A Spy for the Other Side - Julie Meyer

United Kingdom - Network Enabler

The Prime Minister has publicly stated that the people of the Falkland Island should have the right of self-determination. Let’s make that a universal right. Why not Taunton? Why not Surrey?

With more devolution shifting to cities, what then becomes central government's role if local communities and cities are governing themselves to keep costs down and to ensure that the decisions of a region work for that group of people?

Lord Paddy Ashdown has used the term, "network enabler", to describe the role of government, and it's a good one. How would you set up government today from scratch? If you were to be found on an island with 10 people – a little bit like Gilligan’s Island – how would you operate it? What would the things be that you would put in place right away?

Today's citizens are both participants in local networks (schools, neighborhoods, faith groups, families) and global interconnections (NATO, G8, EuroZone, Commonwealth, United Nations). Locally, we operate our lives - where we go to work, send our children to school, worship our God. But the forces of peace and war, democracy and tyranny, trade and barriers to trade, affect our lives - just indirectly, by deeply, and at a macro level. It is this macro/micro distinction which needs a Network Enabler.

Five hundred years ago, a farmer in Devon needed a representative to come up to London to vote for him in Parliament as there wasn't any internet, and communication wasn't direct. The infrastructure of democracy hasn't changed even while the possibilities for its change are front and center - clear and yet untapped.

This isn't a debate about big or small government. My thesis is that the 20 year olds coming through who are dramatically more empowered than the 50 year olds with more money than they have, will not recognise the distinction between public and private sector, between left and right, between big and small state that gets hyped up by the Baby Boomers.

What does success look like in this scenario? Concerned citizens taking charge of the solutions to problems will naturally want to spin out parts of government into cooperatives or not for profits or even in some cases private enterprises so that they can tackle definitively local healthcare, superior education, protection of personal data, quality of transport, and neighbourhood security. They will do this efficiently using 21st century communication, and where those involved have a stake in the outcome. If you own the problem, by owning the entity, you work harder to solve the issue.

My personal hunch is that the country is bust. Too many PFI's, and unfunded pension schemes. We're not at the bottom of it yet. If we actually knew what the balance sheet and profit and loss of the country were, I don't think they would show a solvent, cash positive position. So it's actually in our interest to allow groups of concerned citizens to take over the running of local community organisations - again, provision of health, education, transport, neighbourhood security, rural communications, data services. And the UK central government shouldn't impose a top down architecture, but should allow local problem solvers, social entrepreneurs, concerned parents, leaders of faith groups to take leadership positions and build new structures.

Imagine what's happening actually on the ground in Greece right now, or what would happen on our Gilligan's island. Back to basics, those who can create production rise to the top. Those who can find things to eat, or build business to drive revenue into the system take leadership positions. And trade becomes dominant. Reciprocal exchange flourishes. If you're a small business person in Athens, you're bartering your way through the mess right now.

For civic society shouldn't be just an extension of the state. Civic society binds us in different ways: we all want Andy Murray to win Wimbledon, and for the London Olympics to showcase the UK to the world. National government then is left to operate the national interests on the global stage: Do we stand for liberty in war torn parts of the world where dictators have created fiefdoms? Can we pay for our own defence; what is our relationship with Nato?

Here again the UK has a huge advantage by virtue of its history. The UK is the center of its macro-ecosystem. Individuals throughout the Commonwealth come to the UK for business, education and to build their networks. The historical role that the UK has played in the world "gives it pull" - that most important quality in building the alignment and economics of any network, and of any winning position.

I admit a personal preference for the small state. I don't see much evidence that the state can provide services for the micro better than concerned groups of citizens locally who decide how they want to govern and operate their lives in their community. I don't believe that people spend other people's money like they spend their own. I believe that what works in Durham may be quite different than what works in Cornwall, and I'm ok with that. I'm not obsessed with fair; fair to me is that an individual believes that what they put into life is what they get out of it.

There's a lot of examples in the world that small creates big: states like Switzerland, or Norway, or cities like Hong Kong, or historical republics like Sienna circa 1500 thrive(d) because decision-taking was closer to the constituency, and strong social cohesion could emerge - which gives its own sense of comfort. But the central debate which we are not having today is about micro and macro. What I know is that people are better off operating their own lives, and having the responsibility for being a good neighbour, and an active member of their community. You can't really outsource that. And the UK wins because it's not a small, backward country, but a major economic power with a network of UK-touched people around the world who see it as the network enabler. It should grab hold of that market position with both hands, confident that by making its micro networks (local communities) empowered to run better if diversely, that it can provide the macro prestige, premium and power that it seeks to project which will ultimately hold its citizens in good stead through the next century.

