Doug Scott, loud mouth Geordie entrepreneur living in the Midlands.

When to Take VC Money

When to take VC

Stolen from the Mosaic site here

It may be a surprise to hear this from a venture capitalist, but the vast majority of startups should not take money from our industry.  The history of entrepreneurship is the history of owner-managers with no outside shareholders.  Indeed the data shows just how few startups take venture capital – one in every 2,000 startups in the US.

Few entrepreneurs start off with crazy aspirations to invent a new market category, or hollow out a multi-billion dollar incumbent.  Most simply want independence, to build a proprietorship that is theirs.  These startups should either take no outside funding, or perhaps small investments from friends and family. In fact, friends & family and personal savings account for 11x amount of capital in startups as VC provides.

Sometimes founders discover that the market opportunity (and maybe what they discover about their own abilities) opens up much larger vistas, and at that point they may consider outside capital to fuel their plans.

A tiny subset of this group of startups work so well that they grow into big businesses without significant external capital.  They are in the luxurious position of having the choice of raising capital at any stage – from venture firms on the way up, and later from growth or private equity funds.  We at Mosaic would be happy to partner with founders of such businesses early, not because they need our capital but because they want true partners as they scale their business over many years.

The final group comprises the minority of businesses for whom raising venture capital makes sense to fuel their ambitions.  Across European tech today, we count over 2,000 startups funded by seed investors annually and in 2015 there were roughly 325 startups that went on to raise Series A from a VC.

So when should a startup consider taking a first venture round from an early stage fund like Mosaic?

Here are some simple filters for the entrepreneur:

1. The startup should address a very large market (billions of dollars).

2. You should have immense ambition. At Mosaic we talk about mission driven entrepreneurs, who are not mere mercenaries; who have chosen a mountain to climb and are determined to conquer it.  That mission is worth some of your best years.

3. You are committing to a liquidity event at some point in a 8-10+ year horizon – this is a different path to a proprietorship.  Many founders welcome this because they have employees with shares or options, or already have other outside investors who expect some form of liquidity event too.  The liquidity event could be a sale, or IPO to monetise stakes held by investors and staff, or even a partial sale (e.g. of a VC stake to a private equity firm).  The best VC funds wait patiently for the right moment to sell; nevertheless taking VC means that the entrepreneur will need to provide a path to liquidity at some point.

4. The size of fund you take money from helps to define the investor’s ambition for the liquidity event.  Fund maths is straightforward: $500 million funds seek an outcome of $750 million – $1 billion, as if they own the proverbial targeted 20% of a company at exit, the $150-200 million return is meaningful in the context of their fund.  As a $140 million fund, at Mosaic we invest believing that, if successful, each investment we make ideally should have a shot at returning the entire fund. Failing that, we’d hope there is at least a reasonable shot at returning something like $50-75m, or a third to half of our fund.  For Mosaic, assuming a stake of 10-20% at exit, the company needs to be worth $250-500 million or more.

And whatever the aspiration of the investors, alignment with the entrepreneur’s goals is paramount.  The journey is too long and has too many pitfalls to add friction by having investors that are either a constraint or structurally likely to be dissatisfied.

5. The entrepreneur should be clear what sort of relationship they want with their VCs.  This has two aspects.

First, the nature of the support you expect to receive and that the VC is able to give. Some experienced entrepreneurs might prefer a somewhat passive investor; we have made such investments before where appropriate.  Often, entrepreneurs want more, and we enjoy being a sparring partner to anticipate, debate and inform the big issues. We are on your side of the table but in that context, we challenge entrepreneurs on why they are taking certain decisions. We back the entrepreneur to make the final call, but we hope to earn sufficient trust so that – where we can justify our views – they are heard, and the debate is real.

Second, there is also an intangible aspect, of chemistry, to consider.  Your lead venture investor will be an integral part of building your business over several years.  You need to feel that the firm you choose has an ethos that works well for you.  That relationship not only relates to the input you require but also the sorts of people you work well with.  If the chemistry is wrong, it can get in the way of meaningful discussions at critical junctures – both with the individual partner and also the firm as a whole (if it operates as a firm). If it is right, it can help you get through harder times and resolve issues collaboratively and efficiently.

6.  The entrepreneur has studied the market carefully, knows their (prospective) customers intimately, and can articulate simply how their startup will build a “moat” to win against serious competition.  (We will discuss the pitch explicitly in a future blog.)

