Monthly Archives

May 2016

Evaluating the prospects for life changing inventions

By | Startup general interest, Uncategorized | One Comment

This morning Chris Dixon posted The typical path of life changing inventions:

  1. I’ve never heard of it.
  2. I’ve heard of it but don’t understand it.
  3. I understand it, but I don’t see how it’s useful.
  4. I see how it could be fun for rich people, but not me.
  5. I use it, but it’s just a toy.
  6. It’s becoming more useful for me.
  7. I use it all the time.
  8. I could not imagine life without it.
  9. Seriously, people lived without it?
  10. It’s too powerful and needs to be regulated

That’s pretty accurate, but with the exception of 10. maybe not that surprising. It reminds me of the Mahatma Ghandi quote “first they ignore you, then they ridicule you, then they fight you, and then you win”, but extended and ported to a different context.

However, most would be life-changing inventions don’t make it all the way to number 10 and the interesting thing for future gazers, including VCs, is assessing how far a product will get. That requires an understanding of customers, use cases, ecosystems, cost trajectories and distribution, and it’s definitely not sufficient to think that if a product is at one stage it will progress to the next. For example, most products that people know about but don’t understand it (i.e. at stage 2) whither and die, and to know that any given product is different requires a hypothesis about how people will come to understand it and see how it’s useful.

Key elements of a brand

By | Startup general interest, Uncategorized, Venture Capital | No Comments

Brand is on my mind this morning. Mat Braddy, formerly CMO of Just Eat and now founder of Rock Pamper Scissors gave a great talk on building challenger brands at our FP Live last night and this morning I read OpenView’s brilliant teardown of how they re-invented their brand.

OpenView are one of my favourite venture capital funds, largely because they are one a small number of VCs globally pioneering a similar model to Forward Partners. Like us they have a bigger team than most other VCs so they can offer a better service to their portfolio companies, and, critically, they have chosen to be very focused so they can build expertise and offer better support. They are focused on expansion stage SaaS companies in the US. We are focused on idea and seed stage ecommerce and marketplace companies in the UK.

I don’t only like them because they think similarly to us, I also love their insight, rigour and clarity of thought, which shines through in the way they went about rebuilding their brand and the way they tell the story.

For me, these are the key insights from last night’s talk and the OpenView process.

  • Strong brands are built from the inside out – they begin with great products and cultures
  • Brands can’t be externally crafted and then applied, they must be truly aligned with what the company does and how it does it
  • The goal of a brand is to articulate the company story in a clear, focused and consistent way
  • A brand is both what the company stands for (mission, vision, values) and how the company is presented (messaging and visual identity)
  • The brand should be informed by both inside and outside perspectives – employees, customers and partners (not just the exec team)
  • The brand can lead and shape how people think about the company, but it needs to be congruent with existing perceptions
  • The best companies present consistent, but different brands to customers/partners, employees, and maybe investors
  • Above all, authenticity is the goal

Just Eat is a great case study for all this. In his talk last night Mat described how they made sure their brand was aligned to the core values of the product (convenience, simplicity), the culture of the company (fun and mischievous), and how they developed it with an inclusive process. Because they were a challenger they wanted to be controversial and that took them to the tagline “Don’t cook, Just Eat”, with the positioning that take-away is better than cooking. His advice to other challengers is to adopt something similarly controversial and then really commit. Just Eat pushed their commitment to the tagline and mischievous positioning as far as forming the Don’t Cook political party and putting forward a candidate in the Corby by-election (check out the jet-pack…).

OpenView followed a similar process but they’re a VC in the serious business of helping companies succeed, so they took a more serious tone. Their tagline is now “Powering Expansion”, which neatly captures what they do for the Series A and B companies they back.

What is vertically integrated ecommerce and when is it appropriate?

