Weatherproofing your startup for any financial climate — the 3rd way

Weatherproofing your startup for any financial climate — the 3rd way

Last week the Economist drafted an article about the lack of financial tools governments have to deal with a recession should a ‘big one’ arrive. Similarly Ray Dalio (author of the best-selling book ‘Principles’ and a hedge fund manager) wrote a free to download PDF on the upcoming possible nature of a debt crisis in which he pinpoints a possible recession in 2020. With all this doom and gloom being predicted (and luckily with recovery as of the posting of this), if you’re in a fast growing company, it’s easy to get distracted and expect the worst, or try to ignore the noise and hope they are all wrong. There’s a 3rd way! It’s a very good time to get your house in order.

During my career, I’ve had the chance to witness two financially challenging times (the 2001 & 2008 bumps). In the first, I was in a startup (Baltimore Technologies) and in the second I was in a VC fund (Doughty Hanson). I can still remember the serial layoffs when I was at Baltimore Technologies as things started to come to a head. We went one after the other, in the order of the desks we had, to receive our separation packages. It was a sad day for many of us and it taught me quite a bit about how quickly things could turn around (I still remember chats with my colleagues regarding the value of our options only a few months prior and as the CEO promised much more growth and aggressive expansion).

During my time at Doughty Hanson, I experienced it from a different point of view as many of our companies — along with those of many other VCs — were going through the same challenges but, in both circumstances, I noticed a pattern started to emerge. Whilst not exhaustive, I did notice the following six attributes:

  1. Public companies stop buying external companies and start focusing on reducing costs internally.
  2. Because of #1 above, exit opportunities for companies that rely on external funding for growth or returns start drying up.
  3. As VCs start to focus their funds on rescue ‘bridge’ rounds for existing portfolio companies that are of high value, less money (to zero money) is directed to new investments.
  4. Massive failures in growth-sized startups start generating other massive failures as accounts payables aren’t paid and accounts receivables are received. The whole ‘chain’ so to speak, starts unravelling.
  5. With some failures being quite nasty, public perception then pushes for regulators to take action, which then drives audits and governance clampdowns in startups.
  6. Smaller funds start struggling as their portfolios that haven’t received enough funding to survive #3 above, so new investments start to dry up, and the whole early stage investing scene starts grinding to a halt.

If the above sounds scary, it’s because it is scary. However, many of the best companies were born or were chiselled out of tough times because of the actions and mindset the founders brought to the circumstances, and because some of the market dynamics also changed in their favour due to the downturn’s impact. Mark Roberge, the chief revenue officer of HubSpot, a Boston-based inbound marketing firm and Senior Lecturer at Harvard Business School, recently wrote a great piece on the opportunities that can surface in a downturn and that he experienced during his time. Read it here — A Recession Doesn’t Mean Your Startup Can’t Grow

So, a downturn can be good for you as well as bad for you, but what can you do today? In the words of a friend and current Venture Partner at Seedcamp, Stephen Allott “If you have the capital you can double down and beat the other players, and if you’re not lean & mean, you’ll either die, or get forced into being lean & mean.”

In that spirit, while not an exhaustive list, some of the actions below are actions that you could consider should we all find ourselves in that situation in the future. In a bull-market, some of these actions will seem contrary to what is being popularly proposed for massive and fast growth (usually expensive paid growth)! However, these actions should not be seen as ways being more ‘conservative/risk averse’ rather, they are about being more robust in your growth strategy, regardless of the market conditions!

