ANGEL NETWORK GROUP OR BUNCH OF OLD MEN WITH JOBS? BEWARE!!

Angel Investor? Board Director?
Angel Investor? Board Director?

For the last few days I’ve thoroughly enjoyed being in the Bay Area working. I’ve had exciting meetings with a couple of start-ups I’m helping, met with colleagues who have founded their own companies and had them backed by some of the largest tech VCs, and met with others who work at some of Silicon Valley’s most vibrant new tech businesses.

This evening I hoped to close the week out on a high by attended an angel group meeting, at which entrepreneurs were pitching. Why was I there? I’ve been considering joining an angel group so that I can engage more fully in the Bay Area tech scene and get more exposure to exciting new tech start-up opportunities. When I told one of my colleagues, who is well known in Silicon Valley tech VC circles, I was attending the meeting, he asked me “why do you want to waste your time with those old guys with jobs? They’re not entrepreneurs.” I felt it was worth it because they have a high profile and get to see a good volume of quality propositions. How wrong I was!

Firstly, on behalf of the group in attendance, I reluctantly count myself as one of the audience, I’d like to apologize to those pitching. I have never witnessed such a lack of respect to the presenting entrepreneurs. I think I was the only person in the audience of about 30-40 not stuffing my face with food, drinking, talking or wandering about the large conference room while pitches were underway. The audience of “successful angel investors” assembled looked more like they had just got off a long-haul flight from a 3 day white-goods conference wearing the same clothes for the duration. The average age could not have been less that 65.

The questions asked of the entrepreneurs were, more often than not, posed to demonstrate that the person asking the question was very clever and really very experienced. Please! It was absolutely astonishing and the one thing I appreciated  about my evening was the different perspective I gained, as I am more used to being the one doing the pitching. My attendance finished abruptly when I took a photo of a slide I wanted to ask a question about. One of the audience hobbled over to me with surprising zeal and creepy eyes, asked me outside. I was particularly offended by his curt tone and when out of the conference room, without even introducing himself, or enquiring about who I was, and practically frothing at the mouth, told me that it was “uncool” to have taken a picture and stood over my shoulder to witness me deleting it. I thanked him for his help and left.

I fear lucky recipients of funding, provided by this group, will learn a lesson about receiving funds from meddling investors who have not had coalface experience. I will leave them to their quills and parchment, in favor of more enlightened entrepreneurial tech investors I hope to meet in my search.

Advertising Model Alternatives?

So Online Advertising is big business! But is it sustainable, and more importantly, is it effective?

There is no doubt that the short answer to both of these questions is “YES”. However, while some forms of online promotion are both sustainable and effective, like SEM and contextual messaging, in my opinion, online display advertising is reaching a dead end.

According to Wikipedia, in 2012 online Advertising revenues in the United States totaled $36.57 billion, a 15.2% increase over the $31.74 billion in revenues in 2011.[1]:4–5 U.S. internet ad revenue hit an historic high of $20.1 billion for the first half of 2013, up 18% over the same period in 2012. [2] Online advertising is widely used across virtually all industry sectors.

The famous John Wanamaker observation “Half the money I spend on advertising is wasted; the trouble is I don’t know which half'” may have held true pre-internet, but online advertising is fully accountable. Online advertising comes with the tools to assess the effectiveness of all online promotions. Average online display advertising costs have steadily reduced over the past decade, along with response rates, and supply outstrips demand in most situations. Yet, advertisers doggedly refuse to give up on traditional techniques, which are not well suited to the online medium and represents another classic example of #OldTechvsNewTech.

I for one, shy away from sites that interrupt me with advertisements. More often than not this is not a single site either. Ads chase you from one site to another in a hope that a search term you used on site A, may be a good hook for an ad on site B, or C and so on. I find the video ads on YouTube, and other video sites, pointless if you can choose to avoid them, and loads of my apps seem to be now sporting display ads. I have abandoned my Accuweather app because when I try to look at long term forecasts, for example, as I scroll down to review the information I’m seeking, the ad follows me down the page preventing me from seeing the very information, for which I am using the app – Aghhhhh!  I’m just not interested!

Here’s another personal example of what I’m talking about. I’ve recently cut the cord and now my family and I consume all our TV from the Net using ROKU boxes. While there’s still some advertising, most has gone. What a relief! Its like a background noise stopping – you don’t notice it was there until it’s gone. I think online audiences are at a point where they will start saying NO to ads and vote, like we did, by taking their business where the ads aren’t. This presents a big problem for publishers and broadcaster, among others. I expect whether or not content is accompanied by advertising is a key driver in this #OldTechvsNewTech battle involving traditional production, broadcasting and cable #OldTech companies, for, and #NewTech companies like, @NetFlix, @Amazon, @HuLu and @Aereo, against, advertising. This battle is heating up and my money is on the latter seeing off the former or the former embracing the @NewTech approach.