I came to the UK in July 1998, now 14 years ago because like a lot of Americans, I just love the British. But I recognise I am an immigrant. Like a lot of immigrants, both to this country and my own, we can see the opportunity better than those who were born here. If those who run the British government could see the opportunity to be a Network Enabler rather than mere politicians, I believe more British people could see the same thing that I see - just an incredible opportunity to live, work, and contribute to this country.

The reason I wrote my recently published book, Welcome to Entrepreneur Country...

The reason I wrote my recently published book, WELCOME TO ENTREPRENEUR COUNTRY - http://bit.ly/W2EnCountry, is that entrepreneurs feel that they go to a different country every day. No one can understand, they feel, what they go through to keep the train on track. Customers don’t pay on time. Banks pull overdrafts. Your house is on the line. Employees want to leave at 6 pm. You can’t remember the last time you took a holiday. We bond with each other over the near death experiences and hail the breakthrough moments with cheers and champagne. But a lot separates us from the rest of the world.

Or so I thought.

Through the financial crisis of 2008 to – well, now – as we’re 5 years into a recession, I started to think a lot about the route causes of the crisis:

• People – whether industrialists, bankers, government – not being concerned about the outcomes of their behaviours and actions

• Financiers losing site of the fact that their raison d’etre is to back enterprise; the financial services industry is a service industry to industry.

• An elite governing class of people who have concealed the costs of government, and thereby created a feudal existence for the citizenry of just deferring to them

And I thought … wow, these people wouldn’t survive a day in Entrepreneur Country. They wouldn’t know how to lead people in the trenches, or deal with blow after blow, and keep going. They are BABES IN THE WOOD.

And then I thought – we should take them to Entrepreneur Country. We should introduce them to what it really means to run a business. Where they are the brand. Where their cashflow is at stake. Where they have to find their optimism every day.

But then I came to the conclusion that we are all going to Entrepreneur Country. Not because I want this to happen, but because it is.

Exhibit 1 – Martha Payne

Martha as we all know by now didn’t like her school lunch. In fact, she wanted to make a point. Have camera, will photograph. She posted it online to show everyone that her lunch was truly gross. And boy did she get a reaction. The odds are that school lunches in her part of the universe will be improving soon.

This rise of the citizen consumer – even the citizen youth consumer – actually especially the citizen youth consumer will transform the relationship between government and its citizenry. Democracy is very important. But the infrastructure of democracy hasn’t changed for 500 years. Back then, you needed someone to come into Parliament to represent you. Today, we could vote online.

But would we ever vote out the Welfare State? What if we became so convinced that economically we could do more through reciprocal exchange than collective exchange?

Exhibit 2 – Spotify, Kindle, Zopa

The web enables hyper-personalisation. Spotify enables me to build my own radio playlist. Kindle enables me to build my own bookshelf. Zopa enables me to build my own loan portfolio online.

As I get used to the personalised life that these services provide me with, why would I accept a health or an educational service which is mass-produced? If I’m dyslexic or blind, or gifted or troubled, why shouldn’t I get a personalised educational solution which fits my needs pretty exactly? We know that people are contributing educational content globally to open source sites. So it’s not even certain that this would cost more. The learning for the individual may also be in the retrieving of information.

For the world is not top down anymore. It’s bottom up, and its self serve. Those people who understand this DIY culture will thrive in the period to come. The Internet will simply bring to an end the closed shop system of education and health care.

There is no grand design, but many smaller designs which are created by the groups which need them. Grand designs are typically constructed for the egos of the Grand Designers. But the power has shifted to the Individual. Big Business used to dominate, but the unit of trading has shifted to the individual making Individual Capitalism the force for the 21st Century. Yes there are 1 million youth unemployed, but even if they all had jobs, they would think of those jobs differently than their parents do. I know a lot of twenty somethings who work, but almost all of them have plans to set up their own business. They are hatching a plan, and trying to figure out how to organise all of the missing parts. Some are at an earlier stage of just promoting their own ideas and brand on line. They will not be buyers of intermediaries though – big government or otherwise. They will understand how easily groups of people can be enabled with smartphones, social networks, gamified learning, and they’ll wonder how their silly parents allowed so much expensive bureaucracy to control them for so long.

