Share options are key to Valley culture; the UK is getting close, but not there yet

It sometimes seems that in the Valley that everyone is an angel investor and the streets are paved with gold. Building a startup there is, of course, still an enormously hard thing to do, but there are lots that have made it big enough to create scores of millionaires through their option schemes. Many of those newly minted millionaires go on to invest in startups themselves, which fuels the ecosystem and makes them role models for the next generation of startup employees that are hoping for a big payday from their options. That’s great for the startups because option holders are often happy to work for lower salaries.

Here in the UK the ecosystem is young and hence not yet so well developed. The good news is that just about every startup gives options to it’s employees these days, and many of our options schemes are similar to those in the US. However, my experience across over 100 portfolio companies and my colleagues experience in hiring getting on for 1,000 people is that employees often don’t understand or value those options very highly.

I think the difference comes because on this side of the pond we haven’t yet seen enough companies having enough success that their options schemes have made large numbers of people wealthy. Most people don’t know anyone who has made it big through options and that makes it hard to see value in their options.

The other factor at play is that startups here in London are often competing with banks who are offering large bonuses in the first year. That cash promise is more real and present than an option scheme.

The good news is that the situation is improving. Startup ecosystems take time to build and perceptions of options is one aspect of many that has been headed in the right direction here for sometime now. Crucially, billion dollar exits are coming through at an increasing rate – this year we have already seen, Just-eat, Zoopla and Appliances Online enjoy £1bn + IPOs, and that’s just a few of the big names. Once these businesses and others come out of their lock-up periods many of their option holders will cash in, more people will know somebody whose options have worked for them, and startup employees will place more value on those options. We shouldn’t expect big overnight changes, but continuous improvement at an accelerating rate is very much on the cards.

The fallacy of assuming obvious use cases means a big market

It is amazing how often people see an obvious use case for a piece of technology and assume that means there will be a big market.

Benedict Evans wrote about it recently in his post asking How many people really care about Google services?. In his post he says that he and others like him (including me) make a mistake by assuming that:

maps and calendars and email and so on are very important, because we use them all day, and that the tight integration of Google services is a good reason to buy an Android phone and their absence would make it unsalable.

Whilst in practice, Google services aren’t that important to most people, because most people don’t use them very often. Most people don’t go to places they don’t know very often and they don’t have lots of meetings. To whit, Google Maps only has 100m active users on iOS out of 400m iPhones and 250m other iOS devices and the average Gmail user only gets five emails per day (most of which are ‘commercial’).

I first thought this back at the dawn of location based services when any number of startups built apps and infrastructure to help us find the nearest cashpoint, petrol station or just about anything else. I probably find myself in more places I don’t know than average and I doubt if I have trouble with this problem more than once a month, and then when I do it is rarely difficult to find what I’m looking for. That was obvious to me at the time.

News aggregation and personalisation services are another good example. This is another one I’ve fallen for myself, becoming highly enamoured with various feedreader businesses over the years, but the truth is that only a small number of news obsessed technophiles have a daily problem with finding gems in an overwhelming torrent of newsflow. Most people just have a site or two that they like to monitor.

In all these examples the service in question is incredibly useful to those who value it, and because the users are held in high regard by the media and other areas of society it’s easy for them to falsely believe that many many others share their problems, or aspire to be like them, and therefore overestimate the market size.

There isn’t much movement at the top table of the internet

The Washington post just published a chart showing the most popular sites on the internet over the last eighteen years. It’s too big to reproduce here, but the striking thing about it is how little movement there’s been in the top. Only 14 companies are represented in the top 5 slots over those years, and the top slot has been held by only three companies (AOL, Yahoo, and Google).

This stability is partly down to the top companies acquiring the ones further down, but it’s remarkable given how much turmoil there is in the internet world more generally.

41% of UK ecommerce now on mobile

Screen Shot 2014-12-15 at 12.26.58I took this chart from Criteo’s recently published Mobile Commerce Report. It’s amazing to see how fast mobile is taking share from desktop and great to see the UK leading other western markets, as we do in just about all areas of ecommerce.

