On Obama’s plan

Not yet President Obama made a speech yesterday on getting out of Iraq. Now this isn’t a foreign policy blog so I’ll skip straight to the part which interests tech enthusiasts. His long term plan is, sensibly enough, to reduce dependence on oil and to do so he is creating a $150bn clean tech fund.

This money is to be spent in the next ten years which should spark a bull run in cleantech investments. This is long overdue. It always struck me absurd that states like Arizona and Nevada baked under the sun all day yet had hardly any solar provision. These technologies will have the added benefit of helping the developing world. I think the aim for developing nations should be to skip older polluting stages altogether and go straight to cleantech.

It happened in telecoms when African countries skipped fixed line telephony and went straight to mobile. And the really encouraging thing is that Africans can build these networks for themselves. My dad was from Somalia which is a country with many problems, in spite of that the people have built for themselves a mobile phone network, high speed Internet and a money transfer service faster and more reliable than any of its western competitors (Dahabshiil). These developments often go unreported as media outlets like to focus on the doom and gloom. What it does show is that Africans are perfectly capable of utilising the best technology and standing on their own two feet.

Lateral thinking

Investors should look beyond the obvious cleantech investments at companies like TerraNet. This is a Swedish company which has developed technology which creates a peer to peer network using mobile phones which means base stations are no longer required. Many people in developing counties are reliant on their mobile phones for far more than just calling. The credits loaded onto them can be used as a proxy for cash and being able to get in touch easily makes their markets work better. Networks without base stations are a far better solution as they use much less power.

Hopefully some lateral thinking VC will see all the opportunities, not just the obvious ones. And it would be fitting if Obama was the President to get the ball rolling.

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On cleantech

Pic: BikePortland.org

On pitching

I attended TechCrunch (UK) Pitch last night. It was a well organised event so props to Butcher for putting it on. We were not pitching so we could relax and take it all in. It was interesting for me because I got an insight into how VCs see startups.

I think at some level all VCs think all startup founders are crazy or potentially crazy. The successful ones they put up with but I think there is a basic tension between the two. And it doesn’t go away even if you hit the big time. The John Sculley/Steve Jobs debacle is a classic example.

The basic difference between the two groups is startup founders don’t really operate in a world of rational calculation whereas investors do. Starting a startup is in itself irrational and to go through with it you have to be absolutely convinced that your ideas are earth shattering, otherwise you just would not put in the effort required. So even when you see someone pitching an idea you think is absolutely terrible, what you have to understand is that to the founder it is amazing. You know – all babies are beautiful to their parents.

I’m lucky in that my two co-founders are more natural sceptics than I am. They took persuading that we had a good idea but doing so was good practise. I think the main thing I have learnt is that 90% of investors you pitch your startup to will not be interested. And of the 10% who show any interest they won’t give you any money until you have actually achieved something. In the end business plans and pitches count for naught. Actually building a product is what counts. A good pitch will get across two basic points – what the idea is and how far you have got. Good investors understand that technical guys are often bad presenters and do make an effort to drag those two things out of a bad pitch.

Business models and honesty

A lot of the pitches yesterday were bad in that they struggled to get their ideas across clearly and tried to pack in too much extraneous information. That said there were a couple of promising ideas and potentially good businesses. None of them will be the next Google but the combination of great product/great business model does not come around very often. It would be refreshing to see a few more startups just be honest and say ‘we want to get a lot of users then flip it to a bigger company who can work out what to do with it’. A lot of the big European successes have done this – Skype, MySQL, Last.fm, Bebo  – so I don’t see the shame in admitting it openly. Even Google didn’t come up with their own business model – Bill Gross did.

Good business models are even rarer than good products, what last night taught me is that if you don’t have one don’t tie yourself in knots with nonsense like ‘freemium’ pretending you have.

Pic: Bowbrick

On stormy weather

I was watching a video of Mike Butcher, he said something along the lines of he likes recessions because they clear away the people who are out for easy money and leaves those who want to build something worthwhile. Thus while the clickmango’s and boo’s perish the Betfair’s carry on.

I’m not too sure about whether we are going into a recession, if so it seems quite mild to me (especially when the sun is shining like on Monday). Maybe its because I’m a startup founder and thus an incorrigible optimist but things don’t seem to bad. I was a little concerned the last time I rang my bank for a new loan, but, lo, they stumped up the cash without much sweat. Credit crunch indeed, it sounds like a new Arrington blog on finance.

