Nic Brisbourne's view from London on technology and startups

UK venture post Brexit – plus ça change, plus c’est la même chose

By | Venture Capital | No Comments

This post originally appeared on the Forward Partners blog.


“Plus ça change, plus c’est la même chose” is an old French saying that translates literally as “The more it changes, the more it’s the same thing”

Before the Brexit vote there was a lot of debate about the trajectory of the venture capital markets and that has intensified considerably in the last couple of weeks. Venture investment has been pretty steady for nine months now in both Europe and the US, albeit with a lot of month to month volatility, but there are fears that the 2015 slowdown could precipitate a full on crash, that public market woes might transfer to the private markets, and now that our exit from Europe will hurt our ecosystem. In my opinion there is a danger that these fears are being blown out of proportion.

Impact of Brexit on the economy

I was as shocked and disappointed as the next Londoner when we voted to leave the EU on June 23rd and I was dismayed by the uncertainty and political turbulence that followed. However, I’m pleased that we now have a new Prime Minister and are on the road back to more stable government. My next hope is that the Labour Party regains its status as a credible opposition party.

Now that Theresa May has moved into 10 Downing Street and chosen her cabinet we can start to predict what our path out of Europe might look like.

From the perspective of the startup ecosystem, the most important question is whether we continue to allow the free movement of labour from Europe. We know that many of the best founders we see hail from countries within the EU and we want them to continue to come here, and similarly we want our partner companies to continue to easily source talent from the whole continent. London’s magic has always been that it’s a open, cosmopolitan city and few people here want that to change.

May has said many times that Brexit means Brexit and she has chosen two prominent ‘Vote leave’ campaigners for the cabinet positions that will negotiate our exit. For me that means we are overwhelmingly likely to leave the European Union, and that the decision is now between ‘hard leave’ where we fully extricate ourselves, and ‘soft leave’ where we accept continued free movement of labour in return for full access to EU markets.

Of those two options I think ‘soft leave’ is the most likely. It’s what the City of London wants and what business wants more generally, and polls conducted by the BBC are indicating that the majority of the population expects that immigration won’t fall. The interests of the country and the expectations of the electorate both point to us leaving the EU, but staying in Europe. That also seems to be what key figures in our new government want, most of whom are, above all, pragmatists. May was a ‘moderate Remainer’, Phillip Hammond, our new Chancellor, has always been pro-Europe, and before the Brexit campaign Boris Johnson, now Foreign Secretary, was an advocate of staying in Europe provided we got a better deal.

The stock markets are another indicator that a ‘soft leave’ with little disruption is the expected outcome. The FTSE 100 has recovered its losses and is now at a 2016 high whilst the more UK focused FTSE 250 is trading well above the average for 2016 to date. There is no sign that public market investors are anticipating a recession.

Foreign exchange is the one market that has moved significantly, with sterling down around 8% against the dollar from its trading range before the run up in the week immediately before the Brexit vote, but devaluation boosts exports and that will most likely be positive for the UK, and especially for our startups who have their cost bases here but sell globally.

So for me the only significant negative indicator has been sentiment, but given that there is little actual change I expect people will soon realise that their fears are overdone and return to business as usual.

Impact of Brexit on London’s status as Europe’s premier startup hub

I’ve been asked by a number of LPs whether Brexit will undermine London’s strengths as a startup hub and whether we might now lose out to Berlin. It’s true that we have voted to separate from Europe, making us a less open society and that startup ecosystems thrive on open-ness and immigration, but once again I don’t expect too much to change. As I explained above I think it likely that free movement of labour between the UK and the EU will be retained, and if that’s the case London’s attractions as a startup hub will remain undiminished.

To set it out, our deeper capital markets, English language, low taxes, low regulation, and expertise in accounting and law make this city a uniquely attractive place to found a startup.

Trends in venture more generally

We now have Q2 venture capital investment data (US and Europe) and it looks increasingly unlikely that the sharp slowdown in activity last summer will turn into a crash. Investment volume and value have been flat to up for three quarters now and whilst there’s a lot of month to month volatility and it’s hard to read the data with confidence, I expect us to trend upwards from here.


As you can see from the chart above activity in Europe has been particularly strong. Per capita investment levels in Europe are at least 5x lower than in the US, but the gap has been closing and over time I expect that the growth in venture activity will continue here until we approach parity.

