Hackers and Startups

There is a rather useful article in the NYT about how New York is starting to pop up as a startup hub again, after Silicon Alley shut down in 2002. But what really struck me is how much of it could equally be said about London. The following are to my mind the key arguments:

Firstly, a thriving scene of mutual assistance:

THE two dozen or so people arranged around wooden tables, warming their hands and bellies with steaming mugs of coffee and plates of homemade biscuits, looked like just another Sunday brunch set in New York. But members of this group had braved knee-deep snow to gab about cutting-edge ideas and as they introduced themselves the roll call sounded like a Who’s Who of digital start-ups: Foursquare, Hot Potato, Six Apart, Flickr, Flavorpill, Trust Art, Vimeo.

The New York Tech Meet-Up is held monthly, and as many as 700 people attend, a sign of the revival of tech businesses in the city.

“There’s a lot happening right here in our ZIP code,” said Dorothy McGivney, a former Google employee who is a co-coordinator of this group, the North Brooklyn Breakfast Club, and runs Jauntsetter, a travel site for women. Like the others, she had come to the brunch to help foster the growth of her little local community of entrepreneurs.

The group had its inaugural meeting in January and is among a growing cluster of informal meet-and-greets for the local technology and media industries. A recent installment of another monthly event, called the New York Tech Meet-Up and held in Chelsea, drew 700 tech enthusiasts.

The London scene has been quite vibrant for about 3 years now, but I think what is missing is the emergence of some real category killer companies. New York has already given birth to a few, such as Etsy and DoubleClick. London doesn't really have this - yet.

As to where the London category killers may come from, London is more like New York than Silicon Valley - it's a hotbed of the more traditional Media industries which are helping drive New York startups:

Of course, services can be developed anywhere. But because so many industries now grappling with the Internet are based in New York, the city is finding surer footing among its peers as a thriving tech hub.

“Book publishing, advertising, media and even the fashion industry are all located in New York. These are the main industries that are being reshaped and redefined by technology and the Internet,” says AnnaLee Saxenian, a professor at the University of California, Berkeley, who studies regional economics and technology entrepreneurship.

And somewhere to work is key - there is a rise of incubators and workspaces again:

Some of the more interesting breeding grounds in the city are technology incubators that nurture and mentor young companies. One example is the new Manhattan arm of Dogpatch Labs, which is backed by Polaris Venture Partners, an investment firm in the Boston area.

Dogpatch, which opened in January, offers start-ups a place to work, rent-free, for several months, along with the possibility of securing an investment down the line.

Another critical factor is the input of the Universities in the area:

Colleges and universities have long helped fuel the dreams of entrepreneurs. An early pillar of Silicon Valley innovation was Stanford’s dean of engineering, Frederick Terman, who viewed the university as an incubator for the electronics industry. More recently, Facebook was born in a Harvard student’s dorm room and Google first percolated in the heads of two Stanford graduate students.

Hoping to replicate those kinds of successes, schools in New York are increasingly collaborating with local start-ups. Chris Wiggins, a professor of applied mathematics at Columbia University, regularly brings start-up founders to campus to speak to students about careers in technology and is establishing an internship program at the school.

NYC Seed works closely with the Polytechnic Institute of New York University to help students there translate promising ideas into profit-making ventures.

London has some of the best universities on the planet, so no excuses there - but more co-ordination and collaboration is required, for Cambridge to still be ahead of London is extraordinary given the assets at London's disposal. The reason for this is the main London scene-killer - funding. There is still a bigger (or at least more active) VC scene in Cambridge. New York is getting that right again, and the meltdown in teh financial sector (another thing it shares with London) is helping:

New York’s flashier industries, including big media and Wall Street, have long dwarfed the tech sector here. And the dot-com implosion only reinforced that reality. The fledgling tech scene that was just beginning to hum in the late 1990s flatlined as dozens of Internet companies folded, pink slips replaced party invitations and venture capital firms took their investments elsewhere.

During the dot-com boom, “venture capitalists were just throwing dollars at every Internet idea on every street corner,” says Owen Davis, a serial entrepreneur and managing director of NYC Seed, an early-stage technology investment fund. “There was little critical judgment about business models and ideas.”

Since then, Mr. Davis says, the New York technology industry has been steadily coming back on line and has managed to accelerate despite the economic turmoil besieging other industries.