Is there an alternative to this model of internet advertising, which can support commercial online endeavors? YES, there are other ways to generate revenue and not interrupt  your customers’ user experience. Subscription is the obvious alternative, and it is being used both online and via apps. Another, less familiar model, is B2C Over the Top (OTT) mobile messaging. Revenue generated from businesses sending simple text messages to consumers, who have agreed to receive such messages, is a well regulated, cost-effective and an incredibly successful medium. The global mobile network operators jealously guard this market, which is worth in the region of $50b – $100b annually. Its time for the #NewTech companies to get in on the action by working with mobile messaging aggregators, who are the intermediaries between the mobile networks and the businesses sending B2C mobile messages. How does this model work? Simple, in exchange for content a user gives permission to the publisher to send relevant commercial messages to the customer’s mobile device from time to time.

One may argue that this is simply interruption advertising in all but name, but I would counter that the messages being sent do not interrupt the content being consumed. Furthermore, when received by the recipient, they accord with marketing best-practice principles; namely expected by the recipient, relevant, valued and timely.

Your thoughts and comments on this developing situation would be greatly appreciated and will help me flesh out future posts on this topic.

OLD TECH – NEW TECH – HISTORY REPEATING? INTERNET WORLD 1996

Here’s something to consider. While the pioneers of the Internet were gathered in New York City in 1996, for Internet World conference, Mark Zuckerberg was 12 years old. He, along with many of his now peers I expect, was a wide-eyed enthusiastic prepubescent school kid.

In 1996 I was lucky enough to have been involved in the Internet for over three years. I had done a couple of start-ups and had a small exit under my belt. So armed with my shiny new JVC mini-camcorder, a Palm Pilot 2 and bucket-loads of new ideas for my next Internet business, I left the UK on a world tour, to see what was going on outside Europe.

I’ve been digging through loads of mini DVs from that trip, and can see many similarities from that time to present day. The difference is, the then new Internet companies are now “Old Tech” companies, having been outpaced by today’s “New Tech” players, who are pioneering a whole new wave of Internet. I found John Gage’s keynote fascinating to watch. I’ve shared the first four minutes with you here.

Enjoy!

 

 

 

The Importance of Independent Board Directors

I have been reading a good deal lately about board dynamics and structure. I’m advising several early stage companies, and I have been trying to work out if I would make a decent, independent, outside director for these and other early stage technology start-ups. From my homework, which included council from far more experienced entrepreneurs and ex-CEOs than me, I have resolved, as objectively as I can, that I have what it takes.

 

Funding a start-up

 

From my own experience I know that when entrepreneurs come up with a new idea or inspiration, more often than not, they endlessly bounce their new concept off friends, family and colleagues. The feedback provides great initial insights, and the brainstorming either helps to crystallize an idea or proves to be its undoing. This is the first stage of using outside advisors to help a business from a non-operational point of view.

Some business founders feel that at an early stage, a board is an unnecessary administrative chore. In my opinion this is a critical mistake. A good board, or group of advisors, can add a huge amount to an early stage company, and help founders in many ways. It’s also a good deal easier to implement policies and procedures at an early stage. These can then be refined as the company evolves.

If a company raises capital from sources other than the founder’s own bank accounts, a board is essential. Founders are critical to an early stage company’s board, and upon receipt of the first round of funds they will be joined by a representative appointed by the provider of capital, who may well have a different agenda to the founders.  The introduction of an independent outside director, at the earliest possible stage, is important as they should have only the best interests of the company in mind, whereas the founders and investors have agendas based on when they wish to exit etc. With each round of funding, other VC board directors will most likely join the board, adding to the differing interests. The longer the appointment of an independent director/s is left, the harder it is to make such appointments.

Inexperienced board members, who pay attention to the minutiae of a business, add unnecessary complications to the job of the CEO. A CEO should be empowered by the board to manage the day to day operations of the company, and to execute agreed strategy. I was joined on a board many years ago by two inexperienced, but I have to say well meaning, angel investors. They damaged the company by shifting the focus of the board to non-strategic operational matters. The situation was resolved by a very experienced CEO, outside non-executive member of the board. Prior to a critical meeting, he had a quiet word with the two directors in question. This resulted in both of them resigning, seemingly out of the blue, which was the best thing for the company. There was no animosity and they exited the business profitably many years later. This is one of many situation that helped me understand the importance of having experienced independent directors on a board.

