UK Investment Activity: Early Stage Technology Investments

One question from the VC Show what was happening with Technology investments in the UK recently. I answered that things are picking up, at least in the early stage end of the market.

Today the latest BVCA (British Venture Capital Association) report on UK Investment Activity landed on my desk. The stats reflect my comments over the weekend: early stage technology investments have been increasing. They show that 54% of all companies backed were early stage, up from 45% in 2003. Additionally, UK technology continued to receive more investment than any other industry category. The full report is available to non-BVCA members for £40, and free for BVCA members.

Stock Options Anyone?

alarm:clock writes:

Tech Stock Options Not Dead

Om expresses an opinion that we had previously written on – that it makes a lot more sense to work for a company like Google than it does to work for a start-up, as nobody is buying into stock options as having any value.

VC Tom Perkins, however, expressed faith that the tech community will figure out a way to make stock options work despite regulations that force the expensing of stock options. He puts his full faith in clever accountants – ‘We have to find some way around this. There probably is a way…I suspect something will come up.’

Read – VC Predicts Eventual Rebirth of Stock Options (News.com)
Read – Grousing About Google (GigaOm)”

This is yet another reason why the UK is an exciting place to make early stage investments: the EMI scheme (Enterprise Management Incentive scheme).

Not only are stock options alive and well, any capital gains for entrepreneurs are only taxed at 10%. The main restriction to qualify is that employees/founders must hold less than 30% of the business to qualify for the scheme.

There is also an EIS scheme which gives angel investors a 20% tax rebate on any funds invested (up to £200,000).

Pitching to a VC [Updated]

I ran accross an old post over at Feld.com. Brad has a list of questions that covers about 90% of the same Q&A I go through with every company I meet:

1) WHAT IS YOUR VISION?
– What is your big vision?
– What problem are you solving and for whom?
– Where do you want to be in the future?

2) WHAT IS YOUR MARKET OPPORTUNITY AND HOW BIG IS IT?
– How big is the market opportunity you are pursuing and how fast is it growing?
– How established (or nascent) is the market?
– Do you have a credible claim on being one of the top two or three players in the market?

3) DESCRIBE YOUR PRODUCT/SERVICE
– What is your product/service?
– How does it solve your customer’s problem?
– What is unique about your product/service?

4) WHO IS YOUR CUSTOMER?
– Who are your existing customers?
– Who is your target customer?
– What defines an “ideal” customer prospect?
– Who actually writes you the check?
– Use specific customer examples where possible.

5) WHAT IS YOUR VALUE PROPOSITION?
– What is your value proposition to the customer?
– What kind of ROI can your customer expect by using buying your product/service?
– What pain are you eliminating?
– Are you selling vitamins, aspirin or antibiotics? (I.e. a luxury, a nice-to-have, or a need-to-have)

6) HOW ARE YOU SELLING?
– What does the sales process look like and how long is the sales cycle?
– How will you reach the target customer? What does it cost to “acquire” a customer?
– What is your sales, marketing and distribution strategy?
– What is the current sales pipeline?

7) HOW DO YOU ACQUIRE CUSTOMERS?
– What is your cost to acquire a customer?
– How will this acquisition cost change over time and why?
– What is the lifetime value of a customer?

8) WHO IS YOUR MANAGEMENT TEAM?
– Who is the management team?
– What is their experience?
– What pieces are missing and what is the plan for filling them?

9) WHAT IS YOUR REVENUE MODEL?
– How do you make money?
– What is your revenue model?
– What is required to become profitable?

10) WHAT STAGE OF DEVELOPMENT ARE YOU AT?
– What is your stage of development? Technology/product? Team? Financial metrics/revenue?
– What has been the progress to date (make reality and future clear)?
– What are your future milestones?

11) WHAT ARE YOUR PLANS FOR FUND RAISING?
– What funds have already been raised?
– How much money are you raising and at what valuation?
– How will the money be spent?
– How long will it last and where will the company “be” on its milestones progress at that time?
– How much additional funding do you anticipate raising & when?

12) WHO IS YOUR COMPETITION?
– Who is your existing & likely competition?
– Who is adjacent to you (in the market) that could enter your market (and compete) or could be a co-opted partner?
– What are their strengths/weaknesses?
– Why are you different?

13) WHAT PARTNERSHIPS DO YOU HAVE?
– Who are your key distribution and technology partners (current & future)?
– How dependent are you on these partners?

14) HOW DO YOU FIT WITH THE PROSPECTIVE INVESTOR?
– How does this fit w/ the investor’s portfolio and expertise?
– What synergies, competition exist with the investor’s existing portfolio?

15) OTHER
– What assumptions are key to the success of the business?
– What “gotchas” could change the business overnight? New technologies, new market entrants, change in standards or regulations?
– What are your company’s weak links?

Instead of asking entrepreneurs to present their business, we go through a list of 20-odd questions with them (very similar to the ones above) to walk away from the meeting with a solid understanding of the business and the ability to make a decision on whether or not to continue the investment process. I’ve found this process to be 1000x more productive than sitting through a poorly structured Power Point.

[Update]
I think it’s important to know who you are pitching to and how they are used to receiving, or prefer to receive information. We require companies presenting to the London Business Angel network to prepare a presentation based on our own Powerpoint template. There is the requisite kicking and screaming, but the results speak for themselves: Over 30% of companies presenting receive their funding. Guy Kawasaki suggests 10 slides in 20 minutes in his book Art of the Start. Other investors prefer to receive an executive summary first- it all depends.

Also, if you’re approaching a VC you should look into whether or not they have recently invested in your space, whether they are actively making investments, and speak to one of their portfolio companies before the meeting if possible.

TiddlyWiki on a PSP

CK’s hacking at TiddlyWiki:

“I just tried running TiddlyWiki – a reusable non-linear personal web notebook on my PSP. No luck. However, I think something like this could work as a portable content management solution for the PSP, if it were tweaked properly…”

I met Jeremy (the guy behind TiddlyWiki) back before Xmas last year- he was looking for VCs funding social software. Unfortunately, Osmosoft lies outside our fund’s investment criteria, but if you’re a VC or an Angel that’s interested in this space, send me an email and I’ll happily connect you to Jeremy.

(CK, maybe you could get Jeremy a free PSP to develop a compatible version of TiddlyWiki until he gets funded.)

Tubetrack Widget

WidgetscreenTubetrack is a new widget for tracking your tube line. Not all lines are available and the widget looks a bit buggy still, but nonetheless, this will be a great update tool over my morning coffee.

I hope I can see more than one line at a glance in future builds, I need to catch more than just the Jubilee line every morning. It’s a good start though. If you’re in London, go grab this widget.

Mac OS X on an Intel Box

If you want to hack an Intel Box to run Mac OS X, here’s how.

This might be your only chance to do so, since I would be willing to bet Apple will be locking things down before they go commercial with Intel chips. So get to it.

Why do I think normal Wintel boxes won’t be able to run OS X? Steve Jobs is a control freak.

One of the main reasons Macs just work is that Apple controls the entire food chain- OS, Hardware, Software, Peripheral, et al. This is one of the main reasons a PC is “Plug and Pray” vs Mac’s “Plug and Play”- and I don’t believe Steve is about to change that…

However, I hope my next Mac will boot into Windoze. I still prefer a PC for Excel (for financial modelling)- that’s one area where my Mac lets me down.