Exhibit 3 – International Finance

I write this days after some of the biggest banks in the world have been found guilty of fixing interest rates and selling swaps to SME’s that they knew the business owners would never be able to repay. People are repulsed. It’s time to get more radical. Restructuring the economy starts with restructuring relationships. For all of its oversight, the financial services industry gets away with some pretty heinous crimes – repeatedly. What I also know as a FSA-regulated firm is that the fines for bad behaviour in the industry are shared by the industry. How communist! I follow all the rules, and get whacked with fees to pay the FSA for other people sins. I believe in bottoming out wrong-doing, and making people personally accountable.

Digital infrastructure is here. It’s changing our lives. It’s taking us all to Entrepreneur Country. Actually whether we want to or not, whether we know it or not. Because the web will enable reciprocal exchange between people, and the big structures of today will simply be drained of their importance. Because Individual Capitalism is the emerging force of our century. And because there is no money. Entrepreneurs will be building the new businesses, the high-growth digital businesses, which create the wealth in society again.

Dispatch from Cambridge - Drinks at the Hotel du Vin * Phonetell

In Cambridge to open CUTEC tomorrow, and stopped at the Hotel du Vin to have a drink with David Cleevely.      Before you know it, Charles Cotton was there - who asked me to MC the Cambridge Phenomenon Conference in 2010.    Turns out the whole Neul Board was mtg.     Neul is  a new company founded by the team behind CSR, one of Cambridge's big hits.      Although I only got a brief introduction, Neul enables Machine to Cloud so that private networks can spring up.      I learned that BP considered setting their own carrier up and the oil industry are strong early adopters of technology.        The carriers will be customers of Neul as well.

Caught up with Ted West, CEO of Phonetell, who I am advising.    Phonetell is helping carriers build a robust business in local mobile search.    Ted's built and sold 2 businesses, and invested in another 7 of which 3 have been sold.    What's clear is that the carriers are thinking about how to deliver digital services - each slightly differently - and Phonetell is really well-positioned for when this tips.    And tip it will.

Yesterday I met with Frederic Montagnon and Rebecca Powell of Overblog,   part of the Ebuzzing group.    My old friend (and former client - seems to be a strong overlap) Seb Bishop is an investor in them.    Overblog enables you to streamline your idea online by taking all of your feeds (FB, Twitter, etc) into one place.    I've yet to start using it, but it's an obvious category.

Lunch today with Kate Percival who presented her new concept for Grave Belgravia - a spa meets sorority meets integrated health/fitness/well-being business.      I invited 7 of my friends to lunch to hear the story at Mossimans.

We are settling nicely into our new offices - 3 times the space! - Pall Mall ... a new neighborhood, a new book, a new .....

Man downloads copy of WELCOME TO ENTREPRENEUR COUNTRY...

From: Stephen Stanton-Downes [mailto:stephen@balloon-media.com]

Sent: 20 June 2012 19:44

To: Julie Meyer Subject: had to share... ......

I download a copy of your book - got to page 3 of the introduction and was reminded of 3 things.... 1. ..of why the hell I am bothering with this journey

2. That I am completely insane

3. I am not alone

Thankyou.

Best Regards,

Steve

David and Goliath must dance

Many people thought Facebook was bonkers when it announced in April that it was buying Instagram – a profitless, two-year-old photo sharing website with just 13 employees – for $1bn. The real question is: "Why didn't Polaroid or Kodak partner, invest, replicate or buy Instagram or a company like it before their demise? How could two companies who were pioneers in film, cameras and photography so miss the consumer demand for "Fast, beautiful photo sharing for your iPhone" which Instagram fulfills? If the CEO's had met the CEO of Instagram, would they have underestimated him? or would they have understood Instagram's strategic value?

The interaction of 'David' the start-up entrepreneur and 'Goliath' the existing industrial giant is one of asymmetrical warfare. The direction of the asymmetry is not what one thinks, however.

Companies like Instagram are "digital enablers"; they bring new digital revenues to the corporates with whom they partner. These David's understand that the world has "gone network"; business is not organised linearly or hierarchically, but through multi-stakeholder transactions. What does that mean? Jobs / Apple understood that there was a consumer of music, an artist, a mobile phone carrier, and Apple, and organised the business model for the transaction. Other digital enablers can be found everywhere: • Yell bought Sokratis Papafloratos’s Trusted Places to inject some real people's reviews and ratings into its business, and now he is heading up social media inside of Yell. • British Gas invested £5.7m in Mary Turner’s AlertMe to beef up its smart meter clout but also because AlertMe is at the heart of the home ecosystem. • Google shelled out £37.7m for John Paleomylites’ BeatThatQuote to expand its involvement in price-comparison products, but also because BeatThatQuote was providing a "cashback" thereby compensating users for the use of their data, and recognising them in the core transaction - which Google don't.

