TAG commits another 250K Euros to extend runway for Seedcamp companies

Seedcamp is obviously in our bones at TAG, but for a little colour,  
I remember:

• brainstorming the concept while it was a twinkle in Saul and Reshma’s eye
• being on the first Board with Mattias, Sara, Paul, Sumon and Jason
• pitching to new investors and writing the first cheques to Seedcamp I and II
• funding Zemanta, MyBuilder and Kublax in 2007; Toksta in 2008; Erply in 2009 and Editd in 2010
• going to Mini Seedcamps in Ljublianga, New York, Tel Aviv, Paris, Copenhagen
• working closely on Seedsummit and the latest Term Sheet program

So we love Seedcamp - that's a given.

But having just spent the week at Seedcamp in London, its clear that the Seedcamp platform and network has moved to a new level and finally there is also serious capital available.

But most importantly the latest group of Seedcamp companies are totally inspiring by:

1. the progress they have made,
2. the scale of their ambition
3. the amount they have achieved with little to no money.

Seedcamp has never shied away from the fact that to build something great takes time - and to building an ecocystem takes decades.

We still have a long way to go in the markets we operate, TAG is not ready to buy a tracker (and also we are fundamentally "stock pickers").


We’ve had our successes and failures at TAG, that’s part of investing and its especially so at the earliest stages. However, we are inspired by the progress we’re seeing - especially from Eastern Europe - and want to make sure that at least some of this year's 20 teams will have at least double their run-way and be able to take some more time to develop the right product, find the right customers and discover which investors share their vision and values.

So we are offering €50k as a convertible loan to 5 teams from this week’s Seedcamp in order to help extend their runways further and look forward to contributing in a small way to the continuation of their journey from seed to start-up to superstar.
As frequently happens, Techcrunch got a sniff and published this offer here:
http://eu.techcrunch.com/2011/09/12/seedcamp-week-2011-meet-the-finalists-the-winners-and-one-good-samaritan/
We would of course invite any other investors - European or otherwise to join us in this funding - this is a promising group and they deserve our support



Here are some edited highlights of Seedcamp Week.

1. Daily Video Highlights: 
   • Day 1 Founders - (Yandex) - http://www.youtube.com/watch?v=PnRBUCCWTE4
   • Day 2 Product - (Mozilla, Soundcloud etc) - http://www.youtube.com/watch?v=A1TJ_TZ7pK8&feature=related
   • Day 3 Growth - (FON, McClure) - http://www.youtube.com/watch?v=9ygYMB58FO8&feature=related
   • Day 4 Demo Day - http://www.youtube.com/watch?v=xffj0TcXUf0&feature=related
2. Some of the news coverage:
   • Techcrunch: http://techcrunch.com/2011/09/08/seedcamp-expands-adds-e2-million-to-its-coffers-partners-with-500-startups-angellist/
   • Forbes: http://www.forbes.com/sites/parmyolson/2011/09/08/tech-startups-get-tough-love-at-bootcamp/ and http://www.forbes.com/sites/parmyolson/2011/09/09/y-combinator-challenged-by-growing-rival-seedcamp/
   • WSJ: http://blogs.wsj.com/tech-europe/2011/09/08/seedcamp-strengthens-its-core/?mod=google_news_blog
   • Wired: http://www.wired.co.uk/news/archive/2011-09/08/seedcamp-announcements
   • GigaOm: http://gigaom.com/2011/09/08/can-seedcamp-join-the-ivy-league-of-startup-schools/
   • NextWeb: http://thenextweb.com/eu/2011/09/08/seedcamp-partners-with-500-startups-and-angellist-aims-for-the-startup-program-ivy-league/ andhttp://thenextweb.com/eu/2011/09/09/10-startups-to-watch-from-seedcamp-week-2011/
   • HackerNews: http://news.ycombinator.com/item?id=2978676
   • BBC: http://www.bbc.co.uk/news/business-14808977
3. Seedcamp announcements:
   • Teams: http://www.seedcamp.com/2011/09/seedcamp-week-breaking-records-yet-again.html
   • New partnerships: http://www.seedcamp.com/2011/09/seedcamp-partners-experts-and-angels.html
   • New advisors & investors: http://www.seedcamp.com/2011/09/our-new-advisory-board-and-investors.html
   • New corporate relationships: http://www.seedcamp.com/2011/09/seedcamp-founders-pack-sponsors-and-seedhack.html
   • Investors at Demo Day: http://www.seedcamp.com/2011/09/top-20-seedcamp-teams-present-at-demo-day.html

Do we need more engineers in government?