To my mind this is still London's main weakness. All the other areas coild be done better, but are not on the critical path. But nearly every London startup I know of in the new mesia/web 2.0 space that has found funding has had to go Stateside to get it, or fairly soon after an initial round. That (and I know some of my London VC friends will disagree) to my mind is the main thing holding London back. Its not that there isn't any money here, its just that there is not enough of it, and I am concerned its not going to the right places. I think there is still too much of a tendency to give money to the "right" sort of people, rather than the sort of people who are right.

Nice post by Fred Wilson re who drove the sale of Mint to Intuit for $170m - Management or Investors:

Here are some rules that I've learned over the years:

1) When the founders and management want to sell, the VCs ought to go along (within reason) because blocking a sale and having angry and unhappy founders and management running the business is a bad outcome.

2) VCs often impact the price and terms of an exit but they rarely drive the exit itself when the founder is still actively running the business.

3) When a company is doing really well, the investors rarely want to sell. VCs make all of their money on a few investments per fund. When a company is in that group, they don't like to see an early exit.

4) When a founder owns a large stake in the business and is still running it, it is very likely that the founder drove the decision to sell and the sale process and was advised by the investors and board.

5) If the founders are no longer involved in the business and the management was hired by the VCs, and the VCs control the business, then it is likely that the investors drove the sale process and the decision to sell.

6) If the company is not doing well, then the decision to sell was likely forced by the VCs.

This leant itself to a little game theory truth table, which I've drawn up above. What it also shows is a case that is missing in Fred's analysis, ie where the company is doing badly but the Founders are still in control. In this case my observation is that the founders usually try and keep going, but as they take in more cash they get diluted until they lose control, at which time a sale is forced.

That Top Right Hand box may well explain why the investors let the Facebook guys sell and lock in some of the benefits - far better that than the Founders/s (I lose track of who exactly founded Facebook) force a sale. If the investors thought Mint was such a good company one assumes they could have followed suit?

RedBeacon wins it, says TechCrunch, but its essentially just a service that matches local service providers:

Using the site will be easy for anyone who has used a local review service like Yelp. Simply type whatever service you’re looking for (be it plumber, gardener, or hair stylist), and the site will present a list of recommended service providers in your area. RedBeacon also employees natural language processing so it can figure out exactly what you’re looking for (for example, “Cupcake maker” would search for any bakers in the area). The site will then present a list of profiles for each match, featuring reviews and comments from other users, basic information like their hours, and star reviews imported from Yelp.

Good luck to them, but I wouldn't have thought this was a major online business play, there will be a huge amount of traditional "shoe leather" selling into local SMEs etc to get it to work. I wrote this in the comments section:

These sorts of businesses are already around in many local areas, we’ve had one like this where I live for years.

There is no competitive advantage, no unique technology, no barriers to entry, very hard time capturing a mass market, very difficult to scale….

I have no particular axe to grind re TC50, [or RedBeacon] but choosing this as a winning business seems daft. One wonders what the selection criteria were.

I really do wonder about those criteria. Still, the publicity should ensure a tidy sale to Yelp or similar in a year or so.

In my opinion there were better companies at TC50 and better ones not even selected to go. Maybe Paul Carr will have an idea if he is still employed there

FFI Plain Preferred Term Sheet -

There has been quite an outbreak of rational behaviour in startupland in recent weeks, the gist of it being that a set of simplified agreements could be used rather than individual negotiations every time. This would save a lot of money in legal fees as wll as time and hassle. I was reminded of this via TechCrunch's post on TheFunded's Adeo Ressi's Sample Memorandum (see above). I have a few other articles on the spike about this too:

Firstly, Chris Dixon did an excellent summary of very common terms over here. The post is so good I've reproduced it entirely:

I have come to believe there is a clearly dominant set of deal terms. Here they are:

- Investors get either common stock or 1x non-participating preferred stock. Anything more than that (participating preferred, multiple liquidation preferences) divide incentives of investors and the entrepreneurs. Also, this sort of crud tends to get amplified in follow on rounds.

