Monthly Archives

December 2012

Will there be a Series A crunch in Europe?

By | Uncategorized | 7 Comments

CB seed vs Series A

The coming Series A crunch is perhaps the hottest topic of conversation in US tech circles at the moment and the numbers in the charts above show why. The number of seed deals has shot up whilst the number of Series A deals has stayed flat, ergo the percentage of seed deals that go on to raise Series A will fall, perhaps by as much as two thirds. People are predicting that as many as 1,000 angel invested companies will fail next year.

This data is from the US and I haven’t found anything comparable for Europe so answering the question of whether or not we will have a Series A crunch here is more difficult. What we do know here is that the VC investments are roughly flat at c£1bn a year in the UK and maybe the same again around Europe, implying that Series A investments are also flat, as is the case in the US. So if there is to be a Series A crunch here it will be for the same reason as in the US; because the number of seed investments has ballooned.

In place of interrogating the data we can look to see if the factors that drove the increase in seed funding in the US are present here in Europe:

  • declining costs of innovation has made it possible to create more value with less investment improving the return profile of small investments (in theory at least) – innovation costs the same the world over
  • many people have recently been made millionaires because they held shares in Facebook and other tech companies that achieved big exits or because they founded companies that were acquired for $10-50m – only in the US (regrettably)
  • accelerator and incubator programmes are funding large numbers of companies – also happening in Europe, but not to the same extent as the US

Looking at this root cause analysis you would conclude that the number of seed deals in Europe is likely to have increased a little, but not as much as in the US, and that fits with my qualitative feel for what’s happening. Given that the overall market is underfunded in Europe then I don’t think we are heading into a period when the Series A market is going to change radically. It has always been tough to get Series A funding and the competition for those VC dollars will most likely increase a bit but I don’t think that most people will notice the difference.

The power of Youtube

By | TV | No Comments

The stats for Youtube are impressive – 4bn hours viewed per month, growing at an annualised rate of 50% – but probably more exciting right now is the way they are re-imagining the television experience for both viewers and advertisers.

Elizabeth Murdoch, founder and CEO of ‘traditional’ TV production company Shine, now part of the News Corporation empire made the following points in her MacTaggart lecture to the Edinburgh International Television Festival earlier this year:

1. Significant new players emerge very fast in the online video world:

New forms of content and new audience relationships are being created very rapidly outside our very linear old world.  While Hulu and Netflix and Lovefilm, the iPlayer, 4OD and now finally even YouView are all welcome new and varied distribution channels for our made for television content, what’s much more fascinating is the explosive emergence of a made–for-online video category.

Here are a few things I think worth considering: the first is that like the early days of multichannel television, new networks are being built on platforms like YouTube.  Machinima, Makers Studio and Big Frame are networks that stunt schedule, cross-promote, cross-sell and commission content – and they are now commanding audiences of up to 120 million subscribers to their hundreds of channels.  These are not just channel brands like MTV and Nickleodeon, but networks like Viacom.

2. Content creators are able to make a lot of money just from Youtube:

[Youtube] is now a platform that showcases people like Ray William Johnson who makes more than $1m dollars a year from his comedy channel with over five million subscribers and it’s a platform premiering the big new series by big names like Bryan Singer.

YouTube is providing hundreds of millions of dollars in financial stimulus to its network partners, and using their 800 million unique monthly home page views to curate and promote content.

3. Youtube is enabling brands and talent to engage directly with their fans

My third observation is that brands and talent are using YouTube to create direct to consumer relationships.  Michelle Phan is the world’s most popular make-up expert with over 600 million views.  Yes – that’s equivalent to a global Olympic audience generated by a 22-year-old putting on Lady Gaga make-up.  Earlier this year she asked her fans if they wanted to subscribe for ten dollars a month to her home delivery service. Thirty six thousand of them did in the first 24 hours.  She is now turning over something like two million dollars a year and Lancome is now working with her as a distribution platform that could eclipse any single retail relationship.

4. This creates an opportunity to cut out the middle man

Digital platforms can translate audience trust into transactional relationships incredibly efficiently and without the middle men, agents, media buyers or programme makers reliant on broadcast based business models.

Youtube’s opportunity is to capture viewers from traditional TV and it’s biggest challenge is creating a relaxing lean-back experience to rival what we know and love from companies like Sky, BBC and ITV. Their channel and content acquisition strategies are their solutions to lining up content so people can just watch without the hassle of selecting a new video every 2-3 mins. If this works, or they find another UI solution that makes Youtube an effective replacement for traditional television, particularly as per Murdoch’s third point, could well provide the basis for transformation of a significant part of the television industry.

