On Silicon Roundabout

There wasn’t any central planning involved in the creation of Silicon Valley so I’m always surprised to see that method proposed to foster a similar setup elsewhere. This is not to say a deliberate attempt to engineer a hub is necessarily a bad idea, Ireland seems to have achieved it with TechHub, simply that the organic alternative probably produces better long term results.

London is lucky in that one has grown up this way in Old St. Silicon Roundabout is home to a number of different startups, most notably Last.fm. We know this area well as it is where our developers are based and it is quite likely we will join them when we get office space, therefore I consider my self an honorary member.

On top of being home to a cluster of startups Silicon Roundabout has other natural advantages. It is close to the City which means easy access to high quality professional services crucial to making Venture Capital run smoothly. What hasn’t yet been done is to organise the yearly bonus flow into an angel network capable of matching Silicon Valley. Complaining that we don’t have a Google and all the freshly minted millionaires that go with doesn’t get us anywhere, we have to work with what we have. What we really need is a way to get these younger city workers who understand the web with the smart hackers who need backing. In Open Coffee we have the model, all we need is a link between the two worlds.

And we do have advantages. Firstly much better equity markets. Unburdened by Sarbox it is far easier to IPO a company on AIM or Plus Markets than it is on NASDAQ. This is not to say it is easy but it does offer an alternative exit to acquisition. Secondly access to media companies. Links between startups and media companies will become increasingly important and London has far better access. The nearest cluster of media companies to Silicon Valley is in Los Angeles 300 miles away. As time goes on content will become increasingly important and maybe by being closer together we can avoid some of the misunderstandings that have plagued others and build even better services.

We may not have Google and Stanford but we need to forget about that and concentrate on adapting Silicon Valley’s methods to our strengths.

Pic: Ewan M

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 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 Glassdoor

I don’t review many startups but every once in a while there is one like Trampoline Systems or Myka which knocks me off my chair. Glassdoor is one. There is no doubt in my mind this company will be a success. Props to Benchmark for investing in them, if I were a VC I would be fighting to stuff money into their pockets.

It is a great idea, they got to market first so they will have all the traction and the information they carry is extraordinarily valuable in a very lucrative market. Companies may feel a little bruised by some of the reviews but if they take the criticism on board they will be the better for it. Google is described as “something akin to what the Brady Bunch would be like if they lived in communist Russia.” Ouch.

Although to be fair to the big G they get pretty much stellar reviews otherwise and some of the criticisms – ‘I’m not told what to do’ and ‘flat management structure’ – say more about the individual who wrote them rather than the company. Bottom line is that some people don’t fit in some companies and instead of grinding away they would be better off just leaving. I was fired from my first job by Arthur Andersen. I hated it and I needed to go but it led me to my best ever job at Orange.

To me this is bringing the open culture of the best companies – WL Gore, Semco – to everyone whether they like it or not. That is truly disruptive and has the potential to put the wind up bad employment practices and silly management ideas. Some of the best critiques of corporate policy I have seen have been posted anonymously by junior employees online in forums and the like. Glassdoor brings all that disparate, valuable information together and they have a hit on their hands.

On spray and pray

I might win an Audi A3 – nice!

Or so RockYou tells me along with its not annoying at all involuntary music as soon as I access the site. This has not put off investors who have just stumped up $35m according to TechCrunch. I suppose the ultimate plan is to throw a million widgets against the wall and see what sticks.

There’s a line in the Lacy book describing the dissonance between a line of intense young men working on sparkly glitterballs for 13 year olds to clutter up their facebook pages with. I’m sure they will be able to sell advertising in this stuff one day but I think it’s going to be a low value game.

Yahoo’s problem is that it is stuck with all the low value advertising while Google hoovers up all the big money by delivering better targeted ads. I’ve said before there should be less advertising but it should be more useful. Google succeeds because it manages this. Slide and Rockyou have not cracked it yet with Slide’s founder suggesting advertising may not be the way forward. I think it is possible for widgets to generate revenue direct from users but once you have given something away for free it is mighty hard to get users to pay for it. And VCs won’t pay forever.

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.

On cleantech

The poster child of cleantech Tesla Motors is looking to go public heralding the start of good times in the sector.

First of all there is the Federal juice to consider. Now, I think that Obama will be elected President and expect that $150bn to come rushing through the pipes. Inevitably this has got cleantech VCs all excited as they know most of it will flow in their direction. One of the consequences of this amount of money sloshing around is that some utterly, utterly stupid ideas will get funded – the cleantech equivalents of the bridge to nowhere. No matter, this is always the way in human progress and amidst the dross there will be gold. The best innovations will probably come from the more radical but less well funded projects. I think a slew of money is rarely the answer to anything and can often stifle projects as they come under pressure to do everyhting then end up doing nothing. Focus is all important.

The long terms trends are all there, rising energy prices, environmental pressure, increasing instability and so on. In all honesty the sooner oil is condemned to the past the better, more for geopolitical reasons then environmental ones. Mineral wealth almost always curses a country and for every Norway there are plenty of Sudans or Sierra Leones.

On Persai

I’m not one of those people who thinks any new startup in search is bound to be beaten by Google. It can’t be done by playing Google at their own game but it can be done by using a different approach. Search startup Persai falls into that category. What struck me was this description from co-founder Ted Dziuba:

We want to build machine programs that can learn things from information that’s out there on the web. In the first application we’ll come out with, you tell us things that you’re interested in, and we’ll continuously go out and find stuff on the internet that’s related to that. There’s a positive feedback loop where you tell us what you like and don’t, so the machine gets progressively better in learning what you like.