These actions include:

  1. While the going is good, go for cash generative customers over vanity customers — there are customers and there are customers. Those that pay on time and have good solid financing are always going to trump those that are pie-in-the-sky opportunities, or who will flake on contracts due to their own situations failing.
  2. Lock-in contracts and get prepayments via discounts if you can — by focusing on getting cash-in-hand, even if at the cost of some discounts, you make sure you aren’t putting yourself in a position where a customer can flake on you later in the year if things get worse.
  3. Make sure you’re not overspending internally — hey, we are all suckers for great startup-merch and furniture but do you really need to spend that much on office perks and other cash-draining activities? Keeping things lean means you have fewer cash commitments and you also don’t have the issue of having employee morale drop massively as their previously indulgent massage Mondays perk gets removed.
  4. Focus on becoming cash-flow positive — at the end of the day, nothing beats being cash-flow positive, particularly if your customers are counter-cyclical or somewhat immune to the cycle (eg. govt services, larger cash-rich companies, etc). Short of that, focus on sustainable growth, not growth through crazy spend on customer acquisition.
  5. Make focusing on receivables management a top management focus— “lead from the top with questions like — have we been paid? what do we have to do to get paid? have we done it yet? who is accountable end to end for getting this customer to pay?” — Stephen Allott
  6. Raise as much cash as you can right now — nothing beats having cash on hand, so the more you can raise now, the better ‘reserved’ you will be for tough times ahead… that is assuming, of course, that you’re going for the appropriate use of this cash, not just a spend-quick mentality.

Ivan Farneti, an ex-colleague of mine at Doughty Hanson and now Founding Partner at Five Seasons Ventures (a food-tech focused venture fund) who had to navigate some of the portfolio issues of both previous downturns, had this to add — “Because of the length of this run, most of the founders in VC’s portfolios have not seen a downturn before. They may not be prepared, and knee-jerk reactions like cutting the online marketing budget and letting go of their community manager may be amongst some of the moves they make, but they may not be the right moves long term. Experienced board members should step in and add real value here (not just financial controls, but also how to deliver those cuts, but rather what communication style to use, how to manage it, etc). Additionally, founders may want to know where they stand in the priority stack of the portfolio of their investors, and may want to know how much reserves are left with their name written on them. Naturally, VCs might not want to share this with all of them, but this information could be important to help decide on alternatives when there may be still time.”

As mentioned before, some of the above recommendations might sound heretical to the current fashion of advice given to startups (which assumes a bull-market, fast spend, and cash-rich environment), but keep in mind that almost a decade ago, Bill Gurley wrote a great piece to his companies on how to weather that storm and Sequoia sent out a deck to their companies — and many of the same points that were made then are still valid today; there is a reason why great advice stands the test of time.

Continue Reading

Founders For Opportunity; coding for Spear graduates

In December of 2017, in conjunction with Resurgo Spear, Code First: Girls, Campus London, Seedcamp, and many other friends, we hosted the first Founders for Opportunity event to link Graduates from the Spear program with Founders for mentoring and to explore potential ways to enter the tech ecosystem. For a summary of the event, check out the original post now updated with a video summarising that event.

In early 2018, Silicon Valley Bank kindly sponsored the Spear Graduates who wanted to learn how to code and put them through the Code First: Girls program, allowing the Graduates to further develop their tech skills for the workplace. After the recently completed 8 week intensive program, where they learned how to build an e-commerce website, the Graduates showcased their newly built site and shared their ambitions for the future.

Thank you to Code First: Girls, Seedcamp, Resurgo Spear, Campus London & Silicon Valley Bank for making this possible.

Continue Reading

How to build a tech ecosystem: The essential building blocks revisited

A few years ago I shared my views on attributes I found across emerging tech ecosystems that helped them flourish. Originally, I wrote the post as an answer to a question I was posed. As such, in this post, I’ve reviewed what’s happened in Europe over the past 4 years, and have added to that original post in hopes of helping anyone trying to answer the same question I was asked.


Aside from helping economies move forward through the creation of jobs and wealth, a thriving ecosystem allows startup founders to connect with other founders and share stories about how to overcome technical and commercial problems they may be facing.

Building anything new is hard, never mind alone and in a vacuum, thus sharing experiences with others should not be under-appreciated. Additionally, a growing ecosystem unlocked pools of capital be they private or public that are already existing in the local community and put them to work on improving and developing the community further.

Using London as an example, I’ve seen the local ecosystem evolve from its nascent stages, to where it is today, rivaling New York (according to Mayor Michael Bloomberg) at the global scale (this stat was from when I originally wrote this, but still feels true today).

