Monthly Archives

April 2016

The decline in venture is bottoming out

By | Venture Capital | No Comments

Screen Shot 2016-04-15 at 16.09.37

Reading the tea leaves to predict where the venture capital market is heading seems to be everyone’s favourite hobby at the moment, and I’m no exception. Last week we had data from which showed that venture investment in Europe is roughly flat quarter on quarter (excluding Spotify’s $1bn raise). Now we have Mattermark and PWC data on Q1 in the US and, surprisingly, the picture there is similar. As you can see from the chart above there was a precipitous decline from Q3 to Q4, but the rot stopped in Q1. Moreover, we are still at a high level of investment when compared with any period except the last couple of years and the 1998-2000 bubble.

It will be very interesting to see where this goes next quarter. I’ve been saying that I think the underlying growth in venture and startup activity here in Europe will balance out the correction and my best guess is that investment levels for the next few quarters will be roughly flat on where they are today at €3.5-4bn, but that I expected the US to keep falling. Now I’m wondering if I should revise my expectations upwards.

The other interesting thing to emerge is that investment in the Bay Area is falling faster than everywhere else – Q1 2016 is 20% down on Q1 2015. The capital overhang is greater in the Valley than anywhere else whilst at the same time it’s getting easier to start and finance your business in multiple other places (including London) so I would expect this trend to continue. That would be good news for startup ecosystems all around the world.

Define your target customers narrowly

By | Forward Partners, Startup general interest | 4 Comments

I just read an interesting article about a startup called Silver Concierge that took Steve Blank’s entrepreneurship course in Stanford. The whole thing is well worth a read, but the killer section for me was “Startup Lesson #1: Know your customers — and why they need your product”.

Silver Concierge didn’t make it through the customer dev process. They discovered that there wasn’t enough demand for what they were offering and that the area where they did find demand (taxi service for older people) they couldn’t build a profitable business. However, whilst that might be a great testament to the power of customer development and their most important learning it wasn’t the thing they found out. They also discovered the power of narrowly defining their target market.

The team started out targeting ‘seniors’ but found out that segment was too broad with the result that they didn’t learn anything from their initial customer interviews. In their words:

Successful companies solve acute needs — and acute needs don’t exist independently from living, breathing human beings. “Seniors” is not a meaningful customer segment. “Female older adults with limited mobility living alone at home” is. As we learned first-hand, everything about our business followed from our customer segment; as such, it was critical to deeply understand who our customer was and what they cared about before trying to do anything else.

When I think through our companies the most successful ones have a well understood and well defined target customer. A good target customer base has the following characteristics:

  • They are easy to visualise and create personas
  • They have homogenous needs (with respect to your product)
  • You can market to them effectively

Many of the best companies start extremely narrow and then expand from there. Our most recent investment Patch is a good example. They are building an online garden centre chasing the £4bn spend in that market across the UK, but the first target customers are house-proud Londoners with balconies. Moreover, their initial marketing campaign will target a group of 3,000 flats with balconies in Stratford. These target customers are young professional couples, want plants for similarly sized spaces and we can reach them with fliers.

Over time Patch will extend to small terrace gardens, then larger suburban gardens and then huge rural gardens.

Are bots solving any problems?

By | Startup general interest | One Comment

I woke up to a series of Benedict Evans Tweets this morning about bots and service discovery on the internet. The gist was this:

  • Everyone’s talking about bots
  • Query whether moving services to bots solving any problems or just moving them to a new UI
  • We’ve mostly solved how to get things we know we want, but not of things we don’t know we want

He doesn’t explicitly say that bots don’t solve any problems but I think that’s the implication.

Most of the excitement about bots comes from the fact that they offer an extra level of convenience. You’re using Messenger to arrange a meeting with a friend and you can book an Uber right there without having to get your phone out and boot up the Uber app. Maybe there’s an AI running in the background that recognises you might want to book a cab and works out the start and end points so you can make the booking with one click.

That is all very cool, and I’m a believer in the power of small extra conveniences, but a small extra convenience is all this is. Pulling my phone out of my pocket to book an Uber isn’t hard. If all that bots are doing is offering a small extra convenience then for the mass market the user experience has to be seamless, and that means not learning new syntax or anything that is more difficult than using apps or the web. That’s a high bar.

The bigger problem today is discovering things we don’t know we want. I say this as an investor in several new ecommerce services and products that people love when they get their hands on them, but aren’t searching for on Google. Facebook has some good tools these days which our partner companies Live Better With and Lost My Name have used to good effect, and Instagram is becoming more useful, but it’s still a significant challenge. I’ve long been fascinated by the potential of influencer marketing as a solution but have yet to find a scalable solution in this space.