Moreover, the fundamentals in favour of startups remain strong. The world continues to change at a faster and faster pace, pushing innovation from large companies to small companies and increasing the number and quality of investment opportunities. We are swimming with the tide.


There are lots of plausible scenarios as to how Brexit and the startup world will evolve over the next 12-24 months, but the most likely is that the referendum won’t change much and that the venture industry gets back to growth following last year’s correction. There are risks to that prediction, but for most of the time since 2008 we have had geopolitical risks hanging over us. Grexit, Russia/Ukraine and terrorism spring to mind as recent examples. Here in the UK we now have to add ‘hard exit’ to the list, but new risks intensify and weaken, and come and go. As operators and investors in this market the best thing to do is get our heads down and focus on building our portfolio. For potential investors it’s right to compare the geopolitical risks across different markets, but as I’ve been arguing, it seems to me that the Brexit vote doesn’t significantly change the risk profile of the UK.

E-comm opportunity – Surfacing products that consumers don’t even know they want

By | Ecommerce | One Comment

Benedict Evans recently published a post noting that there’s no Facebook of ecommerce. He notes that we get our news from sites like Facebook that direct us to articles we might find of interest from all over the world, but that when it comes to products there’s nothing similar. All we have is Amazon, which is amazing, but only when we know what we want.

As Benedict points out the main barrier to people buying things online now is knowing about them. If you know they exist you can find them on Amazon, or maybe Google. If you don’t know they exist then Amazon and Google won’t help you – you can’t search for things you haven’t thought about.

The analogue in traditional retail is walking into a shop because they have interesting things in the window, and then coming out with something you didn’t necessarily know you wanted. In this scenario the shop has generated the (foot) traffic and created a sale through curation and/or recommendation.

So, as Benedict says:

Someone needs to do the [online] demand generation – to tell you there’s something you might want.

In other words – they need to curate and/or recommend products that people don’t know, or aren’t sure, they want. That’s the broad middle of products that aren’t well known enough to be searched for but have wide enough appeal to be worth curating.

Forward Partners (and others) have been investing on this thesis for a bit now with two broad strategies:

  • Multi-brand retailers who build a loyal audience through recommendation and/or curation across a large range of SKUs. The key for these businesses is to have collections that resonate enough for customers to sign up for emails, notifications or other regular reminders to come back and check the service. This was the thing that got very right – everybody loved receiving their Fab emails and clicked through to the site to see other cool stuff. Examples from our portfolio include, Patch, and Snaptrip.
  • Vertically integrated single brand retailers who build an audience loyal to their small range of products. The key for these businesses is to have products that are strong enough to generate brand loyalty. Once again email is a powerful tool to drive repeat custom. There are many good sized US businesses with this approach – Bonobos and Warby Parker are two of the better known. Interestingly there are fewer in the UK and Europe. Examples from our portfolio include Spoke and Makers Academy.

The concept of the ‘broad middle’ points to other markets that might be interesting to build businesses that won’t have to compete with Amazon. In general it’s industries where there’s no dominant brand and online penetration is low – say sub 10%.

From a venture perspective the opportunities are investable if they can generate huge returns, and that’s a function of the number of people in the target market, how much they might spend with the service and the margin on that spend.

Q2 US investment data suggests fears of a slowdown are overdone

By | Uncategorized | No Comments

“Keep calm and carry on” is so deeply ingrained into the British psyche that we’ve made a national joke out of it, but that’s how I feel about business at the moment. Many in the venture world fear for the future following the slowdown in investment activity last year and the Brexit vote two weeks back, but in my opinion there’s a high chance that in the startup world the next couple of years will be similar from a prosperity perspective to 2010-2012. In other words, times will be good, but not crazy.

I say that because the fundamentals are still strong. Change is happening faster and faster which is pushing innovation into smaller and smaller companies, and the overall economy is in reasonable shape.

There are risks to this scenario, to be sure, including a messy divorce from Europe and a crash in the venture market, but I don’t think these risks are worse than other systemic risks we’ve seen in recent times – e.g. the Greek debt crisis.

I’m writing all this now because the June investment data from Mattermark is out for the US. Their post is titled Series A Rounds Slip in Q2, but to me the chart below shows that activity is pretty much flat over twelve months. That’s better than the picture looked at the end of May when we feared activity might be trending down. We shouldn’t over-egg the significance of what is so far only a one month pick up in June, but to me this data says we should keep calm, and carry on.


