Raising Money in London Almost Killed Our Startup
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To be honest, I'm suprised you've received any funding. You're a company that increases Twitter and Instagram followers. This is a deeply dodgy, largely unproven and mostly saturated market and you're charging prices that'll leave you out of pocket. No way are you worth $600,000. There's no way you can get enough customers.
You can spin this as a story about how you should never leave the comfortable bubble of San Francisco, but to my mind it's yet another story of how insane things are over there.
What is your market then?
What is your greater goal/long term vision?
Why would I want to hire your company for social-media management?
In my opinion, a successful social-media presence involves direct engagement with customers but most importantly business-specific knowledge.
For example, the Deutsche Bahn has a great social-media presence as they emulate a free and quick telephone service via Twitter. At any time, I can ask them what train I should take, which one is delayed, how I get from A to B, which tickets fit me best, etc. In your eyes, how is this possible using your platform?
Unless the followers are actually relevant, interested and verified-as-human-beings accounts. If that's the case then $600k is a fraction of what the company could be worth.
There's a lot of 'ponzi scheme' follower increasing apps and systems ($5 for 5,000 followers, 'team followback', etc), where people sign up to get more followers by automatically following other people who join the scheme, but the number of good applications that can find people who would genuinely be interested in hearing your message is, essentially, zero. There is an opportunity in the space but the problem is a hell of lot harder to solve in a worthwhile way than just increasing the vanity metric of "# of followers".
We (OP3Nvoice at the time, now Clarify) went through Techstars London 2013. As much as the team loved London and the program, they just couldn't raise there. Fast forward a couple months and they've moved to Austin, TX. (I joined then.)
Moving to Austin created some challenges but within a couple months of restructuring the UK company to a US, the dollars started flowing and within 2 months, we ended up raising about $1.4M.
All of that said, we have some great advisors and a couple small investors from London and they've been insightful and asked some hard questions. But despite both groups speaking English, the cultures and risk tolerances are wildly different.
And yes, Kyle is a great guy. :)
HN mods: were those just empty promises? Were there actually any changes in enforcement all?
At least could you prevent the most negative comment from always ranking at the top of every HN thread?
It's starting to feel like we're trending that way with the new policy and the inevitable, sanctimonious "how could you be so negative!?" outrage comments, but I'd far prefer to see us not pull any punches wrt real talk. Not everything in the world is peaches and cream, and pretending so in print has never made any sense to me.
* I am a millennial, and we have a strange obsession with hearing only positive things
Honesty about predictions is bullshit. You can't be honest about predictions. Predictions are by definition about events that didn't happen yet (what will happen), or never can happen (what would have happened if something in the past had been different).
Real talk? Predictions are not about real things, they are about predicted things.
We've been through several rounds of fundraising, and as an American from the bay area over here, it's definitely not the same environment as you hear about from YC companies, etc. raising in the Valley. But the UK/European market is absolutely smaller and more fragmented (language barriers alone are massive) so opportunities are not nearly as large. You also don't have the same degree of FoMO[1] going on, as there just haven't been enough big exits. I wouldn't expect that climate to change any time soon, or with any expedience.
But definitely be registered as a company in the UK, and set up for SEIS[2]/EIS[3], if you want to raise money here.
[1] http://en.wikipedia.org/wiki/Fear_of_missing_out
Edit: Links to relevant docs on gov.uk
[2] https://www.gov.uk/seed-enterprise-investment-scheme-backgro...
[3] https://www.gov.uk/government/publications/the-enterprise-in...
Most of the horror stories around fund raising in Europe that I've heard involve B2C companies, or very low revenue-per-customer B2B companies that are constrained by many of the same challenges around customer acquisition (low average rev per customer, not very sticky, can't afford an inside sales team). This makes these B2B companies effectively the same as B2C in many ways.
The key thing to recognise, in my opinion, is that it's extremely difficult to raise money for a software company that's pre revenue or likely in search of product/market fit in almost any market other than a few cities in the US (NYC, Valley, Boston, Others?). Sure, there are counterexamples, but this seems to be true in general. This isn't just a European "problem" and my not even be a problem at all.