7.   As an early stage fund, we expect most companies that we invest in to raise follow-on financing in due course.  So the operating plan should deliver realistic milestones that enable the startup to raise more capital from good investors.  The plan should include organisational buildout, especially key recruits; a compelling product roadmap; and commercial traction or some other compelling validation.

An example is the early plan put together by founder Andrew Rubin for enterprise security startup Illumio.  It was summarised in just one slide and looked something like this, with major deliverables and milestones in the bubbles:

In any founder’s journey, there are a lot of significant decisions to make, and few are as seismic as taking venture capital.  We recognize building a business from the ground up is hard, and that taking VC funding sometimes commits an entrepreneur to a more aggressive path to value creation – and so to taking more risk.  It can be a difficult road.  So before you even consider a fundraise, carefully weigh up if and when it is right for your business, the market opportunity you have and be honest about your aspirations.

If VC is for you, please get in touch.  Otherwise – grow your business methodically, take measured risks, be proud that you have no reason to take VC.

When to take VC

When to take VC

Great Post from Mike at Mosaic:

http://www.mosaicventures.com/mosaicblog/2016/5/30/when-to-take-vc

Read it below if you are too lazy to click on above link:)

When to take VC

It may be a surprise to hear this from a venture capitalist, but the vast majority of startups should not take money from our industry.  The history of entrepreneurship is the history of owner-managers with no outside shareholders.  Indeed the data shows just how few startups take venture capital – one in every 2,000 startups in the US.

Few entrepreneurs start off with crazy aspirations to invent a new market category, or hollow out a multi-billion dollar incumbent.  Most simply want independence, to build a proprietorship that is theirs.  These startups should either take no outside funding, or perhaps small investments from friends and family. In fact, friends & family and personal savings account for 11x amount of capital in startups as VC provides.

Sometimes founders discover that the market opportunity (and maybe what they discover about their own abilities) opens up much larger vistas, and at that point they may consider outside capital to fuel their plans.

A tiny subset of this group of startups work so well that they grow into big businesses without significant external capital.  They are in the luxurious position of having the choice of raising capital at any stage – from venture firms on the way up, and later from growth or private equity funds.  We at Mosaic would be happy to partner with founders of such businesses early, not because they need our capital but because they want true partners as they scale their business over many years.

The final group comprises the minority of businesses for whom raising venture capital makes sense to fuel their ambitions.  Across European tech today, we count over 2,000 startups funded by seed investors annually and in 2015 there were roughly 325 startups that went on to raise Series A from a VC.

So when should a startup consider taking a first venture round from an early stage fund like Mosaic?

Here are some simple filters for the entrepreneur:

1. The startup should address a very large market (billions of dollars).

2. You should have immense ambition. At Mosaic we talk about mission driven entrepreneurs, who are not mere mercenaries; who have chosen a mountain to climb and are determined to conquer it.  That mission is worth some of your best years.

3. You are committing to a liquidity event at some point in a 8-10+ year horizon – this is a different path to a proprietorship.  Many founders welcome this because they have employees with shares or options, or already have other outside investors who expect some form of liquidity event too.  The liquidity event could be a sale, or IPO to monetise stakes held by investors and staff, or even a partial sale (e.g. of a VC stake to a private equity firm).  The best VC funds wait patiently for the right moment to sell; nevertheless taking VC means that the entrepreneur will need to provide a path to liquidity at some point.

4. The size of fund you take money from helps to define the investor’s ambition for the liquidity event.  Fund maths is straightforward: $500 million funds seek an outcome of $750 million – $1 billion, as if they own the proverbial targeted 20% of a company at exit, the $150-200 million return is meaningful in the context of their fund.  As a $140 million fund, at Mosaic we invest believing that, if successful, each investment we make ideally should have a shot at returning the entire fund. Failing that, we’d hope there is at least a reasonable shot at returning something like $50-75m, or a third to half of our fund.  For Mosaic, assuming a stake of 10-20% at exit, the company needs to be worth $250-500 million or more.

And whatever the aspiration of the investors, alignment with the entrepreneur’s goals is paramount.  The journey is too long and has too many pitfalls to add friction by having investors that are either a constraint or structurally likely to be dissatisfied.