Post Brexit thoughts – we need leaders

By | Comment | One Comment

I was as surprised and disappointed as most Londoners after we voted to leave Europe last Thursday but I have been shocked by the depth of everyone’s misery since.

Here’s what I think:

  • We are in for a prolonged period of increased uncertainty
  • There are plenty of hotheads but key figures like Angela Merkel and Teresa May want a sensible compromise that keeps Britain trading with Europe
  • Therefore, the likelihood is that at the end of the day we will still have free movement of labour and access to European markets for most goods and services – i.e. not much will change

The big concern for me is how much damage comes in the short term as a result of the uncertainty, a concern that’s heightened by the almost embarrassing collapse of leadership at the top of our two main political parties. The current run on property funds is a great example of fear induced value destruction. Within our portfolio there hasn’t been much fallout, but we are hearing the odd story of people sitting on their hands and not doing deals. Similarly I was with an Israeli investor today who is revisiting his plans to open a London office.

Paradoxically it seems to me that its elements of the Remain camp that are now causing the biggest problem. Their anger and fear is increasing the uncertainty we’re suffering from which is causing more redemptions, which is, in turn, increasing the anger and fear, and I could make a similar argument about sterling’s depreciation.

So I wish everyone would quit with the handwringing and get on with life, and especially with business. In the case of Forward Partners nothing has changed. I’m a little concerned that with heightened perceived risk there might be less appetite for investing in venture capital funds, and we will work a bit harder on the fundraising side of our business as a result, but other than that it’s business as usual.

For me the most worrying thing about this whole affair is how clear it now is that huge swathes of the country feel totally abandoned by our political system. It’s been hard to see that from within London, but the picture is now very clear. It’s imperative that we fix our fractured society. Otherwise we will get more protest parties and crazy votes like the one we’ve just had. Like it or not immigration is a huge part of the issue, and whilst I am totally sold on the economic benefits of bringing people into our country, it’s clear that those arguments hold little sway with most voters. These are difficult problems which will take strong leadership to fix, and at the moment it’s hard to see where that comes from.

In fact, it’s an absence of leadership that landed us in this mess in the first place.

When to hire big company people into your startup

By | Startup general interest | 2 Comments

Investors often put pressure on startups to hire senior people from big companies. Sometimes that’s for good reasons, but sometimes it’s because it gives them good sound bites and the illusion of progress. When VCs can say “Our investment just hired the product manager for ‘XYZ important product’ from Facebook” it makes them feel better and look good at cocktail parties. Cynics call these ‘CV hires’, and it’s not just VCs who make this mistake. CEOs and founders do too.

Over the last few years it’s we’ve seen an explosion in the number of European startups that have reached scale, and that’s changing the hiring equation. It used to be that if you wanted a big name on the CV you had to go for a large established business, and probably one that was headquartered in the UK. There are now a good number of sizeable scaleups with people who were there when they grew from being a small company to a larger one and want to go and do it again at another startup. These people combine bigco experience with an understanding of startups and are gold-dust if you can get them.

However, if you can’t, and I’m thinking about companies with up to around 40 people, I would say that generally speaking it only makes sense to go to an established big company when something specific in your business is lacking or broken. If you’re digital marketing is failing, then there’s a good chance that someone from or Expedia might be your best bet to fix it. They have large teams of people who live and breathe data and someone there has probably seen your situation before.

Conversely, if the requirement is continuous incremental improvement then hiring for talent over experience is often better. If your digital marketing challenge is more about squeezing the pips or looking for the next leg up for growth then going lighter on experience and longer on raw talent and hunger (and salary) often works better.

Thinking about the general case, the advantage of big company people is that when they work you have a solution that should scale effortlessly with the company for some time to come. The disadvantage is that when they don’t work the cost is much higher – not only will bigco people be on larger salaries, they typically demand more resources and hence waste more money before they leave than less experienced alternatives. Worse, experienced people demand more autonomy and are often more skilled at managing upwards, so it takes longer to know when they aren’t working out and it’s harder to fix when they go.

Finally, and this is the kicker, from what I’ve seen, high salary hires from big companies work out much less often than you would expect. I think that’s because there’s an adverse selection problem – the best people from large companies generally don’t want to work at startups. They prefer to take the high salary and continue with what’s working for them. When people do risk weighted analyses of total comp likely to be earned in a startup vs a bigco it shows that bigco is the rational path.