When I was playing in rock bands, we quickly learned we needed to play venues that fit our style. Playing in front of an old folks home crowd wasn't going to work. This sounds amazingly stupidly simple, but there's plenty of people ignoring this lesson in startupland with regards to fund raising. If you're sitting anywhere but a few select markets, reading Valley blogs, you're going to be in for disappointment when it comes time to apply all of your Valley knowledge in a non-Valley environment.
B2B land is so much easier than B2C land, and there's plenty of investment out there. Most software and most money made from software is in B2B land. Why not try it out? You could be surprised.
We had 50k users, some revenue (meeting our targets for that point) and the growth we had projected for that moment in time. We failed to raise money to get us past the end of our runway though.
Annoyingly, whilst the startup failed the product is still growing as an open source thing. It now has over 75k active users and has multiple installed instances.
The instance I still host has over 300 sites on it now, and remains profitable. Though without the company, this is now going into a non-profit which owns the server instance. The profits being used for charitable purposes.
We did not fail to produce revenue from communities, we failed to make the argument to investors about the potential market and to grow to seize it.
We could have remained a lifestyle business on the revenue, but our target was growth and we failed to sell that to investors.
For example, you could have tried to replicate a reddit environment: anyone can create a forum with a single click on your domain (don't even mention pricing), you could aggregate all forums on a front page to attract viewers, allow site wide discovery, etc.
We felt that one of the strong differentiators was how much control we gave to forum owners to shape the structure and identity of their space.
What we had planned was to focus on one market such that we'd have a small critical mass within that niche... in our case cycling forums which tend to exist with geographic focus yet have shared needs we could fulfil... and then create a directory from that to answer a "Find your local cycle forum" question before later making that question much broader.
We knew from feedback that "community", "shared interests", "forum"... all these things are nebulous and vague, they say nothing to anyone. Offering a directory and creation method would fail because no-one searched for those things, and no-one created those things.
We chose one segment to do well, from which we could expand into the other segments nearby (all sports and recreation interests), before expanding into entirely unrelated spaces.
We had a plan, but it required time and growth to execute.
StackOverflows mostly sorted things for tech savvy Q and A ( I know there are other stack exchanges, but the non tech ones are ghost towns) so something for non technical people could be valuable.
> The lead investor encouraged us to get it closed quickly and not try to do anything fancy.
Having said that, it's deeply disappointing that they still haven't heard back from HMRC on the advance assurance for SEIS.
Always get the round closed quickly and don't try anything fancy.
Comparison between Europe tech startup scene vs the Silicon Valley one is quite unfair. I am based in Switzerland, you cannot imagine how hard is for a tech (worser if service) company to raise money. The model is extremely broken because the mind of an average European investor is completely different respect to the average American investor. In US the normal startup funding process works around a working prototype and how fast you can ship, in Europe, mainly here in Switzerland is about the protection you can give to a product with trademarks, patents and other things. So when you ask for money the first question is: is it protected? Or, can we protect it? Are barriers good enough so we can skip short-term competitors?
The second huge problem is the exit. In US, the IPO is a kind of fallback alternative to the acquisition, that is the main goal in a reasonable amount of time, so this makes the IPO not the favorite exit-strategy at all. In Europe it's actually the same, but the acquisition model simply doesn't work. You don't have any big tech company here giving the real exit-strategy option to investors. So the only chance you have to get them, is to prove that you can literally make a certain amount of money even in the worst case. Nobody believes that Apple, Amazon, Google, Facebook or whatever can acquire a Swiss startup company in the first 5 years of its life, so the result is that tech companies can barely raise money.
IMO, the Silicon Valley model is very risky, the motto "fail fast, fail often" is certainly attractive, but has a lot of downsides for funders and people involved, on the other hand the European scene is too slow, too hard and is always complaining about the fact that we are unable to compete against the Silicon Valley. I think the right balance is required, but it's just an opinion.
Anyway, would be interesting to chat if you're near ZH.
- Had a funding plan - Got there quick with angels - Got too big for your britches - Discounted adviser's advice and got in bed with a big VC firm, doubling target funding - Got bit by the big firm legal and the money got cold.
I kinda feel like this is going to happen even in the bay area if you start playing with major industrial investors or get too big for your britches.