5. The entrepreneur should be clear what sort of relationship they want with their VCs.  This has two aspects.

First, the nature of the support you expect to receive and that the VC is able to give. Some experienced entrepreneurs might prefer a somewhat passive investor; we have made such investments before where appropriate.  Often, entrepreneurs want more, and we enjoy being a sparring partner to anticipate, debate and inform the big issues. We are on your side of the table but in that context, we challenge entrepreneurs on why they are taking certain decisions. We back the entrepreneur to make the final call, but we hope to earn sufficient trust so that – where we can justify our views – they are heard, and the debate is real.

Second, there is also an intangible aspect, of chemistry, to consider.  Your lead venture investor will be an integral part of building your business over several years.  You need to feel that the firm you choose has an ethos that works well for you.  That relationship not only relates to the input you require but also the sorts of people you work well with.  If the chemistry is wrong, it can get in the way of meaningful discussions at critical junctures – both with the individual partner and also the firm as a whole (if it operates as a firm). If it is right, it can help you get through harder times and resolve issues collaboratively and efficiently.

6.  The entrepreneur has studied the market carefully, knows their (prospective) customers intimately, and can articulate simply how their startup will build a “moat” to win against serious competition.  (We will discuss the pitch explicitly in a future blog.)

7.   As an early stage fund, we expect most companies that we invest in to raise follow-on financing in due course.  So the operating plan should deliver realistic milestones that enable the startup to raise more capital from good investors.  The plan should include organisational buildout, especially key recruits; a compelling product roadmap; and commercial traction or some other compelling validation.

An example is the early plan put together by founder Andrew Rubin for enterprise security startup Illumio.  It was summarised in just one slide and looked something like this, with major deliverables and milestones in the bubbles:

In any founder’s journey, there are a lot of significant decisions to make, and few are as seismic as taking venture capital.  We recognize building a business from the ground up is hard, and that taking VC funding sometimes commits an entrepreneur to a more aggressive path to value creation – and so to taking more risk.  It can be a difficult road.  So before you even consider a fundraise, carefully weigh up if and when it is right for your business, the market opportunity you have and be honest about your aspirations.

If VC is for you, please get in touch.  Otherwise – grow your business methodically, take measured risks, be proud that you have no reason to take VC.

Mike

It’s Uncool to Build a Proper Company and VC’s are Propagating the Lie

It’s Uncool to Build a Proper Company and VC’s are Propagating the Lie

lies

You do not need VC money, irrelevant about what Techcrunch tells you, irrelevant about accelerators tell you, irrelevant about what everyone tells you.

Startups fall into 3 types:

  1. Companies that should never raise money and the founders can keep complete control and do what they want, have holidays, free time , a life, family, plus can make proper money.
  2. Companies that should raise VC so as to scale and scale, but founders will end up with probably little control and little stock and have to prey the planets align and an exit happens ( even if they do not want to ). But they are good for a small number of companies.
  3. Companies that should raise some cash to help them and probably never sell. Keep control and have freedom, have some investors who they pay some part of the profits too for backing them. If the company ever gets sold it is when the founder wants to.

You may say what a load of bollocks from Doug, but behind the stupid pink bandana we have created numerous companies that turnover millions, all with no external funding, all with no investors, all with no real cash to start with. We now invest in startups but ask anyone we have invested in and I will tell them do not raise money as they will start selling their soul to the investor. Only some people and companies should raise money and they should only raise from people they are alighned with…….Steve O’Hear is great:)

Rant over.

 

Doug

BGF Ventures be more adventurous guys please

BGF Ventures be more adventurous guys please

BGF, a £200 million tech fund is looking for staff………looks like the same old skill sets are need:

BORING Rubber Stamp over a white background.

Top University, MBA, strategy, private equity, investment banking….here is the job advert:

https://bgf-ventures.workable.com/jobs/150361

  • Experience of one of:
    • Entrepreneurial / startup / venture experience
    • Business development, strategy or product management at a leading internet / software company
  • Strategy consulting, private equity, investment banking or similar experience from a leading instituion
  • Excellent degree from top-tier university.
  • MBA helpful but not required
  • Coding skills or familiarity preferred but not required.

 

At what point do tech funds in the UK start looking for people who have some different background. Recruiting the same type of people and expecting the results to be different to the past is simply madness.

