Category: entrepreneurship

“Starting work without a contract is like a putting a condom on after finding out you got someone pregnant”

For this and other great pieces of advice on life as a services company, trying to get paid, watch this great talk from Mike Monteiro:

http://www.wikio.com/video/mike-monteiro-ck-pay-5196884

I believe this is the best post I’ve seen on startup funding since the creation of Venture Hacks:

Raising money for a startup is an inherently risky proposition. You step up to the plate knowing that the odds are slim and that, for every story of success on TechCrunch, there’s two hundred companies pounding the street, getting nowhere. We went the opposite route – letting investors come to us.
…
This is the story of that experience – being “pitched” by investors, the decision-making and negotiation processes and the end results.

Rand writes in detail the complete story of a major funding round for his startup, where other CEO’s are “too busy” or don’t have the balls to share publicly.

He talks about what happens when you “practice” things that leading-lights of the VC and Entrepreneur world have long been “preaching”.

He lays out a strategy popular with armchair entrepreneurs, and relates his experience of how it can go wrong.

This should be required reading for any serious Tech Entrepreneur / Startup team…

(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)…

All in the same market/need/desire space:

First product: FAIL.
Second product: FAIL.
Third product: looks set for success

“Our last version was just Tian and I late at 3am practically crying that everything in the food world we were building sucked. So we asked ourselves what could we do well that would be fun and wouldn’t make us cry anymore. And we came up with this. And this version makes us happy.”

Particularly interesting to read how radically different the three *products* were, even though they were fundamentally selling into the same “space”, and there was a lot of crossover in the underlying technology.

This is one of the hardest real, day-to-day (and month-to-month) problems that startups face. Every case is unique, and I’ve seen lots of smart people crumble at that point – or just go round and round in circles till they run out of money, or give up.

(From an aside by one of LinkedIn’s founding team (interesting blog post on what it was like raising the first Series A funding for LI))

This is one of the hardest things for “old style” European VC firms and Angels to get their heads around, IME. And it’s entirely true, IMHO.

In general, if you find your startup is like swimming uphill against a stream – no matter that you’re succeeding – then it’s either a crummy startup hardly worth doing, or you’re going about it the wrong way. In most startups there are many occasions when it’s difficult or hard work – but in each case, the “working hard” part is optional: you could keep working at a normal pace and still succeed; you just choose to work harder in order to take your “success” and make it “a bigger success”. If you have to work hard just to avoid failure … forget it.

I suspect it’s the infamous protestant work ethic that (perhaps) leads vast swathes of UK and EU people to believe:

“if I work hard, and I suffer, I’m (deserve to) going to succeed; I should expect it to be hard, and cultivate difficulty; easy things are to be suspected and – ultimately – avoided”

IMHO, it’s more likely that a lazy person will find a great product/market/timing and be successful … than that a hard worker will take a weak product/market/timing and force it to succeed by working their ass off. A startup is a company; more than any individual – if the idea is great, other people will join, and tend to pull the work-output closer to the average.

Think on this:

if you’re a lazy founder, every person you hire is bringing the average up. If you’re a workaholic, every person you hire is bringing it down.

(Who am I kidding? If you’re a workaholic, you probably aren’t allowing anyone else in anyway – and don’t have time to interview them. You’re working harder and harder, somehow subconsciously convinced that “hard work” will inevitably create “success”)