- Pro rata rights for investors. Not super pro rata rights (explaining why this new trendy term is a bad idea requires a separate blog post). This means basically that investors have the right to put more money in follow on rounds. This should include all investors - including small angels when they are investing alongside big VCs. There are two reasons this term is important 1) it seems fair that investors have the option to reinvest in good companies - they took a risk at the early stage after all 2) in certain situations it lets investors “protect” their investments from possible valuation manipulation (this has never happened to me but more experienced investors tell me horror stories about stuff that went on in the last downturn - 2001-2004).

- Founder vesting w/ acceleration on change of control. I talk about this in detail here. If your lawyer tries to talk you out of founder vesting (as some seem to be doing lately), I suggest you get a new lawyer.

- This stuff is all so standard that there is no reason you should pay more than $10K for the financing (including both sides). I personally use Gunderson and think they are great. Whoever you choose, I strongly recommend you go with a “standard” startup lawfirm (Gunderson, Wilson Sonsini, Fenwick etc). I tried going with a non-standard one once and the results were disastrous. Also, when you go with a standard firm and get their standard docs it can expedite later rounds as VCs are familiar with them.

- A board consisting of 1 investor, 1 management and 1 mutually agreed upon independent director. (Or 2 VCs, 2 mgmt and 1 indy). As an entrepreneur, the way I think of this is if both my investors and an independent director who I approved want to fire me, I must be doing a pretty crappy job and deserve it.

- Founder salaries - these should be “subsistence” level and no more. If the founders are wealthy, the number should be zero. If they aren’t, it should be whatever lets them not worry about money but not save any. This is very, very important. Peter Thiel said it best here. (I would actually go further and say this should be true of all employees at all non-profitable startups - but that is a longer topic).

- If small angels are investing alongside big VCs, they should get all the same economic rights as the VCs but no control rights. Economics rights means share price, any warrants if there are any (hopefully there aren’t), and pro-rata rights. Control rights means things like the right to block later financings, selling the company etc. I once had to track down a tiny investor in the mountains of Italy to get a signature. It’s a real pain and unnecessary.

- Option pool - normally 10-20%. This comes out of the pre-money so founders should be aware that the number is very important in terms of their dilution. Ideally the % should be based on a hiring plan and not just a deal point. (Side note to entrepreneurs - whenever you want to debate something with a VC, frame it in operational terms since it’s hard for them to argue with that).

- All the other stuff (registration rights, dividends etc) should be standard NVCA terms.

- Valuation & amount- My preference is to keep all terms as above and only negotiate over 2 things - valuation and amount raised. The amount raised should be enough to hit whatever milestones you think will get the company further financing, plus some fudge factor of, say, 50% because things always take longer and cost more than you think. The valuation is obviously a matter of market conditions, how competitive the deal is etc. One thing I would say is if you expect to raise more money (and you should expect to), make sure your post-money valuation is one that you will be able to “beat” in your next round. There is nothing more dilutive and morale crushing than a down round.

I also have the Venture Hacks analysis of option allocation, hat tip Christine.net

"To allocate the option pool from the hiring plan, use these current ranges for option grants in Silicon Valley:

Title Range (%)

- CEO 5 - 10
- COO 2 - 5
- VP 1 - 2
- Independent Board Member 1
- Director 0.4 - 1.25
- Lead Engineer 0.5 - 1
- 5+ years experience Engineer 0.33 - 0.66
- Manager or Junior Engineer 0.2 - 0.33

"These are rough ranges – not bell curves – for new hires once a company has raised its Series A. Option grants go down as the company gets closer to its Series B, starts making money, and otherwise reduces risk.
the
"The top end of these ranges are for proven elite contributors. Most option grants are near the bottom of the ranges. Many factors affect option allocations including the quality of the existing team, the size of the opportunity, and the experience of the new hire."

Then there was Fred Wilson on the travails of Tranche Investing, which partly comes about because the transaction costs of any particular round are so high:

I agree with Chris that tranched investing is a bad idea all around. But first, let me explain how it works.

The entrepreneur will agree to raise a set amount of money, let's call it $3mm for a set amount of equity, let's say it is 25% of the company ($9mm pre, $12mm post). If it is three tranches, then $1mm will come in at the first closing and the entrepreneur will dilute 8.33% (1/3 of 25%). There will be a set of agreed upon milestones set in advance. Let's say tranche two miletstone is the shipping of a product and tranche three is the first contracted revenue for that product. When each of those milestones is hit, the investors will invest the second and third $1mm tranches and the entire round will be completed and the full 25% dilution will have been taken.

