Tag Archives: Venture capital

UK Innovation needs leaders

Aside

Initiatives in Innovation in the UK need to be more actively analysed and followed on

Yes, we have an organisation whose role it is to chart the way forward for UK Technologies (the Technology Strategy Board), but none for doing so for UK Innovation (Nesta’s focus is research more than development). An analogy from horse racing (first item below) prompts ideas about where Innovation would be most profitable. In the meantime, innovation is led by whatever initiatives happen – see below: initiatives corporate, academic, in social enterprise, via new enterprises, and less surely, by initiatives in public funding.

Applied Creativity Briefings from John Whatmore at

The Centre for Leadership in Creativity November 2013

john.whatmore@btinternet.com

 Join the discussions at https://johnwhatmore.com/

*                                   *                                 *

Profiting in times of extreme uncertainty: an analogy from the turf  We asked some expert punters how they would make money in horse-racing if:

  • race courses and races were changing from day to day (ie the business environment changing rapidly);
  • there were many more horses in training (ie more competition);
  • horses were strikingly more ‘trainable’ (ie innovations becoming more common and more radical);
  • owners and trainers were preoccupied with trying out new ways of getting the best out of their horses? (industry increasingly preoccupied with innovation).

Their answers included:

  • bet on more horses (ie increasing one’s chances by spreading one’s risk);
  • bet your money on trainers (ie backing skill/expertise);
  • invest in a horse transport business (ie services to participants);
  • buy a bookmaker! (ie services to backers).

(Originally published in Applied Creativity, May 2010, and still more relevant!)

 To Accelerate or not to Accelerate: that is the question

While it will be impossible for some time yet to prove that Accelerators are effective, the likes of Google and Microsoft are busily betting on their future. (http://wp.me/p3beJt-6O)

Small, elite university incubator launches into new space

Focusing on a small number of technologies that are ripe for commercialisation, and a small number of students or alumni with an interest in entrepreneurialism whose careers it seeks to advance, the Incubator of Cass University Business School has a new home which is unique in having alongside it a co-working space where students and alumni have the opportunity to be matched up with Tech City entrepreneurs. (http://wp.me/p3beJt-6o)

US non-profit ‘Village Capital’ has a different perspective on social enterprise: objectives first, resources next

Village Capital sees capital as a resource in the service of its mission rather than as a determinant of new businesses; and puts projects and teams together on the basis of what will best achieve the social objectives it espouses. (http://wp.me/p3beJt-6K)

Dreamstake, the free website for aspiring entrepreneurs which measures their progress, is growing, and expanding its offering; and it has done some diagnostics

Dreamstake, a fast-growing free interactive startup platform for entrepreneurs which has a rating feature that acts as a marker of their progress has added regular educational events at Google Campus in Tech City. And some recent statistical analysis reveals aspects of their businesses. (http://wp.me/p3beJt-6H)

Universities are being dragged into more commercialisation of their research

A small but elite conference brought together by new publication Global University Venturing indicated areas of progress as well as areas of obduracy, but added urgency to the task. (http://wp.me/p3beJt-6E)

Professionalising the playgrounds; and thickening up the pot of post-Accelerator funding – EU funds for London Accelerators

For participants in sixteen London Accelerators, funding has been promised – to pay for mentors and others supporters; and for co-investing in new businesses exiting these Accelerators. But this omits other possibilities. (http://wp.me/p3beJt-6R)

 

The Centre for Leadership in Creativity (a ‘virus for creativity’) carries out research and provides consultancy and peer-to-peer learning for organisations looking to enhance their creativity and innovation.

Copyright John Whatmore 2013

The Centre for Leadership in Creativity                            138 Iffley Road,London W6 OPE                 

Tel: 020 8748 2553                                                 E-mail:  john.whatmore@btinternet.com

Advertisement

Extra funds for London Accelerators

Aside

Professionalising the playgrounds; and thickening up the pot of post-Accelerator funding

For participants in sixteen London Accelerators, funding has been promised to pay for mentors and others supporters; and for co-investing in new businesses exiting these Accelerators. But this omits other possibilities.

