Nic Brisbourne's view from London on technology and startups

The two reasons early stage investors should be active investors

By | Uncategorized, Venture Capital | One Comment

I’m on a panel at an investor conference tomorrow discussing the merits of active investing, which will be a debate about how much investors should do above and beyond the provision of cash. I’m writing this post to get my thoughts straight.

As you probably know, Forward Partners bundles help from our startup team, our proven methodologies and office space with our cash investment so I will be talking my own book tomorrow and hence here. Forgive me for that, but I do think we are in the vanguard of a trend towards ever more active investing.

This is, in fact, a trend that has been underway for some time. Twenty years ago 3i dominated venture capital in the UK with a very low touch model. I’m told their sell at that time was ‘here’s some money and we won’t bother you as long as you hit your numbers’. Then, when I joined the industry in 2000, people started talking about ‘The Silicon Valley model’ of venture capital where partners took board seats and actively hustled for their portfolio companies. Over the last fifteen years that has become accepted best practice.

Now we are part way into the next change, which is to an even more active form of investing where investors employ teams of people to help their investments, as we do.

The first reason for this change is that the investment world is increasingly competitive. It used to be that access to money was restricted to a few privileged individuals and simply getting money was an achievement, even for the best companies. That’s still true in less developed parts of the world, but in San Francisco and increasingly in London there are multiple sources of venture capital working very hard to find good investments and entrepreneurs sitting on quality opportunities have lots of options. Transparency provided by the internet makes this true at all stages, but it’s especially true at the earliest stages where capital requirements have declined precipitously. If you need less money there are more people you can get it from.

The second reason is that entrepreneurs looking to rapidly build traction without raising much money need more help. In the 1990s when companies needed £2-5m to get a product to market they had money to hire a team of people to help them. These days most startups need only a fraction of that to launch – our idea stage partners get to significant traction within a year on a £250k investment – which means there isn’t much money to hire a team and the founders have to cover a lot more of the bases themselves. Big picture this increased capital efficiency is great for entrepreneurs because they suffer less dilution, but it does mean they have to do things they aren’t skilled at.

The opportunity for investors is to help fill the gaps. For example, if an entrepreneur is skilled at marketing but not design then if the investor has a good designer who can help the entrepreneur doesn’t have to spend hours reading blogs and having coffee with friends to figure out what good looks like and hire a freelancer. Moreover, if that designer is very good the result for the company will probably be be better. The company will eventually need to bring design skills in-house and if the investor’s designer is smart she will combine a focus on the job in hand with helping the company build a strong capability in design. That’s partly about educating the founder, partly about helping her employ a great designer when the time is right, and partly about supporting the new hire when he starts.

The gaps that we most often fill are product, development, design, marketing, recruitment and fundraising.

In summary, early stage investors are becoming more active to differentiate themselves from the competition and win the best deals, and because their investments need more help. Most of the best funds are embracing this trend and hiring dedicated teams so they can add more value. This post is long enough already, so I won’t list examples here beyond saying that Andreessen Horowitz and Google Ventures have taken this strategy further than other funds in the US and I think we have taken it the furthest here in the UK.

Every job you do has your signature on it

By | Startup general interest | No Comments

I just read this on a post by Slack and Flickr founder Stuart Butterfield titled Rules of Business:

Every job you do has your signature on it

When I was around 10 or 11 years old, my father offered me $10 to move a cord of recently-delivered firewood from the driveway into the garage and stack it up inside (I am old; $10 was a great deal of money back then). I managed to get all the firewood inside but rather than it being stacked against the wall, it was more or less evenly distributed across the floor of the garage. I expected my payment, but instead got some advice: “Every job you do has your signature on it — do you really want to sign that?” I always remembered that and if I am going to do something, I make every effort to do it right. (I also properly stacked the wood afterwards, even though it took forever, and I got paid in the end.)