Let's be honest and see this as what it is. It's an option for the investor to put more money in at the old price as the investment increases in value and the risk is mitigated. It's a bad deal for the entpreneur and a great deal for the investor.

But as Chris explains, there are other problems with this approach:
Milestones change anyway: At the early stage you often realize that what milestones you originally thought were important actually were the wrong milestones. So you either have to renegotiate the milestones or the entrepreneur ends up targeting the wrong things just to get the money.

The idea that you are going to hard wire the key goals of an early stage company is nutty. The best entpreneurs weave and bob their way into the market, changing things as they go. Setting hard goals is a mistake early on in the life of a company.

You all know this blog well enough to know what we're thinking, right

Thats right - why now? Why, after all these years of VC handle cranking is everything being changed? Standardised T&C's, and even the worker bees getting some money early like at Facebook?

Some people hypothesize its the open nature of the Internet, information flows around so fast now that it will force transparency and homogeneity into the market. We think its much simpler than that - its about transaction and opportunity costs.

Transaction Costs

Simply put, Moore'Law seems to apply to startups too - at least it has since abput 2000 - ie every 2 years you can launch the same startup with half the money the last one needed. This means that after 8 or spo years they are starting up on 1/10th the costs of the dotcoms, so having £30,000 ($50,000) terms negotiations makes no sense - the transaction costs more than the company.

Opportunity Costs

Most startups aren't worth the wallpaper they buy after about 18 months, but some make a lot of money. Those are the nes every Funder wants. But, in a world of little differentiation between funders (everybody will introduce you to the right people, hire the right talent, yadda yadda), and the probable oversupply, one way to differentiate is to hand value back the entrepreneur. And instead of handing back the funders' stake, this way they hand back cash consumed in the early stages - gold dust to startups - while keeping stakes and valuations

Update - interesting discussion from VentureBeat on how, owing to a combination of lower cost to startup and nervous climate, "Seed" funding ($0.5 - $2m) is the new "Series A" ($2-5m) - but beware:

Many VCs will propose a seed deal using a Series A term sheet (whether by design or mere convenience), and this can end up costing the company much more than it bargained for. Here are some tips for entrepreneurs when negotiating seed deals (with the caveat that each deal is different, and rarely will an entrepreneur get their way in all of these categories):

- Don’t give away too much of the company too early. VCs shouldn’t expect more than around 20-40% of a raw start-up when investing seed-stage.
- Avoid giving investors more than a 1x liquidation preference, and try to ensure that it is “non participating” (i.e., after the investors’ preference is taken, all remaining proceeds are allocated only to the holders of common stock).
- Don’t give investors Series-A-type control rights. A VC should expect to receive one board seat, but not to control the board, following a seed financing. Also, while it is customary to give investors voting “block” rights on financings and on a sale of the company, entrepreneurs should avoid granting voting rights that give VCs blocks on operational matters at this stage.
- Keep other “investor rights” to a minimum. For example, try to avoid granting demand registration rights, ROFRs on founder stock transfers or drag-along rights.
- Many VCs will want a “super-pro rata” right in seed deals, giving the VC the right to increase its ownership percentage in the next round. This is not necessarily unreasonable, but take care to ensure that in agreeing to super pro-ratas the company is leaving room for a new VC to lead the next round.
- Beware of the negative market perception that results when the VC that seeded your company declines to participate in the Series A. This happens. Raise this issue with the seed VC early on to assess the risk of this happening, and always keep your communication channels open with other VCs interested in what you are doing.

On the other hand, Seed funding is far more risky, so the funder will require tighter safeguards......

Scott Rafer blogs on his lessons learned from Lookery's demise:

Coulda-Shoulda #1. We exposed ourselves to a huge single point of failure called Facebook. I’ve ranted for years about how bad an idea it is for startups to be mobile-carrier dependent. In retrospect, there is no difference between Verizon Wireless and Facebook in this context. To succeed in that kind of environment requires any number of resources. One of them is clearly significant outside financing, which we’d explicitly chosen to do without. We could have and should have used the proceeds of the convertible note to get out from under Facebook’s thumb rather to invest further in the Facebook Platform.

