The cult of the founder

In the world of technology,  the founder is rightfully 'top dog'. Founders are put up on pedestals, its a badge of honour, the most admired of roles.
Settling for co-founder is certainly a better moniker than even CEO.

Founders take the risk, make the leap, make the sacrifices.
And we need the heroic and iconic founders - the Steve Jobs, Jeff Bezos, Marc Andreessen, Nikolas Zennstrom et al to inspire future ones. Their tales are the stuff of legends.

We all know, however, that it is far more complicated than that.
Seldom has a founder been able to realise a dream (or even formulate that dream) without the commitment, blood, sweat and tears of at least a few others. Think Steve Wozniak, Paul Allen, Kevin Colleran (who??) and bunch of others, Janus Friis, Craig Silverstein.

Founders often get disproportionate rewards - both financial and in terms of recognition.

Most recently, I have been consulted - along with many others - by the UK Government asking for ideas as to how to stimulate further the growth of entrepreneurialism in the tech sector.
The Government has been listening and have implemented some important tax and visa changes which are most helpful in this regard. Two of the policies illustrate just how founder focused they have been - and where there is room for further important enhancement.

Firstly,  UK capital gains tax - the tax on the first £10m for entrepreneurs is now only 10%.
However, if you did not have founder shares, but joined after the founding of the company and have an option package, then providing its an approved scheme - eg EMI - then you'll be taxed at 28% - or if unapproved then possibly at 50%. Doesn't seem right, does it?
Often senior execs in a startup have taken considerable risk, leaving highly paid jobs, accepting far lower salaries in the expectation of making a significant capital gain.
We need to attract more of this type of talent to our startup companies and a change to the CGT rules will help significantly.

Secondly, the Entrepreneurs Visa. A big step forward enabling non EU entrepreneurs, with recognised backing to enter the UK. This does not yet apply to talented people - non founders.

So, lets hear it for the unsung backup teams - its tough to build a great company but doing it on your own is simply impossible.

TAG and Index get together to drive Seed investing.

Image via CrunchBase

The ecosystem has been alive with reams written about how active angels are becoming, how VCs have gotten too large, how companies need less cash and how the VC model is broken. And of course, there is the perennial complaint about the lack of early stage capital in Europe. [see links to some related articles below]


A number of the large US VC firms have made special arrangements or adjustments to their models, their PR or have re-emphasised their commitment to early stage and start-up investment.


Sequoia invested in or with YCombinator, Reid Hoffman joined Greylock, Andreessen Horowitz has been launched promising low friction, multiple investments in amounts ranging from $50K to $50m. They appear to have done 12 investments since August last year including 4 seed investments.


Super early stage investors with relatively modest fund sizes have emerged in the US - like First Round Capital, Union Square Ventures, True Ventures as have new institutional seed guys like Mike Maples and Jeff Clavier along with super angels -Aydin Senkut , Chris Dixon and the like.
Betaworks are building a different kind of incubator/investment company.


Whilst this is going on, we've seen very little from Europe's top tier-VCs.


Until now.


Index and The Accelerator Group (TAG) have announced a plan to directly address this opportunity.


Index will create Index Seed. In some ways similar to Index Growth which was announced in January 2008, Index Seed will benefit from clear focus, application of appropriate resources and a discreet pool of capital.


Index has invested continuously in seed since 1996 so this is no new space for them - on the contrary they are arguably the best tech seed investors in Europe. Inevitably, however, as the firm grew, the proportion of pure seed deals fell and with it the misconception grew that many deals were simply too small.


This will no longer be the case.
I will join Index as a venture partner - helping to lead the Seed investment activity together with Saul and with the support of Neil Rimer, Mike Volpi and Danny Rimer, (all partners in Index Ventures).


We will aim to make around 20 investments in the coming 24 months - with initial amounts from $50K to $1m. As TAG has done for many years, we will seek to invest alongside 'fellow travellers' - people with whom we have been investing for a number of years and the growing band of active angels in Europe and the US.


TAG will have co-investment rights in all seed deals but will have the freedom to invest on its own if circumstances dictate.