During the 1990's as the power of the internet became clear, every web entrepreneur thought of him/herself as a technology revolutionary - a type of David with his slingshot - out to kill the establishment or incumbent. Some of these David's broke through, and have become high-growth David's. Some were acquired by Goliath.

Most died or hibernated. Very few Goliaths became nimble as David or recreated themselves - although Apple is a notable exception as its original David came back into the cockpit. Most Investment Bankers just tell Goliath - whether the retail shops, telcos, energy companies, or media firms - to just buy companies. The big consultancy firms project their theories at Goliath about how to "fix their strategies" but don't hang around for the implementation as "things can go wrong"! What Goliath needs to do is to think hard about its assets as a firm - typically these include distribution/customers, brand, billing relationships and consumer habits. Goliath needs to learn as well - build his own muscle - not just listen to others or buy companies like a patchwork quilt.

In short, Goliath needs to open himself up to the "digital enablers". If he is Kodak or Polaroid with hundreds of millions of customers buying film and cameras, how can he leverage that distribution for a young Instagram bubbling up from the start-up world? Kodak and Polaroid weren't set up to dance with Instagram, and therein lies the problem. Digital entrepreneurs go to the dominant "anthills" for their distribution today - Facebook, Google/Android, Microsoft/Bing, Apple/ios and Amazon. These platforms are software-centric, and open to consumers digitally. More Kodak's and Polaroid's will fail unless they refashion themselves fast as open enterprise platforms, moving their company infrastructure and product development wholesale to the cloud.

The second thing that both David and Goliath must do as they go to market is to identify their natural allies in the market, and create a set of economics which work for the ecosystem. In a networked world, you cannot operate like a bullet. You need to create pull into the market by working with allies in whose interest it is for you to be successful. You must think like a business model architect. That takes deep thought, careful market analysis, clever deal-making and digital, cloud-based infrastructure.

David understands thing about the future that Goliath doesn't. If David is good, he builds strategic value for his industry in his first couple of years. But there is a profound vulnerability inherent in a networked world where a David must align the economics across multiple stakeholders - at the beginning. At the beginning, he can hit a wall easily. But if Goliath doesn't pay attention, and so frequently they don't, David crosses over to creating network effects in the ecosystem in which he operates. His strategic value at that point becomes financial value. Those network benefits will not accrue to Goliath at this point, but to David himself as he/she becomes the operating system to his market space.

Close to home we can see how Monitise has become just that in the world of mobile money, now servicing 250 financial institutions, backed by VISA, and operating on 4 continents. Where were the players who should have taken notice? Western Union? Misys? SAP?

How Big Business is "going to Entrepreneur Country"

Why the old economy is the key to the new [begins] “The eurozone crisis is the biggest challenge that we all face. It is the thing we have to fix, to sort out, to help restore growth right across the world economy,” declared David Cameron this past week. “Speed is of the essence!”

The British public, sick of being trapped in the longest economic downturn for a century and dizzy from the constant Euro bickering, is waiting for the prime minister or some European leaders in Brussels to swoop in, Superman-style, and “fix” the problems. Consider how many times you hear someone say during the course of the week: "What should the government do?"

Sorry folks, it’s not going to happen. Waiting for our politicians to kickstart growth, to create jobs, to stem the euro rupture is like waiting for Greece to announce it has paid off its debt. The game is up. Government has been found wanting in the role of leadership of our financial assets and of civic society.

Trust the people instead of looking to government.

Youth unemployment? Eminently solvable: With 4.8 million small and medium size businesses in the country, and 1 million young people out of work, that's only 20% of the SME's that need to hire one of them to fix that "problem". Can we not come up with an incentive of lower tax or local award or benefit to encourage 20% of the most durable firms in the country to take on a young person? People in their twenties have a natural advantage in business due to their approach to the web: they are digital natives. They instinctively understand the future because of how they engage with the world through their smartphones, social networks and digital games.

But those small and medium size businesses subsidise big business today. yes, you read that correctly: SME's fund the big boys. SME's are forced to pay on time. Routinely big business will give its suppliers 90 to 120 day payment terms. In addition, it was reported earlier this year that Vodafone and Goldman Sachs did "special deals" with HMRC to reduce their tax - presumably due to the leverage they would have to take business off-shore if they didn't. No SME has that ability. They pay tax where they operate; they can't "arrange" their affairs to lower tax or channel it through another jurisdiction.