Coulda-Shoulda #2. Predictably and reasonably, Facebook acted in their own interest rather than ours. Their Summer 2008 redesign supported Facebook’s goals elegantly but hurt our publishers and us in ways that became clear just weeks after we’d raised another ~$2M. At this point, we made a mistake endemic to startup people. We followed our natural inclination as problem solvers rather than getting out while the getting was good. If we’d sold the ad network the minute we understood that we could no longer make it successful, we would have saved a couple hundred thousand dollars in working capital. Plus, the ad network would have fetched three to five times its low-six figure sale price less than 60 days later. That’s a million dollar mistake I made in a very short period of time. I should understand sunk costs better than this.

Coulda-Shoulda #3. Once we sold the ad network, I fell into a bad old habit — persuading my team to build something before the market was ready for it.... .... Lookery’s Profile SaaS/universal cookie mechanism is far more economic and effective than cookie exchange systems in a world where ad media and targeting data are separate commodities. That world is a year or more in the future.

As Scott notes in hindsight:

.....there are three key moments at which a different and defensible decision might have made all the difference. In chronological order, the sins Lookery committed under my leadership were continuing our dependency on a large partner (March 2008), not knowing when to cut bait on a failing asset (September 2008), and building ahead of the market (December 2008). I and we made any number of other mistakes, but all the rest were correctable.

This is a gentleman's post from a chap who clearly has some integrity, and kudos for writing it. To be fair, cutting bait is a damned hard thing to predict and time, and the whole essence of entrepreneurialism is to build ahead of the market, so I think (iii) above is beating ones self too hard with hindsight. The strategic point is well made, and it equally well applies to people building stuff now on Twitter's API.

There is another lesson I take away from all this though - there will always be people willing to fund these businesses (looking at those lining up to fund Twitter API based based startups it seems thaey forget nothing and remember nothing, as it were...) So, would Lookery have been better off to grab a lump of outside money to give them runway to change the model after it was clear Facebook was a dead end? Another year or two of sitting pretty wouldn't have hurt right now methinks.

Sarah Lacy, writing in Businessweek says that Facebookers who opt to take 25% of their options now (there is a $100m share buyback scheme pre IPO in operation) are "mercenaries":

What has happened to the startup work ethic in Silicon Valley? Time was, the region was teeming with believers—be it believers in a company or believers in the sometimes naive, lottery-ticket hope that options would make them billionaires. People who work at the most highly valued startup in Silicon Valley and rush to sell for a smaller valuation—just as an IPO is starting to look likely—aren't believers. They are mercenaries. What's next? Giving up options altogether for a bigger paycheck?

Now, to be fair, Sarah is trying to debate the wisdom of giving employees cash early, and whether this is the End OF Days for the Silicon Valley model:

Silicon Valley was founded on the belief that stock options were worth something—and that something was a big windfall at an exit, when the whole company watched that ticker crawl across the Nasdaq for the first time, calculated their paper net worth, and popped open the champagne. Does it always work out? Of course not. But that is why it's considered high risk, high reward. How has this gotten so lost on people? Are we just so jaded that we can't believe in promises anymore, even at a company like Facebook?

But here's the acid test - a vote for all of you out there - would you:

(i) take 25% of your options now on an (over) valuation of $6 odd billion and wait for the (sure-fire) squillion dollar IPO in (insert your date for first pass profitability for Facebook) with the other 75%, or

(ii) put all you eggs in the basket for the IPO, knowing that for most Social Nets, time in the sunshine to date has been dazzling but brief and they may be yesterday's news before jam tomorrow comes.

Of course you would put all your eggs in one basket and vote for (ii). Not.

What is more interesting is to ask why founders, VCs and all are actually using these early payff models now - what has changed to make the old "Pot of Gold x very low probability" model falter. Why the moves to reduce the risks?. Given that Ms Lacy has apparently written the deep expose of how The Valley 2.0 works, its surprising that she hasn't talked about why this has occurred......

Thing is, in this year 9 AD (After Dotcom), employees aren't as naive and appreciate the risks far better. Once you are unlucky, twice you smarten up. There are mercenaries, and there are Enron employees......

And there must have been some form of power shift between founder and funder to create this change. My (top of digital napkin) hypothesis would be that:

(i) Consumer SocNet Tech is a butterfly game - they are all beautiful, but another more beautiful one will flit by any second now

(ii) The IPO market is far less certain, there is a Decession on

(iii) Most tech sales are trade these days, and no one is (probably) mug enough to hand over several billions for a SocNet after seeing the Friends Re-United, Bebo, MySpace, Friendster et a Great Depression in values.