This growth has been due to many factors, and I don’t want to seem to oversimplify what is arguable a very complex set of interplaying variables, but I do want to highlight some of the ones that stand out the most for me as drivers of a maturing ecosystem.

Local concentration of founders and other ecosystem players

In Steve Johnson’s book ”Where Good Ideas Come From,” he talks about the power of a network and how proximity of nodes aids the network’s speed of development.

London has exploded since 2014 when I wrote this article originally where I mentioned the emergence of TechHub and later on Campus and Tech City to bring together many would-be founders and growing companies. Now, players like WeWork make co-working spaces a freely available option, and new spaces like RocketSpace, Runway East, and Second Home create alternative communities to boot.

In addition to co-working spaces, if you visit local buzzing digs such as Ozone Coffee, it is quite common to see investors and well-known founders intermingling. It is through this intermingling, across cafes, pubs, bars, and restaurants, that creates the serendipity that is required to have more ideas and decisions ”just happen.”

The local culture’s support tone towards founders and local entrepreneurial heroes

Whilst it’s never easy to start a company, the process can easily be made twice as hard if you don’t have the support of your friends, family, and community. If your family thinks you are insane for not taking that corporate job and your friends think so as well, there is social friction in the ecosystem which prevents the unlocking of innovation.

Tolerance for failure is another aspect that is important for a culture of entrepreneurial innovation to occur. Failure both in terms of the personal failure, but also the legal failure. In a culture where failure brands and stays with you for life financially and socially, risk taking will naturally be discouraged.

While these aspects of a community are hard to change quickly, this is something that local governments and schools can help change through targeted campaigns (as can be seen, for example, in other forms of government intervention programs and their success rates in changing popular perceptions such national health issues).

Groups in the UK such as the ICE group also do an amazing job of bringing together founds to learn from each other, share war stories, and help overcome some of the personal challenges founders go through in their journey.

Quality of local education and engineering training

In London, we have some amazing universities, and thus, every year, a new crop of recently graduated engineers and other majors interested in starting a business enter the workforce.

For the most part, most large cities has distinguished academic bodies, so rarely is it about capability, but sometimes about offering students a place to experiment new ideas and providing them with applied internships. Universities are increasingly developing internal incubators to allow students to exercise a more applied version of their education, which either leads to new developments, or more experienced founders. In the UK (and increasingly abroad), organisations like Entrepreneur First do an amazing job of helping graduates with meeting other talented individuals, creating amazing ideas and forming companies.

Additionally, programs that help teach entrepreneurship to students, such the NEF, or to the public at large, such as Startup Weekend can greatly lead to an increase in the quality of the workforce and entrepreneurial mindset of a community. Programs such as CodeFirstGirls and Spear can also be huge enablers for many members of the community who wish to enter the tech ecosystem.

Availability of HR talent and immigration reform

Aside from students, other individuals with experience are needed in a growing ecosystem. One quick way of bridging a shortage in staff in an area is to create immigration policies that allow for talented and capable individuals to enter the county and its labor force without major hurdles.

This is an area that many countries struggle with, particularly when the local population starts taking a protectionist slant towards employment opportunities. Nothing helps accelerate an ecosystem’s growth as the importing of highly skilled migrant talent.

The UK has, in many ways, led innovation in this area, originally with the creation of the Highly Skilled Migrant Programme (no longer available unfortunately) and the Startup Visa for founders in startups that have received £50K in investment. Innovations likes these have made some great strides in solving this problem for the UK, and I’m surprised how few other countries have attempted to solve this (Naturally Brexit will bring some challenges with this, but hopefully they will be solved).

Access to successful mentors or serial entrepreneurs

It goes without saying that there are plenty of smart and accomplished in Europe. Companies such as Soundcloud Skype, Transferwise and more were born out Europe and there are plenty of new companies that are creating technologies in hardware, fin-tech, and other areas.

The challenge for any emerging ecosystem is identifying these individuals and finding an efficient way for these potential mentors to meet promising new companies and founders.