Other interesting points from the report include:

  • Smartphones now account for a greater share of mobile transactions than tablets (although not in the UK)
  • Android and iOS convert similarly, although Android transaction volume is about 65% of iOS
  • mCommerce works for high value as well as low value goods – fashion is a key vertical for mobile



Don’t fall in love with your hypotheses

I just read Wyatt Jenkins’ 10 A/B testing lessons I learned the hard way. Here’s number one:

1. It’s a hypothesis. Don’t fall in love. Most tests don’t turn out the way you plan them. There’s a roughly 70% chance that you are wrong. Try lots of ideas quickly and cheaply. Consider excluding difficult browsers like IE and excluding customer segments that introduce lots of edge cases. Do what it takes to get a test out fast.

In common with many people in the startup ecosystem we are big believers in keeping things lean. At it’s heart this means being clear about your assumptions and viewing the startup process as a learning journey. We even structure our due diligence process to tease out all the assumptions a startup is making and then help build a workplan to validate them.

What we’ve seen is that despite best intentions it’s incredibly easy to become fixed on a given strategic choice – e.g. which customer segment to go for, product features, company positioning, tone of voice, or elements of the visual identity. My colleague Dharmesh is fond of saying that it’s important to test every new idea within a couple of weeks because after that the brain somehow starts to see it as permanent and stops wanting to test it. I like to explain aversion to changing plans as an emotional version of the sunk cost fallacy – where the cost is the emotion we’ve invested in arriving at and supporting the idea.

It is easy to write a blog post saying we shouldn’t fall in love with our hypotheses, but in practice it’s difficult not to, constantly questioning everything is tiring, and when we pitch our ideas we want to stay consistent with them. As with many aspects of good execution the key is discipline, in focusing in on the most important assumptions and leaving the rest till later, and in staying with it even when you’d rather be doing something else. Having other people in your team to keep you honest also helps.

But even if it is hard, Jenkins is right, we shouldn’t fall in love with our hypotheses. Keeping our decision making rational massively increases our chances of success, and remember that our hypotheses are hypotheses is one way to do that.

Social network usage is starting to drop

2014 has been a great year for social media marketing. A number of our companies have enjoyed great success advertising on Facebook and they’re not alone. Facebook is forecasting Q4 revenues of $3.6-3.8bn, up 40-47% on the year ago quarter. Yet, paradoxically in some markets social network usage is starting to drop:

weekly social network access

As you can see from this chart it is in the US, China, and particularly the UK that consumers are turning away from social networks, and it’s a fair bet that the trend in these countries will be seen more widely next year.

The best guess is that users are shunning Facebook et al for messaging apps, which goes a long way to explaining Facebook’s $19 billion purchase of WhatsApp earlier this year.

This means that we can expect Facebook advertising to become more competitive next year. Buoyed by the success stories from 2014 bigger brands and bigger budgets will come to the platform whilst inventory remains the same or declines, at least in the UK or US. That means higher prices. We’ve seen the same trend play out on Google over the last few years where paid search in many categories is now too expensive for startups.

As this plays out entrepreneurs will be forced to look at newer platforms and one of the interesting things will be whether messaging apps emerge as an interesting advertising category.

Making Forward Partners a company we are proud of: Our culture

Forward Partners is a venture firm, but the size of our startup team and the way we support our partner companies makes us very different from conventional venture capitalists. One of the exciting aspects of that for me personally is that if we are going to deliver on our mission of delivering amazing help to amazing startups we need to think of ourselves as a company that attracts and retains great people, rather than a partnership of investors.

Firstly, we offer a promise of inspiring work – the chance to have a hand in some amazing startup success stories, to touch the lives of founders and their employees in a very positive way, and to enjoy an unparalleled learning opportunity.

But secondly, it’s important that Forward Partners is a great place to work. To that end we’ve spent a lot of time over the last six months thinking about the sort of company we want this to be and the things we look for in ourselves and our colleagues. Last week my colleague David Norris published our Culture Deck (embedded below) and wrote a great post detailing our journey up to this point.