Someone please grow some balls:) Be adventurous and recruit someone super smart and driven who sees the world through different eyes. The variety will allow you to invest in different more interesting things and maybe Venture Capital may make some Venture like deals…rather than safe and dull

PLEASE PLEASE:)

Doug

 

 

Looks like everyone is working for Sequoia the VC

Looks like everyone is working for Sequoia the VC

Seems like a little ruckass happening on the West Coast as many angel investors have been acting as scouts for Sequoia, so founders maybe don’t really know where there Angel money was really coming from…….Walter White maybe?????

http://www.wsj.com/…/secretive-sprawling-network-of-scouts-spreads-money-through-silicon-valley

 

 

Walter White (Bryan Cranston) - Breaking Bad _ Season 5b _ Gallery - Photo Credit: Frank Ockenfels 3/AMC

Here is a copy of the article

Startup investor Jason Calacanis took a $25,000 gamble five years ago on a company almost no one had heard of called UberCab. That investment in what is now Uber Technologies Inc. has ballooned to roughly $110 million.

Mr. Calacanis has never said publicly where the money came from: Sequoia Capital, one of Silicon Valley’s biggest venture-capital firms. Since 2009, Sequoia has funneled millions of dollars to scores of well-connected entrepreneurs, academics and other people known as scouts.

Scouts invest the money in startups and keep their eyes and ears open for ideas that Sequoia might like. Mr. Calacanis introduced Thumbtack Inc.’s founder to a partner at Sequoia, which bought a stake in the local-services website that has since surged 50-fold, research firm VCExperts estimates.

Thumbtack’s founders now steer tips to Sequoia, too. “Sequoia had been great to us, so we were happy to send other high-quality entrepreneurs their way,” says Marco Zappacosta, chief executive of Thumbtack. He has made a few startup investments of his own using Sequoia’s money.

The secretive ecosystem of cash and connections is an unusually powerful example of how venture-capital firms try to gain an edge in the never-ending hunt for the next blockbuster. That search has gotten trickier now that some startups with sky-high valuations are hitting turbulence.
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Most of Sequoia’s scouts are entrepreneurs whose startups were funded by the firm. That means they know a lot about what Sequoia is looking for and will recommend the firm to other entrepreneurs.

Forging tight relationships that generate new deals for venture-capital firms is more important than ever as the cost of creating startups falls. The resulting acceleration in company launches has made it harder for venture-capital firms to identify the best opportunities as startups emerge. And competition is growing as new investors who are flush with capital invade the technology world.

Sequoia has been a mainstay of the venture-capital establishment for decades. Based in Menlo Park, Calif., on Sand Hill Road, the Main Street of Silicon Valley’s venture-capital industry, Sequoia made early bets on many of today’s tech titans, including Apple Inc., Google Inc. and Cisco Systems Inc.

It was the only venture firm that backed messaging company WhatsApp, sold to Facebook Inc. last year for $22 billion. Sequoia invested about $60 million for a stake valued at $3.5 billion in the deal. Sequoia now owns stakes in 33 private, venture-capital-backed companies valued at more than $1 billion apiece, more than any other venture-capital firm.
Opening doors

Sequoia’s track record opens lots of doors, and the firm opens even more with its careful cultivation of scouts.

The network includes Dropbox Inc. Chief Executive Drew Houston, the three co-founders of Airbnb Inc., Facebook executive Mike Vernal, professors at Stanford University and the University of California, Berkeley, and a daughter of Sequoia’s managing partner, Douglas Leone, according to documents reviewed by The Wall Street Journal.

Sequoia also invited John and Patrick Collison, the Irish brothers who co-founded Stripe Inc., to become scouts, but they declined. The five-year-old online-payments company got an early investment from another scout, Sam Altman, the president of tech-startup incubator Y Combinator. Sequoia was an investor in his previous company, Loopt.

Mr. Altman later helped Sequoia seal its own investment in Stripe, according to the venture-capital firm. In July, Stripe said it had raised new funding that values the company at $5 billion.

In all, Sequoia’s scouts have put money into dozens of startups, according to documents reviewed by the Journal and interviews with scouts. The Journal couldn’t make an exact tally because the investments are scattered and Sequoia officials declined to discuss the program’s full scope.

“Everybody in the business tries to generate proprietary deal flow,” says Roelof Botha, the Sequoia partner who heads the scouts program. “That’s part of the challenge in our business: How do you become distinctive in the mind of an entrepreneur?”

