Monthly Archives

September 2013

Smartphones are topping out with regard to speed

By | Mobile | No Comments

Techcrunch did a fun test where they placed all versions of the iPhone next to each other and ran a speed test. You can see the video here, the the main takeaway is:

After the 4S, the speed differences for basic day-to-day activities (like loading a page) start to get pretty slim with each next generation. Once you’re on the 5 and later, the difference is hardly noticeable. The differences are obviously going to be more visible for the more intensive things (like 3D gaming), but for general day-to-day stuff like browsing, there’s not really room to make huge strides.

The 4s was released on 4th October 2011 so it is just about two years since iPhones got any faster. Screens and cameras have gotten a bit better since then but if speeds aren’t improving then the competition becomes much more about software (hence the big fuss about iOS 7) and about price. With the exception of the Nexus 4 (which was most likely heavily subsidised by Google) high end Android and iOS smartphones have been consistently priced at £400+. That may now start to fall.

Twitter’s sensible IPO strategy

By | Exits | 3 Comments

NOTE: I wrote the post below a couple of weeks back but failed to hit the publish button. That was before Twitter filed their S1 with a valuation of c$15bn. Whilst that’s not an outrageous increase from $10.5bn from what we know of Twitter’s finances it seems pretty spicy from a multiples perspective – just north of key comps Facebook, LinkedIn and Yelp on a revenue basis at 15x the 2014 estimate of $1bn, and 65x estimated 2014 EBITDA (Facebook 36x, LinkedIn 159x). This is definitely pushing the limits of ‘sensible’ as described below.


A couple of weeks back Twitter acquired a mobile advertising company called Mopub for around $350m in Twitter shares. Buying a company with shares requires that you place a value on those shares, and hence on the company. The good news is that Twitter gave themselves a relatively conservative valuation of $10.5bn, which is about 15% up from the valuation that Blackrock paid to buy into the company at the beginning of the year.

This is good news because it implies they intend to keep the IPO price reasonable and allow investors to make good money as the stock appreciates in the weeks and months after the listing date. You can think of this as adopting the LinkedIn strategy rather than the Facebook strategy for going public.

There are a number of European companies that are of a size where they could go public on the London market – I’m thinking of companies like Zoopla, Wonga, Just-Eat, and Mindcandy. When they do go public I hope they follow Twitter and LinkedIn and so the shares trade up and the new investors have a happy time. That way the next IPO will be easier and the one after that will be easier again. If the opposite happens and the new investors lose money as they did when Ocado listed then the markets will shut again for tech companies and exit markets will remain more difficult here than they should be. Worse still we will be less likely to get the large independent local tech powerhouses we need to really drive the local ecosystem forward.

Community is the new battle ground in ecommerce

By | Ecommerce | No Comments

Jeff Richards of US VC fund GSV Capital has a good post up today: Content, Community and Commerce: Why Verticals Win. His investment thesis is that vertical platforms combining content, community and commerce will make great investments over the next period, and he cites existing portfolio companies including Houzz as good examples.

The strategy of blending content and commerce has been around for a while now and underpinned the success of companies like ASOS and Net-a-porter, but it’s only recently that companies have started to understand the power of adding community. Communities come in three flavours:

  • Consumer communities (e.g. discussion groups and review sites) – valuable because they bring users back to the site regularly and validate the product – e.g. Yelp
  • Hobbyist or maker communities – valuable because they increase the quality and reduce the cost of product development – e.g. 3D Robotics
  • Manufacturing communities – valuable because they reduce working capital and bring innovative products – e.g. Etsy

Content and community only work for vertically focused sites. As evidence, look at Amazon. They get these trends, it’s why they bought sites like IMDB and Goodreads, but there is no way they can take advantage of them on

Vertical often means local, which is good news for those of us in startup hubs outside of Silicon Valley.


Recognising good growth

By | Startup general interest | No Comments

When I wrote last night about Growing the right way I said that startups should aim to grow sustainably. This morning I thought I would say more about what that means, starting with characteristics of unsustainable growth:

  • Adding users who are unlikely to engage (e.g. incentivised traffic, users recruited under false pretences)
  • Adding users via channels that will never become economic
  • Selling products without a clear path to positive gross margin
  • High churn rates
  • High return rates
  • etc.

