Category Archives: Startup general interest

The lock of traditional TV distribution is weakening

By | Startup general interest | 2 Comments

Earlier in the week I wrote that the time for TV and film distribution startups might finally be upon us, arguing that radical reductions in the cost of production are a force for change that could break the legacy arrangements that have held for so long and usher in an era of direct connection between artist and consumer.

This chart shows that TV viewing is declining fast amongst American teens, weakening one of the key points of legacy control and creating more space for new distribution startups to build an audience. I haven’t seen equivalent stats for the UK, but I imagine they would be similar.

70215-cotd_tv

Don’t make permanent decisions with temporary feelings

By | Startup general interest | One Comment

When I saw Banksy’s tweet this morning I thought ‘great advice for life’. Then I thought it’s great advice for investment decisions too.

Most obviously investment decisions should be rational rather than emotional, based in analysis of likely long term outcomes.

It’s important for us that we’re excited about the startups we invest in, but that excitement should be rooted in data rather than emotion. E.g. X market is exciting because it’s growing at y% and the company in question is z% better than the competition. Y and Z will be estimates based on a combination of research and educated guesswork but they should be defendable.

It’s also important that we feel a strong connection with the entrepreneur, but it’s the presence of that connection which allows an investment to be made rather than the strength of the feeling driving the investment decision.

So far so obvious.

Where it gets trickier is in competitive situations, particularly in hot markets when it’s easy for smart people to unknowingly have feelings drive their decisions. Fear of missing out regularly pushes people to make investment decisions they otherwise might duck. That might be rational – if our hot startup has a 10% chance of being the next Uber then it’s worth me investing even if it has a very high chance of failure – but more often it is rooted in temporary feelings related to loss aversion, embarrassment and greed.

Fear of partnership reprisals for simply not getting enough deals done has similar effects.

Where clever people often go wrong is deciding they want to do make an investment because of temporary feelings and then using their intelligence to build rational arguments that support the ‘10% chance of being the next Uber’ thesis. If you find yourself getting emotional when you defend your analysis then ask yourself if you’ve made this mistake. I’m not saying I’m smart, but this is a mistake I’ve made before and will probably make again.

This same logic applies to many important startups decisions everywhere that are emotionally charged, e.g.:

  • should I take this big round of financing that scares and excites me?
  • is my founding team the right team for the next stage of growth?
  • which features should I take out of our increasingly bloated product?
  • which of these strategic options should I ditch so I have time to properly focus on the other two?
  • how long should I hang on for this big deal?
  • and many more….

Valuation trickle down

By | Startup general interest, Venice Project | 2 Comments
I’m back to the bubble question this morning.
First up we had an interesting post from Fred Wilson arguing that frothy activity is restrictred to Series B rounds and later in private companies, whilst Seed and Series A and public markets are still rational. He used this chart as evidence:
median-pre-money
Second, I read Josh Kopelman’s/First Round Capital’s Open Letter to Investors from May this year which says that seed valuations are up 3x from 2007-2015 without a corresponding increase in exits. Note that we can see a similar increase in Series A valuations in Fred’s chart above.
Third, I was talking with a potential investor in our fund yesterday about market conditions here in the UK. He was asking whether with all the new funds in town valuations are rising and returns are likely to suffer. My view is that the market here is the healthiest I’ve seen it. When I joined the VC industry in 1999 there was too much money in the market, and then over the course of 2000 that flipped to too little money a position from which we are only just recovering now.
Whilst the odd deal is getting done that looks a little bubbly there isn’t much of that at idea and seed stage here. The valuations Forward Partners is paying haven’t moved in the last couple of years and nor are deals getting done in dangerously short timescales. I sat down with our investment team this morning and talked through some of the hotter deals that have been done in our sectors lately and how investors are responding to the deals we bring to them and we aren’t seeing anything other than isolated pockets of investors getting irrational.
Pulling it all together, I think that unless there is a correction in late stage private investing the frothy activity will trickle down to earlier and earlier stage rounds. Fred Wilson’s chart shows that US B and C rounds have already caught the bug and Josh Kopelman’s letter shows that seed markets are also getting hot. The trickle has two dimensions – down to smaller and smaller rounds, and across to other geographies. The trickle down happens faster than the trickle across, but absent a correction in the US valuations will start to rise here at some point in the next couple of years.
If the public markets maintain their discipline I think a late stage correction is more likely than irrational activity trickling all the way down to UK seed investing. If not, not.

 

Film and TV distribution startups please roll up

By | Startup general interest, Uncategorized | No Comments

I’ve just read an awesome description of the disruption going on in all the major storytelling media by one Hugh Hancock. I haven’t come across Hugh’s writing before, but he gets right inside the worlds of film, TV, games, prose, virtual reality and comics, with an insider’s knowledge and a light and witty style.