Why aren’t UK plcs – who are currently sitting on £64bn of excess working capital according to Deloitte – being incentivised to invest in the country’s SMEs? Why aren’t we seeing more innovative partnerships, such as British Gas and AlertMe, VISA and Monitise, or Yell and Trusted Places? If “Goliaths” don't embrace the “Davids”, they will be run over by them and then slowly drift into insignificance. Just look at what happened to Polaroid, a pioneer of photography, or Kodak, inventor of the hand-held camera. The 133-year-old firm, Kodak, struggled to keep up with competitors who were quicker to adapt to the digital era: it filed for bankruptcy protection earlier this year. Polaroid had two near death experiences over the past decade because it failed to embrace digital. How different things could have been if either firm had beaten Facebook to the punch and invited Instagram, a social photo-sharing application with huge momentum, to hop on its back. Instagram was smack dab in the markets in which Kodak and Polaroid operate, and yet there wasn't any dialogue much less a partnership. One of the chief assets that large businesses have is their distribution, and yet many don't leverage that asset for the young digital businesses coming through that need precisely that: reach and scale.

As I argue in my new book, Welcome to Entrepreneur Country: David and Goliath must dance. The establishment and the challengers need each other to drive the deployment of the new technologies and their disruptive economics into the heart of existing industry. That is how high-growth business will re-emerge which will drive the economic engine: by leveraging the digital infrastructure which exists now into the mainstream strategies of the FTSE 250.

Society is undergoing a structural change akin to the shift from horses to cars. Entrepreneurs are building the cars, but they need the corporate highways to gain speed. Those who get to the other side first are the winners. Throughout history, those who embrace change reap the benefits.

Welcome to Entrepreneur Country is available at: http://www.amazon.co.uk

Why you should read Atlas Shrugged * Do not let the hero in your soul perish

Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all.  Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle.

The world you desired can be won. It exists, it is real, it is possible, it is yours.     

Ayn Rand, Atlas Shrugged

 

Someone sent me this note this week by post signed John Galt ... if he was trying to get my attention, he has it.    More importantly, the book deserves your attention dear Reader ...

How entrepreneurs manage risk

In a world where JP Morgan traders lose $2 billion, and European banks look shaky, "risk" starts to take degrees of nuance.     What you mean and I mean may not mean the same thing.

In the world of the entrepreneur, he's got everything going against him.    He's taking on the establishment; he's challenging the established order of things.     And he loves it.    He thrives on proving people wrong, and creating a "new common sense" - a context for his invention.

This new common sense is that sense of inevitability that the new new thing is going to arrive and last.    It's not a pipe dream, but just the future brought bang up to the present to help everyone out.   It's not just his ego which causes him to build it.   The invention has no chance of lasting unless the entrepreneur creates a circle of re-inforcing corollaries to his thesis -  some sub-ventures, partners, suppliers to his firm's new product or service.    You could call it an ecosystem.

In 1898 in Achères, Yvelines, France, the world's fastest car was a battery-powered vehicle called the Jeantaud Duc.    Electric cars had the advance and were considered convenient and safe.    Oil companies moved more quickly however to build an ecosystem of refineries, wells and pumps, and within a decade or so, petrol-fueled cars had overtaken to become the dominant model of car.

Entrepreneurs' paranoia drives them to build alliances, secure inside intelligence, and to identify ways of making their reality become the dominant reality.    They are forced to learn fast, iterate products - testing specific features  individually so that they can be confident of their theories,  and steal ideas from the market which can help them win.   In short, they have no shame, but a level of obsession which causes them to be control-freaks who can pivot fast.     

Companies tend to concentrate power at the top of a pyramid, and very carefully let it flow downwards.    They feel that they are managing risk in this way, but controlling access and decision-making.  Entrepreneurs know instinctively that power concentration is the enemy of prosperity and growth.    Adoption of the new flows when the benefits are clear to the broadest group of people.    Think how much poorer the world would be if we all had to go back to the mainframe computer?

Managing risk in 2012 is more about aligning interests than reinforcing the current mousetrap.   One of the best ways to protect you business is to have your team obsessed with finding the future, and working tirelessly to bring it into the firm today.

