Nic Brisbourne's view from London on technology and startups

Tech City, entrepreneurial density, and startup ecosystem health

By | Startup general interest | 4 Comments

People often ask me about the importance of Tech City to London’s startup ecosystem. I think it has made a big difference and I usually reply saying something like “It’s great, now that a critical mass of people are in the same place we bump into each other in the streets and it’s much easier for people to come to networking events. Moreover the perceived success of Tech City is good for confidence, which is the underlying driver of so much in the startup world.” If I’m feeling flippant then I might add “And we moved here”.

Now the Kauffman foundation has just published a report which lists indicators of startup ecosystem health (summary here), and it turns out that “density” is top of the list:

Density: density of new and young firms, defined as the number of new and young companies per 1,000 people in a geographic area; share of employment in new and young firms; and high tech (or the region’s preferred sector) density.

The other three indicators are Fluidity, Connectivity, and Diversity.

The report goes on to suggest measures for all the indicators. It would be great to see someone research this properly and publish an index, mostly because it would tell us what we need to work on. The research will need to be thorough though, for example distinguishing between small companies and young companies that can scale.

Successful marketplaces evolve away from transaction revenue

By | Startup general interest | 7 Comments

Hand crafted goods marketplace Etsy recently filed for IPO and Techcrunch has a great analysis of it’s S1. As you can see from the chart below much of the recent growth has come from seller services.

etsy9

The post also looks at Homeaway, Grubhub, and Shutterstock, three other marketplaces that have similarly diversified away from transaction revenues to drive growth and profitability.

You have probably guessed where I’m going with this by now. Startup marketplaces should take note and think about how they can build non-transactional revenues in the future. There are two main reasons:

  • Non-transactional revenues enables more aggressive pricing for transactions which will grow the market and make it more difficult for competitors
  • Seller and buyer services increase switching costs making it more difficult for new entrants (again) and increasing life time value

In the early days – at least the first year or two – the focus should be on driving transactions, which are the lifeblood of any marketplace. After that non-transactional revenues should become part of the focus, particularly if there are any questions over the size of the opportunity.

The hustle of being more generous than you need to be

By | Startup general interest | 7 Comments

Back in January Seth Godin wrote about Two kinds of hustle:

  1. The hustle of always asking, of putting yourself out there, of looking for discounts, shortcuts and a faster way.
  2. The hustle of being more generous than you need to be, of speaking truthfully even if it delays the ultimate goal in the short run, and most of all, the hustle of being prepared and of doing the work

This is a great breakdown. As Seth goes on to note hustle type 2 is largely unused. That’s a shame because it’s this second kind of hustle that makes the world a better place and is more effective in the long term.

It’s interesting that hustle type 1 is often associated with entrepreneurs, and saying XYZ has ‘good hustle’ is a common compliment. Dave McClure even went as far as saying that the ideal startup founding team of has a hacker, hustler, and hipster. I buy into the notion that entrepreneurs should have hustle, but some take it too far. We all know people who hustle too much, and their constant search for quick wins can be wearing and undermine relationships.

Most startups hit tough times at some point, and in those moments when survival is the only imperative there can never be too much of  hustle type 1. At other times there should be a balance, and the more a company grows the more the balance should tilt towards hustle type 2.

Not all businesses can be a habit

By | Startup general interest | No Comments
Nir Eyal’s book Hooked has become the go-to manual for anyone wanting to build a habit forming business, and who wouldn’t want to build one of those? Businesses that are part of our regular routines profit hugely from regular custom without marketing spend, and many of today’s biggest businesses have habits at their core. Want to know something? You probably reach for Google. Have some time to kill? There’s a good chance you go to Facebook (unless you’re a millennial…).
But not all businesses can be based on habits.
Habits are, by definition, part of our routines, and most of our routines are daily. When you think about it, it is only a small fraction of businesses that we use daily. The others we find each time afresh each time we need them, or maybe remember them if they have a powerful brand. On the desktop we find things via Google and we also use Google to help us remember the brands we only half recall, and that has worked fine. Booking holidays, buying clothes, fixing up our houses – these are all examples of things we spend big money on but don’t interact with regularly enough to build a habit.
Apps are changing the game for these non-habit forming businesses on mobile.
Habit forming businesses are able to get an icon on our home screens and maybe lure us back via notifications. Non-habit forming businesses, which you could define as those which we don’t want to download an app for, are challenged by the fact that traffic is now predominantly on mobile and skews more that way each month (Baby2body, one of our partner companies, gets 91% of it’s traffic from mobile), and that within mobile an increasing share of time is spent in apps.
The solution to this problem is not yet clear, although there are some hints. What we need is a mobile equivalent to Google search, including paid marketing (these things exist on mobile, but the user experience isn’t equivalent). I suspect the answer will lie in a combination of services being surfaced through contextual app platforms, of which maps, messaging and maybe calendars are the most obvious, and a much smarter notification stream.
Facebook’s new Messenger Platform is a sign they are thinking this way about the future and in China Baidu maps already acts as such an app platform for millions of users.
How this plays out, and how quickly, is critical for the mobile strategies of most ecommerce companies, including many of our partner companies.

Are accelerator programmes backing more mature companies?

By | Uncategorized, Venture Capital | 3 Comments

This tweet from YC’s Sam Altman was in my feed this morning:

You can see why he’s pleased. Lots of his companies have got a $1mm revenue run rate which is a sign they are valuable.

It takes a while to get to a $1m run-rate and I’m wondering if YC is trending towards backing more mature companies and fewer true startups.

Here in the UK it seems to me that Seedcamp and Techstars have made a similar shift in strategy. It makes sense, they get similar equity positions in businesses with more proof points that are therefore more likely to be successful. On top of that the introductions these programmes can make to potential investors, customers and advisors are more valuable to companies that have product and revenues.

