Monthly Archives

January 2016

Price drops, volume takes off

By | Startup general interest, Uncategorized | 2 Comments

solar chart

Price elasticity of demand is a function that economists study for different products. With the odd exception demand goes up when price goes down, but sometimes the function is linear and other times you get more of a step change.

As you can see, solar energy is a product where there is a step change. This chart makes it remarkably clear how quickly demand grew once solar energy became cheaper than alternative sources. It also suggests that growth will continue at a staggering rate as cost declines further. Note also that as more money flows into solar more money flows into solar research, so there’s a high chance those further cost declines will come through.

Three alternatives to native apps – but discovery remains unsolved

By | Startup general interest | No Comments

Nobody much likes app stores, discovery is broken, our phones get cluttered, and Apple and Google take a 30% cut. “There must be a better way” is a common refrain. partially addresses this question with their latest post The end of app stores as we know them, listing three ways we will use apps without downloading them:

  • Embedded in relevant services – apps simply turn up when you need them – e.g. Uber’s integrations with Google Maps and CityMapper
  • Served up by bots running in messaging systems – this is a hot topic right now, and the vision is you will be able to order your Uber, pizza, or anything really simply by asking from within Whatsapp/Snapchat/Telegram/Facebook Messenger etc.
  • As cards within search results – Google is now streaming ads directly within it’s mobile search results, think searching for your flight, the airline’s app coming up as a card, and checking in without leaving the results page

All of these are starting to happen already and will be a lot better for the user than switching between native apps, particularly when information needs to be remembered or copy-pasted.

However, they don’t address the discovery question which is the problem that app stores are solving, albeit badly. CityMapper are unlikely to embed multiple taxi services within their app, it would be too much work and would likely damage the user experience. Similarly, it’s unclear how a Whatsapp user will get a choice of pizzas. Even within search results it seems likely that Google will choose to stream a limited number of ‘app cards’ and serve other options as blue links.

When I picture how the future will pan out I always think about what it will mean for startups. At the moment new services can get discovered by pitching Apple and Google for app store promotions or by buying ads on Facebook and other sites. In the world we’re moving towards I fear discovery will become even less meritocratic and even more based on relationships with the owners of relevant traffic, favouring incumbents at the expense of startups.

Corporate innovation will harness the power of entrepreneurs

By | Exits, Venture Capital | No Comments

Jon Bradford, founder of Techstars UK, once said to me that corporate innovation budgets dwarf venture capital. This tweet from Benedict Evans gives an insight into how much. The excess cash from Apple from 2006-2015 was greater than US VC funding in total.

That got me thinking, so I took a look at corporate R&D spend and it turns out that 2014 spend in the US was over $250bn and in Europe it was over $200bn. That compares with $86.7bn in global venture capital investment in the same year.

The interesting thing is that large companies are increasingly looking to the startup world to help achieve their innovation objectives. They, run accelerator programmes, and open ‘labs’ in startup hotspots and make acqui-hires.

These activities are interesting, but small scale. Over the next few years I expect we will see a lot more experiments as large companies work out how to harness the power of entrepreneurs. They have to. New markets are spinning up much faster than they can plan for and exploiting those opportunities requires a tolerance for failure and risk-reward balance that I don’t believe can exist inside large company structures.

I think truly innovative companies will get more sophisticated in the way they monitor the startup-ecosystem, get close to interesting companies, partner with them when appropriate, and know when they can acquire them effectively.

When they do that I predict a sizeable percentage of that R&D spend will flow into the startup ecosystem.

This year Amazon and Netflix are buying movie rights – sports next year?

By | Amazon, TV | 2 Comments

I wonder if history will look back on Netflix’s 2013 screening of House of Cards as a watershed moment. It was an incredibly brave bet at the time – an investment of $63m in production costs from a company whose previous success had principally come from re-running TV shows that had premiered on traditional TV channels. Netflix was following a formula that had worked well at cable and satellite companies around the world – buy exclusive content to drive subscriptions – but they were the first streaming service to do it at scale.