Note that many of these statements are conditional on a future event – don’t do X unless Y is likely to happen. It is this future looking element which makes distinguishing between good growth and unsustainable growth tricky and makes it tempting for startups make the case that their unsustainable growth is actually good growth in order to raise money and buy themselves time to figure out the right answers. My post yesterday described the dangers with this approach.

Sustainable growth comes from having a product that customers love, and has the following characteristics:

  • Positive unit economics (i.e. revenues per user > cost of acquisition + cost of delivery)
  • Good understanding of the benefits provided to customers
  • High referral rates
  • High net promoter score
  • Loyal customers
  • etc.


Growing the right way

By | Startup general interest | 3 Comments

I just read this on a blog post from Joe Fernandez, founder of Klout:

Startups now live in a world of spectacular growth at all costs. All the founders I spoke to this week had stories of over hiring, breaking the budget on marketing, focusing on cheap virals rather than building real utility and every other unnatural act that might help them ride the hype cycle a little longer. The shortsightedness that plagues the public market has now infected startups.

That’s all wrong, and it’s not what we’re about here at Forward Investment Partners. We are, of course, as keen on growth as the next investor, it’s the biggest driver of value in startups, but it should be sustainable growth. Anything else is just storing up problems for the future. I understand that growing any way possible to raise money and buy time to figure things out properly can be tempting, but it’s a dangerous path because to keep moving forward you then have to grow further from an artificially inflated base and you stand every chance of ending up in the situation Joe describes.

Sometimes it’s better to take things a little slower. I was with a company today that is now budgeting for no growth until next year whilst they focus on hiring and improving their product. I probed hard on this but ended up agreeing that it was the right thing to do because they are staying connected to what their customers need and that will deliver better returns to us all in the long run.


‘Great founder’ and ‘Big market disruption’ are stories that get investors excited

By | Venture Capital | No Comments

The infographic below was on Venturebeat this morning. It sets out six ways in which companies present themselves to investors. If you are an entrepreneur you should think which one best matches your company. In my experience it is the top two that work best for fundraising:

  • Disruptions of big markets are easy to get excited about
  • Great founders make you want to back them
  • However, an all star team is obviously not a bad thing, but companies need leaders.
  • Similarly, complex business models (aka ‘the detective’) are tricky for investors who don’t have deep domain knowledge.
  • Services which ’emancipate’ consumers by making their lives magically better are very cool when they work, but the problems are not new and most of the low hanging fruit has been taken.
  • Finally, companies which exist primarily to make the world a better place are very worthy, and I’m glad they exist, but they generally don’t sit well in the portfolios of VCs whose raison d’etre is to maximise profits.

Combining ‘lean’ and ‘design thinking’

By | Forward Partners, Startup general interest, Venture Capital | 7 Comments

Screen Shot 2013-09-23 at 09.54.30We’ve been thinking recently about how to combine design thinking with the lean startup methodology. The diagram above was drawn by Tim Brown, CEO of IDEO to describe the three tenets of design thinking (for those that don’t know Tim is perhaps the world’s leading proponent of design thinking). Lean startup has a lot to say about viability (will customers pay?) and can be easily extended into feasibility (what assumptions do I have to believe for this product to work?), but doesn’t have much to say about desirability. Instead it is left to the entrepreneur to intuit what her customers want.

My thinking is that we can augment our existing lean startup process at Forward Investment Partners to also make sure that our companies are connecting as deeply as possible with the true needs of their customers, and to imbue their products with emotional meaning as well as function. When big companies employ ‘design thinking’ they usually spend a lot of time and money observing customers. Our opportunity is to find the quick and dirty equivalent which works for startups.

Proven value-add characteristics for physical products

By | Business models, Venture Capital | No Comments

Alan Patrick just wrote a post about London’s prospects as a centre for manufacturing. Along the way he wrote about the characteristics that are proven to add value to physical products:

  • Short Lead Times/Available now
  • High Design Input to create differentiation
  • Fast change/Fashion – make things that are hard for long lead time supply chains to replicate quickly
  • Design unique capability into a product

I love a framework, and this is a good one for thinking about the potential for physical products companies. This is a hot area right now, but it’s nascent, and that means there is little to go on when we make investment decisions and advise companies. Making sure that one or two of these characteristics are present and get stronger as the company develops is a good way to go.