Youtube is also innovating on the advertising side of the business. Their family of TrueView video ad formats allow viewers to skip ads and only charge advertisers when an ad is watched to the end. This sounds like a much much better solution for advertisers and viewers than the current ‘full interrupt but not sure who is watching model’ (assuming the economics work out such that excessive numbers of ads aren’t required).

Plans are worthless, but planning is indispensable

By | Startup general interest | 2 Comments

Every now and again I come across a phrase which I wish I’d come up with myself and this is one:

Plans are worthless, but planning is indispensable

Chris Dixon used it as a title for a post yesterday, and at first I thought the credit was due to him (which wouldn’t have surprised me), but it turns out that President Eisenhower uttered these words in a 1957 speech.

It’s a great quote because many entrepreneurs don’t like writing committing their plan to paper because they know that they won’t end up following it. In this sense plans are worthless. But as Eisenhower points out the value is in the planning process. Chris explains it thus:

before you commit yourself to working on a project for 5+ years, it’s prudent to think hard about what you are trying to build and some of the things that might go wrong. For many people, writing out a detailed business plan is the best way to enforce intellectual rigor.

For me rigour is the point. Putting ideas down on paper forces a clarity and completeness which is rarely present in verbal dialogue, but the planning process is only worth it if there is a true commitment to being rigorous and finding out the right answer (or as close to it as you can get). As Chris says the key point is to be clear about what you are trying to do and to look hard for reasons you might not be able to do it. As an example, absence of a good route to market is a killer for many businesses and one that can often be identified in advance. I was talking about a company in 3D printed med-tech yesterday and it became clear to me that in spite of its obvious benefits getting surgeons to adopt the product was likely to be formidably hard because they buy from established sales channels owned by competitors and have little time or desire to adopt radically new technologies which change the nature of surgery.

I also like the following one-liners on the benefits of planning:

  • You are much more likely to get where you want to go if you know where it is.
  • The point of planning is to describe a path that gets to your destination. With new information you can and most likely will change path, but unless you plan you can’t know that you are on a path that leads to where you want to go.

2012 has been ‘the year of mobile’ but the big mobile ad acquisitions were made three years ago

By | Mobile | One Comment

VatorTV had an article this morning reporting on the growth in mobile advertising. They note from the eMarketer chart inset right that US mobile ad spend is up 180% this year to $4.1bn and say that “after years and years of every year being proclaimed as the ‘year of mobile’ it finally happened in 2012”.

I wouldn’t argue with that, but the interesting thing is that the landmark mobile adtech acquisitions happened three years ago when Google acquired Admob for $750m in Nov 2009 and Apple followed with the acquisition of Quattro Wireless for $275m in Jan 2010.

If you look back at eMarketer’s earlier data they sized the US mobile ad market at $320m in 2008 and $416m in 2009 showing that in this case the leading acquirer in the space deemed the market large enough to make a high value acquisition when it was well sub the $0.5bn level. (The earlier eMarketer data is here and here. It’s interesting to note that the each set of predictions has larger numbers than the one before, showing that growth has accelerated faster than expected.)

After the Admob and Quattro deals we had the near $1bn Milennial IPO earlier this year. I would posit that we may have seen the last big exit from a pure play on the mobile ad market (i.e. network model) and that going forward the strategic multiples will be going to companies that make the market work better rather than companies that simply make the market work. My point is purely about the stage of the market and there is no judgement implied here. In fact it takes more vision and is usually harder to ‘simply make the market work’ than to make an existing market work better.

One way that the mobile advertising market could work better is via more realtime buying and selling of inventory. This is the space our portfolio company StrikeAd plays in.

Finally, a quick note on the drivers of growth in mobile advertising this year. Google was most of the story, taking their mobile search and mobile display revenues from $750m to $2.2bn. The other big player was Facebook who went from $0 in mobile ad revenue last year to a forecast $339m this year. Apple (iAd) is stuck down at $124m, and all the players outside the top six shared $750m between them.

Whither the open web

By | Startup general interest | 2 Comments

I’ve written a few posts now about the rise of new gatekeepers to the web – Google, Apple, Amazon, Facebook and how that changes the dynamics of innovation to the advantage of those companies and against the interests of both consumers and startups.

I the last couple of days Anil Dash and Alan Patrick have written in more detail about the changes that have happened:

  • photos have moved from Flickr where they were well tagged and easily accessed by third party services with clear commercial arrangements to Facebook and Instagram (now the same company) where metadata is poor and access requires a bespoke partnership agreement
  • identity is now owned by companies (Facebook, Google, Apple) whereas we used to think we would have our own websites and/or fully portable identities
  • you used to be able to link to almost anything, nowadays mobile apps and closed social networks make that impossible for large parts of the web

Dash argues that we have lost respect for the web itself, and don’t give it the care it deserves as a medium and which will enable it to succeed. He also says that Facebook, Twitter, Pinterest and LinkedIn are great sites, but are making mistakes in the pursuit of short term growth and profitability (which explains why they, and other entrepreneurs are not respecting the web as a medium). At heart he thinks they would be more sustainable and profitable as networks if they gave users more control and flexibility over how they used the services, even if that came at the expense of a more complicated user experience (and presumably slower growth).