It’s great advice, and also easy to forget. Successful people are generally hugely productive, which means they get a lot of stuff done fast, and constantly have to trade-off speed and quality. Deciding whether you’d be happy putting your name next to a piece of work is a good test of whether the quality is high enough. As companies and individuals we are judged on what we produce and if we if it isn’t of a quality that we would put our name to then our brands will suffer.

At the same time we have to remember that perfection can be the enemy of progress and there are also occasions when we run short of time and it’s important to just ship, even if it’s something we aren’t proud of. It takes good judgement to know when ‘good’ is ‘good enough’ and when to break the rules and sacrifice quality for expediency. Acquiring that good judgement is something we should all strive for over time, and being conscious (mindful even) about our decisions as we go helps our judgement to become better more quickly.

Advice on choosing co-founders

By | Startup general interest | 3 Comments

The following advice on choosing and working with co-founders originally came from Noam Wasserman, author of the legendary book Founder’s Dilemmas:

  • Bringing in co-founders who have the technical expertise, sales background, or social connections that you lack;
  • Creating a more diverse team gives you access to a wider, more diverse network;
  • Avoiding co-founding with friends and family; the eventual conflict far outweighs the value.
  • Creating a clear division of labor helps accountability and creativity to flourish.
  • Having a plan to address problems. Don’t avoid conflict; make a plan for it.

(Quoted on a Profit Guide post, Build a team of founders investors will love.)

It’s a solid list but misses something hugely important. The best founder teams we have seen here at Forward Partners have had a deep and obvious mutual respect. A startup is a long and sometimes difficult journey and mutual respect gives relationships the strength to survive turbulent times.

Startups are built to learn, large companies are built to execute

By | Startup general interest | 4 Comments

How large companies innovate is an increasingly hot topic these days, and Steve Blank penned some thoughts on the subject yesterday. This piece I found particularly interesting:

A startup is a temporary organization designed to search for a repeatable and scalable business model.

A company is a permanent organization designed to execute a repeatable and scalable business model.

In other words, large companies find innovation difficult because they are set up to execute, not to innovate. That was fine from the industrial revolution until the last five to ten years, but now the pace of change is so fast large companies have to innovate as well as execute. The problem is that there are no good models of how to do that.

The first answer for many was M&A, and that remains a good route, but is very expensive.

Those in search of cheaper solutions tried skunkworks projects but found they usually get killed off by the mothership. They are now turning to partnering with the startup community, sponsoring accelerator programmes and making acqui-hires.

I don’t think we’ve found the final answer yet, but I suspect it will lie in taking best practices from the startup world and adapting them for larger companies, which are, for example, less resource constrained. It will also require large company executives develop some new modes of thinking about experimentation, and failure and success.

Learn what your best users are doing with your product

By | Startup general interest | No Comments

In a good Founder’s Notebook post on setting priorities in product development Ben Yoskovitz recommends that founders:

learn as quickly as you can what your best users are doing in your product

That’s great advice. Having a core group of passionate users with a well understood use case is a great sign that a company is on the right path and will make investors love you. Hence it makes sense to understand whether you have such a group and what they are doing. Sounds obvious, yet few entrepreneurs who talk with us can articulate their core user stories clearly.

The reason, I think, is because it’s a tough thing to do. At the early stages most companies haven’t yet got good enough analytics to easily see what different groups of users are doing there’s a strong temptation to focus on growth on the basis that so long as growth keeps coming everything will be ok. There’s truth in that, but focusing on growth alone won’t get you to your full potential.

Hacks for learning what your best users are doing before great analytics are implemented include eyeballing activity on a user by user basis and looking for patterns amongst the most active users, and interviewing a selection of your best customers. The insights gleaned will help shape the product roadmap to maximise the size and engagement of that core user group.

Yoskovitz’s post also advises focusing the whole team on one product development priority at a time and not getting spread too thin. Also great advice. I love it when I hear that a company has identified one metric it wants to improve and will drive change in a short period of time – say six weeks – before moving onto the next priority. Do it that way and the top ten metrics will all have improved significantly in just over a year and overall progress will be rapid.