I’ve had a long day and prefer to blog in the morning when I’m more positive, but all of this has me wondering if messaging is just better email and that bots and conversational commerce have a long way to go to get from hype to mainstream reality.




Remember how totally dominant Microsoft was?

By | Startup general interest | One Comment

This graph charts history beautifully and is a great reminder of just how dominant Windows was in the 1990s and early 2000s. It’s also a reminder that Apple’s position isn’t as strong as it sometimes appears.

The other story of this era that isn’t shown on the chart is the explosion of unit sales, first from growth in PC and more recently from growth in mobile. PCs were shipping c10m units per quarter in the mid 1990s, peaking at around 100m per quarter five years ago before falling to c60m last quarter. Meanwhile iOS and Android have grown from nothing in 2007 to c400m per quarter. Overall that’s a 46x growth in the number of computers sold per quarter since 1995. And the computers have got a lot more powerful too.

No wonder a lot of great companies have been created.

The link between principles, values and culture

By | Startup general interest | One Comment

Last Tuesday Jeff Bezos wrote his annual letter to shareholders. From time to time I write about my admiration for Bezos and reading the letter I was reminded why. First there is his success, in 2015 Amazon became the fastest ever company to reach $100bn in annual sales and AWS is now reaching $10bn in annual sales, but more important is the way he goes about it.

A good portion of the letter is dedicated to Amazon’s culture and the principles behind it. Most companies think about values and culture, but also thinking about the principles that underpin the values is powerful.

Investopedia defines corporate culture as:

the beliefs and behaviours that determine how a company’s employees and management interact and handle outside business transactions

Many startups work hard to create a culture that will bring about business success, and one of the tools they use is to publish a list of values which encourage certain behaviours. At Forward Partners we have seven values designed to shape a culture that will make great investment decisions and deliver great help to our portfolio companies – e.g. seeking, sharing, and retaining knowledge, making good decisions, and acting with courage.

The interesting thing about Bezos’s shareholder letter is that he talks about five principles that underpin the culture at Amazon:

  • customer obsession
  • eagerness to invent and pioneer
  • willingness to fail
  • patience to think long term
  • taking of pride in professional excellence

Then in addition Amazon has what they call their leadership principles, which read much more like a traditional set of company values:

  • Customer Obsession
  • Ownership
  • Invent and Simplify
  • Are Right, A Lot
  • Hire and Develop the Best
  • Insist on the Highest Standards
  • Think Big
  • Bias for Action
  • Frugality
  • Vocally Self Critical
  • Earn Trust of Others
  • Dive Deep
  • Have Backbone; Disagree and Commit
  • Deliver Results

Amazon tells prospective employees that Amazonians use these principles “every day, whether they’re discussing ideas for new projects, deciding on the best solution for a customer’s problem, or interviewing candidates”.

Bezos’s five principles have been the same since the start of Amazon, but I would bet the 14 values have evolved over time. Certainly that’s the way it works at most companies.

Most companies and entrepreneurs I know find it difficult to define the values of their company. It’s tough because they need to both reflect the reality of the business and encourage improvement in behaviours. One of the main reasons that values change over time is that values often reflect gaps between existing behaviours and where the company would like to be, and those gaps change over time.

I’m thinking that taking the time out to define the principles that underpin a culture is a good first step before defining and/or updating values. Principles talk to how a business should be rather than how people should behave and hence should be quicker and less contentious to draft. Values should then aim to deliver the principles, but in the unique style of the company in question. We’re planning to revisit our values at Forward Partners later this year and we will definitely investigate the approach of starting with principles.

UK micro-VC

By | Startup general interest | 2 Comments


I’ve been reading a lot about the development of micro-VC this afternoon. It’s currently the fastest growing subsector of the VC market has mushroomed into quite a phenomenon. You can see the number of funds in the chart above (note that the 2015 figure was as of last August), and chart author Samir Kaji, a bit of an authority on this sector, predicts the total will grow to 350. Growth has been driven by the increasing capital efficiency of startups and outperformance of micro-VC when compared with larger funds.

Samir defines micro-VC as:

  • Primarily initially invest somewhere in the seed stack
  • Invest on behalf of 3rd party Limited Partners
  • Most commonly have fund sizes that are sub-$100MM
  • Initial check sizes of $250K-$2MM

Forward Partners is a tick on all four criteria. That’s why I’m interested.