Both Dash and Patrick are confident that open web standards will prevail in the end. In Dash’s case I think it’s because it is in the best interests of consumers and hence ultimately the companies that build the services they use. In Patrick’s case it is because he sees social media and smart phones as going through the same cycle that the PC industry went through, and many industries before – from small geeky open groups, through a closed standards phase (dominated by IBM) to an open standards phase (dominated by Windows and Intel).

I hope they are both right, but I don’t think it is possible to be sure at this stage. It could be that the pace of change is so fast these days that markets never slow down enough to mature into a horizontally stratified phase where open standards dominate, and it could well be that our four would be monopolists evolve to offer such great end to end services in content, services, and hardware that the consumer push for open standards never really gets momentum. Sitting here today I see both futures as very plausible.

My disappointing Android upgrade

By | Mobile | 7 Comments

About a month ago I dropped my old Samsung Galaxy Nexus on the floor at the Gare du Nord train station in Paris and when I picked it up the screen was quite badly cracked. I was of course annoyed at myself for dropping the phone but a little part of me was quite pleased, because the new Google Nexus 4 was due for release a couple of days later and now I could get one with a clean conscience.

Unfortunately when it did go on sale the Nexus 4 sold out in half an hour and I wasn’t able to get one. I persisted with my cracked Galaxy Nexus for a week or two waiting for Google to get more stock, but when it went on sale in the US but for delivery in the New Year I decided to get a Samsung S3 from eBay to use until I could get a Nexus 4.

My old Galaxy Nexus had been upgraded to Android version 4.2 shortly before I broke it but non-Nexus Android devices have their upgrade timetable decided by either the handset manufacturer of the carrier and when I got the Samsung S3 it was running Android 4.1. I wasn’t really surprised, but I was upset to lose the benefits of the 4.2 upgrade, particularly the Gesture Typing, which is amazing.

The new news is that, in a perverse kind of way, things have now gone from bad to worse. I had been wondering how long it would take Samsung to upgrade my S3 to Android 4.2 and I thought my wait was over yesterday when my phone automatically downloaded an upgrade. The problem is that I was only upgraded to Android 4.1.1. That means no Gesture Typing, less slickness and speed, and no Photo Sphere Camera.

Most importantly I have to assume that the next upgrade will be a little while in coming. A search of the web this morning revealed that all Samsung have to say is that an upgrade to 4.2 is ‘in the works’.

It makes no sense to me that Samsung should deny their S3 customers access to the latest version of Android. These are early adopters who like new technology and have shown themselves willing to spend money on a top end handset. Samsung is pushing them (including me) towards Google and their Nexus range of phones which are always swiftly upgraded. I understand that Samsung has a proprietary UI it runs on top of Android and they have development work to do before they can push out the Android upgrades that Google gives them, but I have to believe they could push them out quicker than this.

The good news is that I was able to order a Nexus 4 when they went on sale again at the beginning of last week with a delivery time of 1-2 weeks, meaning I should get it any day now. I can’t wait to get back to that gesture typing, it really is amazing. Maybe nearly as good as a full keyboard for short documents.

New study: Britain leads the world in mobile data consumption, m-commerce and internet TV

By | Startup general interest | No Comments

New research from Ofcom has found that Britain leads the world in usage of several key technologies:

  • Most likely to access TV content over the internet: 23% of us do so every week (USA is second with 17%)
  • Use more mobile data: In Dec 2011 the average mobile connection downloaded 424 megabytes of data (Japan was second with 392 megabytes)
  • Spend more money online: Average per head spending on ecommerce in 2011 was £1,082 (Australia was second with £842)

This data isn’t only important for bragging rights and chest-beating at conferences. It also gives us an idea of the areas where we have the best chance of producing world beating startups. The UK is a pretty big market (7th largest in the world by GDP) and if consumers here are on the leading edge in any given area then local entrepreneurs should enjoy having both the best insights into what they will want and a large group of early adopters to go after.

It is particularly encouraging to see the lead in mobile data usage. Going back five years mobile was widely regarded as a strong area for Europe due to the strength of Nokia and the Symbian operating system, but since then Apple and Android have taken over. Hopefully there is an opportunity to reclaim the initiative (or at least some of it).

