’t just rely on market forces to optimise the user experience. There are lots of markets where this is the best model.

Half of browsing and a third of purchases on mobile

By | Mobile | No Comments

Screen Shot 2015-06-22 at 09.54.27

This slide is from Benedict Evans’ presentation Mobile is eating the world. The subtitle reads “Smartphones and tablets taking half of browsing and a third of purchasing”. Pause to take that in for a second. A massive and growing share of the market is on iOS and Android. The growth in these market share figures continues to surprise me.

Lots of mobile usage is in the home of course, and to a very large extent mobile means smartphones. Hence the smartphone user experience is key to growth. Riding with the tide of change is almost always the right call, especially for those with limited resources. Like startups.

We’ve been talking about mobile for years now, long enough for several mobile first companies to achieve massive scale, not least Uber. The massive shift to mobile is not the new news, then. What’s new is how far that trend has gone. One third of purchasing and one half of browsing. Mobile first is moving from an innovative strategy to the new normal.

UK startup job creation growing 80% per year

By | Startup general interest | One Comment

Screen Shot 2015-06-19 at 15.48.07

CityAM reported today that UK tech startups are expected to created 20,000 jobs this year and that tech startup vacancies are up 80% on last year. The data from Adzuna.

It’s great to see the startup scene making a real and growing impact on job creation and the economy.

To put that into context, 202,000 jobs were created over Q1 in the UK economy as a whole (see ONS). Over the year then 20,000 jobs would be about 2.5% of total jobs created, albeit they will be amongst the best jobs.

Why writing makes you smarter

By | Startup general interest, Uncategorized | 3 Comments

I started writing this blog back in 2006 when Twitter was only three months old and long form content user generated content was all the rage. Back then lots of people wrote blogs whereas today most folk rely on Twitter to share their views and news with the world. Periodically I revisit whether I should change from my pattern of daily blogging in favour of more tweeting, which would give me more reach for less effort, but I haven’t made the switch in part because of the feeling that blogging helps with my thinking.

I’ve historically explained how it works by saying that blogging forces me to complete my thoughts, but reading this Business Insider article titled Learning hacks that will maximise your memory I’m now thinking it is more accurate to say that writing makes me smarter. I always love a good listicle, and this one lists seven ways to make yourself smarter by improving your memory. It turns out that writing long form content forces you to do five of them.

  • Retrieval – remembering things before writing them creates new neural connections and strengthens the memory
  • Elaboration – connecting ideas to other ideas also creates new neural connections
  • Generation – creating hypotheses on directions of markets and startup best practice enhances learning and memory
  • Reflection – reading posts back before publishing them is a powerful tool for self-improvement
  • Calibration – feedback from blog posts and on Twitter helps immensely with learning (especially when it’s tough feedback)

The logic of this extends to all long form contemplative writing, whether on blogs or private memos. The nice thing for me about blogging is that the public scrutiny makes it easier to keep the habit of daily posting. If I was writing in a private journal I would find it more tempting to miss a day, or write notes instead of complete sentences.

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