Mr. Botha adds: “Hopefully, [a scout investment] means that we have a better-than-otherwise opportunity to meet that company at some point and evaluate whether it might be a good fit for us.”

If a scout’s investment is successful, the vast majority of gains are shared by the scout and Sequoia’s limited partners, Mr. Botha says. Other scouts and Sequoia partners themselves get a small piece of the gains.

Most of the gains since the scout program was created in 2009 are paper gains, not actual profits, Mr. Botha adds.

Sequoia says it instructs scouts to tell startups in which they invest where the money is coming from. But the firm tries to hide the investments from rivals by making them through limited liability companies with odd names. The names include Dragonsteed LLC, Vermillistock LLC and Rocketbooster LLC.

Keeping a low profile is important because Sequoia doesn’t want to jeopardize the future fundraising prospects of startups that previously got money from a scout. It would look bad if everyone knew that Sequoia decided not to invest an even larger amount in a later funding round.

“I don’t like the word ‘secret,’” Mr. Botha says. “I think we have just been discreet about the program all along.”

The existence of Sequoia’s program was described in 2012 by tech blog PandoDaily. Few scout names or other details have been disclosed.

 

P1-BV423_SCOUTS_9U_20151112175450

The Journal identified a total of 78 scouts—or 73 men and five women—from incorporation records filed in California, other documents and interviews. In addition, scout names are listed on documents for 44 different limited liability companies. All but two are registered to Sequoia’s headquarters address.

Sequoia confirmed the names of a handful of scouts. When contacted by the Journal, many scouts confirmed their participation or declined to comment.

Some people in the documents say they are no longer active scouts or haven’t made investments. Mr. Botha says Sequoia is looking for new recruits.

Like other venture-capital firms, Sequoia also works college campuses. In addition to a small number of professors who are scouts, a separate team of unpaid students at Stanford, Harvard University, Columbia University and other elite colleges is on the lookout for promising ideas and entrepreneurs.

The next Zuckerberg

“VCs want their brand names on campuses,” says Daniel Liem, who says he was a Sequoia scout while studying computer science at Stanford. “They want to find the next Zuckerberg or Spiegel,” Mr. Liem adds, referring to the founders of Facebook and Snapchat Inc.

Mr. Liem now works at FiscalNote Inc., a startup that uses data-crunching and artificial intelligence to forecast legislation.

Sequoia’s scouts usually invest about $30,000 at a time and are given initial access to about $100,000 a year. Mr. Botha says the amount can grow if scouts identify even more hot ideas.

To fill its pool of scouts, Sequoia turns mostly to the founders of companies already backed by the venture-capital firm or a select group of computer-science professors. Entrepreneurs often reach out to those people for advice long before approaching any venture-capital firms.

For scouts, the appeal is membership in an elite club and free money to make seed investments, which they might not be able to afford.

Sequoia’s program is “a great way to be involved in the startup [and] angel community before I have the means to do so myself,” says Steve Garrity, co-founder and chief technology officer at Hearsay Social Inc. Sequoia owns a stake in the media technology firm.

Mr. Botha says Sequoia’s name is included in wire transfers to recipients. Two recipients say they knew the money came from Sequoia, but two others say they had no idea about the source until a Journal reporter told them.

“Now I think of my company as having a Sequoia radio collar on it,” says an angel investor who was disappointed to learn that Sequoia got a stake through a scout in one of the companies where he is an investor.

For most entrepreneurs and startups, though, cash is a tie that binds. Matt MacInnis left Apple in 2009 after seven years to start digital-publishing company Inkling Inc.

Sequoia invested in Inkling about a year later. After that, Mr. MacInnis says, he was recruited to the scout program by Bryan Schreier, a Sequoia partner.

Mr. MacInnis decided to invest in Clever Inc. with money from Sequoia and out of his own pocket. The educational software firm was launched by friends who worked with him on the Harvard Crimson newspaper, including Tyler Bosmeny, Clever’s co-founder and CEO.

When Mr. Bosmeny was ready to seek a new round of funding, Mr. MacInnis connected him with Mr. Schreier at Sequoia. The venture-capital firm led a $10.3 million investment round in Clever in 2013 and was part of a later.

Mr. MacInnis says he was a “good skid greaser.” Now Mr. Bosmeny is a Sequoia scout, too, recently investing with Mr. MacInnis in Captain401, a startup that helps businesses set up 401(k) plans, according to Mr. MacInnis.

