Big market or mid-market?

As we develop our Trans-Atlantic growth model, investing in businesses with some UK traction and expanding them into the US, my mind is constantly being drawn to competitive advantages/disadvantages of the respective geographies. One of the advantages that is often quoted but I’ve never really heard explored at a more granular level is the size of the market, and I’ve been thinking about this particularly in a B2B context for SaaS or cloud companies. The fact is that US SaaS companies of a similar vintage seem to be an order of magnitude larger than our European companies, which often gives them access to more firepower in terms of financial resources, people on the ground, marketing spend etc.

While the fact that the US market is bigger is not disputable, my thoughts are drawn to the key aspects of the US market that provide an advantage to US start-ups versus their European compatriots, and whether we can consistently take advantage of those characteristics.

While I’m no expert in the vagaries of the mid-market itself I do get the sense that UK SaaS businesses tend to rely on big name companies and/or government for their business, while US businesses of a similar vintage seem to amass huge numbers of customers, most of them from the mid-market. Closing deals regularly is excellent for providing that drum beat that dictates the cadence of an organisation, irrespective of the size of those deals.

Some of the key advantages of the US mid-market appear to be:

  • Its big enough to provide a segment that aggressively adopt new product
  • Procurement is simpler
  • Getting to the relevant buyer is easier (though he/she isn’t always thinking so clearly about what they want)
  • The balance between getting things done and protecting your job is more favourable for suppliers
  • The American culture of risk-taking is conducive to adopting new products and services

Now clearly there are risks that go with these advantages – some good points here, notably it’s big so “aim before you fire”. But if we Europeans want to compete head on, we need to master selling into this segment quickly.

It was interesting to hear Eric Reis defining the three engines of growth (viral, paid and sticky) – but there are other ways of thinking about engines of growth – the British middle class driving consumer spending, the German Mittelstand driving their economy (arguably Europe) and today, the American mid-market driving efficiency and hence innovation through their demand for start-up products and services. We should be proud of the innovation coming out of this country, but the best way to shine a light on it is to turn it into big valuable companies exploiting the best markets to sell into that are out there.

Where does “TechmeetCity”?

I was persuaded to pop in to “TechmeetsCity” last night. Clearly there are a bunch of bankers who will be struggling to identify good places to squirrel away ill-gotten gains. From what I know of this market most of the real risk takers from this type of background don’t want to take much risk with their personal wealth as they view themselves as taking enough risk in their day jobs. So I’m a little sceptical but it’s worth a shot. Naturally there will be exceptions and the 50% tax rate definitely provides a bit of lubrication, as do the improved EIS tax breaks.

For me the more interesting part of the panel discussion was around skills/experience fit between the “City” and entrepreneurs as it plays into a broader issue. We believe there is still some way to go before we have enough recycling of talent to just invest and leave the team to their own devices, however it’s important to have a match between the skills and experience gap and the investor skill set. A mismatch normally does more harm than good. Clearly the “City” can contribute some sector experience but that’s where it ends – they generally can’t add the operational experience, market awareness and empathy that professional investors who deal with startups day and day out can. So the self-promotional comments about funds being the way to go are probably right, although studies prove that operational experience is less important for later stage deals than for early stage. So perhaps this is all totally back to front and the tax breaks should be for the large private companies, and VC’s should concentrate on early stage!

Building companies is hard & entrepreneurs need investors who are not only on-side but can contribute at an operational level if needed as well as strategically. Angels who are new to the field will do well to ensure that part of their syndicate will be proactive on this front.

Momentum v. Team

Following on my note on rating ideas against execution, I’m thinking about what gets funded and why. While many people view the three key areas of product, market and team – the truth is that the third one of these is very hard to evaluate. This is where the whole momentum criteria comes into play. To a degree, momentum trumps all the others but that’s a potentially short-sighted approach.
If you have track record that is relevant (clearly there are shades of grey here) then investors can make a judgement that assumes a level of execution capability based on the past. And I’m sorry but you can’t look at the board’s track record as a substitute for management track record.
If this entrepreneurial track record is missing it’s very hard to assume any level of ability to execute in a small business environment on any basis other than what you are achieving with the resources at your disposal right now. Put momentum and track record together and you probably get a bumper valuation. If you have one or the other you get a good valuation, with neither you probably won’t land a professional investor.
To compound the disadvantage that a first time entrepreneur faces, the repeat entrepreneur has both some of his own capital to make initial progress and then the ability to raise more to achieve momentum.
So if you are entrepreneur scratching your head at capital raises that you hear about, perhaps this helps to explain why the lucky just keep getting luckier. However a lot of the biggest success stories come from first time entrepreneurs who are hungry and innovative so that’s not necessarily the right recipe.