Venture Capital - a European Story

(an edited and shorter version of this article appeared in the Financial Times on the 14th of April, but this is the original article)

Venture Capital as an asset class is frequently derided as a failure in Europe[1].     Speak to any fund of funds firm in Europe (and I have spoken to a hundred of them), and they will tell you that no one makes any money on venture capital in Europe.     The big names in European early-stage venture in the late 1990’s have either moved upstream to buy-outs (Apax), disappeared (3i, NetPartners), been acquired (Quester, Frontiers Capital) or the investment teams have moved on (Benchmark, Add Partners, Atlas Ventures).   Even the big venture capital firms do more growth capital than early stage/seed investments today.

The reality of entrepreneurship in Europe however over the past decade and a half has changed dramatically.     We have today successful >€100 million firms such as Shazam, Spotify, Monitise, and Seatwave.    Exits such as Autonomy and Skype where they have become major business units for their acquirors have shown the significance of the “start-ups” which are being built.   

But Monitise[2], now with a market capitalisation of nearly $500 million, and backed by VISA five times, wasn’t backed by a venture firm, but a systems integrator – Morse PLC.    Dialog Semiconductor was floundering on the Frankfurt Stock Exchange until the current CEO Jalal Bagherli got into the cockpit.    Other European big hits such as Net-a-Porter, Rovio (Angry Birds), Tiscali, SAP weren’t backed by VC’s until it became clear that they were going to be successful or at all; that is, it wasn’t risk capital.    Rather, once the founders took the risk and built the firm, investors came in to profit from their hard work.     Non-tech firms like Ella’s Kitchen are becoming major players without outside funding.

New venture teams like Amadeus Capital, Edge Investment Management, Enterprise Ventures, Dawn Capital, DN Capital, Mangrove, Wellington and Northzone have developed in parts of Europe creating franchises with strong teams.   And yet very successful entrepreneurs like Glen Manchester with Thunderhead, his second venture, or Alex Cheatle with Ten UK, or Sara Murray of Buddi, her fourth, have bypassed the venture community entirely.

So, new successful tech-enabled firms are growing in Europe.     Exits are happening providing returns to shareholders.     And yet, the institutional investment teams that would put pension fund money into venture funds remain resolutely against venture capital as an asset class.   Very successful US funds like Kleiner Perkins, Sequoia Capital and Bessemer Ventures have felt that they could stay out of Europe, and just do one off deals from a Partner flying in.

What’s wrong with this picture?

First let’s take a tour through the (incorrectly held) home truths that are commonly accepted, and some of the bad advice that the venture community operates on in Europe today.

1. Raise at least €200 million in your venture fund and/or as much as possible

New fund managers are told by institutional investors that they have to have €200 million to be credible.    Fund of funds want to deploy no less then €15 to 25 million, so it's not worth it to invest smaller amounts.   Also, a key driver for the larger funds (north of €50 million) is to have large management fees so that the venture funds' partners can pay themselves larger salaries.  (They should be focused on making capital gains).   Typically investment teams don’t like to crowd into small cramped offices; black marble feels so much better.  

Once you have hundreds of millions under management, the temptation to overinvest in tech firms is enormous.     You want to put lots of capital to use – not because the start-up has hit a big milestone necessarily, and figured out what their operating model is – but because you have a big fund, and doing small deals won’t deploy the capital fast enough.   The reality is that you don’t need a lot of capital to grow a tech firm today.    The cost of technology has plummeted due to the standardisation and componentisation of technology.  Beatthatquote[3], a financial services price comparison firm, had no more than £500,000 of investment in total, and was sold to Google for £37.7 million five years later.     Many many VC-backed tech start-ups in Europe pre-2006  raised too much capital and will never get a return through a tradesale because the multiples just aren’t there.    I could name names here, but I won’t.

1. Don’t use your own capital; whether a venture capitalist invests his/her own capital is not the point

Fund managers are like most people – if you can have the luxury of spending someone else’s money, why not?; one of the most important considerations for a fund of funds manager to look for in selecting a venture capital fund to back is how much the General Partner has invested of their own capital.    One of the dirty little secrets of venture in Europe is that most VC’s are really just employees, and aren’t risking their own capital.    Nothing wrong with being an employee, but if you are there to select the winners, and haven’t built and sold your own business before, it’s hard to see what you bring to the table.    You can’t do venture capital – at least in the early stage, high-growth end of the market, by analysing the market as a McKinsey or Bain consultant would.    Go to market strategies are inherently adapted on the ground fast; a good entrepreneur can interpret market signals that he/she has the right product but the wrong business model, for example, and pivots fast.   If you are coaching that entrepreneur, and you’ve never been in their shoes, and never experienced the near death experiences that they will be facing from time to time, you will as a venture capitalist either panic or be annoying to the management team who are probably working 100 hours a week to drive the business forward.  