A strong and growing media presence

As the old adage goes, “If a tree falls in a forest and no one’s around to hear it, does it make a sound?” Likewise, a successful startup story without an amplifier doesn’t help inspire others to do the same.

Of course, the media isn’t only about highlighting success stories, but also helps keep the ecosystem honest by bringing to light causes, political initiatives, key players, and even the occasional startup post-mortem to help founders navigate the emerging local tech industry.

Since 2014, there has been an explosion of media covering tech in Europe, ranging from publications such Techcrunch and to video channels and podcasts (have you checked out our podcast here? —

Access to infrastructure

Building a tech startup is near to impossible if you don’t have access to a reliable and fast internet connection and access to key services such as hosting companies, social networks, and search engines (some countries block these services for various reasons). A lot of the prior is no longer the case in the UK, but continues to be a problem in other geographies… and sometimes it isn’t access infrastructure, but rather things like access to data, hosting/processing infrastructure, and search engines, and key internet platforms.

This does mean some countries really struggle, but these problems tend to be ones that local governments are almost always keen on resolving quickly — not just for the tech community, but also for other communities. If censoring is an issue in your local ecosystem, that can still make things more challenging.

Access to experienced capital

Capital comes in many forms, but experienced capital can really make a difference to new companies. Experienced capital is not just about having made money before, but rather understanding what early stage startups are like and that they don’t fit the return profile, regularity, forecast-ability, or structure of real estate or private equity investments.

Experienced capital also knows how to coach and help founders along their journey rather than just auditing founders the way a public company analyst may.

Investors that understand how the global fundraising process works and know how to scale a company are hard to come by, so for sure any local ecosystem that has a few of these are very lucky, and the ecosystem as a whole can grow greatly by increasing the knowledge share between these individuals and the rest of the investment community.

Tax relief for investors investing in risky companies

Investing in startup companies can be lucrative if you do well and manage to back the minority of companies that do well. However, you will likely lose on most investments you make in the asset class because of its inherent risk.

This has always been the fundamentally difficult thing for new investors to digest when choosing to invest in startups versus, say, a well-structured financial product from a brokerage firm.

However, tax incentive schemes for investors led by the government, such as the SEIS program in the UK which allows investors to offset income tax and capital gains tax on positive returns on an investment, can greatly increase the attractiveness of high risk investments to investors.

Ecosystems who have government support to help investors invest more, generally manage to unlock stored pools of capital that can be repurposed to help stimulate the economy.

Tax relief for successful founders

In the same spirit as the above, ecosystems that offer founders some sort of tax relief on gains when exiting a company can effectively reduce the tax impact on them. This allows founders to have more available capital to invest in new startups. In the UK, this program is called Entrepreneur’s Relief.

Although not every exit will leave founders with a disposable net worth to invest in new startups, by creating the structure that encourages this, it merely becomes a numbers game of how many founders who are successful contribute back into the economy.

Couple with investor tax incentive schemas, you effectively create a virtuous circle of wealth creation that can be repurposed for further wealth creation.

Sure, not every founder will do this, but you just need a few to take this up, for it to be greatly effective.

Access to experienced legal counsel

Experienced lawyers can save a company a lot of time and money. I’ve seen deals go sour because someone’s counsel was not well-versed in standard terms or venture dynamics.

Lawyers are there to help you make things easier and protect you from things going wrong in the future, and not the other way around, but not all ecosystems have legal counsel that is well versed in venture law.

Initiatives such as the seedsummit termsheets, the series seed termsheets, and the BVCA documents — all available online — are good starting points for startups in emerging ecosystems to learn about what is normal and what is not. Then, if in the process of evaluating counsel for your company there is a mismatch between what you’ve seen and what they are familiar with, that is potentially a red flag.

Simplified local legal systems

Part of the legal challenge is not only just finding the right kind of lawyers to hire, but also in having the ecosystem have laws that help support Entrepreneurs. For example, laws that make it difficult to hire and fire employees make it hard for a startup to control cash burn as early founders will inevitably have to expand and contract as their companies go through natural peaks and troughs.