Its very interesting that the number of students applying for Engineering and Science courses at University has - at last - started to rise. In the UK anyway.


Have you ever thought about why it is that there are so few engineers and scientists in UK and US government. 


The UK’s cabinet has six PPE (Politics, Philosophy and Economics) degrees, five history degrees, three law degrees, and plenty of other arts and humanities graduates.


The fact that most come from a couple of universities concerns me less than the fact that the 'gene pool' in terms of education, experience, ways of thinking 
and problem solving seems very narrow indeed.
Politicians in the UK are often heard decrying the fact that we don't have enough engineers - they presumably don't mean in Government. They mean in industry. 


Countries like China on the other hand have its politburo full of scientists and engineers. Hu Jintao, the country’s president, graduated with a degree in water conservancy engineering, while the rest of the group consists of chemical, electrical and radio engineers and the the odd geologist.


I'd like to advance a theory as to why this very obvious disparity between some western democracies and China in the people we get to lead us and take the profound decisions which affect our and our children's lives.


In the UK and the US, to get elected you need to be an orator, have the 'gift of the gab', be charismatic, media friendly, articulate, persuasive. Not necessarily the strengths of the average engineer or scientist  - or anyone else with left-brain hemi-spherical dominance.


Does our democratic process unfairly disadvantage the engineers and the scientists?


In China, those that get top marks in the Sciences, its seems, get to the top.

Stick or Twist. Sell or swing for the fences.

A number of the companies in the TAG portfolio are at very tricky junctions in their lives. Its the point where they are now faced with multiple options. I'm guessing there are many companies at this particular point.
None of these options is bad - but deciding on which to take is not at all easy.
Many startups of the 2006-2008 vintage are reaching the point where they are real businesses, generating cash and growing well.
So what is the problem?
Simply put - where to next?
The options broadly fall into these 4 categories:
1. Sell
2. Continue building with cash internally generated
3. Raise more cash at a good valuation and go for growth
4. A combination of 1 and 3 - ie take some cash off the table, raise more funds for the company and really go for it. [This can be done by an IPO or raising VC/Private Equity funds - but that's another issue]

Many entrepreneurs  - mostly those outside of the US - are criticised for selling too early. I'm pretty sympathetic to a first time entrepreneur who having sweated for 5 years or more is sorely tempted to convert his/her shares into cash.
The amounts of cash a founder will receive for a good business are literally life changing - in a good way.

Investors often see the situation very differently. Especially if the company is still growing rapidly and is addressing a large market. There is frequently great frustration at the lost opportunity to build something really big - something fund returning.

Increasingly, enlightened investors are working closely with founders to enable option 4 - ie allow founders to sell ordinary shares - at nominal (or no) discount to the price paid for new preferred shares.

This would seem to be a good way forward for a founder who still has 'fire in the belly', wants to continue to build a huge company but also has the need to get their personal finances on a sound footing.

The lesson in all this for startups is that choosing investors who can help navigate through this rather tricky phase is pretty important.

A Bubble? - Chinese Style.

You think we are experiencing a bubble? Sure we are - but in China, everything is bigger – much bigger.

I've just returned from China and made a couple of illuminating visits.

First to Innovation Works. The brain-child of Kai-Fu Lee, Innovation Works is an incubator, Beijing style.

Lee, having been with Apple and Silicon Graphics in the US,  Microsoft China and then Google China, Kai-Fu knows a thing or two about identifying, attracting and nurturing talent.

