Archives for the month of: October, 2012

In Silicon Valley the early stage scene is propelled by the sheer quantity of startups, investors and other players that comprise the eco-system.  In London we don’t have this luxury and all have to try much harder, but do we?

We talked to VCs based in both the US and the UK and found many were extremely critical of the mindset of UK entrepreneurs.  One felt that entrepreneurialism was almost treated like a lifestyle business.  In the US there is little doubt that the best entrepreneurs set out to change the world and they work tirelessly to achieve that end. It is clear that the work ethic here in London is not the same. There is a particular breed of startup guy (usually guy) who wants to live the startup lifestyle, hangout in Google Campus and attend the many meetups offering free beers and pizza without ever making serious progress. Unfortunately, this is not the exception but the norm.  We need more of the archetypal geeks who lock themselves away and don’t come out until they have a world beating product.

We also need to individually invest more in our own startup education.  Here in the UK, we take a pride in saving money by getting advice from our mates for free. However, it is a false economy.  We can save time and reduce risk by getting it right first time.  To a large extent you get what you pay for with these things.  You can attend a drink fueled event and come out with little of value or you can pay a very small fee and get some real insights from experts who have been there and done it before.

I would argue that the high quality support is available in London.  However, it will only go to serious startup founders who understand the rules and know what makes a successful startup.  Both mentors and investors (often the same person) are attracted to founders who understand the critical success factors and follow them religiously. This is what being investment ready is all about.

Luckily, we are moving away from the days when it was enough to have an idea, to stalk people at networking events and to naively expect an investor to take his chequebook out.  Founding a startup is becoming more of a science and investors expect the first-time entrepreneurs to understand this.  They want them to have traveled a logical journey with proper attention to detail and a good level of understanding of the market, who their competition is and other critical factors.

We need a strong self reliant startup scene. We can’t rely on high levels of government intervention. To achieve this we must encourage a culture of high work rates, serious attention to detail and continual learning and innovation.

Dreamstake is a platform for early stage high growth potential startups. The platform provides support and access to an investor database via a highly sophisticated screening process. We are constantly on the lookout for top-quartile startups to introduce to our advisory board and other investors on our network.

 

 

 

Many founders that we talk to, believe that getting their startup funded is all a question of finding and approaching angel investors and VC’s. On the surface this looks logical: network like crazy, meet lots of investors and build up a little black book of detailed contacts. Unfortunately, it is nowhere near as simple as this. Investors are generally looking for highly screened investment opportunities. These will usually come through trusted individuals or via processes such as accelerators, contests or incubators.

We got some strong clues about this topic during our recent trip to Silicon Valley. One investor explained that it is like living in a sweetshop surrounded by sweets. These guys are bombarded by business plans all the time. They can only give each one a cursory glance.

The early stage investment market is especially highly fragmented. There is no such thing as a generalist investor. Investments are made by sector, funding required and even strategic alignment with previous investments. This means that the level of research needed to find the right investor is extensive. Even if a founder finds what looks like the ideal investor there is no guarantee they will connect. The investor will have received many requests for funding and differentiation is hard to achieve.

We also received feedback on the alternative methods of funding. Surprisingly, there are mixed views about Angellist. Several of the major VC’s do not use the platform. The reason is simple; Angellist does nothing to filter the deal-flow. Therefore they receive large numbers of business plans that the still have sort through. Of course, this rarely happens because they are receiving filtered leads through their trusted network.

The investment landscape is being shaken up by the alternative funding mechanisms such as accelerators, incubators and crowdfunding platforms. We received some interesting points of view on all of these. Accelerators in particular are highly selective and not necessarily in a good way. It is becoming increasingly difficult to attract a strong cohort. It is a problem of scale. The promotional costs of finding 60 great companies a year are extreme for anyone other the most established names. One VC felt there was a fundamental flaw with the accelerator process; a startup is hot, you need to get in quick – not wait until the accelerator process takes its course.

The case is still out on crowdfunding. Platforms such as Kickstarter have made an impact for investment in ‘projects’ in the US. However, the model is to allow small funding in return for payment in kind. In the US it is illegal to offer equity investment in a crowdfunding model. In the UK we are seeing the emergence of the first few crowdfunding platforms. It will be interesting to see how well these are able to cope with investor disappointment and issues related to obtaining further investment.

To summarise, most early stage investors are looking for highly qualified opportunities that meet their exact investment criteria and are introduced by someone who’s judgement they trust.

Dreamstake is a platform for early stage high growth potential startups. The platform provides support and access to an investor database via a highly sophisticated screening process. We are constantly on the lookout for top-quartile startups to introduce to our advisory board and other investors on our network.

A month in Silicon Valley is not a long time. However, with a packed agenda of VC and angel meetings, Techcrunch Disrupt conference and our very own event, we have absorbed a lot of learning. We can now report back with some constructive ideas on how the bridge between Europe and Silicon Valley might develop.

Of course, The Valley eco-system is really impressive and supports a continuous flow of innovative new startups.  However, even here it is only the very best that get funded and go on to achieve greatness. The investors are spoiled for choice and will only look at European startups in exceptional circumstances.
To get investment from The Valley, startups, firstly need to be highly prepared. This means ticking all the usual boxes; quality of team, business plan, advisors etc. However, this is unlikely to be enough. The VCs we met are searching for high quality deal flow and demanding that it is highly filtered and introduced through trusted third parties. They have expressed an interest in being introduced to the best startups on the Dreamstake platform. We will now be developing relationships with exceptional European startups and making introductions.

Investors looking into funding early stage startups are likely to make other demands. We now know that we will often need to find a lead investor in the UK and match with Silicon Valley VCs to provide the whole investment on a co-funded basis. Alternatively, other SV VCs will demand that startups relocate to California.

We see a clear role for Dreamstake in managing these complex processes. Firstly, we have built a database of strong European and US investors. Secondly, we have a strong flow of startups emerging through the platform. We will work with the top 1or 2 percent to ensure they get in front of investors by carrying out the necessary qualification processes.

As well as differences in the funding environment there were a number of other differences;

  • Things move with less friction. Europeans need to learn to react more decisively. In general, we found making meetings easier and had more definite outcomes.
  • All elements of the eco-system are stronger. Naturally, the pool of strong startups is larger. It is also easier for them to find quality mentors and investors.
  • There is a stronger network of incubators, accelerators and other such initiatives. These facilitate learning and introductions

So what to expect from Dreamstake upon our return?

  • Greater focus on identifying and developing potential ‘star’ startups. This will be facilitated through the Dreamrate system, which will be enhanced to give high levels of due diligence.
  • Enhancement of the investor database.
  • More proactive introduction of investment ready startups to the pool of investors.

We hope that the experience we have gained in Silicon Valley will help us to push ahead and make a positive change to the way the European startup scene develops. We have always believed that the web has the power to compensate for the lack of local resources by linking startup teams, investors and knowledge on a global basis. Our trip has only re-enforced that point of view.