Some History:


Saul and Danny worked together first in 1995 in the US, while Saul was at Firefly & Microsoft and Danny was at H&Q (JP Morgan) and the Barksdale Group. As TAG, we worked with Index first in 2003 when they led the first institutional round of investment in our own startup, Video Island.....(which then acquired ScreenSelect, merged with LoveFilm)


We are co-investors in 14 companies (including Moo, My Heritage, Glasses Direct, OpenX, Stardoll, Moshi Monsters and LoveFilm). The introduction to these companies has been both ways - TAG's introduction to Index and sometimes Index inviting TAG's participation.


We know each other well and there is a congruency of purpose and values.


Despite this closeness, TAG has successfully worked, over many years with many other VCs such as Accel, Advent, Atlas, Balderton, Eden, Greylock, Octopus and Betaworks. Some of TAGs most successful investments like Wonga, Fizzback and Zoopla - as well as some emerging companies like Graze, MyBuilder, Bit.ly, Tweetdeck and FreeAgent - were made with these VCs and others.


A guiding principle for us has been that we never forget that we back entrepreneurs - the business is theirs and we are part of the support team - like their other team members. How much money? from whom? and when? is very much a team decision.


So, TAG will remain independent and Index Seed will seek to actively co-invest with 'fellow travellers' - large and small - at early stage.


There has never been a better time for technology Entrepreneurs.


It is thrilling for me to work closely with young, smart people who are - in many cases - genuinely changing the way in which people live or businesses work.


The leadership Index is demonstrating with its commitment to Seed and the eco-system in Europe and beyond is very significant and I am hoping its impact will extend far and wide.


Looking forward to hearing your views, comments, questions and will post again in week or so to expand on any topics.


----------------------------------------------------------------------------------
For those unfamiliar with the TAG details - a short summary:


The Accelerator Group (TAG) is the father and son investment team of Robin (@robinklein) and Saul (@cape) Klein, which last year was recognized at Techcrunch Europa's as European investor of the year (http://bit.ly/2lhP3J ). TAG has actively invested seed capital in over 60 ambitious entrepreneurs with global ambitions in the last 12 years.


Some of TAG's 10 exits include Agent Provocateur (3i), Sit Up TV (Virgin Media), Lastminute.com (IPO), Last.fm (CBS) and Dopplr (Nokia) where we've had the pleasure to work with great European founders like Brent Hoberman, Felix Miller, Martin Stiksel, RJ, Marko Ahtisaari, Matt Jones & Biddulph, John Egan and Ashley Faull, Joe Corre and Serena Rees as well as superb seed investors like Stefan Glaenzer, Reid Hoffman, Joi Ito, Esther Dyson and Martin Varsavsky.


TAG currently has 44 active investments with some of Europe and the US top investors, including:


• Lovefilm (Index, Balderton)
• Stardoll (Index, Klaus Hommels)
• Moshi Monsters (Index, Accel)
• Moo (Index, Atlas)
• Fizzback (Advent, Sherry Coutu)
• Zoopla (Atlas, William Reeve, Alex Chesterman, Simon Murdoch and Sherry Coutu)
• Songkick (Jeff Clavier, Index, Stefan Glaenzer, Alex Zubliaga and Betaworks)
• Wonga (Balderton, Accel, Greylock)
• Tweetdeck (Betaworks, Ron Conway, ProFounders)
• Twitterfeed (Betaworks)
• Bit.ly (Betaworks, O'Reilly Alpha Tech)
• Erply (Redpoint, Index, Dave McClure, Aydin Senkut)
• Mashery (First Round Capital)
• Slideshare (Ariel Poler, Dave McClure)
• Amee (Union Square, O'Reilly Alpha Tech, Toby Coppel, George Coehlo, Amadeus)
• Graze (William Reeve, Octopus)


We've had a particularly strong relationship over the years with Index, doing more than a dozen deals starting from Lovefilm in 2003 and including Moshi Monsters, Stardoll, Moo, Songkick, GlassesDirect, OpenX, Netlog, MyHeritage, AstleyClarke. In some of these cases, TAG and Index co-seeded the company.