Underpants gnomes

Nevertheless even the appearance of a recession does have its effects. Editechial wrote a good post about VCs starting to focus on business models and are being a little harder on the 1. Get users 2. ??? 3. Profit! approach much beloved of South Park’s Underpants Gnomes and web 2.0 startups. The NY Times also reports that VCs are finding both the public market and acquisition route drying up leading to some soul searching on Wall Street. Even the mighty facebook is getting the jitters as unnamed investors and employees rush around looking for a cut price exit.

I agree with Butcher. Slowdowns are a better time for good ideas as they reduce the background noise. Alongside our music product our developers are about to break ground on a new advertising product. Now I don’t want to get into specifics at this stage because it won’t be ready for launch until the end of the summer at the earliest. We are very excited about it as we think we have found the equivalent of AdWords for social networks. A big claim but stick around and you’ll get to judge for yourself in a couple of months when we release the app.

Pic: Archi3d

On rock stars

LinkedIn recently announced it had raised $53m on a $1bn valuation. This comes on the back of facebook’s more recent $100m, as well as Slide and RockYou getting $50m and $35m respectively. When Marc Andreessen raised $60m for Ning he said it was to survive the ‘nuclear winter’.

Now all these companies have two things in common, big names and big VC dollars. I always found the idea of rock stars faintly absurd. Does a rock star developer go up on stage at Glastonbury and code as screaming fans egg him on? The other day I read The Talent Myth by Malcolm Gladwell. In it he argued that a culture that promotes and pampers rock stars sows the seeds of its own failure.

A few weeks ago I heard a VC who had backed a number of successful ventures bemoan the fact that rock stars were great at raising money but not at making it and that he now preferred hungry unknowns. What I find odd about all this money raising is that all the real stars of the previous generation started making money fairly early on and didn’t have to raise huge sums on massive valuations. Google took about $26m in total from an angel round and a Series A before getting a reliable revenue stream which has sustained the company ever since.

In backing these rock star encrusted ventures VCs are ignoring the lessons of their own history. Google, Apple, Microsoft, eBay, PayPal, Yahoo were all started by unknowns. All the founders were outsiders whose ideas were initially rejected but still believed in what they were doing and carried on.

It reminds me of British tennis. Every year the LTA pumps more and more money into better and better facilities, coaches, everything, ensuring that young British players have the best of everything and yet they still fail. What nobody has considered is the possibility that lavishing them with everything is what causes them to fail. They are so well tended to they have no hunger. Contrast the rise of Serbian tennis whose current crop of winners had to play on cracked courts with almost no facilities in between being bombed by Nato.

Read more:
On spray and pray
On $100m and $15bn

On London

Much is written about London as a start-up hub, most of it comparing us with Silicon Valley. The main difference is that there are no large, independent technology companies in the city. We have outposts of Google, Yahoo and eBay but there are no pure Internet companies which have made it really big.

The only company which comes close is Betfair and though it is a great business it is relatively unknown in the US because of stricter gambling laws. Skype is another one often mentioned but then it was bought by eBay who didn’t seem to know what to do with it once they had it.

From our own point of view, the stage we’re at we can’t move to Silicon Valley so there’s no point crying about it. In all honesty I don’t think even if there was no impediment to moving I would do it. One of our projects in in music and everything we need is here in London, we’d actually be worse off in San Francisco as we’d have less access to the music industry. I don’t think it’s a coincidence that Last.fm came out of London.

I think the main differences are a much smaller pool of angels and VCs who are genuinely interested in the Internet. For example if Google had been based in London there would have been no Andy Bechtolstein to give them their first cheque. Now things have got better over here since then but there simply is not the proliferation of people with the understanding and money that exists in Silicon Valley.

One man trying to change this is Saul Klein of Index Ventures. He is behind both Open Coffee and Seedcamp. I’ve been to Open Coffee a couple of times and it is a very good way to get acquainted with investors and other entrepreneurs in a relaxed environment. We got to go to the Seedcamp day earlier this year which was a really good experience for us. The calibre of people attending was very high, Danny Rimer and Yossi Vardi were two of the speakers, we made some very good contacts with high quality investors who really got what we are doing.

Because my co founders and I are in our thirties it means we have access to the sub £50k funding which a lot of start-ups struggle for. We are lucky compared to web 1.0. I am reading Sarah Lacy’s book and she made the point that in those days it took $20m to launch a product. I had a meeting with our developers yesterday and we can go from spec to launch in months with a little less than $20m. Don’t worry folks, I promise you’ll all get an invite for our Earth-shattering product when we start testing.