Investigating a business idea? Go analogue hunting

By | Startup general interest | No Comments

Rob Johnson, who I got to know when he was CEO of our partner company Makers Academy wrote a great answer on Quora yesterday. The question was “How do I know if my business will generate value?”. Rob suggested a good four step process:

  1. Identify the (burning) pain point
  2. Hunt for analogues [more on this in a second]
  3. Customer development work [I’ve written about this before]
  4. Sell it to 10 people as a service

All good advice. I’m going to focus in on the hunt for analogues. In more detail Rob says:

Go analog-hunting. Find some examples of other products / services people are paying for right now to solve this problem. Your product / service can be completely different, but you want to know that people are willing to open their wallets to solve this problem. (There are a lot of problems that are “nice-to-solve” but not “must-solve.”) An example of an analog would be if I had an idea for a one-time paste that I could apply to my teeth and they would be clean, white and healthy for the rest of my life without having to brush again. The problem is: health, whiteness and cleanliness. Our analog: toothpaste.

The process of hunting for analogues delivers a lot of insight and we do it all the time, often using the question “if someone buys XYZ new product, what will they not be buying instead?”. Taking Rob’s one-time toothpaste example – the analogue with toothpaste tells us that people care enough about having clean white teeth to spend money on the problem, and gives a user experience benchmark that our new product has to beat. In this case ‘you only ever have to brush one’ is clearly much better than ‘you must brush 2-3 times every day’ so the idea sounds good. (Although there is an obvious question about the revenue potential for a one-time-use product.)

Talking software companies as an example, the analogue is often potential customers hacking together custom solutions for the problem you are solving (customer development guru Steve Blank highlights custom solutions as a great sign customers will buy a product, although he doesn’t mention the word analogue). This ‘custom solutions’ analogue was important when we decided to invest in Dataloop last year. At the time I wrote “From a market perspective we liked the fact that companies everywhere are building their own custom cloud monitoring solutions using open source software”.


A growth engine without a profit engine is incomplete thinking

By | Startup general interest, Uncategorized | 9 Comments


I just saw this diagram on Growthhackers in an article explaining Uber’s success. And they have had a lot of success. In case you’ve missed it they have recently raised money at a $40bn valuation, they operate in 35 cities and have grown headcount from 75 to 300 over the last year. I haven’t seen any revenue numbers but I’m sure the growth there is strong too, and I hear them talked about all the time in London now, and not just in tech circles.

What follows is not a criticism of Uber. I’d be very surprised if they don’t have a good plan for getting to profitability.

My issue is that entrepreneurs seeing the diagram above and seeking to emulate the success of Uber might latch onto a strategy that delivers growth but not a sustainable business. Last month veteran Valley VC Bill Gurley wrote a warning to investors in $100m late stage growth rounds with the following quote:

Investors must realize that it is materially easier to take a company to substantial revenue if you generously relax the constraint of profitability. Customers will love you for giving away more value than you charge, and therefore, focusing exclusively on revenue success is a sure-fire path to risk exposure.

Looking at the diagram it’s easy to understand why Uber grew so fast and have raised so much money. Steps 1-3 are expensive to deliver, but done well they will result in superfast growth. The hope, of course, is that the quality of the experience will lead to high levels of repeat business and cheap word of mouth driven marketing in the future, which will make the business profitable. That may well transpire, but simply following this diagram you could spend a lot of time and money building a business where customers value your product at less than it costs to provide.

In addition to a growth engine, companies need to understand their profit engine. It’s simple, but critical – the cost to deliver a service must be less than customers are happy to pay for it and the cost of acquiring customers must be less than that delta. Companies using the diagram above to design their strategies should also make sure they are comfortable that customers won with a heavily discounted service will eventually pay a higher price, that the cost of customer service will decline to manageable levels as the business scales, and that they have scalable marketing channels through which they can acquire customers at low enough prices.