It’s been an interesting ride, and we are much stronger already for having been on it. Having a clear sense of who we are is immensely powerful. The journey doesn’t stop though. Culture doesn’t live in a deck or a set of values, it lives in the actions and decisions we take every day, and every week we ask ourselves if there are things we could do differently that would make us more like the company we want to be, as described in the deck below.

I’m writing all this partly for the benefit of prospective partners who can now get a better feel for who we are and what we are like to work with, and partly for entrepreneurs everywhere who want to go on a similar journey. At many startups codifying culture never makes the top of the priority list, I think largely because it’s hard to do well and because the benefits are intangible. Those benefits are real though, and having a great culture should be viewed as an execution challenge equivalent to having a great product or great sales and marketing. We started our process by identifying the archetypes we relate to (explorer and sage, represented by Indiana Jones and Yoda, hence the whip and the light sabre) and then went from there to our values. I think that’s a good process that other firms could copy, and which is explained in more detail in David’s post.

Breadth and depth of UK VC market improving


Here in the UK we’ve been working away building our startup ecosystem for 15-20 years (just 15 years for me) and it’s only recently that I’ve felt we are finally reaching critical mass. That’s a subjective assessment combining strength and depth of the angel and VC markets, number of quality investment opportunities, number of exits (including £1bn+ exits), strength of our startup hubs, and quality of support from advisors, lawyers, real estate agents and so on. I haven’t put a number on all these things but we’ve seen great progress on all fronts over the last couple of years.

This chart from CBInsights is another piece of encouraging data. There has been a lot of talk about new UK funds coming online in 2014, but we can see that the trend has been going for a couple of years already. The YTD 2014 data goes up to the end of Q3, and if we assume the same rate for Q4 which is traditionally a big quarter for venture, then we will end up with 170 unique investors this year.

Looking at where the investors come from is interesting too. The percentage from the UK has increased from 30% to 47% since 2010 – that’s an increasing percentage of an increasing number – which is a sign that our local VC industry is building some strength now. That’s great because strong local investors are a critical ingredient of a sustainable ecosystem.

This data shows that the breadth of the UK venture market has increased. Couple that with the fact that the volume and value of investment is also increasing and it’s fair to say that we are making great progress on both breadth and depth. Exciting times.

Future of retail – video

Dave Birss has been shooting a series of documentaries for The Drum about disruption in various industries called The Day Before Tomorrow. Episode 6 is about changes afoot in the retail industry and you can hear the thoughts of myself and others on the subject in the YouTube video below.

It was a fun experience and not only was Dave kind enough to let me talk about our portfolio companies, Appear Here, and Lost My Name, he let those passages survive the editors cut.

Investor meetings are over-rated

I’ve just been reading the LowercaseCapital website. It’s full of lots of goodness and common sense about changes in startup finance and how we in the venture industry should react. It also has this about meetings between investors and entrepreneurs:

Meetings aren’t always necessary. Often, entrepreneurs are in a rush to meet in person. We went along with this for a long time and soon saw our schedules descend into gridlock and we ended up generally unhealthy and unhappy and still not actually getting much done. We hear the same every day from investors and founders alike. Truth is, meetings are usually inefficient. Let’s start with email. Maybe next we can do a brief call after we’ve tried your stuff and we have something to chat about. We’ve confidently done business without ever having been in the same room as a few of our founders and partners.

To which I would say “too true”. Apart from the last sentence. I don’t think we would ever make an investment without meeting the entrepreneur.

But the rest of it is spot on. Too often I think entrepreneurs target meetings with investors rather than targeting investment. If you target meetings you will probably get more meetings, but if you target investment you will have at least the same chance of getting an investment and you will spend less time in meetings.

Most of the emails we receive are asking for meetings, and then when we are in meetings many entrepreneurs see getting a next meeting as their main objective. It’s much better at every stage to be qualifying investors in or out based on likelihood of investing. Good sales people do this in other walks of life – they get lots of prospects in the top of their funnels but they only spend time with the very few who have a high probability of turning into deals. It’s good to think of fundraising as a sales process where the product is equity in your startup.

If you follow this advice you will get crisp at making your business sound exciting over email and you will ask investors about the process for getting to investment and what your chances are of getting there. And investors will be impressed.