Accelerators use ‘mentors’ for a variety of roles – from acting as supervisors, as contributors of their specialist knowledge or expertise, as advisers – about strategy, business model, proposals and plans, and as door-openers – especially to potential partners, customers and funders. And the art, and it is very much an art, lies in enabling them to make their contribution at the right moment – when the participants recognise the need and/or when the ‘mentor’ does so. There are also those who lecture, teach or coach, or just tell their own War Stories. Seedcamp boasts a thousand mentors; Springboard a hundred and fifty; and Bethnal Green Ventures some sixty.

So far, those who manage Accelerators have called on their friends and contacts, on those who support the world of entrepreneurship, and increasingly on their alumni to act as their ‘mentors’; and the latter have all responded to these calls. In Silicon Valley the network of such people is enormous and very responsive: everyone seems to know everyone and word is passed round quickly and effectively; but here in London, they are fewer and in less close contact with one another. EU funds have now been promised (via the GLA, Enterprise Capital and London Business Angels) to sixteen London Accelerators to pay for these people.

By comparison the folk of Silicon Valley are pleased and happy to pass the word around simply because they are interested in innovative businesses – a community for whom the fascination of working with and talking to and about start-ups is sufficient.

These funds will no doubt generate a host of ‘consultants’ big and small, who will offer their services because there is money to be made out of this burgeoning scene. But they will not be the first choice of aspiring entrepreneurs because the best supporters will be those who are not in it for the money; and the entrepreneurs will recognise this. Second rate Accelerators will attract second rate ‘mentors’; and it must be doubtful if this will promote the start-up scene to its best advantage.

Less controversially, the EU is also the source of funds promised for co-investing under arrangements with those who are putting money into new businesses that are exiting Accelerators (many of them angels and quite small funds – the most successful of which will have worked with the Accelerator over a period in getting to know their targets). This is designed to increase the size of such funding packages, which will lengthen the runway for these businesses and give them a better chance to establish themselves. Yet at this point, many are left without the support that they have enjoyed and with which they would very much like to be able to continue.

It is disappointing that funds have not found there way to spreading the Accelerator concept into new fields such as for high growth SMEs, for commercialising Intellectual Property, and for supporting innovation in local industries and in public services.

Universities being dragged into more commercialisation of their research

Aside

A small but elite conference brought together by new publication Global University Venturing indicated areas of progress as well as areas of obduracy, but added urgency to the task.

Conceived and run with his usual flair by James Mawson, 16 October saw an outstanding small conference on Global University Venturing, a new publication launched earlier this year, which brought together top people in this field from all over the world to offer in a tightly packed agenda their perspective and to talk about their successes in various fields of venturing.

James sees the commercialisation of university research as a likely source of rescue for the financial squeeze faced by universities. And while delegates saw some signs of changing attitudes in university departments, they also mentioned many of the obstacles still to be tackled if universities are to make real progress in the commercialisation of their research.

The emphasis was certainly on the selection of investments, and the making of deals, and on funding gaps – more than it was on the supporting of investments. Evidence suggests that venture capital organisations are being increasingly attracted to the university sector and a number of strategic partnerships are being formed (among them for example, a leading edge partnership – mentioned in the publication – between the Mayo Clinic and Arizona Furnace, an Accelerator programme, of which Arizona State University was a founding member).

The plethora of small group sessions at the conference provided frequent opportunities for delegates to meet leaders in other sectors and cadge from their experience.

Global University Venturing has chosen a long road to hoe, but if it moves the field forward as fast as Global Corporate Venturing did with corporate ventures, it will have provided a remarkable service.