Saul founded Seedcamp 2007 and TAG has been active in supporting Seedcamp ever since, in addition to investing directly in Seedcamp teams like Zemanta, MyBuilder, Skimlinks and Erply. We have also actively invested in YCombinator companies for several years - companies such as Songkick, Habit Stream and WebMynd.

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• Major coup for Seedcamp winner, ERPLY (the-accelerator.blogspot.com)
• TAG Investment stats (the-accelerator.blogspot.com)
• Seedsummit - network for active seed investors (localglobe.blogspot.com)

FreeAgent powers ahead with Iris

Image via CrunchBase

FreeAgent Central, has agreed a strategic partnership with Iris, the UK’s largest private software house, opening up the significant accounting practice market to their award-winning online accounting software ‘FreeAgent’ and positioning the company for rapid growth.

Iris, which supplies software to over 60,000 business customers, currently dominates the accountancy practice software market with over 14,000 practice customers (a market share of around 50%).

Iris is a software giant in the UK backed by Hellman and Friedman the private equity house that took Getty Images private in 2008.

CEO Martin Leuw has been building IRIS into an exceptional business with revenues of £120m and profits of £40m in 2009. Their strategy has been to focus on sectors which they serve really well with appropriate products.

Its a real endorsement and validation for what Ed Molyneux and Roan Lavery, the founders and the team have built at FreeAgent that Iris selected them to partner and invest in.

Iris is also investing investing in FreeAgent, acquiring a minority stake and Phill Robinson, Iris’s Accounting Practice Solutions’ Managing Director, is joining FreeAgent Central’s board. 

Phill, well known in web circles, was formerly Chief Operating Officer and Chief Marketing Officer - Sales and Distribution at Salesforce.com and will be invaluable to FreeAgent Central as it looks to continue its rapid growth both in the UK and internationally. 

This is an important milestone for FreeAgent Central and will bring online accounting to the mainstream of the accounting practice software market. Accountants have a unique opportunity to help small businesses thrive, and FreeAgent will help them that to do that even more effectively by connecting them live to their clients’ accounting data. 

Users of FreeAgent become passionate advocates within days of starting to use the service and the FreeAgent team is  planning to build some powerful analysis tools for Iris’s practice customers too.
The FreeAgent product has been getting rave reviews for some time. This distribution deal will empower many more freelancers.

Existing investors, including The Accelerator Group and serial angel investor Christoph Janz, also participated in the investment round.

Major coup for Seedcamp winner, ERPLY

Investors in Seedcamp were universally impressed with Erply during Seedcamp week in London last September and then again during 'demo day' and 'investor day' at the end of 2009.

They were exposed again to 50 or so seed investors at SeedSummit in December 2009.

Now, following a visit that 10 of the Seedcamp finalists made to the US, Redpoint and Index have led a funding round which puts the business software start-up from Estonia firmly on the map.

This is an exciting development for Seedcamp and Erply.

For Seedcamp, this is an endorsement of its ability to find high potential companies and provide them with a global platform.

For Erply this round is a recognition of the strength of the product that Kris and his team have developed.

Also read: http://techcrunch.com/2010/03/22/erply-the-next-skype-of-business-software/

The press release follows:

 

Erply attracts funding from top tier investors for disruptive business software technology

Press Release: London & Tallinn, 23 March 2010 – Seedcamp winner Erply raises $2million from top tier US and European venture capitalists and angels in a Series A round.

Business software startup Erply today announced the closing of a $2 million funding round from Redpoint, Index Ventures and prominent entrepreneurs and angel investors Marten Mickos (former CEO of MySQL), Kenny van Zant (SVP & Chief Product Strategist at SolarWinds), Zack Urlocker (former EVP Products at MySQL), Aydin Senkut, Dave McClure and The Accelerator Group. The funding will be used to expand Erply’s customer base in key European markets and its upcoming expansion into the US. Satish Dharmaraj of Redpoint and Index Ventures partner Saul Klein will both join Erply’s Board of Directors.
 

The company, led by CEO Kris Hiiemaa, was founded in 2009 in Estonia by four experienced business software developers. Since winning Seedcamp in 2009, Erply has already seen rapid growth in new customers. Erply is revenue generating, profitable and has attracted a wide variety of customers, including car dealerships, toy shops and restaurants. 