Other scout investments by Mr. MacInnis include Zenefits Inc., a human-resources software provider valued in its <a ” href=”http://blogs.wsj.com/digits/2015/05/06/zenefits-tagged-with-4-5-billion-valuation-after-just-two-years/” target=”_self”>last funding round at $4.5 billion. Sequoia hasn’t made an additional investment in Zenefits.

Scouts are a “very early warning system, like having a bunch of little satellites installed across the Valley, picking up blips on the radar,” he says.

Omar Hamoui became a scout in 2009 while he was CEO of AdMob Inc., a mobile advertising startup backed by Sequoia. Google bought AdMob for $750 million, a big windfall for the venture-capital firm. Mr. Hamoui became a partner at Sequoia in 2013.

When Sequoia turned 40 years old in 2012, Mr. Calacanis thanked the firm on his Google+ page for helping him get started as an angel investor. Those investors generally are affluent individuals who back fledgling companies with their personal funds.

Mr. Calacanis was one of the earliest scouts and ran an online news startup called Inside.com, in which Sequoia had invested.

The $25,000 from Sequoia that Mr. Calacanis sank into Uber was part of the company’s first fundraising round, which raised less than $2 million.

Since then, Uber’s total funding has swelled to more than $8 billion. Uber was last valued at $51 billion, making it the world’s most highly valued private tech company. Sequoia’s piece of the original $25,000 stake now is likely worth more than $40 million.

Mr. Calacanis says he hasn’t sold any Uber shares. Sequoia hasn’t invested in Uber since then.

Mr. Calacanis also plowed scout money into Thumbtack, the local-services website.

The investment was made a few months after Mr. Zappacosta pitched the startup during a steakhouse dinner in San Francisco organized by Mr. Calacanis, according to the Thumbtack co-founder.

Mr. Calacanis later introduced Mr. Zappacosta to Mr. Botha, the Sequoia partner in charge of the scouts program. Mr. Botha also was a director of Inside.com.

Mr. Zappacosta says Mr. Calacanis urged him later to take a direct investment from Sequoia. “There are times they are going to be hard on you, but that’s what you want,” Mr. Zappacosta recalls being told. “They’re going to push you to be better.”

In September, Thumbtack’s valuation rose to $1.3 billion.

Mr. Zappacosta says he didn’t know for three years that the initial investment from Mr. Calacanis was made with Sequoia’s money. He says the secrecy doesn’t bother him.

“At the time, [Sequoia] had rules about not wanting to divulge that it was the source [of scout] funds,” he says. “Now they want you to tell the founder.”

Scouts propose new investments by submitting a short questionnaire about the startup to Sequoia, which rarely says no. It makes sure the company is based in the U.S. and not in a controversial business like guns or alcohol.

Other scouts sometimes get emails offering them a chance to “follow on” with an investment, says someone who got one of the emails.

Scouts also have chances to hobnob with one another at annual meetings. Mr. Botha says the events build a “sense of community.”

Last year, a few dozen scouts ate dinner at tables in Mr. Botha’s backyard in Los Altos Hills, Calif., chatting and presenting data about some of their investments, say people who were there.

Mr. Botha later sent an email with a link to photos from the evening, according to a copy reviewed the Journal. He asked the scouts to keep Sequoia in mind and thanked them for being part of the firm’s “family.”

http://www.wsj.com/…secretive-sprawling-network-of-scouts-spreads-money-through-silicon-valley

Doug

 

 

How should a VC really look?

How should a VC really look?

Following on from my post yesterday:

Another fucking tech Fund

Seems like I have hit upon something. Anyway as many of you know we are looking to create a VC but the current models do not seem to fit with how my mind works. I do not come from a finance world so maybe my ideas are mad. But here goes:

When a VC invests in a company they are looking for a return in a certain period of time, normally this is something they have told their LP’s ( investors ), but how can they know what the returns will be and how long the returns will take to materialise? Historically almost all VC’s, especially in Europe, have awful returns for investors, but people keep following the same old model and expecting different results? This is a common sign of madness.

Complete_Madness

Ok lets look at this a different way:

  1. As an investor in a fund I want to feel secure that I will get a certain return over a certain time period.
  2. As an investor in a fund I want to know I can trade my investments if I need to in an emergency.
  3. As a founder I want to know I can run a company how I want, maybe I will sell the company, maybe I will sell some of it or maybe I will keep it and collect the profits.
  4. As a fund I want to know that I make returns in all scenarios.
  5. As a partner of a fund I want to be fairly paid for my time, but I also want to be rewarded well on any significant upside.