By | Ecommerce | No Comments

Andy Dunn, the founder of Bonobos and one of the most thoughtful writers I know on ecommerce, penned a good piece yesterday entitled Digitally Native Vertical Brands. He was talking about what most of us describe as vertically integrated ecommerce, and gave the following definition:

  1. The primary means of interacting, transacting, and story-telling to consumers is via the web.
  2. It’s a brand, and that brand is vertical. The name of the brand is on both the physical product and on the website.
  3. The DNVB [vertically integrated ecommerce company] is usually maniacally focused on customer experience and on customer intimacy. The experience tends to be three-part bundle of physical product, web/mobile experience, and customer service that collectively become the brand in the consumer’s imagination.

He had a fourth point which added that there’s usually an offline extension to the brand. I agree that’s usually true, but isn’t a necessary condition.

He went on to say that vertically integrated ecommerce makes sense:

where there is some differentiation in the core physical product made possible by the DNVB nature of the model (and this is the key thing entrepreneurs get wrong in starting DNVBs the world doesn’t need)

For me this is key. If the product is the same as available via other channels then the only basis for differentiation is distribution and that’s unlikely to be enough for a startup to achieve success. Personalisation is a common way for vertically integrated ecommerce companies to differentiate their physical product (e.g. our partner company Lost My Name) and carrying a wider range of SKUs than will work in physical retail is another (e.g. our partner company Spoke).

The alternative model of multi-brand ecommerce makes sense when products are commoditised (e.g. Amazon) or when selection and choice are problematic (e.g. our partner companies Thread and Live Better With).

Andy says we are “in the first decade of a multi-century trend” towards vertically integrated ecommerce. I think we he’s right in that we will see more and more of it as new technologies open up new possibilities for customisation. Lost My Name, for example, because possible in 2013 after HP released a printer that could cheaply print high quality bound books with a production run of one. However, there’s an implication in Andy’s post that multi-brand ecommerce is on the way out. I’m not sure that’s true. Over the last three years Forward Partners has invested in both types of ecommerce business and I don’t expect that to change in the next three years.

Think of your company as an organism

By | Startup general interest | One Comment

When I started work in the mid 1990s enlightened companies had moved from hierarchical command and control structures to a more empowered model for the enterprise, and more and more companies were headed in that direction. Then, in 2003 Lou Gerstner, former CEO of the famously hierarchical IBM, published Who says elephant’s can’t dance?, the story of how he revitalised the company by delegating power to employees, and we all knew the revolution was complete.

But now the wheel has turned again.


The hierarchical model broke down under two forces:

  1. The pace of change increased and nimble companies that didn’t have to go back to the centre for instructions started winning
  2. Something about late stage capitalism meant more and more employees wanted autonomy rather than to follow orders – particularly the more capable ones

These trends have continued apace and we’re reaching the point where the empowered enterprise model of setting a vision, building consensus, and managing by objectives is breaking down. The pace of change is such that even 1-2 year articulations of the company vision needs to change frequently and best people now want to be co-creators at every level of the company. We are now moving from the empowering employees to putting them in control.

Wolff Oins just published a report into management attitudes which captures this shift brilliantly:

  • The Premise of the organisation shifts from Motivation and delegation to focus and liberation
  • The underlying belief shifts from workers are willing and best motivated by a vision and rewarded with a career to workers are individualists who want to be their own leaders
  • The management style shifts from painting vision, building consensus and managing by objectives to suggesting purpose, designing culture and encouraging experimentation
  • The company shape shifts from network to ecosystem
  • The company spirit shifts from rational brain to organism

For me the notion of ‘company’ as ‘organism’ captures the modern firm brilliantly. Organisms can be directed, but they have a life of their own and are comprised of an ecosystem of cells, each of which has its own agenda. Organisms can do marvellous things, but they are messy and hard to control. That’s a much more accurate view of today’s companies, and especially today’s startups, than an orderly rational brain or a network.