He tells me that they have 120,000 graduates on their database on which to call to help staff the dozens of companies being incubated in his Beijing offices, a few blocks from Beijing University.

Innovation Works houses 400 young people working away at building a wide range of companies. About 30 of these are directly employed by Innovation Works and are called the ‘platform team’. These folks (average age I guess about 27/28) are business, finance and marketing graduates whose job it is to attend to the formation, funding, administrating, recruiting for the start-up companies and helping them with their ‘go to market’ plans.

In fact, they do everything other than build the product itself.

This was how incubators were meant to work during the ‘first bubble’ of the late 90’s and 2000.

The difference – as we all know -  is that now the cost of building a product and getting it market tested is a fraction of what it once was AND in China it is a fraction of what it costs in the US or Europe.

Not only is working space extraordinarily cheap but engineers and graduates generally earn 1/5^th of their US/Euro counterparts – AND are apparently of high quality and in plentiful supply.

The effect of this is that the $200,000 which Innovation Works invests in these start-ups takes them a very long way indeed. So far that a typical Series A, Kai-Fu tells me, commands a $50m post money Series A.

Yes, that's $50m! I checked twice. Not $15m but $50m.

Given the number of $1bn+ funds which have been raised recently in China [Sequoia etc etc], it is not surprising that VCs aren’t much interested in placing a couple of million in a number of start-ups.

During my visit, Chris Evdemon, who runs the incubator, was just finalizing the judging for next crop of start-ups to join the line – following what I understood was a Seedcamp type application and review process.

It was difficult to get a good picture of what all these start-ups were working on and how their evolution may impact on world markets but my impression was that the vast majority (approx 90%) were aimed at the Chinese market – in ecommerce, mobile apps, social, Android development platforms and games.

The latter category being the most likely to be reaching global markets any time soon.

I expect that retaining star talent and building large, meaningful companies will become challenging as it becomes ever easier for talent to get their own backing and the skills required to build serious global businesses go beyond engineering and towards marketing, finance and management.

My second visit was to a relative veteran of the Chinese ecommerce world – Diane Wang, founder and CEO of DH Gate.

DH Gate is a B2B marketplace matching (with a number of important added value elements) SME buyers worldwide to Manufacturers in China.

DHgate.com was founded in early 2004. Before founding DHgate, Diane was one of the founders of Joyo.com, where she successfully led the company through the Internet boom, downturn and revival. After a year of its establishment, Joyo became the top B2C brand in China. Diane was also the Country Marketing Director of Cisco Systems. From 1993 to 1999, Diane was the Marketing Service Manager and Head of Business Development Department for Microsoft (China).

Thus far in her career, Diane has received "Outstanding Woman of China" and "Outstanding Woman of Beijing" awards—two of the highest forms of recognition given to professional women in China.

TAG was fortunate in investing a small amount in DH Gate’s $6m Series B round in 2007. At the time its gross monthly trading volume was around $1m. Today its at least 15X that and employs over 700 people.

Its interesting that the Chinese Government, as part of its recently published 5 year plan, has included information technology as a fundamental part of their strategy for stimulating internal demand and as a driver of growth. The focus on infra-structure development is truly astounding and with it will inevitably come very rapid growth.

Driven by ongoing urbanization, improving broadband infrastructure, and an influx of affordable smart devices and applications, China’s mass market consumers are starting to take up applications in Internet entertainment, e- commerce, digital content, and mobile Internet.

With an expected 750m netizens by 2015 and the Chinese telecom operators competing to take up broadband speed, and promote 3G wireless data with attractive tariff plans, subsidized smart phones and tablets for consumers the future looks bright for the Chinese technology sector.

[ref Jeffreys Asia Equity Research, April 2011]

Comparing China’s adoption of the web to the rest of the world is instructive.

Almost one quarter of everyone on the planet connected to the web is resident in China.

They have twice the web population of the US and 9 times that of the UK- today.

That said, the market to foreign web services is pretty inaccessible (unlike luxury goods)– as Google and others are finding. Local companies are adept at replicating, improving and adapting to their market.