I like the basic idea but there is one problem: I don’t really want to tell yet another site what I’m interested in. I’ve told delicious and Digg what links I like. I’ve told facebook what films and books I like. Why should I tell Persai all over again? If Persai could work out a way to yank all this stuff from the other sites automatically and knit it altogether then serve relevant results that would be a fantastic tool, unfortunately:

Recommendations are based entirely on content, other users’ feedback has no bearing on what Persai recommends to you.

This is a mistake. I’ve said before the key to next generation search is analysing the links between users as well as Google analyses the links between pages. Persai seems to have it half right in that I can tell it what I like but I think they need to rethink their approach on other users’ contributions.

There are a few startups looking to revolutionise search for a second time. I met the founders of another new search engine Piins a few weeks ago, they are still in private beta so I can’t go into specifics but they also have a very interesting concept which has a good chance of success. Both Persai and Piins come into the “companies I would definitely invest in” category, if I were a VC.

On $100m and $15bn

Facebook CFO Gideon Yu has just announced a $100m loan from TriplePointCapital which is bad news and good news.

The bad news is if FB was able to sustain a $15bn valuation you would always go for the tiny dilution that would represent rather than saddle the company with debt of any kind. It suggests to me that nobody was willing to pony up $100m for 0.67% of the share capital, not even investors who had previously invested at that level. To that extent I agree with Primack that the high valuation has hurt FB. With equity funds apparently cut off without climbing down from the big 15 it is now effectively forced into borrowing until it finds a viable revenue model and even then they are relying on a fairly small pool of potential creditors. With the credit crunch few banks would lend to FB at all and those that did would only do so at a punishing interest rate – perhaps calculating that if the worst came to the worst Microsoft would ride to the rescue and pump in more cash having shown considerable willingness to do so in the past. I don’t think TriplePoint is being any more generous.

This adds to speculation that FB is overvalued and the feeling that MS, Li Ka Shing and the Samwers will be left with with red faces. Maybe, maybe not. For MS it was a strategic investment. The stake was less important than the exclusivity deal which would keep FB banner advertising away from Google until at least 2011. For the others, who are rumoured by Blodget to have had a different deal to MS, it was essentially a bet that either FB would devise its Adwords or one of the outside developers would. As I said in my earlier post I think if FB or one of its outside devs works this out both will be in the money. This is why FB opened their platform in the first place and why VCs would be wise to continue throwing money at, or making strategic investments in (for any VCs reading), FB app developers even if not now FB itself.

What they are all aiming for is showing companies that FB can revolutionise advertising as much as Google did. Ultimately, all companies want to know is who is likely to be interested in buying their products. In the pre-Google days advertisers would blast adverts at everyone watching a particular TV show or reading a particular paper on the basis that some small proportion of those watching would be receptive to the message. There was some scope for demographic targeting but it was relatively crude. Google revolutionised advertising by showing companies they knew more precisely who was interested in buying what. FB has a chance of repeating this success because of the vast amount of information it holds on its users.

This brings us to the good news: the $100m will be spent on expanding server capacity. Now $100 is a lot to spend on servers but FB can fill it with some very valuable information that Google doesn’t have. Whereas Google gets a snapshot of what is on someones mind then serves ads relevant to that FB has much more depth, of course Google is not taking this lying down but FB is still in the box seat as it holds the data. Not only does FB know what an individual person is interested in it also knows what all their friends like and, most importantly in my view, it can link otherwise unconnected users through their stated interests. Put together, all of these patterns are fantastically valuable if they can be analysed correctly. Beacon was clumsy and met with outcry from FB users but that failure does not mean all attempts at analysing the user data FB holds to serve contextual ads will automatically meet with the same response.

People are perfectly happy to look at relevant, helpful ads if it’s done in the right way. Google proved this by separating its organic search results from its sponsored links, this is the reason why we are talking about Larry, Sergey and Google today, not Bill Gross and Overture (see Ch 5 of The Search by Battelle). I’m always interested in finding interesting, new films that I would not have come across otherwise. One way is to read niche sites like Ruthless Reviews but another is for FB to help me out. It already knows what my favourite films are and also who else on FB likes the same stuff: Moodysson, Clarke, Greengrass, Stone, etc.

Why not analyse my connections with other users through those lists and serve me suggestions of interesting new stuff which is on other users’ lists but not mine? I would be interested to see suggestions based on the favourites of other users with similar tastes, it worked for Last.fm so why not FB? I buy DVDs all the time, link me to a store and I’ll probably buy, FB takes a cut of the sale et voilà! A business model for facebook! I bought Sophie Scholl the other day on the basis of an Amazon reccomendation and a glance at the synopsis. It turned out I loved it. Amazon knew from my previous purchases that I was into modern German film, served up an approproate ad and made a sale. Once I had watched it I dutifuly added it to my favourite films on FB and yet the only ads I get is for stuff I have almost no interest in.

Why do you treat me this way Mr Zuckerberg? I have told you everything you need to know – give me relevant ads!

This point is similar to the one I was making about delicious in my On Yahoo post. Google was so sucessful at analysing the web 1.0 world because it had the best way to analyse the connections between pages. The Google sized spot for web 2.0 is still open and it will be filled by the company which can analyse links between people as well as PageRank does links between pages. It is that propsect which makes investors pay $15bn for facebook, it may not be FB which ultimately wins the prize but some company will.