Additionally, adjusting from big company life to startup life is famously hard. Work at a startup is invariably broad and scrappy. You have to work across the whole product or business and without much admin support of many team members. Big company folk are used to working on narrow subsets of products or on segments of the customer base and they are used to having most of their small problems and tedious admin tasks taken care of for them.

Once startups get bigger than around 40 people they start becoming more like big companies and have more resources, so the calculus changes.



Debating with intuition as well as logic

By | Startup general interest | One Comment

If you’ve ever been frustrated that your neat logical arguments aren’t persuading people, this article is for you…

Daniel Kahneman’s Thinking, Fast and Slow had a strong influence on my thinking last year. He helped me get greater clarity on the difference between instinctual and reasoned thinking and I blogged about how VCs need to switch between thinking fast and thinking slow.

Now I’m reading The Righteous Mind by Jonathan Haidt which offers another take on the subject.

Haidt is interested in how we come to moral judgements and his work shows that most people start by making a snap decision and then afterwards they find a logical argument that supports their position. The point here is that the logic comes second, and it is rare for people to change their initial judgement in the light of rational argument. He then goes on to argue that this is the way most people think about all topics. He explains how western philosophy puts reason on a pedestal and venerates those who are able to think clearly and dispassionately with the result that we have ended up seeing emotion as an impediment to good decision making.

The reason Kahneman is so interesting because he challenges the notion that purely rational thought should be our goal. He shows that for a lot of decisions we rely on intuition and don’t employ reason at all.

I’m interested in Haidt because he goes a step further. He shares Kahneman’s view that most of our decisions are made intuitively, but argues for a more nuanced model of how that happens. He makes an analogy with how we process visual information. First there is a sub-conscious pattern matching and then if the image is ambiguous and resolving that ambiguity is important we add more and more reasoning until we’ve cracked it. Where Kahneman has a dichotomy between intuitive and reasoned thinking Haidt sees a continuum. Moreover, for Haidt, all thinking processes start as intuitive and then reason is added later if needed and to the extent the thinker is inclined to think that way.

Anyone who works in startups has to continually make decisions from relatively small amounts of information. Doing that well not only requires making the right calls, but also having good judgement as to when to make a decision and when to go looking for more data. Good investors and operators have ‘golden guts’ and come quickly to firm judgements. One of the challenges we all face from time to time is that our judgements don’t tally with our partners.

One of the things I like about Haidt’s model is that it helps understand how we come to those judgements and therefore offers an increased chance of resolving differences. Step one is to recognise that opinions on both sides are most likely rooted in an intuitive pattern match of some kind. Step two is to uncover those patterns and look there for the sources of differing views. People’s first answer to ‘why do you believe x?’ will most likely be post hoc rational analyses, and getting to the underlying patterns will require a commitment to the process on both sides and patient use of something like the five whys technique.

If this process is going to work it requires both sides to recognise that their opinions are most likely rooted in intuition as well as logic and to be ready to accept that they might be the one who needs to change.

Seed and pre-seed – trends and definitions

By | Venture Capital | 2 Comments

The increasing capital efficiency of startups has been changing the face of venture for the last decade or so.

  1. The first thing to happen was that the bar for a Series A went up – unsurprising given that startups could now get much further with pre-Series A amounts of capital (2005-2010)
  2. That created a gap in market which sub $100m dedicated seed funds (aka micro-VCs) stepped into – there are now over 300 of them (2005-2016)
  3. Then competition in the seed market led to increased round sizes driving the Series A bar still higher and causing seed investors to in turn look for more progress before investing (2013-ongoing)
  4. Creating a gap for Pre-Seed which is beginning to emerge as a category (2015-ongoing)

NextView Ventures recently published this graphic which captures the trends nicely.


Note that they have added a ‘Second-Seed’ stage which I haven’t described above. Their point is that as the bar for Series A rises an increasing number of companies are raising second seed rounds to get them there. That’s definitely happening, but I’m not sure I would have broken it out as a separate category on this chart as the goals and investing disciplines of Seed and Second-Seed are pretty much the same – get from early traction to the scaleable economics that yield a Series A.

However, Pre-Seed is very different. The criteria and evaluation are very different and the goals are to be ready for Seed rather than Series A. As you can see from the table below, the most significant difference is that Pre-Seed investors base their decision on team, vision and desk research whereas Seed and later investors also look at companies’ products and customers’ reaction to them.