So now I think we have the wants of ALL parties, let us see if we can address then individually and come up with a common solution:

  1. As an investor in a fund I want to feel secure that I will get a certain return over a certain time period – The best way I can think of this happening especially at early stage investing is to effectively be a tracker type fund and have exposure to almost everything. Thus a 500 startups, Y Combinator, Techstars, Kima Ventures type model.
  2. As an investor in a fund I want to know I can trade my investments if I need to in an emergency – As no true market is available then the stock in startups is illiquid, but maybe we could have a solution whereby founders or existing investors could buy another share holders stock at an agreed discount.
  3. As a founder I want to know I can run a company how I want, maybe I will sell the company, maybe I will some of it or maybe I will keep it and collect the profits – To keep doing mad stuff , the founder needs to keep control. Thus I need to have investors who are rewarded for me exiting the business partially or completely, but also are rewarded if I keep the business and make it profitable.
  4. As a fund I want to know that I make returns in all scenarios – I need to mitigate my cash loss if a company fails ( this can be done by using some preference stock and also by utilising SEIS/EIS tax breaks in the UK ). As discussed above a fund can make a return from profits. If a company is sold then the fund get rewarded in the normal manner.
  5. As a partner of a fund I want to be fairly paid for my time, but I also want to be rewarded well on any significant upside – Have agreed fees that are based on true costs and not a 2% of money under management, but if a fund performs well have tiered uplift deals so that partners can be massively rewarded for exceptional returns.

This is still all up for discussion, so please email, tweet us etc etc etc. But surely the traditional model of VC is just stupid and does not work in the world where it is so cheap and easy to launch a tech company?

 

Doug

 

Another fucking tech VC fund……

Another fucking tech VC fund……

So money galore has been piling into tech from anywhere and everywhere. To the extent now that every man and his dog has shares in a so called Unicorn company, sadly as happens with many things, they go up and then they come down, so now the tech world waits for the death of the first Unicorn…..Many people who were very rich on paper will never get the chance to spend it. Hope that puts things in perspective, people :)

 

rich

I have been actively investing in UK tech stuff for the past 3 years. It all started by the UK government introducing SEIS and me realising in the first year I could make a profit simply by investing, even if all the companies went bust…..101% return in year one if everything went to shit….I’d be an idiot not too. So I went on and invested in anything that seemed to make sense to me, not realising the angel investing/VC game meant they had to exit before I ever got paid…….that could be a long long way away….I could even be dead :(

 

graveyard-4

 

Anyway I keep playing the investing game as many of the companies I invested in started getting more and more successful, raising money, some making cash and others even making profit……..I know PROFIT. So I feel more and more confident about what I am doing, I must be a genius at this game I think. I spend days and days talking to VC, angels, founders etc etc etc and I get more knowledge. I opened a syndicate on Angellist:

https://angel.co/potential-uk/syndicate

We hussle like mad and workout how to grow it to over 170 backers…told you I am a genius, or some people have fallen for the pink bandana mind games:)

Then we launched another 2 syndicates:

https://angel.co/potential-international/syndicate

https://angel.co/potential-female-founders/syndicate

I keep looking at the maths of angel investing and as someone who has built numerous multi million pound companies and historically was a mathematician, I do not like the maths. They seem to make no sense, but everyone is playing the same game. The simple issue:

I HAVE TO WAIT TO GET A RETURN ON MY MONEY WHEN AND ONLY IF AN EXIT EVENT HAPPENS

Are you serious?

not-funny-serious-face-06

We looked into creating a second market for stock we owned and our friends owned so we could trade them, but it is a legal mindfield.

So when investing at a stupidly early round I should be planning on how much this company will sell for in 10 or more years time. So many things can go wrong; or right on that path. Considering less than 0.01% of companies ever become a Unicorn and most companies never exit. Some companies die, some became great life style business’s for founders, some get acquired, some IPO….why should I only be rewarded for an acquisition or an IPO?

