Monthly Archives

June 2013

Raise the right amount of money for your opportunity

By | Startup general interest | 4 Comments

This morning I read that Paul Graham told a conference yesterday that VCs are pushing companies to take bigger rounds than they need, and then after that I was explaining to one of our portfolio company CEOs that the size of the opportunity should determine the amount of money a company raises. Simply put, a company should aim to get to exit raising only a small fraction of the value that it hopes to exit for. Otherwise the investors won’t make the multiple on their investment that they want and after liquidation preferences are paid the amount left for the entrepreneur may well also be disappointing.

An example to illustrate:

  1. Company exits for £20m having raised £1m for 33% of the company in a 1x liquidation preference – the investor gets £8.3m back making 8.3x (£2m off the top and then 33% of the remaining £19m) and the entrepreneur makes £12.7m. Everybody is as happy as they are going to get with a £20m exit.
  2. Company exits for £20m having raised £15m for 50% of the company in a 1x liquidation preference – the investor gets £17.5m back making 1.15x (£15m off the top and then 50% of the remaining £5m) and the entrepreneur makes £2.5m. Nobody is happy. 1.15x is way below a VC’s target and the entrepreneur hasn’t made much in the context of the size of the exit.

The upper limit on the exit is determined by the size of the market opportunity. The acquirer of a business will look at how much profit they will be able to extract, and that profit is a function of total available revenues, market share, and profitability, all numbers that can be estimated with at least order of magnitude accuracy from very early on. There are occasional cases where a product impacts adjacent markets and then the function breaks down and valuations soar – Instagram is a good recent example – but these are rare.

The sequence, therefore, is market opportunity determines likely exit which in turn determines the amount that should be raised. Companies which operate within these guidelines will have a happy time. Those that operate outside them often don’t. The problem is often worse than simply not making as much profit as initially expected because investors and entrepreneurs don’t want to accept that they won’t make as much as they hoped and spend too long chasing the dream, frequently raising more money and exacerbating the problem.

So when I read about VCs making companies take more money than they need it makes me … a little unhappy. In the first instance the amounts are unlikely to be as large as in the example above, but when a company starts raising too much money it starts down a path that can be difficult to change.

E-commerce trends 2013-14

By | Amazon, Ecommerce | 5 Comments

I just read the following good list of e-commerce trends for 2013-14 on Quora:

  • Commodotisation of online stores. Even lower barriers of entry for anyone looking to build an online store (or sell something) led by solutions like Shopify,WooCommerceGumroad and Tictail.
  • Consolidation of niche online stores that focus on long-tail products by larger marketplaces e.g. & Referly. Possibly leading to more mergers and acquisitions by larger online or offline retailers.
  • Customisation for each shopper. Intelligent & real-time data leads to condition based events that are unique to sub-sets of users or individual users. e.g.GoSquared + contests/recommended product at a special discount
  • Mobile purchases will increase led by better checkout experience from responsive sites.
  • More physical retailers will learn to harness online real-time data in their physical storefronts especially social currencies like positive tweets.
  • Online stores will differentiate by offering more of the standard offering e.g. daily deals and include mechanics that are harder to replicate e.g. videos and live events with high production values
  • Influencers will get more prominent tools to curate beyond what Pinterest or blogs currently offers. Making it easier to reach out to specific demographics and market segments at the top of the marketing funnel, see Your mix of inspiration
  • Shift to higher value density products (e.g. nutritional goods, skincare products and make-up) and fast moving consumer goods (FMCG) by retailers as market saturation peaks for Fashion.

It’s a good list. I would put more emphasis on mobile and add something about niche markets, community, brand and direct relationships with the manufacturer. As Amazon and other large players leverage their scale to drive prices down new entrants will seek to compete by leveraging support from their community, building fun and engaging brands and capturing the margin taken my retailers. This strategy is difficult to execute but large value will accrue to those who succeed.


A customer that chooses your product will be more satisfied than one that is acquired through spend

By | Startup general interest | No Comments

Former private equity exec and now Microsoft employee Tren Griffin has a great post up: A dozen things I’ve learned about business. The full list is great, containing many themes and points that have been discussed here over the years. It’s pretty short and well worth a read. I’m going to highlight just one here, and narrowly beating Bezos’ “Your margin is my opportunity” which I love for it’s brazenness is the following from Bill Gurley which I chose because it is less widely trailed than many of the others:

10.  “A customer that ‘chooses’ your firm’s services will be much more satisfied than one that is persuaded to buy your product through spend.” Bill Gurley. Big firms have these huge marketing budgets and forget that the essence of business is being able to cost-effectively acquire a customer. Fred Wilson talks about that problem at one point in this recent interview: Spending on customer acquisition should be tracked on a per customer basis. People who want to spend, for example, “$100 million” on marketing without breaking it down and working it out on a per customer basis are due for a fall.

