VC or not VC....starting up in London 2008

Mike Butcher has written a very good article on the London VC / startup scene over at TechCrunch UK. Some excerpts and some comments:

A few VC firms are starting to realise they have boards packed with people who don’t contribute anything to the bottom line of the firm and aren’t actually able to keep up with the fast pace of developments in the market today. If you are a startup looking for VC backing, look into who is on the board. If the board has people on it who reflect the right kind of knowledge about the broad issues of entrepreneurship and the tech market then this is a good sign. If it is stuffed with a lot of old suits who did well in the 80s but barely understood Fax machines when they launched, think again. Perhaps that sounds harsh but these are the people your personal VC contact may have to convince about your startup.

I think this is a very pertinent point, I would add that an entrepreneur should also be very wary about who they wish to put on your board, and also who they may want to send in as advisors - I have seen some serious damage done in this way - still makes me cross thinking about some of 'em

Advertising, despite many nay-sayers, is going to be a deeply interesting business model for some time to come. The simply fact is that there remains billions of dollars which have not been spent online, but which economic issues like the credit crunch will start to push online. Why? Because online is measurable, off-line it is not.

Exactly...the issue right now is not metrics per se (there are gazillions of 'em, if anything its the choice that confuses) but understanding what those metrics actually mean, which are key, how to use them predictively etc. However, there are some things to know:

- The global Ad industry is a c $0.5tr industry - Telcoland is c $2tr for comparison - ie there aint enough Ad money for everyone, even if 100% spend is online
- The Ad revenue values for sites that can't deliver volume or targets will not be linearly less, but geometrically less - ie the revenue will likely be distributed by a power law stronger than actual attention distribution, due to the transaction frictions of Ad-serving

In other words, advertising in a me-too will not work unless there is serious traction - for e.g our analysis show that Web TV is getting CPM's nearly 2 orders of magnitude higher than Social Networks (thus its odd that the relative valuations are inverted - fashion plays a bigger role in this arena than many acknowledge)

But the smart ‘western’ startups are finding ways of working in a pan-European manner. I have lost count of the startups I have met in continental Europe who say things like “Our head offiice is in Copenhagen, but our developers are in Warsaw, our VCs are in London and we have a biz-dev office in San Francisco”. Outside of the US, all of these people are an hour or so away on a plane (remember to carbon offset your flight though!). It is precisely this “Think Europe” attitude which I personally would like to see more UK startups take on board (I will not bother lecturing my Irish friends about this - by and large they already do it).

I don't know if anyone has read "The World is Flat" or books of similar ilk, but the real advice is to Go East, but don't stop at Slovakia - keep on going, that's where tomorrow's customers are.

But let’s be in no doubt that the era of turning up to an OpenCoffee event in a loud shirt, talking loudly about “Web2″ and your social networking startup for owners of three-legged dogs is pretty much over. The same goes for the guys who have a great idea marketing to Gap year students who want to blog their trip…

Did I tell you about our silent mode startup selling loud shirts to Gap year students via social network blogs

Fred Destin, VC with Atlas Ventures, says “brace yourselves for a tough 2008“. His view is that investors have done a lot of deals in the last two years and now what faces them is a period of uncertainty. That means entrepreneurs need to get tough and “make their cash work even harder.”

In other words getting funded is still going to be like getting blood out of a stone .......... we shall see, I was at a research presentation recently that was saying that the Valley is moving from Fear Mode into "Greed Mode" when silly money is thrown at sillier companies.

Couldn't possible happen here of course....

Its an interesting balance...a McKinsey survey of the dotcom boom noted that no money was made (on a net basis across the industry) in SV VC after c 1998 - it was the people in early, taking the flyers when things were very unclear, who made the real money.

A little recession is no bad thing for the internet entrepreneur. Less able to fritter their time and money away in the real world, more people arrive online to swell the ranks of the potential audience. Plus office rental gets cheaper. And Europe’s base of angels and investors is likely to grow exponentially, as pointed out by Nic Brisborne of DFJ Esprit.

Give me another bubble any day (check out this song)......I recall trying to get funding for stuff in 2002/3 that were funded a few years later (and too late). I recall one conversation where the VC was concerned that the proposed business had (gasp) no profits yet. When we pointed out politely that if there were indeed profits, then taking VC money would be an unnecessary option, it was clear we were in Deep Fear country

Just one request......can we have company names without double-vowels and missing "e"'s before the obligatory "r" at the end.

Update - to be fair, I don't think the VC community is really where the UK's problems lie - imho its at the "Equity Gap" between "friends and family" and VC's - ie at Angel level - where London (and the UK) is broken, plus the unwillingness of the funders to help mitigate the Entrepreneurs Discount in the UK - so be keen to read Mike's post on that arena.