Also of note is that the barriers to entry for a micro-VC are low, principally because it doesn’t take much capital to get started. Most funds get off the ground with family office and/or high net worth money (that’s how we got started) and many never go on to raise institutional capital.

Off the top of my headI can think of 10 micro-VCs here in London: Forward Partners, LocalGlobe, Spring, Episode1, Seedcamp, WhiteStar, Passion Capital, Connect Ventures, Frontline, Hoxton Ventures, EC1 Capital, and Venrex. I’m sure I’ve missed some, and please let me know if you think of any, but the headline is that we are a smaller fraction of the global micro-VC pool than I would expect given London’s prominence as a startup hub.

Last year UK tech companies raised $3.6bn from VCs, and that compares with $36bn invested by VCs in US tech companies in 2014 (source: FT). If the ratio of UK micro-VC funds to US micro-VC funds was the same there would be 20-25 micro-VCs here – roughly double what we’re seeing.

The VC industry in the UK is growing very fast overall (70% year on year) as our per capita venture investment catches up with the US. Within that I expect micro-VC to be a faster growth segment, mirroring what happened in the US, only two years behind. Samir reports that the consensus view amongst US micro-VCs is that the number of funds will peak in 2017 and then decline. If that’s true I would expect the peak here to come in 2019, with 5-7 new funds each year between now and then.

European tech investment is holding up

By | Venture Capital | 3 Comments just published stats for European VC investment in Q1. We used to wait months for this kind of data and it’s great that it’s coming through in the first week of the new quarter. Faster data enables better decision making.


As you can see, if we ignore the $1bn debt round in Spotify, the value of investments in Q1 was roughly the same as in Q4 at €3.5bn. However, the number of deals continued to rise sharply, and hence, as you might have figured out, the average round size was lower – falling from €5.8m in Q4 to €4.6m in Q1 (ex Spotify).

The increase in deals came, therefore, at lower round sizes:


This data matches with what we’ve seen in our portfolio. Some of our companies have found it takes longer to raise, but they are all still getting their rounds away.

I think the big picture is that whilst it might be decreasing sharply in the US investment by value is holding flat in Europe. That’s what the first chart shows (ex Spotify). There are two related reasons:

  • The 2015 and H1 2016 exuberance in the US only came across the Atlantic to a limited extent
  • The supply and demand of capital vs startup opportunities in Europe here still favours capital

Because of these reasons the European market was less inflated than in the US and any correction effect is being balanced by natural growth in the market.

It’s also interesting to note that over the last three quarters the numbers of €0-1m deals and €1-5m deals has been roughly the same, implying that most companies raising a seed round are successfully raising their next, larger, round. The big drop off, and implied failure point, comes between raising €1-5m and €5-10m.

Global wealth inequality has reached egregious levels

By | Startup general interest | One Comment


This data was posted on Twitter today by Anonymous. The first bullet is the killer for me – 62 rich individuals have the same wealth 3.6bn poor people. They don’t source the data so I don’t know how accurate it is, but somehow I’m not surprised by this statistic. I’m shocked, but not surprised. As you can see from the other bullets wealth inequality has been getting worse and worse recently.

Wealth inequality is a problem when it reaches levels widely regarded as unfair. At that point we get riots and bad things start to happen, particularly when social mobility is also limited. 62 people having the same wealth as 3.6bn others is definitely not fair.

We are now a global society and wealth inequality is now a phenomenon best understood globally. The problem is that our governments are still national, and national governments can’t control global capital. If they try it moves elsewhere, so instead many of them compete to bring it to their shores, often exacerbating problems of inequality.

I can’t see any easy policy fixes, so our best course of action is to raise awareness. Hence this post. This is not a plea for equality. Far from it. The capitalist system has served us well these past two centuries, but its excesses need regulating.

The good news is that I think there is a growing understanding that we must get back to a fairer distribution of wealth. I was heartened to see New York millionaires call to pay higher tax last month, and in 2014 when Nick Hanauer wrote that The pitchforks are coming …. for us plutocrats there was a lot of nodding in agreement from the startup ecosystem. That said, we have a long way to go in raising awareness and understanding before we will see any change.

Brexit: One exit the tech sector doesn’t want to see

By | Startup general interest | One Comment

Yesterday I had an op-ed on recommending that we remain in Europe. I believe that voting to leave would make it harder for our companies to bring in talent from Europe putting our growth at risk. That’s particularly true for the startup sector of the economy which is by far our largest engine of job creation.

Please read the whole piece here.

Thanks to Tom MacThomas and Katy Turner for helping me put it together.