Boards mature and grow with a business, and members at the outset may or may not be the right fit for the company when it reaches the growth stage, for example. Outside independent directors are key to ensuring a board is well prepared for the internal and external challenges a company faces through its evolution.

I thoroughly recommend the following for further reading regarding early stage boards:

Here’s how to find & keep a great outside board member

And

Startup Boards: Getting the Most Out of Your Board of Directors by the same author as the article above, Brad Feld .

NB.  I advise on business start-ups, relocations etc. as a consulting entrepreneur so please don’t hesitate to contact me to find out how I might be able to help.

Silicon Valley or Bust? 8 Things to Consider for your US Start-up

SV Pic

A few weeks ago I read an amusing account by a German entrepreneur, Steli Efti, who moved to Silicon Valley to get his start-up off the ground, http://venturevillage.eu/moving-to-silicon-valley. His take is endearing but naive in the extreme. How nice to be an entrepreneur with a dream; sell everything you own in whatever European country, get a work visa, jump on a plane to SFO, start a tech company in sunny Northern California, get acquired by Facebook and become a gazillionaire. Easy right?

Steli’s advice from his five year experience:

1. Do market research;

2. Build a web site;

3. Market web site;

4. Visit Silicon Valley and network – a lot;

5. Hire a local;

6. Make sure you prepare correctly.

Hmmm…… Needless to say Steli’s start-up failed.  From his advice above I’m not sure how much he learnt along the way either.

Now I’m not saying I have the panacea for all entrepreneurs considering a start-up in Silicon Valley but I hope my list might provide a more pithy starting point for those contemplating such a move. So here are a few key pieces of advice from my own move to Silicon Valley, which by the way is what people who don’t live there call the San Francisco Bay Area.

First of all think long and hard before moving your business to Silicon Valley or to California for that matter. At first glance it looks too good to be true; loads of like minded techies and entrepreneurs; angel and venture capital to boot; the weather’s great; good schools; great lifestyle. Look a little closer however and the decision is not so easy.

1. The Idea. If you’re seeking funding for your new business, in order to attract investment the concept underpinning your start-up needs to be extremely compelling, easily understood and at the forefront of tech trends. It should utilize advanced modern technology, as well as being in an area that VCs are betting on for the future. It will need to be a business capable of global rollout and be in a market large enough to support multiple businesses all valued at over a few hundred million dollars each. That said, the spate of funding rounds, recent tech IPOs and headlining acquisitions, suggests the goalposts have moved from the hundreds of millions into the billions of dollars realm.

2. Visa. Can you get one? This is probably the most crucial step. If you can’t get a visa you can’t move to the USA – End of the dream. It’s not an easy process but there are numerous routes to take. You can do it yourself but my advice is to engage a specialist immigration attorney. The cost is well worth it. You can most likely identify the type of visa you can most easily secure at the outset and usually agree a fixed price with your attorney. This is the first step of many, which should result is securing Green Card permanent residence status. From there, the next step is becoming an American Citizen to take the process to its conclusion.

3. Location, location, location. Do you really want to be in Silicon Valley?

My take is Silicon Valley is from around San Francisco Airport south to San Jose. Its home to loads of the famous Silicon Valley names like Apple, HP, Google, Adobe, Facebook, AMD, Netflix, Yahoo, Intel, Symantec, Oracle and the list goes on and on and on. Its worth noting that San Francisco is becoming more and more the home to new tech start-ups too. My rule of thumb would be – no kids then San Francisco; Kids then the Bay Area. But be warned San Francisco and the Bay Area are expensive and the traffic is a nightmare, wherever you end up. If you decide to rent a home in a nice area be prepared for bill shock and be ready to move quickly. Family homes rent in days.

A less appreciated issues, when dealing with other parts of the world from the US West Coast, is Pacific Time (PST). PST puts you at the end of the World’s day, so no matter how early you rise and how much coffee you drink, if you’re dealing with Europe, you’ll always be playing catch-up.

4. Tax. This is a huge issue. Moving to the USA comes at a price. On the corporate front, regardless of where you incorporate your new C corp Inc. if your office is in California, you are liable for California state taxes, as well as federal taxes. Yes, there are exotic tax arrangements, with equally exotic names like the Double Irish and the Dutch Sandwich, that can be implemented to mitigate taxes but these are costly to set up and only really useful when large revenues are generated outside the USA. It also seems these are under threat http://arstechnica.com/business/2014/01/silicon-valley-attempts-to-slow-new-global-tax-avoidance-reform-proposals/.  Be aware there are 9 states that do not have state taxes; Alaska; Florida; Nevada; New Hampshire; South Dakota; Texas; Tennessee; Washington and Wyoming. Some of these like Texas, Nevada and Florida have thriving tech scenes.