(iv) There are many funders, all trying to shore up their portfolios, all chasing few founders of reasonable companies in this space, so the one with the biggest brib...- I mean, most jointly rewarding terms - wins

Update - interesting take on this over at CloudAve, who note:

....the vaunted “ecosystem” for startups in the Valley consists of two legs - 1) Capital and 2) talent that can be hired to build that innovation out. Number two has traditionally signed on for the long haul and been willing to hold out for the big win. But that group (in the Valley) appears to be changing; becoming more like the rest of the workforce.

That means there are now pockets where the community ecosystem is alive and growing (hire-able talent), and that the “distribution” of innovation out of the valley has really begun in force. You can see those pockets in places like the Twin Cities, Boulder, Austin, Portland, Boston, etc.

I must note that I use Enron as a graphic way of illustrating the perils of single baskethood (and my sympathy for its victims). This post in no way implies that Facebook is in any way run like........ By the way, the comments are worth a read too

Nice post by VC and blogger Fred Destin, explaining the dynamics at work in the VC industry at the moment:

A number of effects are at work here:

- LPs closed for new business: Many funds are either failing to raise or are deciding to postpone their fundraising. Hence they have to live for longer with the cash at hand. That means reduced investment pace and a generally defensive stance.

- Companies in need: Companies are needing more cash. Even late stage "safe" businesses suddenly revert to spending hundreds of thousands a month as they grapple with a tough economy and expansion plans gone wrong. Exit are few and far between and the alternative sources of finance have dried up (venture debt, public markets etc).

- Optimistic funds chastened: Most funds were under-reserved for this crisis. In other words, the ratio of reserves held back versus capital invested was too low. Now, as you decide to hold back say $2 per $1 invested, all of a sudden cash planning shows a massive gap. The result is ruthless portfolio triage and weakened syndicates.

- Uncertain future: most of all, lack of visibility on when this crisis ends and when liquidity returns block decision making and risk taking

- Existential crisis: the industry must shrink, the GP's often need to reinvent what is they do, the legitimacy of the sector as a whole is in question. Behind the short-term angst are some good questions about the abundance of fairly undifferentiated venture capital out there chasing fairly undifferentiated deals in shrinking niches. But more on that some other day.

Net-net, the result is a two speed market where

- Atlas / Accel / Balderton/ Index / Wellington / Greylock / fill the blank are fighting hard for the "must-do" deals (wonga, just-eat, spotify etc)
- 75% of companies receive a firm but polite "no thanks, unless this is a recap" and are having to rely on their existing syndicates

(Of course those hot startup chasers are setting themselves to overpay and look dumb later - I hear Joost had to beat 'em off with a stick, and now look.... so, Wonga? Spotify?)

As he points out, the industry is seeing some rays of hope (the new Birch/Hoberman fund, for example) but overall it feels to Fred (and me) much like 2001-2003. As Fred says, "For most companies out there in the "grey zone" (worthy but not obviously hot), it's tough and it's going to remain that way."

Now in theory, one of the big changes today is you can start a company on an order of magnitude less money. That is true in the very early stages, and for specific types where the users can be suckered into doing a lot of the work, but for most TMT (Telecoms/Media/Tech) companies the largest costs are in the wetware, not the software or hardware, and salaries haven't dropped hugely from 2001 last time I looked.

Maybe that is why we are seeing "Not For Profit" outfits now intruding into all sorts of areas previously considered commercial, simply because there is more grant money than commercial money around today for startup types (and there is far less legal oversight of NFPs - so this will all end in tears, but that's for another article)

This has been on the spike awhile awaiting a free coffee break, Some time ago Paul Graham wrote this piece on the difference between managers and makers. And having done both jobs, I felt someone had to stick up for the much maligned management:

There are two types of schedule, which I'll call the manager's schedule and the maker's schedule. The manager's schedule is for bosses. It's embodied in the traditional appointment book, with each day cut into one hour intervals. You can block off several hours for a single task if you need to, but by default you change what you're doing every hour.

When you use time that way, it's merely a practical problem to meet with someone. Find an open slot in your schedule, book them, and you're done.