Patent trolls now 61% of US lawsuits

By | Startup general interest | 3 Comments

This is a post with some horror stats about patents, courtesy of Broadstuff. Firstly as you can see from the chart above payouts to patent trolls are increasing at a rate that is pretty close to exponential. Secondly, Reuters reports that 61% of US patent lawsuits filed in the first eleven months of 2012 were filed by patent trolls, and thirdly 20% of startups that have raised $20-50m and 35% of startups that have raised $50-100m have been sued on a patent.

This is nuts.

To spell it out – more patent suits are now being filed by companies that don’t make anything than by companies that do make stuff, and 20-35% of startups whose raison d’etre is innovation are being penalised by the patent system rather than protected by it.

Add to that the billion dollar patent shenanigans at companies like Google, Apple and Microsoft and it isn’t surprising that over the last couple of years the White House has finally gotten round to focusing on the issue.

Reform won’t be simple. There are industries like pharma for whom the patent system works well, and as the Reuters article points out some patent trolls are representing legitimate inventors, but for me at least the case for change is overwhelming.

Closer to home the European Parliament has just created a unified European Patent scheme which will dramatically reduce the costs for businesses seeking to protect their inventions across Europe. As a reduction in the cost of doing business this is to be welcomed, but I imagine it will also lead to a rise in patent litigation, including by patent trolls. Ultimately patents are a global issue and I hope that the US is able to fix its patent problem and that the solutions are then copied over here.

Scientists create artificial brain with 2.3m simulated neurons

By | Innovation, Ray Kurzweil | 2 Comments

One of Ray Kurzweil’s central predictions is that we will create software that emulates the human mind by reverse engineering the human brain. I think that is a sensible prediction – at some point in the not too distant future we will have the hardware, and after that it is just a question of developing the software, which will naturally follow from our continually improving understanding of how the mind works.

I’m writing this today because scientists have taken a good first step by creating an artificial brain with 2.3m simulated neurons configured in networks that resemble some of the brains own networks. Its cognitive network simulates the prefrontal cortex to handle working memory and the basal ganglia and thalmus to control movements. This brain takes input via a camera like sensor that can view an image and outputs by writing characters with a robotic arm. In the video below you can see it perform a series of tests with varying levels of success – recognising digits, recalling from memory, adding numbers and completing patterns. Like many human brains it is good at pattern recognition (in this case recognising characters) and struggles a bit with short term memory (in this case drawing a series of random numbers in the order they were shown).

This is just a small start. Everything the brain does could be performed by a computer and it is much simpler than a normal brain which has an estimated 86bn neurons. But it is a promising start. There is a long way to go from 2.3m neurons to 86bn, but I imagine getting the first 2.3m working is more challenging than the next 85.9977bn, at least in the requirement for deep insight and fundamental breakthroughs.

All of this is important because once a computer can emulate a human mind it will be able to perform many, if not all, of the functions a human can perform which will have a transformative effect on society, I think for the good.

The problem with indispensable employees

By | Startup general interest | 5 Comments

Rand Fishkin, one of the better thinker/bloggers out there on startup culture in the connected age, put up a great post on indispensable employees.

For me the key section is his advice to CEOs and founders:

Startup Employers/Founders – I know we’ve all had that one engineer who’s the only one that understands the middleware code and without him/her, everything could fall apart. Guess what? That’s a business risk that you created and you need to fix. And until you build a culture where redundancy, not superstar individual efforts are rewarded, your startup will stay tiny and your growth pains will be excruciating.

The same holds true for the marketer (or growth hacker if you have a semantic preference) who controls your customer acquisition channels, the salesperson who dominates your revenue creation, or the operations person without whom, you wouldn’t even know how to issue paychecks. These are fundamental flaws in your organization just waiting to explode and cause interminable chaos. They’re part of the reason you’re working nights and weekends, and feel like the next crisis is only a heartbeat away. They’re also what separates the first-time founders from the repeat successes who built company after company that scales and exits.

Rand also points out that, perhaps counter-intuitively, becoming indispensable is a bad strategy for employees as well, because by making themselves indispensable they create the problems described above thereby reducing the chances of the company hitting paydirt. Following this logic through, only employees who are more concerned about their salary and personal position than the success of the company would makes themselves indispensable and resist efforts to build redundant processes. Let me indulge in a rhetorical flourish and ask – are these the sort of people you want in your company?

Wise words from Rand, but they take courage and good management skills to implement. There are of course a million things that fast growing companies have to worry about and building redundancy into process is one of those things that everyone agrees is a good idea, but often doesn’t get to the top of the priority list partly because there is no short term payoff and partly because it is often difficult. That can be ok (but not ideal) up to the point when the company starts to take off, say around the Series A or when the employee count grows past 20-30, but after that the longer it’s left the harder it gets to sort out.