Related articles

• Former Google VP Kai-Fu Lee Got a Nickname, Start-Copy Lee (jyorr.com)
• China Internet clones get funding from startup incubator, InnovationWorks (thenextweb.com)
• Innovation Works Launches Video Platform for the Startup Community (techrice.com)
• Beijing's IT Professionals Plunge Into Startups (pcworld.com)
• The Guy Who Ran Microsoft And Google In China Is All About Cloning US Startups Now (MSFT, GOOG) (businessinsider.com)
• Beijing's Silicon Valley is taking off (telegraph.co.uk)
• Google Says Efforts in China Running Like 'Normal' (marketingpilgrim.com)
• Inside Google's China misfortune (tech.fortune.cnn.com)

Where are all the Euro talent acquirers?

Facebook, Google, Microsoft et al routinely make 'talent acquisitions'.
In the last 10 years, Google has made 93 acquisitions 
- the majority of these have been to get their hands on the talented founders and teams who have built some technology or have demonstrated such a capability. 75 of these acquisitions have been in North America and most of these in the San Francisco Bay Area.
Microsoft have made 140 acquisitions in the last 20 years - again the vast majority in the US.
Yahoo made 62 acquisitions in 15 years - only 10 outside the US.

Even the new kid on the block, Facebook, has made 14 buys - 10 in the US.

The possible answers to why the predominance of targets are US based are these:
1. They have better engineers in the US. [this I very much doubt - though no doubt I'll be corrected]
2. Tech companies in the US are building stuff targeted to be bought by one of the big boys.
3. If you're going to buy a company for their talent - you want to keep that talent and integrate it with your own operations or development teams.
4. The eco-system is such that the corporate development teams know the startups and vice versa. Not just know them but meet regularly at the many events and in the coffee bars on University Avenue and elsewhere.
5. Buying a talented team elsewhere (ie outside the US) is risky - there is the cultural gap, the legal hurdles, the distance, the time shift etc

These transactions - 250 of them between just the 3 mentioned - power the whole ecosystem. The funds generated for the founders, the VCs, the LPs are considerable and get recycled in a sometimes perfect virtuous circle.

So, where are all the Euro based talent acquirers?

Related articles

• Facebook about to buy big? (simplyzesty.com)
• Yahoo Exec Predicts Acquisition Spree (webpronews.com)
• Silicon Alley Insider: Google Will Continue Its Acquisition Binge This Year (GOOG) (businessinsider.com)
• FaceBook Said to Hire Google Exec for M&A (dealbook.nytimes.com)
• Google searches for acquisitions (theinformativereport.com)
• Microsoft Needs Tech, Not Torts, To Beat Google (informationweek.com)

I think the UK Government is listening to us

Following hard on the heels of the Home Office's announcement relating to Entrepreneur visas, this week's budget had a distinctly enterprise supportive flavour.


I had very much hoped this would be the case and certainly the signals coming out of the Department for Business (in the shape of Mark Prisk - who attended Seedcamp's SeedSummit for a full hour and half), the PM in his Tech City announcement and No10's enterprise task force including treasury officials, gave one hope.


Government has the loudest megaphone in the land and once they 'discovered' Silicon Roundabout at Old Street it moved swiftly into the vernacular and the media have been making regular trips east ever since.


Its easy to be cynical when it comes to politics but I do believe we have a tech friendly Government determined - and able - to keep Britain as the best place to start a business in Europe.
I have reason to believe too, that the personal pressure which David Cameron has applied to Google, Facebook, Cisco and co to heavily invest in Tech City is being taken very seriously by those companies.


The details of the budget are well covered elsewhere but its worth summarising some of the key points which will directly impact early stage technology companies and entrepreneurship.


1. Expansion of Entrepreneurs Relief:  limits capital gains tax to
10% on business sales under certain conditions. The “lifetime” limit on capital gains which can qualify for entrepreneurs relief  will be doubled from 6 April to £10 million.