Most powerful people are on the manager's schedule. It's the schedule of command. But there's another way of using time that's common among people who make things, like programmers and writers. They generally prefer to use time in units of half a day at least. You can't write or program well in units of an hour. That's barely enough time to get started.

When you're operating on the maker's schedule, meetings are a disaster. A single meeting can blow a whole afternoon, by breaking it into two pieces each too small to do anything hard in. Plus you have to remember to go to the meeting. That's no problem for someone on the manager's schedule. There's always something coming on the next hour; the only question is what. But when someone on the maker's schedule has a meeting, they have to think about it.

For someone on the maker's schedule, having a meeting is like throwing an exception. It doesn't merely cause you to switch from one task to another; it changes the mode in which you work.

Akshully, this sort of work was done yonks ago by white collar productivity specialists (aka Taylorists). The tradeoff for the Maker is setup/teardown time vs process time, its a calculation nearly as old as work study itself and basically says don't disturb people who are concentrating on long setup stuff stuff with phone calls etc. Makers may be aghast to know that the algorithms are called thing like "N jobs on M resources" calculation. "Manager" work, being less concentration intensive, requires shorter setups/teardowns so can run in smaller "batches" of time (one of which may be used to calculate the N jobs on M resources).

But, what Paul conveniently forgets (or, to be kinder, maybe his Y combinator companies are so small that minimal co-ordination is required) in his polemic is Money. Yes, dear reader - above a certain size of company, assignment size etc it is far, far cheaper to chuck the Makers off their precious concentration time to find out what they are doing, as (bitter experience here, believe me) you can find they can be doing any number of the following:

- The wrong thing (or more likely, something that is interesting but not the customers' priority and thus the Stuff That Will Pay The Salaries)
- Not collaborating with the other bunch of Makers over there to get a joined up process, which is unfortunate as Maker Group A's stuff relies on Maker Group,B's stuff etc etc
- Re inventing something that we already have/can get/needs a bit of modification because its is not "perfect"
- Going down interesting side tasks rather than (boringly) fixing the critical path stuff that generates on-time delivery and thus money and a removal of the threat of penalty clauses
- Neglecting irksome tasks like documentation, version cotrol, configuration management and testing because thats like, dull - but not doing it early plays havoc with support costs
- Just generally f*cking up (sorry, "requiring re-orienting towards company and objective priorities")

In other words, unchecked Makerdom can chuck Money down the drain pretty fast. Its symbiotic you see - no sales without product, no product without sales........

Now, this is not to say one can not minimise Maker setup/teardown times - meetings first thing in the morning or later in the afternoon, catching them when they are playing foosball in the canteen etc) - but as any Mathematician or Manager can tell you, a company runs as much on money coming in and going out as on stuff being made..

Went to the Glasshouse "Show me the money" event last night, VC Nic Brisbourne from DFJ Esprit, Michael Birch (who sold Bebo at top of market, see the AOL-Bebo Value Transfer Equation here) and banker Andreas Lazar (Allen & Co) were cajoled by Rory Cellan Jones into showing us their wads. Here are my notes of the responses to the questions put by Rory, Audience etc:

1.Climate for Investment

Nic - UK Investment c £100k per quarter, when good times return then big co's will buy startups again - its a cyclical industry

Michael - Now fewer people lending. If able to pursue a business without money far better

Andreas Good time for Allen to start up in London, lots of requirements for advice. Different crash to dotcom as there is no loss of confidence in tech this time but it's a bigger crash impacting capital - but funds are being raised. Deals are going to businesses with clear paths to making money. (Anyone remember the P2P drumbeat in 2001 - where P2P = Path 2 Profits)


2. Investments

Nic - invested in Graze (food), William Reeve (ex Lovefilm, trusted and known) is chairman

Michael - invested in Tweetdeck because it had Tweet in it (option theory investment)

Andreas - make personal investment in people he knows who are successful. Recently invested in a Patent business system (didn't catch the name).

(I wanted to ask re overconfidence in previously successful people eg Zennstrom et al and Joost, but Rory did it for me - but this isn't going to change in a hurry, its like no-one getting fired for buying IBM )


3. Angels and their role

Once companies get off ground it's helpful to have institutional investors ( Andreas)

Birch's new fund is "between Angel and VC", seem to still be making it up a bit as they go.