Lessons for startup ecosystems from the history of Silicon Valley

By | Venture Capital | 8 Comments

I just read Nicolas Colin’s Brief History of the World (of Venture Capital). It’s a great romp through the history of entrepreneurial ventures and how they were financed – starting with loan deals brokered in coffee shops and ending with the PC boom which established venture capital as an asset class in 1970s and 1980s. The bit I liked the most described the role of Stanford in getting Silicon Valley going in the late 1950s. Provost Frederick Terman (who I hadn’t heard of before) went after large military research budgets as part of his mission to make Stanford a leading university in the sciences, and created a four pillar system that kicked off entrepreneurialism in the Bay Area:

  1. reach out to military prospective customers to better understand their needs, then offer to craft them a prototype in Stanford’s research laboratories—this generated substantial revenue for the university and strengthened its trusted relationship with key military figures;
  2. if the prototype satisfies the customer, encourage one of your students to found a company and manufacture the product at a larger scale—this inspired an entrepreneurial spirit among the students and contributed to stimulating their hard work in the university’s laboratories;
  3. make sure a member of the Stanford faculty (if not Terman himself) becomes a board member or consults with that newly founded company—this contributed to training Stanford scholars in business and turned them into better teachers and researchers;
  4. provide office space in the Stanford Technology Park, which was made possible by the fact that the university was the primary land owner in Palo Alto—this ensured that the upstart company stayed close and helped the nascent entrepreneurial ecosystem reach a higher density.

We can generalise this into a blueprint for ecosystems generally:

  1. Find a vertical market where there is a comparative advantage – Silicon Valley started with military technology, in London fintech and ecommerce are good candidates. We focus on ecommerce and marketplaces.
  2. Inspire entrepreneurialism – highlight the positive effects of startups and make ‘founder’ a popular career choice. The UK government’s support has been important for our startup ecosystem.
  3. Promote learning and knowledge sharing – startup ecosystems only work if old-timers pay it forward by sharing content, speaking at events and taking meetings with newer entrants.
  4. Encourage entrepreneurial density – business becomes more efficient and 2 and 3 above work best when startups congregate in the same place. Silicon Valley started in the small district of Palo Alto and the emergence of Tech City here in East London has been similarly important.

This is a ‘do the right things and the money will follow’ plan, which is a bit simplistic, but better that way round then pushing to much money out before the ecosystem is ready.

Forecasting in venture capital

By | Startup general interest, Uncategorized | 2 Comments

Good VCs need to be good forecasters. We need to predict which companies are going to succeed and second guess future trends so we can develop our firms to stay ahead of the curve. Deloitte have just published an interesting synopsis of Tetlock’s Superforecasting which gives us some insights into the types of people we need to recruit and the habits we need to cultivate to be good at the forecasting game.

The main and most surprising insight is that deep expertise doesn’t produce more accurate predictions. Tetlock ran prediction competitions over five years with multiple teams and found that the best predictions came from people with the following characteristics:

  • broad expertise
  • open minded
  • sceptical of deterministic theories
  • cautious in their forecasts
  • quick to adjust their ideas as events change
  • embrace complexity
  • comfortable with a sense of doubt
  • highly numerate (but don’t use sophisticated mathematical models)
  • reflective
  • learn from their mistakes

This is a good list for VCs too. One thing that stands out as a little different for me is that the best investors get behind big themes – e.g. the internet, open source software, SaaS, ecommerce, mobile, marketplaces – which feel a bit like the deterministic theories that super forecasters are sceptical of. However, even with these it’s important to keep an open mind and back off quickly if they aren’t playing out as planned. Mobile is a great example. As a category it’s yielded some amazing companies and investments, but many investors went too early and lost money – me included. I made my first mobile internet investment in 2000 in a business that was years ahead of it’s time helping banks to get their services on WAP phones. I’m not saying I’m a super forecaster, but I did learn from that and backed off from mobile until after the iPhone.

The other interesting point from Tetlock is that prediction skills can be improved by good sharing and debating within teams and by training focused on thinking in terms of probabilities and removing thinking biases.





