entrepreneurship startup advice

Great news: Cambridge (UK) startup sells for £7 billion

(that’s almost $12 billion)

This is a BIG DEAL, for the UK, and for Cambridge. Rory Cellan-Jones is moaning about how terrible it is (“looks like a sad day for British technology – and for Cambridge in particular”) – and I wanted to put across a very different perspective.

NB: this is just my personal view of how this affects small startups and entrepreneurs. I’m sure there’s much more detailed and smart analysis flying around the financial world, given how big the sums of money are here.

From ZDnet’s report:

“UK employees will get a total of £30m in share options. Founder and chief executive Mike Lynch will continue to lead Autonomy and, as the owner of 8.2 percent of the company’s shares, stands to make more than half a billion pounds off the deal.”

(incidentally – both Rory/BBC and ZDnet report that £0.5b is going to Mike, but I’ve heard that it’s shared between him and Richard Gaunt? Not sure which version is true)

Two things I want to point out here:

Cambridge finally sees multi-billion-dollar exit

10 years ago I was in Cambridge and helped start the £30k business competition. At the time, the dot-com boom was still in full swing, and there was a great deal of excitement. We spent a lot of time with investment funds, startups, and angels.

But there was also a sense of “we’ve been here before, will it go wrong again?”, coming from the older generation – the previous generations of entrepreneurs and investors. To be clear: none of them had become California-sized successes, although there were plenty of professional investors making an OK income from their startup investments.

The suggestion was that in the 1980’s/1990’s, Cambridge had got over-excited, convinced “whatever San Francisco / Palo Alto / Stanford can do … we can do too! (and probably do better)”. But the reality had been that Cambridge had a much smaller area, in a less homogeneous market (europe vs USA), with less investment and less tech resource.

A frequent question was: what would it take to achieve “critical mass” in Cambridge? One of the top answers was: “some billion-dollar startups”. Cambridge had plenty of startups that made tens of millions – but none going for 1,000 x millon dollars.

The forerunners were (off the top of my head): ARM, Autonomy, and Zeus. Zeus was the brand new startup out of nowhere – very much hoping for Cambridge to give them a Silicon-Valley style catapulting into the stratosphere. ARM and Autonomy were older, established tech companies that had shown they could reliably make huge sales internationally. Zeus spluttered out when the dot-com crash hit, but the other two have gone from strength to strength (ARM is currently worth £6 billion).

So, finally, we have proof: you can take a startup in Cambridge, and the founder(s) can grow it to a multi-billion success, and then *sell* – while still CEO – for billions of dollars. I’m slightly happier that it’s Autonomy doing this rather than ARM – ARM has been through many management teams over the years, but Mike Lynch has remained at the helm of Autonomy throughout. “Founding CEO still in charge until the big sale” is what new startups want to see when looking for local success stories and role-models.

Mike Lynch has £500 million burning a hole in his pocket

Why does the whole “billion dollar valuation” thing even matter? There were a bunch of reasons given – all based off analysis of “why didn’t Cambridge become a serious rival to Silicon Valley in the 1990’s?”:

  • Venture Capital firms won’t take a region “seriously” until it’s shown it can create companies of the *ideal* size that VC’s want. A VC may be happy with a $50 million exit – but what they really want is another Skype: multi-billion exits.
  • When startups sell for the tens of millions, the founders often don’t make a huge amount on the sale. They end up “rich”, but not rich enough to become “super angels” (bear in mind that an angel needs to write-off their investments – you need a lot of spare cash you’re willing to *burn*).
  • One step down: the early employees get enough money to perhaps pay off their mortgages – but not enough to become “angels”.
  • Arguably, there’s something self-limiting in the region – some blockage – if companies are stuttering before hitting the multi-billion mark. It’s not a problem in itself, but it’s a “warning sign” – and other industries and entrepreneurs will think twice about locating their new startups there.

With this Autonomy sale, we have £30 million spread across employees – should be enough to create a handful of new Angels. I’m assuming at least some of them will stay around in the Cambridge area.

Meanwhile … although I believe Mike’s been an Angel for a while already … he’ll now have more money than many VC funds. Interesting dynamic for any startups looking for the best of both worlds (VC and Angel)…