4. Paul Carr's view on Web 2.0 and the London wasteland?

Nic - London is growing, was nothing 10 years ago

Andreas - Allen voted with feet (set up in London in 2008), and SV VC's are now investing in UK and Europe

Michael - lots going on in London but Valley still bigger


5. A Rallying Call for eager Entrpreneurs?

Andreas - figure out how to make money in biz plans

Michael - try not to have to raise money


6. People still need to go to US? Are there other routes to valuation?

Birch - look at the stages - no point if small as no one will give you money


7. How do you value businesses with no revenues?

Andreas - need to explain how you make money


8. What's the % take and investment size from panel members

Andreas - Allen & co - £15m and 5%

Michael - between Angel and VC - (iirc he said £250k and up?)


9. What dotcoms would you resurrect now, ie they were ahead of their time?

Nic - Very seldom is the successful company the first one into space

Andreas - most good dotcom ideas have now been done


10. Current Exciting Stuff

Michael - music

Andreas - virtual goods

Nic - businesses that do good things and e-Commerce plays with high growth potential


11. Any deals where founders claw back equity on achievements?


Nic - no, ratchets are a sign of poor initial valuations

Some of Rory's question pitches were very funny, he's good value. Good speakers, good compere, nice place. As to the Glasshouse's own business model, the "Show Me The Money" ploy was clear - only one free drink and no nibbles for a paid evening event

Yesterday TechCrunch UK ran the Geek n Rolla event, mainly for new technology startups but also covering some other elements. My main interest was to see whether the startup community had taken notice of The Crunch, and what had changed from the go-go times of a year ago.

I was tied up in the morning so only arrived in time for a fairly interesting (in all senses of the word) panel on Women in Tech. The issue of "why there are fewer women in Tech than men" crops up perennially and usually circles round with no conclusion. No change this time, but the ante was upped by the Daily Telegraph's Milo Yiannopolous taking the contrarian, un-PC, (and inaccurate in my experience) "its natural that men are better at some things and its OK". Gets you fired from Harvard but got Milo mild admonitions and (according to him anyway) lots of private support.

Ah well.....I go back to Janet Parkinson's work last autumn in Berlin which showed that there are more women on-web than men, controlling more spend, and they use the quite Web differently - so anyone who designs applications for what women want has probably got a competitive advantage that most (male built) sites will never understand. I recall Wired's Ben Hammersley going hammer and tongs at her in Berlin when all she had done was assembled a basic fact base of these things (see the link above) , so there is clearly something deeply visceral in some men about admitting all this stuff, which Milo clearly tapped.

Anyway, what about the Crunch? There were quite a few useful talks on this:

- William Reeve, an experienced entrepreneur, gave a rational and dispassionate analysis of how two companies in the same space (Lovefilm vs Screen Direct) can be so totally differently run, and the difference between a bootstrapping culture and getting too much funding too early. He also touched on designing for scalability early, a drum we bang too. William's talk is online here.

- Nick Halstead of Tweetmeme on getting Angel funding, and how it was like herding cats. He also talked about how all negotiations can change up to and including the last minute, and the issues around board structure with multiple angels.

- Lesley Eccles of Hubdub outlined their strategy of running a company from Scotland but aiming at the US market "because thats where the money is" (from the large customer base and funders. Proves that you don't have to be SV based to take US money.

- Reshma Sohoni of Seedcamp went through the funding models of their funded companies. I was quite amused to see "Freemium" has now replaced "Advertising" as the business model de jure (see this post on the Seedcamp companies from last year) - I hope it works out for them, as its a far from proven model. Reshma and others noted that all the evidence is that "Freemium" has to be designed in from the beginning.

- Fred Destin of Atlas talked about getting VC money in tough times - team, tech and market size important as always but I heard much more focus on "show me the money" in the business model than has been prevalent in the last few years. Also, us Europeans are far too polite vs the Israelis, Indians and Americans

As always there is the socialisation, I throughly enjoyed the Pizza n Rolla dinner some of us had afterwards before the obligatory apres conference party (Geek n Rolla Ball?) - nice to meet existing Twitterfriends in person as well as FOWA's Ryan Carson. And clearly if this whole sector collapses then TechCrunch's Mike Butcher has a budding second career if his performance on the drums is anything to go by.