Fortunately for them, House of Cards was (and is) a massive success, winning 3 Emmy awards, drawing millions of views, and most importantly, is widely perceived as having made a significant contribution to Netflix’s subscriber growth.

On the back of that success Netflix doubled down on their original content strategy and Amazon has gotten in on the game.

I think of these early moves as Netflix and Amazon camping out on the lawn of traditional TV. They stood up and were noticed, and they won some battles, but it wasn’t clear how much of a threat they were to incumbents.

Now I read that Netflix and Amazon are buying up the rights to indie films at the Sundance Festival whilst traditional TV companies are scaling back their investment. If those investments prove successful in increasing their subscriber numbers they will be back bigger and bolder next year following the ‘content begets audiences’ playbook to profitably buy audience share from their competitors. Meanwhile, assuming those competitors don’t want to cede the market they will face the difficult task of rebuilding sufficient confidence to outbid Netflix and Amazon.

Remember also that most cable companies are encumbered with legacy data networks and are struggling financially whilst Netflix and Amazon Prime are growing nicely, and it’s easy to think that the cards are now stacked in favour of the new entrants.

The next logical step is for Netflix and Amazon to move into sports rights. When that happens we will know the battle has entered its final phase.

Sustainable startup growth and venture capital

By | Venice Project | 2 Comments

On Friday it seemed like everyone in the venture capital industry was again reading about market turmoil, this time the news is that angel investors are pulling back and valuations taking a hit. I read it too, because it’s a big deal. Startups everywhere will need to adjust their fundraising strategies and good investors will be helping them to adjust quickly – it’s much less painful that way.

However severe our current situation is, I’m sure there will be plenty of short term negatives, including more job losses, company failures and down rounds. However, every cloud has a silver lining and this time I hope it’s that out of the current correction/crash (wherever we end up) comes a more sustainable model for startup growth.

In his post The end of the big venture formula Danny Crichton put it like this:

What’s needed is a sustainable approach to startup growth and venture capital. That means much less blitzscaling (whatever the heck that ever was), and lots more heads-down quality thinking to build products that customers actually want and will eventually pay for. We need a new disruptive capitalism that is designed for a much more mature internet market, one that can bring founders, investors, and employees together.

I would summarise that as getting the fundamentals right – from great product, through unit economics to stakeholder alignment.

Crichton went on to highlight three myths that are preventing founders and investors from focusing on fundamentals:

  1. Growth is limitless in a world where 3bn people are connected to the internet and the other 4bn will be online soon
  2. The best startups capture all the returns so focusing too much on entry valuation is a mistake
  3. Scale is everything, and all else should be sacrificed for it

I would say there is some truth in all three myths but not enough to make them useful rules of thumb. In the ecommerce and marketplace markets Forward Partners operates in growth is limited because business has to scale country by country. It’s easier than ever before to do that (we have a 4 month old ecommerce company experimenting with US expansion) but still hard work. Secondly, there is definitely a power law in venture returns, but in the now huge global markets the winner takes all dynamic is weakening, and only chasing unicorns misses the huge opportunity in companies with $100-1bn exit potential. Thirdly, in early stage startups, scale, or more precisely growth/momentum, is hugely important but if the unit economics are never going to add up then you don’t have a business.

It’s worth remembering that there’s some game theory at work here. If the markets are only focused on scale then focusing on fundamentals risks seeing a competitor raise more than you, grow faster, and make it much tougher for you to raise more money and grow customers yourself. And so long as there’s a bigger fool  out there focusing exclusively on scale often works out just fine.

Most long term venture industry insiders prefer operating in a steady climate where companies don’t have to follow highly risky strategies just to stay competitive. I think that’s why you see people like Bill Gurley, Fred Wilson and Mark Suster publicly talking markets down. They are hoping the ‘bigger fools’ will step out and we can all get back to focusing on fundamentals.

I’ve written a lot on this blog about two aspects of fundamentals – great product and strong unit economics – but less about stakeholder alignment. I will look into redressing that balance, but my first thought is that because of current practices/trends towards non-participating preference shares and early founder/employee/angel investor liquidity this is the one front on which we’re not doing too badly.