That leaves a gap for true startups. Which is where we play :-)

Fundraising advice: Don’t over optimise on terms

By | Startup general interest | No Comments

Everyone loves a high valuation and it’s natural for founders to want to minimise dilution. They will most probably go on to raise multiple rounds of venture capital after all. And look at what Zuck achieved…

But companies that spend too much time optimising terms end up as net losers. YC’s Sam Altman explained why in a post last year:

Startups are usually a pass-fail course — either you succeed or you don’t.  If you fail, maybe you get acqui-hired, but that’s happening less frequently and is usually little better than just getting a job at the acquiring company instead.
The important thing is to get good investors, clean terms, and not spend too much time fundraising. The biggest problem comes from chasing high valuations. Contrary to what many people think, at YC we encourage companies to seek out reasonable valuations. Valuations are something quantitative for founders to measure themselves on, and there are lots of investors willing to pay high prices, so they don’t always listen. But I’ll say it again: trying to get really high valuations is a mistake.
If you’re clearly in a position of leverage, it’s fine to push for a high valuation, but don’t jerk investors around. Just say what you want and don’t get into a lot of back and forth or term complexity. Also remember that very high valuations often push out good investors.
And don’t forget the prime directive of fundraising strategy: set things up so that you never do a down round. The badness of a down round is difficult to overstate; in fact, the threat of that is the best reason not to take a super high price when you’re offered one.  If you raise at such a price, everything has to go perfectly in order for your next round to be an up one.

We think about valuation the same way. Much better to have a smaller piece of a bigger pie and the best way to get a big pie is to get good investors and minimise time spent fundraising.

The emotional off-switch

By | Venture Capital | One Comment

I was talking with another investor last week about what it takes to be successful in this industry and made the point that it takes a certain type of person to be able to remain human whilst repeatedly saying ‘no’ to entrepreneurs who are asking you to join them in pursuing their dream, and, even more difficult, occasionally saying no to the follow-on funding that would allow existing investments to keep going. This investor is a successful investment banker turned VC and he replied that all the most successful bankers he has known have an ‘emotional off-switch’. Most of the time they are great people fully engaged across a range of emotions, but when the occasion demands it they say ‘this is business’ and proceed with what they think has to be done without emotion. We agreed that without an ‘emotional off-switch’ it’s hard for people in senior roles to make consistently good decisions.

I’ve been dwelling on this since and have had three further thoughts:

  • Whilst it’s important to assess the pros and cons of big decisions without emotion it is important to understand the impact the decision will have on the emotions of others (and yourself). If a course of action will cause emotional damage that should be on the list of cons.
  • Flicking the ‘emotional off-switch’ can’t be an excuse for bad behaviour. The responsibility to behave well remains unchanged.
  • It isn’t just bankers and investors that need an ‘emotional off-switch’. Entrepreneurs (and possibly everyone who takes big decisions) needs one too. Times when entrepreneurs need their ‘emotional off-switch’ include when team members aren’t working out, when folks need to be hired in over the heads of the founding team, when customers are difficult and when new initiatives aren’t working out. It’s interesting to note that all of these examples are when things aren’t going well. That’s because letting go is emotionally challenging. Correspondingly, one of the most common laments I hear from successful founders is that they wish they had moved more quickly on difficult decisions instead of holding off in the hope that things would get better.

I suspect that many people wouldn’t like to have an emotional off-switch, but then leading companies and investing isn’t for everyone. For those of us who choose these vocations finding that switch and knowing when to use it are pre-conditions for success. Following this post I will be more mindful about how and when I use mine.

Politicians don’t understand authenticity

By | Startup general interest, Uncategorized | No Comments

One of the defining characteristics of business this century is the return of authenticity. For much of the twentieth century success for large corporations was driven more by great marketing than great product. The internet, and particularly social media, opened up communications and changed that. The truth will out now. In the days of television advertising companies could control the information consumers received by buying the airwaves. We used to rely on adverts for information about products. Now we rely on reviews and social media.

Hence product quality increasingly trumps marketing and brands worldwide are embracing the need to be authentic. That is to think about the customer first and throughout.

Politicians haven’t caught up. At least in the UK.

And it’s a tragedy.

I’ve been making this argument increasingly frequently as we head towards the general election. Here in the UK, as in much of the developed world, electorates are turning to protest parties because they feel poorly served by the incumbents. In the UK UKIP and the SNP have been the main beneficiaries.

Focusing on the UK, in my view people are turning away from Labour and the Conservatives because those parties have no authenticity. They have no conviction and they don’t stand for anything. Instead they produce policies they think will extend their appeal to new voters without alienating their current supporters. As a result the promises seem hollow and people don’t want to vote for them.

I’m writing this today because I’ve just read a BBC article titled Have modern politicians lost the art of rhetoric? which makes many of the same points.

This development has many causes, not least the collapse of the Keynes vs classic/monetarist economics, the rise of opinion poll politics, developments in modern journalism and the rise of the career politician. Those are some major headwinds, and they make it hard for the major parties to get out of the rut they are in.

I don’t have a solution to offer, beyond the obvious feeling that to recapture the hearts of the electorate it will take strong individuals whose primary motivation is to make a difference rather than to govern. They will have to be very strong to prevail because the party machinery is works to marginalise such people. We need these strong individuals though, because I believe we are headed towards difficult times when developments in technology will lead to massive shifts in employment patterns and, unless we are careful, worsening inequality of wealth. Steering the country through these shifts will require difficult trade-offs and hence strong leaders who can bring the country with them. Those leaders will need to be authentic.

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