Monthly Archives

June 2011

DFJ Esprit is five years old today

By | DFJ Esprit | No Comments

imageLast night we had a little party in the London Planetarium to celebrate our fifth birthday. In typical DFJ Esprit style the event was a little different to the norm with a super-hero theme, a 4D film (and I mean 4D), and drinking well into the night. As part of the show we had actors circulating in the room talking with guests, but believe it or not Captain America in the picture was not one of them, but rather our very own Simon Cook.

We came into existence five years ago today when we span our team and fund out of Cazenove and merged with Prelude Ventures which at that time was a listed investment trust and there were a number of things we *had* to get done after that to get ourselves on a stable footing.  Thinking back, it wasn’t always obvious that we would pull it off and life got a little hairy at a couple of points and like many young companies we had to take some hard decisions and change course a little.

Fortunately we have been on a good run for a while now though, and all that history is fast becoming a distant memory. We have made half a dozen investments since the second close on our new €100m fund last autumn and over the last twelve months or so we have exited companies with an aggregate enterprise value of $2bn (more detail here). Moreover, the new investments are all pretty exciting, e.g. Conversocial is bringing customer service out of the call centre and onto social media, Neul is building the chips and networks for the internet of things, and Horizon Discovery has a platform for developing personalised cancer treatments.

Next up is a short list of our major accomplishments over the last five years:

  • spinning the fund and team out of Cazenove
  • merging with Prelude
  • taking the Prelude Investment Trust private
  • joining the DFJ Network
  • acquiring a substantial part of 3i’s venture portfolio
  • raising our new fund

None of these were easy, and for each of them there were moments when you would have wanted long odds before betting on us to prevail. But we got there in the end, and without the complete set we would look very different and be in a weaker position than we are today. The fact that we did get there is due in no small part to vision, energy and deal making skills of Simon Cook who is the driving force behind DFJ Esprit (again, pictured to the right, although I should say his normal attire is business casual…) .

The other key to our success over the last five years has been the great companies we have been lucky enough to get involved with. It feels almost corny to ‘thank our entrepreneurs’ but we are nothing without them and this post would be incomplete if I didn’t.

Finally, on a personal level, the last five years have been a lot of fun. I love talking with smart people to identify market opportunities (including on this blog), I love the process of getting to know companies and entrepreneurs in the run up to an investment, I REALLY love it when they are successful afterwards, and last but not least I enjoy the feeling of contributing to the startup ecosystem we are all building here in Europe. I’m not pretending it is all strawberries and ice-cream, there is of course a tough side to business that isn’t always fun and I’ve seen quite a lot of that in the last couple of months. Overall though there is no doubt in my mind that the good stuff outweighs the bad, and by quite some margin.

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50 Questions: What is the first document I should put in front of a VC?

By | 50 Questions, Venture Capital | 3 Comments

Twenty-seventh in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital.  We expect the series to run for a year after which we will collate the posts into a book.  You can find the rationale behind the series here, and the list of questions here.  We welcome your comments on any and every aspect of what we are doing.


Hopefully the recent posts in this series have given you an idea of how VC evaluate companies, markets, teams and so on.  My next three are going to deal with how to best get that in writing with the aim of getting productive meetings with investors.

I use the term ‘productive’ very deliberately as I’m a big believer that ‘raising money’ is actually better described as ‘selling equity’ and hence should be treated like a sales process where qualifying prospects out quickly is key to being efficient.  The purpose, then, of putting something in writing in front of the VC is to make sure that they have thought about your business enough to be genuinely interested before you give up your valuable time to meet with them (and take up theirs).  Meetings where it becomes quickly apparent that there is no fit between the startup and what the investor wants are no fun at all and the approach I describe here works better for both entrepreneur and VC.

The first document you put in front of the VC should, therefore, contain the key information a VC needs to make their first level assessment – and that includes a description of the product/service, the market, key team members, any high profile investors or advisors, how much you raising, and some high level financials.  Depending on the startup other elements may be important too – e.g. if your product is novel like say Quora was last summer it will help to describe the customer problem and vision, if you are entering a competitive market you should refer to the competition or if you have a uniquely interesting business model like say Groupon you should detail that out.  The product/service description is by far the most important of these as that is the first filter most VCs use to determine interest.

The other important thing is that the document should be short.  You want the VC to read it and understand all the key points so you know your meeting will be productive, and that means getting it into one or max two pages of an executive summary, or into the body of a shortish email.  In the world of iPhones, Blackberries and narrow band cellular networks short emails have much more chance of getting read and getting read quickly and I think the best approach is to send an exec sum attached to an email with 100-200 words in the body making your top 1-2 points (which should almost certainly include product/service).

All of the above assumes that you have already determined that you want to raise venture and have a reasonable chance of success, i.e. you are in a sales process rather than a discovery process.  If you are still at the stage of figuring out whether it makes sense to try and raise money then you should be looking for meetings with anyone who can give you feedback and setting them up as discussion meetings rather than pitch meetings.