Erply’s easy-to-use business software that enables companies to perform every business function, including bookkeeping, customer relationship management and stock control. Erply is built on the latest web technologies, so it is as powerful and secure as any business software on the market. As a result, small businesses can easily integrate Erply and rapidly scale-up their operations.

While the USD $39 billion market for comparable business software is currently dominated by major players like SAP, Microsoft Dynamics and Oracle, their offerings are too costly and complex for the majority of small businesses. In contrast, Erply’s business software is available for a small fraction of its competitors’ and an average €55 monthly subscription fee is a more cost-effective option for small businesses. Erply is additionally well-positioned for success: where its competitors’ market is limited to tens of thousands of big businesses, Erply has a potential market of 45 million small businesses in Europe and the US alone.

Erply co-founder Kris Hiiemaa believes Erply’s new investors’ experience will prove pivotal to building on the company’s impressive start: “The main value in this funding round is in the enormous insight, experience and expertise our investors bring to Erply. Individually, each VC and angel has an incredible track record of identifying cutting-edge tech startups with fast-growth potential and helping them flourish. It’s a very exciting time for us.” 

Redpoint partner and Zimbra co-founder Satish Dharmaraj: “Erply is to ERP what Zimbra was to email and collaboration. Having seen how rapidly Zimbra replaced Exchange and Outlook as an email solution for businesses for all sizes, I see promising synergies in the game change that Erply is set to do, and I’m thrilled to be involved with Erply.” 

Former MySQL CEO Marten Mickos: “Similar to how MySQL made databases affordable for businesses all over the world, customers are already adopting Erply and recognising it as a great solution for their business software needs.”

Index Ventures’ Saul Klein: “Having seen at first hand the effect that Skype’s simplicity and pricing had on the telecoms industry, I’m delighted to support Erply as they try to do for business software what Skype did for telecoms.”

Erply Background Information
Erply (http://www.erply.com) was launched in Tallinn in 2009 by four Estonian software developers.

The company is incorporated in the UK and has its headquarters in Tallinn. Since winning Seedcamp London in September 2009, Erply has grown rapidly and now is generating revenue and is profitable.

Erply gives companies the ability to manage their business (including critical data and operations, inventory, stock control and accounting) in one easy-to-use package.

Erply is already available in seven languages and is fully customised for each geographic location’s particular tax laws.

Erply has four monthly subscription options, ranging from a basic free version to a fully-functional Premium account which costs €99 per month.

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TAG Investment stats

In thinking about today's inaugural Seed Summit (a Seedcamp initiative), I did a quick canter through the last 10 years of angel/seed investing that we have done at The Accelerator Group (TAG).

Image via CrunchBase

We've invested directly in about 64 companies.
The current portfolio is listed alongside here.

The stats look like like this:
10 sold
12 closed
42 active

These can be further analysed as follows:
Of the 10 sold, 4 were at 10X or better; 3 were 3X or better and 3 were at a loss
The 12 closed were total write-offs for us.

Of the 42 still active:
11 have reached EBITDA breakeven - or better
31 have yet to get there.
Of these, 9 are pre-revenue.

Seed and angel investing are fundamental to the health of the start-up eco system. VCs provide the bulk of the cash but seed investors fund the bulk of the companies.
27 times as many companies are seeded by angels in the US than by VCs according to Basil Peters

More comment on Seed Summit here: http://twitter.com/#search?q=%23seedsummit

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Suggestion Box for the web

TAG has long been an advocate of the Silicon Valley approach to evolving winning web sites. Get something out quickly - an Alpha version - to a handful of supportive and friendly users. Listen hard to their comments, improve, redesign and get the Beta out and keep listening, iterating.

We have joined the group of angels backing a simple to install, white label tool - Uservoice - which elicits Customer Feedback and Idea Generation based on “Ideas Anywhere” Approach.

Companies of All Sizes Now Have Easy and Affordable Way to Immediately Engage Customers in Two-Way Feedback Process

Baseline Ventures, Founders Fund Angel, Betaworks and TAG led the $800K angel funding investment.