New technology adoption curves show accelerating pace of change

By | Startup general interest | No Comments


We’ve heard before that new technologies are adopted more quickly than their predecessors, but seeing it on a hundred year chart hammers home the message. If we just looked at the last ten years we would see a similar picture, with faster adoption rates for the newer technologies. This trend will continue. As our tools to innovate get better we innovate faster, including on the tools themselves, and so the process accelerates.

I wrote yesterday that new markets are spinning up faster and disappearing faster than ever before. This is why.

Big markets are spinning up and disappearing faster and faster

By | Venture Capital | One Comment

The idea for this post came this morning when I saw these two tweets from Benedict Evans. One shows the newspaper industry growing steadily for fifty years and then declining for ten and the other shows the Japanese fixed lens digital camera market growing from nothing to 120m unit sales in ten years and then dropping by 80% in the seven years after that.

The market for the Japanese cameras spun up and disappeared more quickly than for newspapers. There’s a hypothesis that’s a phenomenon we are seeing over and over again. New markets, especially digital markets, grow big very fast, but don’t have legs. Other examples I can think of include

  • Word processing software – the market took off in the 1980s and is now in substantial decline due to Google Docs and Evernote. Evernote (arguably itself a new market) grew very fast but is now threatened by Quip.
  • Video cassette recorders took off in the 1980s, were replaced by DVD players in the 2000s, which are now being replaced by streaming services
  • Vinyl records were around for decades before being replaced by CDs in the 1980s, which were replaced by music downloads in the 2000s which are now being replaced by streaming services
  • Walkmans were replaced by MP3 Players which were then usurped by phones on a similar timetable
  • PDAs and satnavs were usurped by mobile phones in about 15 years
  • Blogging got going in about 2005 before Twitter and a collection of other sites took the wind out of it’s sales over the last three years or so

A few too many of these examples are linked to smartphones for my liking, but I do think there’s something in the idea that new markets have shorter and shorter durations. It fits with my worldview that the pace of change is accelerating. If the duration of markets is shortening it has implications for venture capital, because if companies take 7+ years to reach a big exit then increasingly their markets will have started to decline before they get big enough to sell or IPO and the model will break.

[Apologies for not posting the images from the two Benedict Evans tweets. WordPress won’t let me upload anything today…]

The state of now – new Adobe data shows mobile almost matching desktop

By | Ecommerce | No Comments


With all the talk about mobile taking over the world it’s easy to forget that there’s still more traffic on the desktop. This holiday season just released by Adobe shows that on some days there was more traffic on mobile than desktop, but that mostly the desktop is ahead. If you turn to sales rather than visits then the desktop remains totally dominant with 73% of transactions.

Some of our companies see as much as 90% of their traffic on mobile I’m sure we will see more of that as devices and networks continue to improve, but this data shows us that having a well functioning website is still important for most ecommerce and marketplace businesses.

Why being a VC is more difficult than people think

By | Startup general interest, Uncategorized | 5 Comments

I’ve seen Mark post a few versions of this tweet over time and wanted to write a post about it. I agree with him, but the reasons are complex. Fortunately Steve Schlenker, co-founder of DN Capital has captured most of them in his Quora answer to the question: How hard is it to be a venture capitalist.

Before I go any further let me say why I’m writing this post. I can see that it might look self-serving, but my motivation here is to help others thinking of becoming investors. To get it out of the way, I’m definitely not writing because I want anybody’s sympathy (I don’t) or because I want to say how clever I am for overcoming the difficulties (not my style).

I’m writing this post for people who are thinking of becoming investors because lots start investing, lose their shirts, and then wish they had done something else with their money. I’ve seen that happen to angels, entrepreneurs, and corporate VCs.