Finally, if you are lucky enough to have a company that is super hot, is growing super fast, or has some other characteristic which means that in practice all VCs are interested and you don’t need to worry about non-productive meetings then it is less important to make sure your business is well understood before the meeting happens and maybe your time is better spent doing something other than preparing documents for investors.  For most though, I would guard against arrogance.  It is far better to have over-prepared than under-prepared.

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Amazon to launch ad network using data gathered on

By | Advertising, Amazon, Facebook | 3 Comments

Peter Kafka has a post up today on AllThingsD titled Amazon starts an ad network powered by your data which has the following description of Amazon’s latest innovation:

The e-commerce giant has started what is effectively an ad network*, where it buys Web advertising inventory and resells it to marketers at a premium. It can add a mark up to its ads because it’s using the data it collects about its visitors and shoppers to target likely prospects.

Using data like this is a big step forward from re-targeting which is already upsetting a lot of folk.  As with re-targeting the data will be anonymised so in theory nobodies privacy will be impacted, but that fine distinction won’t mean a lot to most people.  As Kafka says people will either be up in arms about Amazon’s move, or they will shrug and move on.

I hope it is the latter.  In my mind the data exists already and using it to target ads creates value for Amazon, other publishers and advertisers which will benefit us all as consumers either in the form of better prices, better ad supported services and maybe even more relevant ads.

Many others will be watching how this goes down, not least Facebook (I’ve written before about how using social data in advertising would be incredibly effective).  My guess is that we will continue to see slow increases in the amount of personal data used to target advertising with little widespread objection.

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The Black Swan remembered: Have VCs become yield hogs?

By | Randomness, Venture Capital | 2 Comments

I read Nicholas Taleb’s The Black Swan about three years ago and loved it for the way he calls out how many people mis-understand risk.  He argues persuasively that the natural human condition is to see predictability where there is none and as a result many of us give away our chance of a big upside while keeping exposure to unpredictable events with massive downside like stock market crashes (this last sentence is mostly in the words of my 50 Questions co-author Nicholas Lovell, another big fan of The Black Swan).

In The Black Swan and its less famous precursor but more helpfully titled Fooled by Randomness (i.e. don’t be….) Taleb pours scorn on his former investment banking colleagues who blindly follow investment strategies they don’t really understand for the twin reasons that everyone else is following them and they have been working for recent history.  He describes these people as ‘yield hogs’ because they are addicted to predictable small returns (the yield) but he despises them for the way they radically and persistently underestimate the downside risk of their investments such that when there is a crash all their profits are wiped out and wider society is damaged.

I was reminded of Taleb when reading this interview with Bruce Gibney, COO of upcoming San Francisco venture capital outfit Founders Fund.  In it he lambasts other VCs for not being willing to take big risks and make big bets on truly transformative technology:

A lot of the flashiest investments are taking place in companies that appear to be good ideas and are very popular, so the valuations appear very high …. Sort of a thought experiment for readers to go through is to walk up and down a road mentally and ask whether the GPs there would prefer to back the latest round of Twitter or any of the sort of great VC companies of the 60s and 70s, your Intels, your Apples, your Microsofts, your Genentechs.

and then he piles in with this hilarious kicker:

I believe that if you live on a street where at least one person wins the Powerball lottery every so often, you tend to buy more lottery tickets than if everyone was a hardworking engineer at Apple.

There you have it.  In Bruce’s view it appears most VCs are piling into consumer internet companies in the hope of finding the next Twitter/Facebook/LinkedIn and not understanding that the odds of success are lottery odds.

My view is that there is a bit more to the story, and that a lot of VCs have a second justification to their investments based on the chances of a quick flip for a lowish multiple but high IRR return – which is a bit like Taleb’s yield.

Put these two together and VCs are sounding like Taleb’s yield hogs – chasing small returns and not really understanding the risks they are taking.  The irony is that Taleb singles out VCs for praise because they are supposed to understand risk and are supposed to be set up to maximise their chances of getting lucky and finding a black swan.

Twitter Weekly Updates for 2011-06-26

By | Weekly Twitter digest | No Comments

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Apple has enough cash to buy all its mobile phone manufacturing rivals bar Samsung

By | Apple, Mobile | 5 Comments

According to research out by Asymco Apple has just about enough cash to buy Nokia, RIM, HTC, LG, Motorola and Sony Ericsson.  That is an incredible statistic and testimony to the awesome success that Apple has had with its iPod, iPhone and iPad product ranges.  Regular readers will know that I am not a big fan of their (relatively) closed ecosystem model, but I stand back in admiration of their awesome execution.  Time after time they knock the ball out of the park with great product releases and to my surprise I find I am looking forward to the iPhone 5 coming later in the summer.


Hat tip to Strategy Eye for the graphic and original article.

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Some entrepreneur perspectives on what makes a good VC

By | Venture Capital | 2 Comments

I came across two very interesting posts today in which execs at highly rated marketing software company Hubspot write glowingly about two of their investors, Sequoia Capital and Google Ventures.  One post is about why Sequoia is such a successful VC, and the other asks the questions Will Google Ventures disrupt venture capital?