Angel investing taking rapid steps forward

Aside

Now far from its origins as a side-line for rich single investors, angel investing is becoming a collaboration between different contributors and a major supporter of fast-growing young businesses

Since its re-launch last year, the UK Business Angels Association has increased its strength by opening its doors to related organisations working in its field, and has thus become more comprehensive and more influential.

Angel investing appears to be expanding – with more deals and more angels in the market – helping to fill the hole being left by the continuing decline in bank lending to SMEs, and as  the economy begins to pick up. The arrival of a new breed of Super Angel combined with the continued rise of syndicates plus leverage from co-investing funds (at least one VC has a panel of co-investing angels) are ‘pushing Angels up the value spectrum’ (according to Deloitte’s recent report.)

The Association is attracting widespread support – for example now from most of the big five ‘accounting’ firms (and soon all?), and from funders big and small; and it is generating new initiatives.

By their involvement, and by virtue of their related experience, Angels are increasingly themselves generators of added value; and are becoming increasingly sophisticated investors in young businesses.

The Association has set up a “walled garden” website for its members in order to help in the completion of funding deals. It enables them to share information about part-funded deals – to help close those deals and reduce the number of deals that fail to complete.

The Association is forming The Business Angels Institute – an organisation designed to help people understand and learn about Angel investing – with several meetings already planned this month. It is working with PWC to support a programme of increasing access to identified Angel-backed businesses for corporates seeking acquisitions, and is running workshop on trade sales. And it is setting up local meetings for Angel investors to meet sources of deal-flow and key players such as the Angel Co-fund, the Business Growth Fund and HMRC.

Financing start-ups: some current hiccoughs

Aside

* How do you structure funding for projects with very uncertain prospects?

* Early-stage investors not taking a long enough perspective?

* How do you manage the processes of funding more effectively?

* Grants as an alternative; but they have their strings.

* Footnote: What is the logic of some recent very fancy prices for IT start-ups (Instagram, Summly)

 

Some of those who run Accelerators have turned to the ‘convertible note – structured as a loan’ – in addition to a slug of equity (5-15%), as the best way of maintaining their interest in long odds bets; but this is leaving less room for new investors.  A number of recent ‘graduates’ from Accelerators have been appearing at Angels’ Investor Days looking for follow-on funding. Some have brought with them surprisingly high outside equity investments (up to 15%) and other commitments to third parties. The value of a business will inevitably be affected by its balance sheet; but aspiring entrepreneurs also need to be able to see their early financial commitments in terms of longer-term funding needs.

A number of Accelerator managers are concerned about helping the participants in their programmes to find follow-on funding without any interruption in their progress. The concerns here are two-fold: how do you enable Angels to have access to likely investees early enough in the development process to enable them to make a thorough evaluation of the project and the entrepreneurs; and how do you enable this process and the processes of investment (due diligence etc) to be done and dusted (ideally) by the culmination of a specific programme (eg an Accelerator)?

Angels have also expressed concern at over-valuations. At the final of recent New Business competition at Oxford’s Said Business School, I watched Philip Green, one of the judges, offer the winner £250k for a 50% stake in his business. The latter responded by saying that for that sum he might be willing to sell 2 – 3% – a gap in understanding that might have been filled if the background and the context had been better understood – by both parties. (See also Footnote below.)

Others have looked to grants (eg from the Technology Strategy Board) for early-stage funding, but sometimes find the processes of application, the conditions and the constraints such that they do not have the freedom to get on with the job or to go wherever the project dictates.

 

Footnote

A recent article in the Herald Tribune (9.4.13) wrote of five ways of valuing a start-up. If it is pre-revenue [and in IT], then how many eyeballs has it attracted; or what is the price or value of its developers [and they are in short supply here as they are in Silicon valley]. If it is up and running, suggests a Professor at Harvard Business School, how much time and effort would it take to build the product from scratch and attract those new users; or what is the potential cash flow.  And fifthly, ‘what number do we need to put on the table to convince the management and investors to part with their dream?’ The writer adds that all these calculations fall apart when a start-up receives an exorbitant amount of media coverage and exposure on social networks; and suitors can become irrational – producing prices that might just have come out of a hat!