The root of the problem, I think, is that from the outside venture capital looks easy, especially during bull markets. The papers are full of stories about IPOs and big exits and it seems like every private company is able to raise money, even the ones that have obvious flaws. Moreover, even experienced and successful venture capitalists are investing in companies that look stupid. Ergo – investing is easy. The most glaring omission from this simple analysis is the timing lag that makes venture capital so hard. As Steve says, excepting hyped sectors, most companies take 7+ years to reach maturity, even in the good times. The IPOs and big exits on Techcrunch everyday, therefore, received investment back before the markets were hot and most of the private companies that seem so exciting today will face the difficult challenge of a down market in the years to come. Many will fail.


Making consistent returns as a VC requires building a portfolio of companies in the difficult times that are ready to exit when the good times come. That necessitates raising capital when nobody wants to invest in venture and having the vision, discipline and patience to build value in a portfolio over time. All three of these are far from easy, but it is raising capital which is the hardest, particularly here in Europe where the venture industry is only just losing the awful reputation it gained during the 1999-2000 bubble. That said, even once they have money most investors pick bad companies. Surprisingly few funds back enough winners to make enough profits to reach carry. I haven’t seen data, but I would be surprised if more than 30% of funds get there.

Finally, the skill-set of a successful venture capitalist is incredibly broad. Ronald Cohen, founder of Apax and one of the founders of the VC industry here in Europe put it this way in his book The Second Bounce of the Ball:

[investors] have to be financially trained and to have an understanding of management, but you also have to have a strategic brain while being sensitive to tactical and people issues

To that I would add empathy, patience, grounding, creativity and hustle. There’s no single career that prepares you for that. Banking and consulting will give you strategy and tactics but not the operational experience and running a startup doesn’t teach strategy. So everybody has to learn on the job. Then on top of that experience makes a massive difference, as Steve says:

The best investors are the ones who have LOST money in the past so can recognize a pattern of what NOT to do, as much as a pattern of what TO do.  This is truly one of the great internship businesses, don’t assume because you have made great angel investments, or built a successful company yourself, or made public sector investors a lot of money in the same sectors that you can immediately pivot those skills into managing LP capital deployed in a structured way into early stage private company risk positions.

I could say more, especially about the day to day challenges of running a fund and investing, but this post is over 700 words already and I think I’ve made my point. Venture investing is hard because the job is inherently difficult and the required skill set is exceptionally broad. That’s also what makes it fun.

I recommend Steve’s Quora answer if you want to read more.

Musings on attracting autonomous vehicle research to the UK

By | Startup general interest | No Comments

When I read The Federal Government Must Act To Ensure That The Autonomous Vehicle Revolution Takes Place In The U.S. on Techcrunch this morning my first reaction was to be happy that the UK government is making concerted efforts to attract Google’s self-driving car research to the UK. If they succeed then high value jobs will be created here, opportunities in related areas are more likely to be pursued here (e.g. car security) and the UK could become the home of the autonomous car industry. Indeed, the point of the Techcrunch article is to say the US government should act to make sure all those wonderful things happen in the US.

The problem with the article, and with my first reaction, is that it only thinks about the benefits of having an indigenous autonomous car industry and not the costs.

The benefits are all money related, and that’s important, but it’s not everything. This line of thought is challenging though. If you ask ask me what I want for my kids when they grow up I will tell you that I want them to be happy. I know they will need a certain amount of money to be happy, but beyond a certain level other things become more important – love, safety, meaningful work, etc. The problem is that money is just about the only metric countries use to keep score. Gross Domestic Product (GDP) is a money measure, and we watch it like a hawk. Growth figures are reported widely and governments are judged first and foremost on the increase they have delivered.

My friend Nic Marks has long been campaigning for governments to start measuring and targeting themselves on happiness. That makes sense to me, just like it makes sense that happiness is the goal for my kids. However, getting widespread agreement on what constitutes happiness is tricky, which is why GDP is still the focus and why the merits or otherwise of attracting autonomous car research to the UK are debated on financial grounds with safety considerations considered on a binary basis, often with analysis that is emotionally rather than rationally driven. If we had a measure for happiness that combined GDP growth with other factors we would be in a much better place to trade off the economic impact against safety and make this decision properly.