In the case of Sequoia there are two main reasons given why they are successful.  The first is that past success begets future success and they have a long history of being at the top of the VC game.  That history brings them great brand, know how from experience of working with great companies and access to great talent from those companies.  The second reason is strong execution from the existing Sequoia team – they don’t rest on their laurels, but rather work hard, are aggressive but reasonable, and are agile in their working practices.

The way that success begets success in venture capital is one of the factors that makes it exciting to be in this industry during its formative years here in Europe.  If Silicon Valley is any guide there will be four or five funds over here that achieve a Sequoia like position at the top table and those positions are still up for grabs.

In the case of Google Ventures their secret sauce is that they can leverage the Google mother ship to help their investments, particularly in the areas of engineering support, Main Street brand support and access to people within Google.  My experience investing on behalf of Reuters in the first half of the last decade taught me that corporate venture teams can deliver on these promises and bring real benefit to their portfolios very effectively when the portfolio is small.  However, if the portfolio becomes large then the call on resources can become problematic, particularly with calls on the time of key executives in key areas of innovation.  It is pretty easy to see that if Google ventures gets to have hundreds companies in their portfolio then it will be hard for senior execs at Google to spend time with anything other than a small percentage of them.

One thing that was missing from both lists is a strong personal relationship with the lead partner on the deal.  To my mind after fund dynamics (is their a good fit between the VC’s fund size and timing and the company’s requirements) the most important factor in choosing a VC is having a shared vision of where the company might go and a common understanding between the lead partner and CEO on how to approach key strategic decisions going forward.  This gets less important as the number of investors grows and Hubspot now has six, which maybe explains the absence.

When negotiating it pays to ask ‘why do you care?’

By | Startup general interest | 2 Comments

This last couple of months have been particularly intense for me in large part because a number of deals I was working on all came to a head at the same time.  As a result I have spent a lot of time locked in negotiations and over and over again I’ve been struck by the progress you get by taking time to ask the other side why it is they care about any given point, or by playing out scenarios to understand what each side is trying to protect against.

Most of the deals have been multi-party transactions, so some of the time I’ve been negotiating on behalf of DFJ Esprit, and some of the time I’ve been mediating to help the other parties find common ground.  In this second scenario I’ve seen judicious use of the tactic described above move discussions quickly from the two sides talking at each other and not making progress to talking to each other and looking for the white spaces where both sides get what they want.  In fact, I’ve seen that time and time again.

Taking time to understand the other side is particularly helpful when the two parties have a different background or approach.  One of the counterparties we have been dealing with is US based where their standard approach to a number of legal issues is very different, particularly when it comes to the way recourse packages work.  (Recourse packages determine the right that the buyer has for compensation if it turns out they have been misled during the sale process.)  A number of times we got into situations where we were arguing standard practice against each other and we got through these to find a compromise middle position by playing through scenarios to find out what the other side really cares about and then tuning the legal language appropriately. 

Mobile is passing the PC for internet access

By | Uncategorized | No Comments

Mobile analytics firm Flurry released a report today with the chart below which shows time spent on mobile apps is a) growing very vast year on year (88%) and b) we now spend more time on mobile apps than browsing the web (see Techcrunch for more details).


This news comes three weeks after Google’s Marissa Mayer announced that at weekends more people access Google maps on their mobiles than from PCs.

We have all known for some time that mobile is growing fast, but the fact that the cross over point is coming so soon is a bit of an eye opener. I say ‘coming soon’ rather ‘than arrived’ because the data that Flurry published, whilst interesting, is not an apples for apples comparison as a lot of the mobile app activity is games rather than internet access.

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Eight interesting health oriented startups

By | Venture Capital | 2 Comments

For a while now I’ve been predicting that we will see a wave of consumer oriented health startups at some point over the next five years.  At this stage it is difficult to say how big, but I think it will be pretty big as the drivers are powerful.  On the one hand you have increasing demand from an ageing, increasingly affluent and increasingly health aware society and on the other hand you have new technologies and falling costs making novel services possible and affordable for the first time.  Smartphones, ubiquitous networks, cheap sensors and social are the most important technologies.

Rock Health is a new startup accelerator designed to kick start/take advantage of this trend and their inaugural programme launches today.  Eight of their eleven startups are profiled on Techcrunch (strangely not the Rock Health site) and a look at what they do and how they group gives an indication of the sorts of companies that will be at the forefront of this wave.

Home monitoring, diagnosis, self analysis and improvement:

  • Brainbot – help individuals monitor and learn from their brain activity to improve stress management and focus
  • Cellscope – at home diagnosis using smartphone cameras, starting with pediatric ear infections
  • Pipette – allows doctors to monitor and educate patients throughout the course of their care using smartphones and tablets
  • Skimble – mobile health and fitness apps with real and virtual personal trainers


  • Genomera – connects communities of people solving similar health problems, starting with crowd sourced health science
  • HealthInReach – transparent marketplace for healthcare with comments, reviews etc.
  • Omada Health – type 2 diabetes prevention solution that emphasizes community, education, and metrics
  • WeSprout – child health community for parents

Brainbot is the one I’m most looking forward to following.

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