Two types of intelligence and the current state of AI

By | Startup general interest | No Comments


These pictures were painted by a robot called Pix18. He or she (it doesn’t feel right) is a decommissioned factory robot trained to paint by picking up a paintbrush and painting on canvas. That’s pretty remarkable and shows how advanced AI is getting.

However, despite what we see here creativity is still largely beyond non human intelligence. Singularity Hub just published a great interview with Hod Lipson, professor of engineering at Columbia University and the director of Columbia’s Creative Machines Labs, who is pushing the next frontier of AI.  He posits that there are two types of intelligence:

  1. Convergent intelligence – Taking in large amounts of information and making a decision – e.g. whether to invest in a stock or pull out at a roundabout
  2. Divergent intelligence – Starting with an idea, or with a need, and then diverging to create many new ideas from it- e.g. designing a new robot different to anything we’ve seen before

You’ve probably guessed the punchline already. Machines are good, and increasingly better than humans, at convergent intelligence but not so good (yet) at divergent intelligence. That’s why we have automated trading and self driving cars, and will soon see robots flipping our burgers and slowly taking over all routine tasks, but still need humans to solve messy problems where there’s fuzziness around goals – e.g founding a company.

More interestingly Lipson contends that to crack divergent intelligence our AIs must become self-aware and reflective. That’s the key to the creative process. And once machines are self-aware and reflective they are arguably conscious. Some of them will certainly seem conscious.

The moment when we have divergently intelligent machines is perhaps the moment when the AI explosion occurs, with all of it’s massive potential upside, downside and uncertainty. I’m hugely excited by this future. If you are I recommend reading Hod Lipson interview in full.

Fundraising is a numbers game

By | Startup general interest, Uncategorized, Venture Capital | 10 Comments

These are Forward Partners dealflow stats for the first four months of 2016

  • 832 leads
  • 47 first meetings (6% of leads)
  • 8 second meetings (17% of first meetings)
  • 2 deals (25% of second meetings)

We met an additional 53 companies at FP Office Hours. In some ways they are like first meetings and they do sometimes lead to deals, but they are only 15 minutes long and many of them are speculative in nature so I excluded them from the analysis.

I imagine other investors have a similar leads:meetings:deals ratios and the headline here is that it’s only once you’ve got to a second meeting that there’s a reasonable chance of getting investment, and even at that point it’s only 25%. Getting a first meeting is an achievement in itself which often makes it feel like the prospects of getting investment are better than they are, but that feeling can lead to dangerous complacency. The numbers say you need four second meetings and as many as 24 first meetings to have a good chance of a deal.

Raising money is best thought of as selling equity in your business, and the fundraising process is a sales process. Unless you have strong relationships it’s a numbers game.

If you do have strong relationships then it’s about how strong they really are – e.g. if you know investors well enough that you are in effect coming in at second meeting level then you only need 4.

The smartest founders have a strategy for their fundraising and build a plan which they execute with discipline. They know who their targets are and which investor is their favourite, and they make sure they have enough names in their pipeline.


The consistency of Amazon’s revenue growth is amazing

By | Amazon | No Comments

Amazon just posted strong Q1 results and investors sent their share price up 11%. If you’ve been reading this blog for some time you will know I’m a huge admirer of the way Jeff Bezos has built his business. One of his mantras has been to re-invest profits to drive growth and the growth he has achieved is remarkable for it’s consistency over the last ten years. As you can see from the chart below Amazon has delivered on the proverbial hockey stick that startups put in their business plans, and they’ve done it at serious scale.

Screen Shot 2016-05-03 at 20.51.56

One unfortunate side effect of prioritising growth over profits is that it’s never been totally clear whether Amazon could make profits if it wanted to. Believers believed they could, and sceptics sold their stock. What’s new is that in the last couple of quarters Amazon has posted record profits. That could be because they have run out of good investment options, or it could be, as Benedict Evans speculated, that Bezos wanted the increase in share price that profits would bring so that his employees’ options are worth more.

Screen Shot 2016-05-03 at 20.52.40