And if you’re wondering, Alan thinks that London could be a centre for the manufacture of high value products, but we have cost disadvantages to overcome and would benefit if our schools taught our kids the right things, and if engineers were accorded the same status in society that they enjoy in most other OECD countries.

Lessons learned from the failure of @sonar

By | Forward Partners, Startup general interest, Venture Capital | No Comments

Brett Martin, founder of @sonar, has written a gut-wrenching post about the lessons he learned from the failure of his startup.

First the background:

For those unfamiliar, Sonar Media Inc. was a mobile app created to help make the world a friendlier place. Our mobile app buzzed in your pocket when friends were near and ushered in a new wave of “Ambient Social Networking” companies. Downloaded by millions of people all over the world, Sonar was promoted by Apple and Google in 100+ countries, won numerous awards such as runner-up at TechCrunch Disrupt and Ad:Tech Best Mobile Startup, raised nearly $2,000,000 from prominent angels and VCs, and was featured on more than 300 publications including the New York Times, CNN, CNBC, TechCrunch, and TIME.

And yet, we failed.

Brett draws out a number of lessons. I’m going to highlight two, but if you have time I highly recommend reading the whole post. It’s beautifully written.

  1. Focus, especially focus on delivering value for your customers – you hear this all the time, but I’m highlighting it here because it’s hugely important. Focusing on areas other than delivering value for customers was the mistake that underpinned four of the eleven lessons that Brett lists.
  2. Postpone brand and agency intros until you’ve built your own audience – the only thing brands are interested in is accessing your audience. That’s NOT using their reach to help you build your business. This is a generalisation, but it’s true much more often than it’s not. This point generalises to distribution deals for just about any startup.

Finally – Sonar Media was born in an incubator. Forward Investment Partners is a high value add early stage investment company, not an incubator, but one of the ways we engage with entrepreneurs is to offer them space in our office and access to hands on operational help from our team, so there are similarities and Brett’s experience is relevant. He says:

the most detrimental aspect of the incubator … was … its facility as a crutch. As someone responsible for building and running a company that I ultimately didn’t control, it was far too easy to point a finger.

This is something we understand well and are at great pains to avoid. Helping startups at the earliest stages creates value for both the entrepreneur and the investor but it is critical that no dependence is created. Our model is to help, transfer capabilities, assist as the company hires it’s own team and then get out of the way.

What to look out for with bridge rounds

By | Startup general interest, Venture Capital | No Comments

Yesterday I talked a friend through how bridge rounds work and what he should look out for. This is what I said.


A bridge round is generally for companies that have raised one round and want to wait a little longer than anticipated to raise their next round so they can get to a higher valuation. The bridge is usually provided by existing investors.

How it works

Bridge rounds are generally structured as loans that convert into shares when the company raises its next round. The next round is generally defined as a ‘Qualifying Event’ which stipulates that the round must be over a certain size and should come from someone who doesn’t have existing connections to the business. In this sense it is similar to the convertible notes that some startups use as a structure for their seed rounds.

Like convertible notes the bridge converts at a discount to the next round. Discounts typically range from 10-20%.

Things to watch out for

The first thing to watch out for is the size of the discount. This gets complicated in two ways.

  1. Discounts are sometimes combined with interest on the loan which has the effect of making the discount bigger. If you work the numbers through a 15% discount combined with a 10% interest rate on a loan that runs for six months is the same as a 19% discount with no interest.
  2. Investors sometimes ask for “Exploding discounts” that are fixed for a period of time and then increase every month after that. One example I saw recently was fixed at 15% for six months and then increased by 1% every month after that. From an entrepreneur’s perspective this structure can a) result in very large discounts over time (and remember that rounds sometimes take an awfully long time to pull together), and b) create a perverse incentive to close quickly which puts the company at a big disadvantage in negotiations.

The second thing to watch out for is what happens to the loan if the next round fails to materialise. Loans that become repayable after a period of time create huge risk because there may not be enough money to make the repayment. If this happens the investors that made the loan are in a position to demand almost anything from a company, including to convert into shares at a very low share price. In place of a repayment clause it is generally better to agree that if the loan isn’t repaid within a certain time period (commonly two years) then it converts into shares at a share price that is agreed now. That won’t be a high share price but it shouldn’t be too low either. The share price of the last round is a common choice. Remember that this is a downside scenario that should have a low probability of occurring.