On the personal front, if you are a resident of the USA you must pay income tax on your worldwide income and if you live in California guess what? Yep, you pay personal California tax as well as federal tax. And let’s not forget if you’re a high earner and  you’ve lived in the USA for a few years and then leave, you are liable for Expatriation tax on the increase in your net worth during the time you resided in the US.

And that’s not all. Let’s say you you sell your business while resident in California. Currently, you are liable for federal Capital Gains Taxes (CGT) of c.24%  as well as State taxes of c. 14%. Ouch!

5. Getting Funded & Silicon Valley Cartels. Attorneys, Accountants – CPAs, Angel Investors & networks, Venture Capital Firms, advisors etc. Travel down Sand Hill Road, Menlo Park and around a few city blocks in San Francisco’s financial district and you’ll find the highest concentrations of Venture Capital firms’ office on the planet. You’d be forgiven for thinking that because you know where they are they’re more easily accessible. Sadly nothing could be further from the truth.

I’ve found that there are numerous cartels, small and large, made up of angel investors who work with certain VCs, who in turn work with certain advisors and professionals. Breaking into these groups is difficult but its really how Silicon Valley ticks. During my search for funding for a WhatsApp like service back in 2011, which at the time had many key advantages over WhatsApp, and other OTT messaging apps, I  was told by many VCs that regardless of my technical advantages, because Sequoia Capital had just invested in WhatsApp few Valley VCs would bet against Sequoia Capital.

The volume of business opportunities presented to Silicon Valley-based VCs and angel investors is huge and ever increasing. They’re flooded with thousands upon thousands of shiny new tech start-ups seeking funding every month. Even the largest VC or most prolific angels are unlikely to back more than a fraction of 1% of the opportunities they review. Unless you are lucky enough to have a personal introduction your chances of securing a meeting are practically zero.

If you do get funded at an early stage, Seed or Series A, you can expect the terms of the investment to be massively weighted in favor of the investor. Be prepared for founder share vesting, which is far less prevalent in Europe. This means you could well get funded but then get fired by your VC or Angel partner and end up with zip. Early stage funding has been greatly benefited by changes to US law to allow crowd-funding. Great sites like Kickstarter, Crowdfunder and Angel List provide more equitable routes to early stage funding but its never easy.

6. Networking tactics. Its a scrum in the Valley! There are loads of mixers and events up and down the valley every single night. If you jump in you’ll get to know those who’ve been on the scene for some time and the newbies. Everyone’s got a pitch and everyone’s trying to connect with the money guys and talent. If you’ve got kids and decide to live in the Bay Area schools are a great place to connect. The more expensive the area, in which you live, the more senior the employees (parents of classmates).  The key difference between the US, particularly Silicon Valley, and Europe is that networking US style is encouraged and aggressive so go for it. This is the way in and you’ll find groups of types, and races that tend to stick together and that’s okay.

7. Talent. This is a simple supply and demand issue. There are too many tech companies in the Bay Area competing for too few engineers and other talent. If you’re an engineer and are looking for a job you’re in the right place for the big bucks. Sadly, if you’re looking to hire engineers it’s a chore and its expensive.

8. Credit Rating. When you move to the US, regardless of the credit rating you leave behind, you are a ghost and you’ll find it extremely difficult to get any credit whatsoever. Opening accounts of all sorts is extremely important. Don’t go nuts making credit card applications until you know you’ll not be refused. Too many hard credit enquiries damages your rating but you need at least 10 credit accounts operating for over two years to get a decent credit score. Expect credit card limits to be pretty small $500 – $5,000 tops for the first few years. Never miss a payment and use credit wisely because you’ll need a good rating for all sorts of unexpected things like private schools, home rentals, office rentals, visa renewals to name a few.  A great free site to track you rating is CreditKarma.com.

If you’re considering a move to the US from Europe, and particularly to the San Francisco Bay Area I hope the above helps in some small way. I have really just touched the surface and I’m sure I’ve missed something that will no doubt come up to keep life interesting for you.

In future posts I’ll try to delve into each of these issues in more depth so watch this space.

OJ

 

Ps. I advise on business start-ups, relocations etc. as a consulting entrepreneur so please don’t hesitate to contact me to find out how I might be able to help.