A new white-label widget and ZeroLogin single-sign-on solution can be branded and deployed within minutes.

Companies can try the new tool at: http://uservoice.com/widgets.

UserVoice provides hosted community sites where people share their ideas for how to improve a product, service, process, institution, or city. Users vote up the best ideas to give a clear picture of what they want in a fraction of the time and expense it would take with traditional solutions (e.g., emails, surveys, focus groups). Additionally, with users organized around specific ideas, organizations can easily respond to them as a group and create ongoing dialogue around specific issues, which is much more effective than the classic newsletter. As a result, people feel heard and gain a sense of ownership in the solutions they come up with, thereby building a new kind of brand affinity.

UserVoice already has hundreds of paying customers in multiple vertical markets that run the gamut from technology, government, healthcare, education and retail. New customers include companies of all sizes including Intuit, NASA, Facebook, Xing, Nielson, Genentech, Blackbaud, University of Wisconsin, Animoto, Seesmic, StumbleUpon and TweetDeck.

Companies can also leverage UserVoice internally to crowdsource ideas from employees on various projects. This same feedback approach can be applied in a number of different vertical markets as well — university administrators can discuss funding issues with students; politicians can work with their constituents on new propositions; and rock bands can connect with their fans about what they'd like to see on tour.

Since UserVoice is easy to configure, any organization can integrate and launch within a day or two for as long or as little a duration of time as needed. The flexibility lets administrators generate an “ideas anywhere” solution to complement existing efforts or create new channels of feedback. UserVoice is optimised for fast, affordable deployments that don’t require a lot of planning or resources from IT departments, offering an end-to-end white label solution — branded, domain-alias, single sign on, and with open APIs for creating unique, custom integrations.


For more information on UserVoice, please visit http://uservoice.com.

For additional perspectives, please visit the UserVoice blog at http://blog.uservoice.com.

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To: Alistair Darling, Lord Drayson - an Open Letter

Dear Lord Drayson,
Put £100,000 into 10,000 startups - not £10m into 100!

There has been a lot of chatter about the Government's apparent initiative to make £1bn available for innovative early-stage companies.
Apparently, Lord Drayson, the Minister of Science and Innovation in the Department for Universities and Skills is driving this. The BVCA is keen to promote the idea through its influential contacts that this money should be channelled via the large established VC funds.

From where we sit, putting lots more money into the large funds achieves the
exact opposite of what I understand the desired the objectives to be.

What is urgently needed in the UK - in order to promote entrepreneurship and
encourage innovation - is funding at the very earliest stages.

One of the major drivers for Silicon Valley's success has been the readily available, quickly raised seed capital. Its not uncommon, even in today's funding climate to find start-ups funded with $500K in a matter of weeks by angel syndicates led by an agile tech VC.

There is more than enough capital available once companies have proven their
technologies, validated the market need and have real momentum. This capital
is NOT venture, it is development or growth capital.

The so-called funding gap has never been adequately filled and the growth in
size of the leading funds has forced them to move up the food chain and to
back relatively fewer pure start-ups.

We have all been wringing our hands at this gap for many years and in the current environment the gap is noticeably widening.

Seed funds are extremely difficult to make work effectively on the classic
2/20 model since it is important that seed funds invest in a large and diverse portfolio (in order to find the winners) while at the same time need to provide a lot of hand-holding to these companies (implying a larger organisation - more partners).

The BVCA’s position is interesting in that it looks at the whole issue
from the 'industry's perspective' – you can’t blame them for that – its their job. Its certainly not being looked at from the entrepreneurs perspective!

We at TAG have had terrific support from some of the large tech VCs but their ability to do many seed fundings is very limited. We need healthy and growing seed capital partners to join us in our quest to find and nurture the next world beaters.

One of the most important and effective vehicles for promoting entrepreneurship in the tech arena in recent years has been Seedcamp - the flood of applicants and the rising quality of these applicants attest to the strength of innovation emanating from Europe.

They are deserving of far greater financial backing.

Robin Klein

Partner, The Accelerator Group (TAG)

PS: TAG is an early stage technology investor with 43 investments currently in its portfolio. We invest actively mainly in the UK but also across Europe and in the US.

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