Way cool that y'all were able to recover from the experience and are much wiser for it. But, other than the (not small, for sure) difference between US and UK laws (which your firm should have figured out), is it not so much an issue of raising funds in London as it is business practice maturity?
Apologies if that comes across as snarky, but that's honestly what I got from this.
Actually no, I can understand perfectly well why you would move out of a ridiculously expensive city - but not why you would move to one of the few cities on earth that is about equally ridiculously expensive.
Venture capital firms in Europe vs. America: The under performers
http://iveybusinessjournal.com/publication/venture-capital-f...
The scene in the UK is rather more "be bought" - people aren't anywhere near as willing to pour capital into a business, and instead prefer to buy equity from founders. Dragons Den is a good take - large amounts of equity, low valuations, founders selling chunks of their company far more for the expertise and connections and clients of the investor than for the money.
I'm not really too sure where this difference in culture arises from - I suppose in some ways business in the UK is far more conservative, less ebullient, and still dominated by an almost Victorian attitude to business relationships and social status.
Edit: Worth mentioning, I suppose - run a (not so startup any more, we're nine this year) in the UK, sold a minority stake a few years ago to a well aligned investor-partner who's a few years "up the curve" from us. Happened in the way these things do when they actually happen - we weren't looking, they approached us, we bit their arm off, and haven't looked back.
1- No unicorns
"Given the weak public market for young companies in Europe, the primary avenue for their exit is a trade sale (merger or acquisition) rather than an IPO. Moreover, there is compelling evidence that exits via trade sales are, in general, not as lucrative as exits via IPOs. Thus, it has been argued, a key reason why VC firms in Europe underperform their American counterparts is the absence of a stock market that is eager to trade the shares of new companies."
2- No former entrepreneurs VC's
"Success breeds success: many American venture capitalists have run start-ups themselves. European ones tend to be bankers and lawyers with little operational experience and less appetite for risk. That is why they have focused on more mature companies rather than on young start-ups… And it is why Europe’s new angels are determined to focus on infant firms."
In my experience this is the critical matter. The entrepreneurial business scene in London is dominated by the finance sector, which mostly involves shuttling money through various assets in order to harvest a bit each time it moves.
As such, a lot of early stage technology VC is geared towards "tax efficiency" on the behalf of investors rather than potential for big gains from the technology. Note that this is raised as an issue several times in the OP.
In contrast, one can easily raise multiple millions in order to attempt some novel wheeze in stock trading or playing some game on the financial markets.
In my experience, it's true that the UK tended more towards the "buy a stake in the business" mindset rather than the Valley-style "invest in this startup for a future exit" mindset... but that's been changing for a few years, and change is accelerating (more seed-stage funds, more tech-savvy angels). But yeah, the Valley-style mindset isn't evenly distributed yet.
[0] http://techcrunch.com/2015/04/02/londons-startups-hit-a-high...
I've heard a couple of rants on this subject from people who were in a position to know. The UK is much more connection-driven than it looks. Much of our past and current industrial problems I would lay firmly at the feet of managers provoking needless conflicts with staff and failing to be open to change. Look at the car industry: the successful firms are either small enough to fit everyone in one shed or foreign multinationals. While the local brands coalesced into MG Rover before finally sinking among allegations of fraud by the directors.
This is partly why the UK startup scene is coalescing in London despite the very high costs there; you have to get personally acquainted with the finance people in order to get the money in.
(If anyone has comments on the Scottish startup scene I'd be interested to read them)
Clearly the difference in approach here in the UK versus our cousins in the US caused delays that even a large self-sustaining business would seriously consider before undertaking.
Sorry it didn't work out but very important lessons learned I'm sure.
https://medium.com/@doug_scott/response-to-raising-money-in-...
Seeing the odd product from a brand you follow on Instagram (here's our new dress) and Twitter (new cocktail ingredients) is more relevant.
Having financed 2 businesses with personal liability (credit cards) and lost about $200k each time -- there are reasons you might not want to do this. It still makes sense in some cases. I'd probably do it again. It's probably not a good option for most people most of the time, especially if they can raise investment.
External investment also provides other benefits (validation, connections) that debt financing on credit cards doesn't.