 

 

 

An economically priced, part-time Accelerator; and Accelerator Academy has more plans

Aside

A small scale but significant presence in incubation, White Horse Capital plans to extend its initial accelerator for aspiring entrepreneurs on the ‘escalator of growth’:

* by supporting the conversations that precede commitment to entrepreneurship,

* by supporting the formation of teams and the adoption by them of issues that will generate hi-growth businesses,

* and by supporting them in their later growth phases.

Most investors in early-stage ventures find themselves moving inexorably up the escalator of growth, gradually seeking to invest in more mature ventures because they have a more visible record and because the returns look better, leaving the earlier stages open for newcomers, speculators and subsidies.  White Horse Capital is a venture capital company that has opened its hand by running a fixed-price, part-time Accelerator for hi-growth businesses in Tech, Media and Telecoms.

The Accelerator Academy programme consists of a 3-hour session one evening per week, and a 2-hour session every other week for 12 weeks. Each week’s Monday 6-9 pm session starts with a speaker on a topic that is very closely relevant to the development of every early-stage venture eg sales/financing etc – followed by Q & A; and the second session is for groups of 3 or 4 entrepreneurs, to develop worked examples about that problem as it applies to each of their businesses. In the final part of the session they are required to articulate an assignment for themselves  which they will present to their mentor, whom they meet once a week. In addition, there is a Clinic at 4-6 pm every other Tuesday, at which the participants bring to the six mentors a current issue with which they are wrestling.

The cost of this programme is £600 per business (ie approx £50 per session) together with a small share option for their mentor and for the Accelerator Academy.

While the applicants for the first three ‘semesters’ have included some who have been in employment and thus not focused whole time on the development of their venture, all of the participants on the fourth semester, just beginning, are self-funded and so fully dedicated to their venture. This represents a move to focus on first year startups that are up and running, not just aspiring entrepreneurs with an idea.

The six mentors (for each semester) are tied closely in to the participants and their businesses: they are committed to give 70 hours of their time to the task (ie about a half day per week, each mentoring two businesses); and they receive an option in each – of between 1½ and 2½% depending on whether the business is in revenue or not; and some invest in businesses during or at the end of the programme – as occasionally does White Horse Capital. (The Accelerator Academy has a panel of 12 mentors, all of whom are exited entrepreneurs and have ‘done it before’, six of whom work with alternate semesters (of which there are three a year).

The Accelerator Academy still uses an electronically based selection programme, but is finding that it broadly matches up with intuitive judgments about appropriate candidates (the mentors all participate in the selection process.) The Academy has received 100-150 applicants for each semester, from whom about 30 are selected for interview by Skype, from whom 15 are selected to fill the 10-12 places on each semester.

The Accelerator Academy is looking to extend its range along the escalator growth (in the footsteps of Biocity in Nottingham          ) – by forming relationships with sources of potential entrepreneurs, such as pre-seed programmes, hackathons and bootcamps, by providing coaching via trade and professional bodies, and by running earlier-stage programmes: a half-day programme for introductions, a 2-day intensive Accelerator Bootcamp – for ideation and team creation, a three-month coaching programme – for validating ideas; and then post-accelerator support for early-stage hi-growth investment, and ultimately White Horse Capital’s Accelerator investment Fund. By these means it hopes to raise the quality of its candidates and strengthen its post-programme support and funding capabilities.

Its results are encouraging: Semester 1 included one business that subsequently was absorbed into Groupon, but all those looking for investment have found on-going funding. About 60% of Semester 2 (which finished about four months ago) have received or are on course to obtain ongoing funding, and already a third of Semester 3 (which finished about a month ago) have raised equity. The Accelerator Academy is seeking to ensure that it does not lose participants mid-programme, and like other programmes that they manage to raise on-going funding, and that they turn into hi-growth companies that create long term shareholder value.