Screen Shot 2016-06-20 at 14.30.57

Note that venture is an industry of exceptions and whilst this table is accurate for the middle of the bell curve there are plenty of companies that have raised outside of these criteria. The exceptions come for a myriad of reasons, common ones include experienced founders are able to raise seed or even Series A size rounds at the pre-seed stage, companies in hot markets or sectors (e.g. current account startups in the UK last year), and situations where tech development or regulatory costs demand more capital.

Forward Partners invests at the Pre-Seed and Seed stages, with slightly over half of our deals coming at Pre-Seed. Our founding vision was to deliver amazing operational support to our portfolio companies through our startup and growth team covering product, design, development, marketing, recruitment and now PR and comms, and what we’ve learned over the last three years is that operational support makes most difference at the Pre-Seed stage (we say Idea Stage). When we invest at Idea Stage our team becomes the company’s team for a few months, and teams execute faster. The leverage comes because founders are able to spend less time on hiring and recruitment and because our experience helps them plot a better path.


Europe is underweight in Micro-VC

By | Venture Capital | One Comment

ValueWalk have reported on new data out from Prequin that shows continued growth Micro-VC fundraising. Micro-VC growth has been going on long enough now that I’m hearing LPs question whether we’ve reached saturation point and this segment of the market would benefit from some contraction. Certainly that’s the argument Samir Kaji is making.

However, Samir’s comments are largely based on US data and don’t separate out Europe and Asia. Besides the continued growth the interesting thing for me in the Prequin data was the geographic splits.

This chart shows that compared to the rest of the world Europe has a lower ratio of Micro VC funds to Non-Micro VC funds than the rest of the world, suggesting that unless the US is 2x+ overweight in Micro-VC we can expect substantial growth in the category over here. Anecdotally that feels right to me.


For completeness I’ve also included charts showing the number of funds and the amount of capital raised. The surprising thing for me here is that in most years Asia has seen more Micro VC fundraises than Europe.



Mattermark data shows US venture is slowing down – Europe may be insulated

By | Venture Capital | One Comment

Stage-by-Stage Change in US Venture Capital Deployed (Deal Value) – Mattermark










Stage-by-Stage Change in US Venture Capital Deal Volume – Mattermark










Mattermark just released data for deal volume and value in the US in May. As you can see the trend is down, particularly in Seed and Series A. Moreover, as they point out these are lag measures because they report announced deals and deals are often announced 6-12 weeks after completion.

The implication is that Seed and Series A have been in slowdown for 3-5 months now.

The Q1 data for Europe showed investment was flat on Q4, but it will be interesting to see if we see the same declines as the US in April and May. Anecdotally it feels to me that activity is slowing here, but the slowdown isn’t as marked as in the US. That wouldn’t be surprising given that the ramp up in investment activity here in 2013-2015 was less pronounced.

Whatever your view on which way the market is likely to move it makes sense to plan for a difficult fundraising climate over the next 12-24 months. That means having an option of getting to profitability (where possible), allowing extra time to raise money, making existing funds last long enough to achieve significant progress (18 months) and focusing on unit profitability. Plan for the worst, hope for the best.

Physical retail in trouble as shoppers continue to move online

By | Ecommerce | One Comment

New data out from BRC-KPMG shows online sales of non food products grew 13.7% in the year to May 31st, taking online penetration of non-food to 21.2%. Physical retail of course went the other way decreasing 1.6% in the three months to the end of May. During that period we also saw the collapse of BHS and Austin Reed – both bastions of the UK high street.

Retail analyst Diane Wehrle from Springboard is now predicting that retail footfall is in permanent decline and CityAM are running headlines saying 2016 set to be year of retail failures.

At Forward Partners we’re all about creating innovative, new businesses and it’s never nice when industries suffer, but the continued demise of non-food physical retail has an air of inevitability about it. The number of shoppers is declining and prices are under constant pressure and that will leave an increasing number of shops unable to generate sufficient sales to cover their fixed costs. This is likely to be an accelerating trend as each new failure further reduces footfall.

It’s a different story online though, where new retailers are coming to market with innovative products and services. The erstwhile physical retail shopper has moved online because the services are more compelling. That’s sometimes about price, but more often it’s about product selection, personalisation and convenience.

79% of non-food sales are still offline and at current rates of decline that will be 69% in three years. UK retail spend was £339bn in 2015, so that equates to £34bn of business moving online. That’s an opportunity!

Whilst the short term is all about retail market share moving from offline to online many of the more forward looking companies have blended clicks-and-mortar models and I expect that is what will dominate over time.

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