1. Control the founder.    He probably can’t make it as the CEO.    Alignment of interests is for wimps.  

This has been one of the most crippling “beliefs” in European venture capital – that the entrepreneur doesn’t have what it takes to become a Bill Gates, Larry Ellison or a Steve Jobs.  Nothing trumps founder passion, and everyone is a first time CEO once.   Actually, what you want with an entrepreneur is the strongest guy possible – NOT someone who you can easily keep under your thumb as a VC.

Furthermore, there are so many things that go wrong with a high-growth tech start-up that alignment of interests must be the basis of the investment or you have a truly dysfunctional experience which emerges.    Many VC’s put in liquidation preferences, which give the VC a preferential return, which stack the deck against the management teams, creating animosity between investors and management.

On one of my first investments while I was an Assistant Director at New Media Investors in 1998, I was taking a start-up around the London VC scene, and one by one, each VC asked the founder when he was going to get a real CEO in to run the business.     As we would leave these venture firms, he would turn to me and say, “Julie, take their name off the list; we’ll send them the press release when we go public for a billion.”   The entrepreneur did indeed go public, and sold his firm to an industry player for $600 million within a decade of having founded it.    He is widely perceived as one of the UK’s leading entrepreneurs, and yet more than a dozen VC’s in 1998 discounted his ability to become a good CEO.

So what’s the answer?    I think it’s really very simple:   follow the entrepreneur.    He/she has the market insight.    He/she has creative genius.    He/she is the hero.    

Throughout history, capital has always followed the ideas and those with the ideas who have shaped the era.     Whether it was Michaelangelo or Christopher Columbus, the financiers of the day knew that it was really the adventurers, artists, creators who were building the future, not themselves as the financiers.

In fact, money is like a heat-seeking missile – searching for the best return.    What fascinates me about the much-trumpeted financial services industry in the UK, is that it has forgotten that it isn’t an industry.     It is a service industry to industry.     The proper role of the financier or venture capitalist is to find the industrialists of the day and to back them.    When they move outside of that scope, when they don’t risk their own capital, and they don’t align themselves with the growth plans of the industrialists that they back, then bad things happen which destroy economies and tear apart societies. 

So I argue that we must get back to basics.    As a venture capitalist, it  is not your job to be the smartest guy in the room, but to find her (or him).      Your job is not to thump  the table and demand to know where the sales are, but to free up the CEO/entrepreneur to not worry that he/she will be tossed out or crushed by the venture firm so that he is capable of closing big deals for the firm.   

Europe and the UK are being redefined by their entrepreneurs at this time.    We are fortunate indeed that there exists a group of people who are willing to live abnormal lives to bring the future to us.   For all of society benefits when one of them breaks through, and when a team tastes financial success.    All of society benefits when a supernova exit occurs and that man or that woman can plough his capital gains back into backing the next crazy guy who’s willing to live an abnormal life….

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[1] I include the United Kingdom in Europe here.

[2] Monitise is a portfolio company of my firm, Ariadne Capital.

[3] BeatThatQuote was a client of my firm.

Where are the Jobs?

Unemployment is rampant.    One million youths out of work.    Where will the new jobs come from?

The answer to this question comes in two parts:   the Good News and the Bad News.

 First the bad:

• The world, not just the UK, is undergoing a structural change akin to moving to cars from horse-driven carriages.    In the same way that we moved to an age of electronics after the second world war, we are moving into a new age where all business is driven by networks, and the remote control to your life is your mobile phone.  That means that the job you will eventually get may not be like the job you had.   We – you – are not waiting for the economy to come roaring back, and just get hired by the same type of firm, doing the same type of thing, but you are looking for a new type of job.
• Secondly, a job is not a job is not a job.   Government in its entirety is a cost-center to society, so we desperately need to create not just jobs, but private sector jobs.   Each job in government that gets created just is a further weight around the neck of the country.   
• Thirdly, with the globalisation, you may be based in Devon, Leeds or Glasgow, but your employer might be on the opposite side of the world.    You must be open to that reality, and not shut yourself off from those employers in your quest for a local job.
• Fourthly, the men from the government can do nothing to help you.   The unemployment that we are experiencing now is not like the unemployment of the 1981, 82 recession.    They cannot fix the problem by throwing money at the situation.   The country doesn’t have the money, and government and politicians aren’t leading indicators of where the world is going.    Businesspeople and entrepreneurs are.    Don’t ask what the government is going to do.   Follow the entrepreneurs to find out what they are spending their time on.