I like to gamble on sure things, I will look at the various scenarios and then how do I mitigate my investment risk in all scenarios:

  1. company goes bust – due to UK tax rules on SEIS/EIS I can get a good % of my investment back – mitigated downside
  2. company gets acquired – I get some cash back hopefully – Great maybe
  3. company IPO’s – hopefully I get some cash back – Great maybe

This left one area:

Great companies that continue to be ran by founders – this means I could be hanging on for years and never get a return, but the founders have a cash positive and great business. This seems unfair to me, also many founders want to continue running the companies they created and not exit. I should know, I have never raised money and hence have been in control of my own destiny and still am. I wonder if there are more founders like me who would be willing to take investment early on for a % of the profit stream further down the line, or even agree a deal to buy my shares out at a later date? I can actually think of quite a few founders, some I am an investor in, who now don’t want to play the VC/exit game any more.

So how do I solve this problem? I don’t have enough personal cash to be able to be able to have that much of a say in lots of term sheets? But I know lots of people who like me who have created companies and are now dabbling in investing. Maybe if we all got together we could create a type of VC that would not only invest in companies that would exit, but we could also invest in companies that would give investors returns. All this whilst founders continue to keep running the company they created, without being forced to sell or IPO? Maybe we get an agreed % of the net profit with a cap, or an agreed % of the CEO’s salary, something like that?

Maybe we could create a VC that looked like that?

Here is my followup:)

How should a VC really look:) – CLICK HERE

Doug

Ps. As I say to many founders, do you really want to raise money? If you are sure be aware that all money and terms are not equal.

Gigaom has been VC-financed from the beginning. Other media startups were not. When you take venture capital money they’re golden handcuffs, in a way. It’s a Faustian bargain. You make certain promises about your growth, and if that growth doesn’t materialize then VCs lose interest and your company fails.

We are going to raise a fund!!!

We are going to raise a fund!!!

money

As in the normal way we do things yesterday morning over breakfast we decided to do it…..gut feel said it was about time. Several reasons:

  1. We have a unique position as I have built numerous internet companies and still own them…. 50-100 staff, 2-3 million people per day land on web sites we own and run, so we see the internet differently to other investors.
  2. We have unbelievable dealflow of super smart people that nobody wants to back doing stuff that is mad:)
  3. My personal returns ( based on last raises ) on my personal investments is exceptionally good.
  4. We do not agree with the current ways very early stage VC’s work ( love lots of them to bits as mates, but the numbers do not stack up for investors )
  5. We think it could be fun and make a difference.
  6. AngelList works and we will continue to run it but it does not allow us to easily do the amount of deals we want to do ( 1 per week ).
  7. I have some smart, lovely staff who want to do it.
  8. People with money are asking us why we don’t have a fund that they can invest in?
  9. We think we can help make a startups life easier and better, we think we can make a return for investors, we think we can make some cash if it works….but ONLY if it works for everyone…..then we expect to make a load of cash.

This is all stupidly early as the only money in the pot at the minute is mine:)  We now need to sort legals, etc etc etc etc

Cheers

 

Doug

Colin Willis – Hotspur Capital – VC

Colin Willis – Hotspur Capital – VC

Where has wor Colin gone? We miss him lots:(

He was every where and then he has had to do proper VC work……I know it sounds odd, normally they are just on holiday:):) Or playing cricket as that is how you think you know Colin….from the googley box. I have just checked and seemingly this is just rubbish.

Colin actually lives way up North, even further North that Newcastle…luckily for him not in Scotland. Scotland is the country that every year votes for independence from England.

Doug

Colin Willis

Colin Willis

Colin is Partner at Hotspur Capital in Newcastle upon Tyne, Director at ignite100, Chairman at Screach, Non-executive director for various companies and also Managing Director at Hotspur Capital Partners. Studied at the University of Warwick. His goal is to invest in 3 business per annum which have global potential which are then supported and realised over a three year period.

Dylan Collins – Hoxton Ventures – VC

Dylan Collins – Hoxton Ventures – VC

Once was in kids programs called Magic Roundabout. Dylan now lives near the Magic Roundabout commonly called Old Street Roundabout.

If you do not understand then you need to spend more time watching kids TV, especially the older more creative stuff.

Doug

 

Dylan Collins

Dylan Collins

Dylan is an accelerator, building companies and helping them to do awesome things. He is CEO at SuperAwesome and Chairman at Potato in London, Venture Partner for Hoxton Ventures, Non-Exec Director for Brown Bag Films in Dublin, Startup Ambassador Enterprise Ireland.Studied at the Trinity College in Dublin.

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