2. Changes to the Enterprise Investment Scheme
offers income and capital gains relief for investors in growth businesses.
The rate of income tax relief on EIS investments will rise from 20% to 30% from 6 April 2011.
This means if you invest £100,000 in a qualifying company, you immediately benefit from an income tax
deduction of £30,000. ..and the qualifications and type of shares are to be made much simpler and wider - limits now to 250 employees rather than 50. The annual allowance for individuals doubles to £1m


3. Corporation Tax:

The main rate of corporation tax will be reduced from 28% to 26% from April 2011.
The rate will then be reduced by a further 1% in each of the following three years, giving rise to a corporate tax rate of 23% by 2014. This will give the UK one of the lowest rates of corporate tax in Europe.
The small profits rate of corporation tax will fall from 21% to 20% from April 2011.

4. R&D Tax Credits:

There is a major boost in the Budget for small businesses investing in research and development. The rate of relief on qualifying R&D expenditure rises to 200% from April 2011, with a further increase to 225% from April 2012.


All in all there has never been a better time for start-ups in the UK!

Related articles

• Facebook and Seedcamp partner to help build the next generation of social apps in Europe 
• Budget 2011: Tax breaks for businesses to boost brand Made in Britain (guardian.co.uk)
• Osborne cuts Corporation Tax rate (bbc.co.uk)
• Corporation Tax: Bigger tax cuts for business, but the banks will not benefit (independent.co.uk)
• Budget 2011: Surprise cut in corporation tax 'will stimulate growth' (telegraph.co.uk)
• Small businesses: Smaller firms welcome funding incentives to invest in research (independent.co.uk)
• HIGHLIGHTS-UK's Osborne delivers 2011 budget statement (reuters.com)
• Government accepts red tape challenge (telegraph.co.uk)
• Budget 2011: 'I like that I am supporting UK small companies' (telegraph.co.uk)
• Facebook And Seedcamp Sow European Social Startups (allfacebook.com)
• 'Silicon Roundabout' ready to ignite (ft.com)
• Tech Sector Welcomes U.K. Budget (blogs.wsj.com)
• East London marked to rival Silicon Valley (ft.com)
• Silicon Roundabout - who's investing in what? [John Colley] (ecademy.com)

UK Budget - not all bad for Entrepreneurs

With thanks to Graeme Burnham of Complete Tax Solutions .....[the comments in italics are mine]
The highlights extracted from the Chancellor's 2011 Budget are as follows:


· Corporation tax rate is reduced to 26% [for those making profits]
· EIS relief will increase to 30% from 20% [Great boost for Angels]
· Entrepreneurs relief lifetime allowance has doubled to £10m [Excellent news for founders]
· Non-domiciles may be able to remit income/capital gains without
charge if invested in qualifying businesses [haven't examined the detail but this could bring a lot of non - dom cash into the eco-system]
· The business rate – relief holiday for small businesses will be
extended to October 2012 [All helps]
· Small businesses (less than 10 employees) will face less
regulation [must be good - again, lets see the detail]
· The small companies R&D tax credits will rise from 175% to 200%
to 225% [Excellent!]
· Short life asset allowance to increase to 8 years from 4 years 
· National insurance will (at some point in time) be combined
with income tax
· Gift aid will be simplified and administration will be taken
on-line
· A 10% reduction in the inheritance tax rate if 10% of a legacy
is given to charity to be implemented in April 2012

Related articles

• Osborne's budget measures to encourage philanthropy (guardian.co.uk)
• All the Budget measures at a glance (mirror.co.uk)
• Budget: Key points at a glance (bbc.co.uk)
• Budget Day 2011 MANY TANKS, GEORGE (thesun.co.uk)
• Tax change 'to benefit charities' (bbc.co.uk)
• Osborne cuts Corporation Tax rate (bbc.co.uk)
• Budget 2011: Chancellor George Osborne pledges to boost 'growth and jobs' (menmedia.co.uk)
• Budget at glance (menmedia.co.uk)

London is a magnet for talent -update

Image via Wikipedia

March 16th: UK Government introduces new visa rules ..... http://goo.gl/rKfOc


At a recent meeting at Fizzback, I became aware of the large number of non-Brits on the team. They may be an exception because after all they do a fair amount of semantic analysis using natural language processing in half a dozen languages but 38 out of a total of 66 Fizbackers were born outside of the UK. 
That's 58%.