Entrepreneurship in uncertain times

We recently had the pleasure of presenting at the Alpha Tech 5.11 run by Alpha Version.  The topic was about both the challenges and opportunities of building innovative technology businesses in the midst of an economic storm.  Clearly given the volatility of the world around us, it was topic that entrepreneurs and investors can relate to.  If you are interested in taking have a look, you can find the presentation here.

If only I could come up with that great idea..

About 6 years ago I exited corporate UK and “ventured” into the startup world, initially into my own startup and after that into the business I’m lucky enough to be helping build today where I invest in and help teams I hope will be the technology leaders of tomorrow. One of the throw-away comments I hear from my former colleagues and contacts is that they’d love to run their own business, if only they could find the right idea.

I’ve been reminded of this perspective a fair bit recently when bumping into businesses that are pursuing ideas that I’ve thought of in the last 6-12 months. Of course we see a lot of innovation on a daily basis which is bound to kickstart those creative juices (this will hopefully help the companies we do work with) but two in particular rang a distinctly familiar bell. JobOn is a business that uses video to lubricate the recruitment process and Foodity is a company that aims to allow you to create weekly menu’s that automatically populate your chosen supermarket shopping cart with the required ingredients.

Whether or not these turn out to be successful businesses is obviously still to be determined (I’ll obviously track them with interest) but I’m grateful that my ideas are not that hare-brained that no-one else is pursuing them. Assuming I’m not the only person in the world who is having this type of experience (a given), this reinforces for me the perspective that no idea is totally unique but an extension of the ideas and innovation that are already out there.  So the next time a VC puts you in a holding pattern, you’ll know what they are thinking – execution trumps idea 9 times out of 10.

Markets are recovering, but should VC’s be bold

I enjoyed this post last week that reflected on how relevant stock markets are to VC investors. A few notable angels could be heard claiming that stock market behaviour isn’t relevant, but given their reliance on later stage investors that’s hardly an impartial view.  My view is that there is no doubt that they are relevant. Later stage financings will have keener pricing as a result of any deterioration in the exit market and that will need to be factored into the financing path as it is traced backwards.

The antidote to this impact is disruptive potential. A truly disruptive company can drive acquirers to pay prices that are “strategic” – in other words abnormal multiples that can’t be justified on a comparable market basis.  By virtue of the fact that these multiples are in any event disconnected from the stock market – the closer you can get to these types of opportunities in the next few years the better.

The problem for European VC’s is that they are, on the whole, undercapitalised. The impact of this tends to be a lack of daring, more cautious investing in difficult times and taking money off the table early.  Perhaps, though, the answer is the opposite, be bold, find yourselves some smart VC’s that you can team up with, and help create disruptive companies.

If there is anything that this era of serial debt crisis has taught us, it’s that the solution that offers the least resistance is often not the best.


A few days ago I had the pleasure of speaking at the July Product Tank event held at techhub.  The topic was a venture capitalists perspective on product management, so I thought I’d pitch up and share the Antrak perspective on the critical role of product in development stage companies.  Adding some great perspective to the event were two other speakers, Alex Hoye of Latitude Digital Marketing and Rob Kniaz of Hoxton Ventures.

I guess our participation in the event suggests that we believe allocating capital to build a world-class product team is vitally important.  We work actively with our portfolio to help create a culture where great product management can thrive.

And to that end, we are really grateful for the work that Martin Eriksson and his team at ProductTank are doing to help develop a great pool Internet savvy Product managers here in London.  We’ll look to attend more of these events as a way to get to know some of the talented and growing community of product managers in London.