Why I moved from Android to iOS

By | Startup general interest | No Comments
Regular readers of this blog will know that I’ve been a long-time Android devotee. My Android phones have included the Nexus 4, the Nexus 5, Samsung Galaxy S Series devices and an HTC One. I also had a couple of Android tablets, although they were never as good as our iPads.
I loved the phones though. Parity because I have a strong affinity for open systems, and partly for certain features, most notably swipe keyboards.
Recently I have only wanted to own stock Android devices. I’ve had too many bad experiences with the bloat-ware that other manufacturers put on their devices in what I believe is an important futile attempt to differentiate.
That has me waiting each year for the new Google Nexus phone to be released, but last year I was disappointed when the Nexus 6 was announced. That thing is almost as big as an iPad mini! I get that lots of people like their phones huge, but not me.
So I stuck with my Nexus 5 longer than I otherwise would have, and even got a Moto 360 smartwatch to go with it. But last month the battery life started to decline precipitously and annoying software glitches started coming more regularly.
So time to get a new phone.
I looked a bit at other Android devices, and I think there may be others running stock Android now, but I pretty quickly figured I wanted an iPhone. Over the years the reasons I went for Android have slowly eroded. Apple has been getting more open whilst Android has been getting more closed to the point where there isn’t much to choose between the ecosystems. Also, and importantly for me, since iOS8 you can swipe keyboards on the iPhone. On top of that most startups release on iOS before Android and with an iPhone I would be better able to test new new apps.
So when I got my iPhone last week I was curious to see how the switch would go. The overall conclusion is that there isn’t much difference between using an iPhone and an Android. Despite all the tribalism the hardware is largely commoditised.
Turning to the detail, there were some switching pains. It took me a while to find a Twitter client that would let me quickly access my Twitter lists and save to Instapaper, but then I found Tweetbot. I also spent a bit of time finding a mail client that was as good as the native Gmail app on Android. I’m using CloudMagic now, and so far it’s been pretty fast.
And some things have been better. Most notably my whole family is now on Apple devices and that means FaceTime is super convenient for us all. Additionally, over the first few days a couple of the apps are a bit better ( e.g. the calendar app Fantastical). Finally, I’m away skiing with the ICE group of entrepreneurs this weekend and one of us made the lookbook and itinerary into an app, only for iOS.
There were some things that are better on Android too. I loved having my calendar as a home screen widget and the way apps are organised works better for me on Android than on iOS.
That leaves me happy with my iPhone, but there isn’t much in it.

UK venture investment up 57% to £1.5bn

By | Venture Capital | No Comments

Screen Shot 2015-03-03 at 16.02.24

I’ve written before that over the last year or so it has felt like we are approaching critical mass in the UK startup ecosystem. This data from corporate finance firm Ascendant shows why: investment grew a whopping 57% to £1.5bn last year.

The true test will be whether we are able to sustain this level of activity in 2015 and beyond. Absent a big macro-economic shock I think that we will. It certainly seems like there is more money coming into the market – viz the Google Ventures UK team making their first investment with a $60m injection into Kobalt.

Jeff Bezos says to align yourself with your customer

By | Amazon | 16 Comments

I just saw this quote from Jeff Bezos on A Founder’s Notebook:

Another thing that we [Amazon] believe is pretty fundamental is that the world is getting increasingly transparent—that information perfection is on the rise. If you believe that, it becomes strategically smart to align yourself with the customer. You think about marketing differently. If in the old world you devoted 30% of your attention to building a great service and 70% of your attention to shouting about it, in the new world that inverts.

Just about everything I read from Bezos is on the money and this is no exception. The big driver of increasing transparency and information perfection is social media. Everyone has a printing press these days and it’s no longer possible for companies to control the message. Hence it makes sense to invest more in product and correspondingly less in sales.

This is doubly true for startups for whom it is increasingly true that there is no other strategy than to win by having the best product, and often the best product by a mile. When competing with large incumbents the rule of thumb is that winning requires having a 10x better product.

Finally, think of product as encompassing the whole user experience, from sales and marketing through delivery to after sales care.

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