The non-UK nationalities represented are:

AMERICAN, ARGENTINIAN, CHINESE, DANISH, DUTCH, GEORGIAN, GERMAN, GREEK, INDIAN, INDONESIAN, IRISH, ISRAELI, IRANIAN, NIGERIAN, PORTUGESE, RUSSIAN, SWISS, SWEDISH, SERBIAN, SPANISH

That's pretty impressive - don't you think?

Looking around the London office of Index, there are only 6 British born - out of a total complement of 18.

At a time when Governments around the world are pushing for enterprise, start-ups, small businesses and technology to lead their economies back to health, its more important than ever that talented people who want to participate in a country's economy are encouraged and allowed to come.

Organisations like Seedcamp and SeedSummit have been lobbying the UK Government to make non-EU Visas easier to obtain to allow this very phenomenon to flourish. This is important and I hope that the strong words that the PM is using about enterprise and growth extends to ensuring that talent wanting to come to the UK will find it easy to do so.

[update, 16th March 2011 ...

Government 'rolls out the red carpet' for entrepreneurs and investors ...http://goo.gl/rKfOc ]

Just this past week, Techcunch ran a story entitled "Why Silicon Valley Immigrant Entrepreneurs Are Returning Home"

London clearly has some extra-ordinary pulling power despite the weather (which by comparison with many places is not that bad anyway)....and is producing some super companies. Saul wrote an interesting piece on this a couple of months ago.

The Prime Minister, David Cameron said yesterday: "Where there has been an aversion to risk, there needs to be boldness.

"I'm telling you today that your job under this government is not to frustrate local people and local ideas, it is to enable them."

If the Government can follow through on this rhetoric and continue to foster and develop an enterprise culture, there is no reason why London will not continue to be the startup capital of Europe.

If you have some stats on % of non-Brits in your London based startup, let me know.
Perhaps someone needs to pull together a comprehensive data set.

Related articles

• Seedcamp Announces a Sizzling slate of Startups for Mini Seedcamp London (seedcamp.com)
• Seedcamp London 2011 - the Teams (seedcamp.com)
• Could the UK build a Y Combinator? (broadstuff.com)
• The London List - London startups exceeding $10m in annual revenues (eu.techcrunch.com)
• Why you should apply to Seedcamp in 2011 (seedcamp.com)

Best Practice - series

Yesterday morning - March 4th - I received the fist of the monthly stats packages from a TAG portfolio company - for analysing February's results. In the next day or two, I'll get the full set of management accounts - P&Ls, Balance Sheet, commentary, the works. That's really good.

That same morning, I received the accounts package from another profitable and well run company - but for January.
It made me think about the very privileged position I have in being able to compare and contrast and draw conclusions as to best practice across a whole range of companies at different stages, with different priorities.
Having made more than 70 early stage investments in my 15 years of active investment, there is a certain pattern recognition which emerges and which I'm going to attempt to crystallise as 'Best Practice Tips'.

The best way to disseminate these - in the hope that they'll be useful to some - is to 'tweet a tip' every day.

The output will not be organised in sections or subject heads - nor will they necessarily follow logically one to the other but will be randomly put out - as they occur.

Two tweets have already gone out 'on test' - and I intend persisting with them as long as people are commenting.
Sometimes the 'best practice tip' (bpt) will be tough to get into 140 characters without being too obtuse or cryptic, in which case, deck.ly will do the job.

The 2 tips put out thus far are:
Tip1: know your cash balance every day
Tip 2:Get management accnts out by 10th of month,closing KPIs on the 1st. So Feb KPIs ar… (cont)http://deck.ly/~VZ17o 


Want to keep getting the best practice tips? Follow me on Twitter ... @robinklein

Related articles

• Pattern Recognition for Entrepreneurs, not just VC's (startups.typepad.com)
• How do you prepare a balance sheet in accounting (wiki.answers.com)