It’s the TV and film pieces that got me the most. In both cases production is changing at an unbelievable pace with new technology driving down cost and opening up new possibilities. This paragraph from Hugh’s post gives you a good sense of what’s going on:

Cameras are becoming cheaper, sure, but they’re also becoming lighter. At the same time, brushless motors and cheap IMUs mean that robot camera stabilisers are taking over from Steadicams for stable moving shots. And all of that means that a shot which used to require a guy who’d trained with a Steadicam can be done to 90% of the same quality by some untrained muppet (me) with a basic knowledge of how to walk smoothly and a magic box that does the rest of the work. And that magic box means that directors can rethink the rest of their shoot too, changing dolly shots (big pile of kit, couple of big hairy grips to work it) into a shot with a gimbal and a $200 self-balanced scooter. But all that might be irrelevant too because who the hell needs to wobble about on a scooter when you can probably just get a drone to do the shot?

And I could have chosen a couple of other paragraphs describing a similarly dazzling but very different array of changes.

So far so amazing. But the problem is that distribution hasn’t changed and we are now in a world where it is apparently a cliche to say:

There’s never been a better time to get your movie made, and never been a worse time to get anyone to watch it.

That’s a situation that can’t persist for very long, hence the title of this blog post.

That said, media distribution startups aren’t easy. It’s been obvious for some time that the legacy world of TV channels and movie studios is ripe for disruption and lots of entrepreneurs have had a crack at it, yet the old world remains largely unchanged. The biggest reason for that is money. TV and film makers need money to fund their production and the people who control distribution are in the best place to cut those cheques precisely because they control distribution. New distribution platforms have faced the catch 22 of needing to cough up lots of money to get good content to get an audience and needing an audience to get the money to cough up for good content. Netflix cracked the code by building a big DVD rental business and using the cash from that to fund rights acquisition but others have found it more difficult, including many startups that used VC dollars to buy rights and try to crack the code that way.

Still, difficult problems require creative solutions and that’s where entrepreneurs excel, and the growing imbalance between production and distribution can only be making this problem space more tractable over time.

Old brands weren’t built for trust

By | Startup general interest | 3 Comments

Americans Trust

This chart has me wondering if the nature of what makes a good brand has changed. Nowadays consumers want authentic brands that they trust have their back. Younger and tech savvy brands like Paypal, Amazon, Google and Apple have the culture and the understanding to give consumers what they want, whilst older brands like the banks shown above find it much more difficult.

We see a similar phenomenon in UK politics where followers of newer parties like the SNP and UKiP trust their politicians and are seemingly more loyal than followers of the Conservative and Labour parties.

Going back 30-40 years or more brands were built by buying media and controlling the airwaves, but the social media revolution has revealed the brittleness of this approach. The billion dollar question now is whether these old brands can adapt to live in the new world. Change like that is tricky, especially in regulated industries.

In politics I hope that the old brands can adapt. In business I hope not.

Advice on writing from the original “Mad Man”

By | Startup general interest | 2 Comments

The best writing is clear and concise. Easily said, but difficult to do – which is why it’s popular to say “If I had more time I’d have written a shorter letter”. Practice helps, but only if you concentrate on writing high quality prose.

David Ogilvy, founder of Ogilvy and Mather had this to say on the subject in an internal memo sent to all Ogilvy staff:

Good writing is not a natural gift. You have to learn to write well. Here are 10 hints:

  1. Read the Roman-Raphaelson book on writing. Read it three times.
  2. Write the way you talk. Naturally.
  3. Use short words, short sentences and short paragraphs.
  4. Never use jargon words like reconceptualize,demassification, attitudinally, judgmentally. They are hallmarks of a pretentious ass.
  5. Never write more than two pages on any subject.
  6. Check your quotations.
  7. Never send a letter or a memo on the day you write it. Read it aloud the next morning — and then edit it.
  8. If it is something important, get a colleague to improve it.
  9. Before you send your letter or your memo, make sure it is crystal clear what you want the recipient to do.
  10. If you want ACTION, don’t write. Go and tell the guy what you want.

I’m not sure that waiting a day before sending (no. 7) or favouring in person conversations when action is required (no. 10) stand the test of time, but the others do. I especially like 2. Write the way you talk. Naturally. I see so many people afraid of not writing “properly” that end up not writing at all, or at least not for wide consumption. That’s BS. In my opinion good writing is writing that communicates effectively, and natural writing generally achieves that far better than writing which is formally correct according to some ageing standard. Much better to let the spirit shine through.

Thoughts on curated marketplaces and perfect competition

By | Startup general interest, Uncategorized | One Comment

Jeff Jordan, now a partner at Andressen Horowitz, and previously CEO of OpenTable and senior exec at Paypal and eBay, has a post up on the A16Z blog about online marketplaces. He argues that all online marketplaces are fundamentally the same and hence should be managed by the same principle of “nurturing and managing perfect competition”.

Jeff offers a full definition of perfect competition in his post that’s worth reading. …. If you want the quick version, perfect competition is when the market is totally open, with full price transparency, full information for buyers and no concentration of either supply or demand.

I agree with Jeff, but only about half the time. For marketplaces like eBay, Craigslist and Etsy he is right. The more they can nurture perfect competition the stronger the proposition will be for consumers and the easier it will be for high quality sellers to rise to the top.

But there are plenty of marketplaces where pursuing perfect competition isn’t the best answer.