Many large and successful businesses have been built through paid marketing, of course, but this is a reminder that the more difficult trick of acquiring customers for free generally creates more enduring value.

Amazing customer service from Scalextric

By | Startup general interest | No Comments

Whilst I was away in India Scalextric applied the finishing touch to an awesome piece of customers service. Fiona and I bought a digital Scalextric set for our son Stanley on his fifth birthday some eighteen months ago. (For those that don’t know, digital Scalextric is like normal Scalextric except that there is an extra button on the controller which allows the car to change lanes on special track pieces and that you can race up to six cars at a time, still on two tracks. All very cool.) When we got the set out in March this year it wasn’t working. I found a troubleshooting guide online and eventually narrowed the problem down to the power unit. We were out of warranty and I nearly bought a replacement, but at the last minute I decided to email Scalextric customer service. To my delight and amazement they offered to send me a new power unit at no charge.

That would have been pretty amazing on its own, but things got better still when the new power unit didn’t work.

At that point I emailed Scalextric again and they gave me a Freepost address and asked me to send the power unit and the controllers to them for testing. I did that and put the cars in as well. Two to three weeks later they sent everything back to us. The fault turned out to be with the controllers, which they replaced. They also gave the cars a service too, replacing the brushes and doing some minor repairs.

That was great work and deserves recognition. Hence the post. One minor quibble is that I’d have liked to have more emails from them explaining what was going on, but that’s a minor complaint in the context of what they did for me.


Forward Investment Partners – my new home

By | Uncategorized | 17 Comments


The big news in my corner of the world is that after nine good years I’ve left DFJ Esprit to join Forward Internet Group where I will be Managing Partner at Forward Investment Partners (FIP), responsible for early stage investments and Forward Labs. The core business of FIP is seed stage investments in tech companies and Labs is in the business of creating companies, again in the tech space. In both cases most of the portfolio companies are in the business of selling stuff online through market places and a variety of other innovative models. FIP has made eleven investments, including Unbound (in which DFJ Esprit is also an investor) and Hailo. The full portfolio list is here. Labs companies include Drop Wines and Makers Academy.

You may have seen this post on Techcrunch last week announcing my appointment.

Here are the reasons why I was thrilled to accept the job here:

  • We invest at the seed stage. I’ve always been drawn to early stage and as capital requirements have dropped it has become the most attractive end of the market in terms of value created per dollar invested.
  • My modus operandi as an investor is to identify markets that are about to open up and invest in the best company at that stage, but often there wasn’t a suitable company. With Labs we will be able to fill those gaps.
  • We have marketers, designers, and developers on staff here who can help our portfolio companies in ways that go well beyond what most VCs are able to offer.
  • Forward Internet Group (where I have joined the board) is a fantastic company. Great people and amazing success over the 8-9 years since it was founded.

Both Labs and FIP are young in their lives and we are still iterating towards our optimum model, but my ambition is that we will be attractive to entrepreneurs because with our help they can scale their companies faster and more cheaply.

I hope you get why I made the move, but it was not without a little sadness. I’m very sorry that I won’t be there in the same way for my former portfolio companies Lyst, Conversocial and StrikeAd, and I’m deeply grateful to partners at DFJ Esprit for my time there. I wish them and the portfolio there every success going forward.


Going off grid for three weeks–in India

By | Announcement | 11 Comments

I’ve now been blogging for six and a half years, posting just about every day that I’ve worked, only pausing for holidays and weekends. I don’t usually write to let you all know when I will be away and not blogging because I don’t want to tell the world that my house will be empty (as was the case last week). This time it’s different because I’m not leaving behind an empty house, because this will be the longest break since I started blogging, and because I will most likely be totally off grid and unable to respond even to comments.

Tomorrow I fly to India where I will stay at the Swami Rama Sadhaka Grama ashram in the foothills of the Himalayas near Rishikesh. There may be some internet available, but the safe assumption is not, and too much time online would defeat the purpose of the visit which is to study meditation and yoga, and to unwind.

I’ve been meditating for three months now, mostly using the GetSomeHeadSpace app and I’ve got a lot out of the experience. The meditation itself, ranging from 10-20mins per day, is enjoyable, and my mind is calmer and clearer for the rest of the day afterwards, but most importantly the process of observing my thoughts brings a sense of perspective which I think makes me a little bit more effective in many things that I do. And then, on top of all that, there is an increasing amount of research which shows that meditating contributes significantly to long term brain health.

I’m also excited by the opportunity to spend what I hope will be quality time with people from a very different culture. I travelled a lot when I was younger and enjoyed seeing and experiencing different cultures and ways of life, something that gets difficult when the responsibilities of work and family mount up.

Not that I’m complaining – I love my family and my job. And that makes this a good moment to say thank you to my wife Fiona and to my partners at DFJ Esprit for supporting me in this little adventure.

See you all in three weeks, when I expect to be back blogging stronger than ever.