 Now the good news:

• More than ever before, the tools exist to make yourself more attractive to employers, to create your own job, and to connect and communicate with people who share the same passions and interests as you do wherever they are.   
• Many of those who are unemployed will end up working for themselves.    We used to call this freelancing, but it’s become rather fashionable, and many find that the flexibility and freedom outweigh the unpredictability of personal income.    In fact many people who were laid off will say that it was the best thing that happened to them as they needed the kick to set up their own kitchen table business, or become a consultant of this or that, and that “having to” set up their own firm got them to a better place.
• The web enables individual empowerment as never before.   You can blog about your interests.    You can learn about new things and become an expert more easily through online education and free digital information.   You can create a personal webpage to house all of your professional information, update your Linkedin Network, and do research on companies very easily.
• By extending your networks online through Facebook, Linkedin, Twitter, you can build professional contacts and learn of business opportunities and connect with people in other countries, and find ways of providing services for them locally.    Increasingly, your “natural market” is not defined by geography, but your customers are simply people who want what you sell.     Thinking more broadly helps you to spot the opportunities.

 There are other steps that we can take to create more employment as well.   These fall into 3 categories:

1. Be Patriotic

The UK has a brand as a nation which attracts people to it because of its business people (Branson, Dyson, Beckham), musicians (Beatles, Stones, ColdPlay), unique cultural interactions and sporting events and the way that it has organised society.

British Polo Day - http://www.britishpoloday.com/ - is a perfect example of a new company which takes an old British sport and cultural phenomenon, and is using the web to build a new global community around an element of British culture.

But equally, our healthcare and education services are unborn multi-billion pound industries, capable of delivering GDP to and for the UK.    If you have patriotism in you, be proud that British entrepreneurs such as the founders of PatientsKnowBest, Circle Partnership, Trial Reach, IHP Clinics, and nGage are taking the best of British medicine and service cultures to the world, and trampling the competition.    The much-loved healthcare industry is opening up – regardless of your ideology or what the government tries to do or not, and it is a good thing.   None of this touches what should be the sacrosanct position of universal coverage.    However, private businesses – fast-growing, entrepreneurial firms – not private equity or bankers can frequently deliver these services best for more people.   The purifying flame of profitability ensures greater sustainability of our health services, and surely sustainability is a positive thing.

1. Leverage the digital native skills of the UK’s young people

What young people have in spades is an understanding of the new digital frontier.    They live their lives differently than those of us in our 40’s.    They have a more porous border between public and private, between business and personal.   They understand individual, consumer behaviour on mobile phones; this can be worth millions in focus group research.   So, for big UK enterprises, don’t hire the consultants; hire the digital natives – employ hundreds of young graduates, and ask them to use your products and services, make reports about the industry in which you operate in, and listen to their recommendations in earnest.

1. Seek out your Natural Allies

It is easy to be frustrated with the lack of jobs, and not want to engage in any of the above.    Looking for a job can be soul-destroying, and feel like you are looking for a needle in a haystack.   But where there is change, there can be tremendous opportunity.

Think of your skillset in terms of how you can be useful to your “natural allies”.   

• If you are an accountant, can you provide interim FD work to the neighbourhoods’ small businesses? 
• If you are a banker, why not use your transactional expertise to structure industries like the creative industries which would benefit from people who know how to turn creativity and ideas into transactions and money?
• If you are a naturally organised person, good at detail and strong on sales with some digital expertise to boot, why not offer to set up a second bedroom for hire exchange in your neighbourhood, and help your community leverage an asset that they have but can’t monetise?
• If you are really good at digital things, why not offer to give people training courses to get them into the digital world in your neighbourhood?   

 If you think of yourself as providing a service, and reach out to the people in whose interest it is for you to be successful, you can’t help but find opportunities and jobs.

 The world of 2012 will force you as a job seeker or employer to be more creative, more sales and marketing-focused, more curious about the world, and more of a business person than ever before.   The network-orientation to this new world means that you must be connected – be online, or you slip further out of the center of things.   However, there is a great deal of empowerment to be had, and sometimes, out of great change, comes great opportunity.   Embrace it with optimism, and you may find your dream job.