Uber is perhaps the most visible example of such a marketplace right now. If they were promoting perfect competition they would allow drivers to set their own prices, but they found that consumers prefer consistency and convenience over price transparency and went for a different model.

Another example is Lexoo, one of our portfolio companies. They are a marketplace connecting businesses with legal services. Perfect competition isn’t the best model for Lexoo because the services from different lawyers aren’t equivalent and buyers prefer to be connected to pre-screened quality lawyers than go through the difficult process of working out for themselves which lawyers are best.

Lexoo and Uber are both curated marketplaces – i.e. marketplaces where the marketplace does some work on behalf of the buyer and doesn’t just rely on market forces to optimise the user experience. There are lots of markets where this is the best model.

UK startup job creation growing 80% per year

By | Startup general interest | One Comment

Screen Shot 2015-06-19 at 15.48.07

CityAM reported today that UK tech startups are expected to created 20,000 jobs this year and that tech startup vacancies are up 80% on last year. The data from Adzuna.

It’s great to see the startup scene making a real and growing impact on job creation and the economy.

To put that into context, 202,000 jobs were created over Q1 in the UK economy as a whole (see ONS). Over the year then 20,000 jobs would be about 2.5% of total jobs created, albeit they will be amongst the best jobs.

Why writing makes you smarter

By | Startup general interest, Uncategorized | 3 Comments

I started writing this blog back in 2006 when Twitter was only three months old and long form content user generated content was all the rage. Back then lots of people wrote blogs whereas today most folk rely on Twitter to share their views and news with the world. Periodically I revisit whether I should change from my pattern of daily blogging in favour of more tweeting, which would give me more reach for less effort, but I haven’t made the switch in part because of the feeling that blogging helps with my thinking.

I’ve historically explained how it works by saying that blogging forces me to complete my thoughts, but reading this Business Insider article titled Learning hacks that will maximise your memory I’m now thinking it is more accurate to say that writing makes me smarter. I always love a good listicle, and this one lists seven ways to make yourself smarter by improving your memory. It turns out that writing long form content forces you to do five of them.

  • Retrieval – remembering things before writing them creates new neural connections and strengthens the memory
  • Elaboration – connecting ideas to other ideas also creates new neural connections
  • Generation – creating hypotheses on directions of markets and startup best practice enhances learning and memory
  • Reflection – reading posts back before publishing them is a powerful tool for self-improvement
  • Calibration – feedback from blog posts and on Twitter helps immensely with learning (especially when it’s tough feedback)

The logic of this extends to all long form contemplative writing, whether on blogs or private memos. The nice thing for me about blogging is that the public scrutiny makes it easier to keep the habit of daily posting. If I was writing in a private journal I would find it more tempting to miss a day, or write notes instead of complete sentences.

Mindfulness makes you better at work

By | Startup general interest | 5 Comments

My friend Josh March recently said that meditation is “an essential part” of his “entrepreneurs toolkit”, a sentiment I’m hearing echoed by increasing numbers of entrepreneurs and startup execs. As you may have read here before I have been practicing mindfulness and meditation for two years now and found it hugely helpful in dealing with stress and improving my interactions with people, and at Forward Partners we have regular mindfulness sessions for all staff organised by Calmworks.

The way it works is that mindfulness practice, and in particular meditation, results in physical changes to two areas of the brain which affect these behaviours. The following is lifted from an HBR article:

[Regular meditators have a] bigger anterior cingulate cortex (ACC), a structure located deep inside the forehead, behind the brain’s frontal lobe. The ACC is associated with self-regulation, meaning the ability to purposefully direct attention and behavior, suppress inappropriate knee-jerk responses, and switch strategies flexibly. … [and] demonstrate superior performance on tests of self-regulation, resisting distractions and making correct answers more often than non-meditators. They also show more activity in the ACC than non-meditators. In addition to self-regulation, the ACC is associated with learning from past experience to support optimal decision-making. Scientists point out that the ACC may be particularly important in the face of uncertain and fast-changing conditions.

Adapting well to fast-changing conditions is key for entrepreneurs, and increasingly for everyone as change happens faster and faster. That’s big.

The second brain region we want to highlight is the hippocampus, a region that showed increased amounts of gray matter in the brains of our 2011 mindfulness program participants. … a set of inner structures associated with emotion and memory. It is covered in receptors for the stress hormone cortisol, and studies have shown that it can be damaged by chronic stress, contributing to a harmful spiral in the body. Indeed, people with stress-related disorders like depresssion and PTSD tend to have a smaller hippocampus. All of this points to the importance of this brain area in resilience—another key skill in the current high-demand business world.

Resilience is also essential for entrepreneurs. One founder of a successful company said to me earlier this year that his emotional lows are as intense as his emotional highs, but they last much longer! The ability to bounce back is an essential trait.

The HBR article concludes by saying “Mindfulness should no longer be considered a “nice-to-have” for executives. It’s a “must-have”:  a way to keep our brains healthy”. I agree, and like to make an analogy with exercise. Fifty years ago very few people took regular exercise and the science linking exercise to health and happiness was poorly understood. Nowadays everybody understands the link and a large proportion of society puts significant time and effort into keeping fit. Meditation today is where exercise was fifty years ago.

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