Simplification of the legal bureaucratic burden on the founder can make a huge difference: little things like allowing e-signatures can greatly speed up how quickly deals are completed vs having to have a notary sign or other more complicated structures which can slow things down.

And lastly, and considering how many successful startups come from after a founder has had at least one failure, a government’s treatment of company bankruptcy as either a black flag for the founder for ever more or as a state that does not tarnish one’s reputation from being able to try again.

To wrap it up…

In conclusion, whilst there are many variables to consider in how to help develop a local ecosystem, the above list are some that I see as almost very crucial to kick it off.

For example, note that I didn’t include things like interest rates or a thriving local M&A market… if an M&A market is present, for example, its great, but frankly, most foreign M&A markets pale in comparison with the global M&A market led by the top international corporations.

As such, a better place to start to try and influence change is to address the variables that are easier to adapt in the short term. In the longer term, as the ecosystem blossoms, the local corporates will take notice and will want to get involved.

If you like this post, please feel free to share with your local government officials to initiate a dialog about how to spur growth of your local community’s ecosystem.

Continue Reading

Founders For Opportunity Event

Dear Founders and European Startup Ecosystem Supporters,

Several of my friends and colleagues and I will be hosting a ‘Founders For Opportunity’ event on December 1st at Campus London from 10:00–12:30 to help disadvantaged young people in the UK find employment, and we would love for you to attend as part of this if you feel it is something that is important to you.

I’ve been supportive of Resurgo Spear’s ( mission to help disadvantaged young people in the UK find employment for a few years now and noticed that Spear graduates mostly get support from large corporates. As such, the young people these corporates employ don’t always get a chance to ‘quickly spread their wings’ if they demonstrate grit & hustle, as we all know large organizations don’t grow as fast as startups and thus don’t provide the same upward mobility for those with drive.

Both Spear and their graduates would love to get to know the startup ecosystem better and so I thought that maybe as a community, we could provide mentoring and intros to these young people to enter into relevant fast-growing startups to kick-start their careers. If you think you’d be interested in attending the event and/or helping/mentoring/hiring a graduate from Spear, please fill out the form below to let us know.

The event will be a chance for you to meet some of the recent Spear Graduates and the Spear core team, give the graduates advice and make intros for both the Spear organization and their Graduates. Currently we have the support of the Campus London team (who are kindly hosting), and several startups, but would love to have more attend and share their wisdom. If you want to hear some testimonials from their graduates, check out their case studies here >

Although your support in attending would be more than enough, if you’d like to donate to Spear to help them with their initiative, feel free to do so here —

If you can’t attend, but would like to support by sharing with other founders or ecosystem players, feel free to use this link for the event form —

Continue Reading

To ICO or to Venture, that’s the question.

With the number of successful ICOs that have been completing in the last 12 months ($1.5Bn raised in 2017 alone), some have declared venture capital on its dying legs.

“I think the Sequoias of the world will go out of business. I think all the big VCs are done. The role isn’t there anymore.” Brock Pierce, Founder of Blockchain Capital.

Is venture dead? While worth posing, I think the question is inherently incomplete, as it conflates many ideas into a simple debate for impact. In this post, I’m not hoping to declare one type of investment as the winner (or loser), but rather, to showcase where each has their place — and where the models might even be reconciled or combined.

Firstly, there is a difference between the mechanism/structure investors use to invest in a company, and the value-add (if any) which the investors bring to the founder, alongside their financial investment. Another way of thinking about is to think of Venture Capital as a bundled product, combining capital, advice and assistance (e.g. with hiring and recruitment). ICOs, from this perspective, represent one further evolution in the commoditization of capital and the beginning of the de-bundling of venture capital — and perhaps even progress for LPs, measured through liquidity (see Spice VC).

From the capital point of view, an institutional investor, typically a VC, in theory, can invest via any mechanism/structure (eg. crowdfunding, ICO, etc), but there is a reason why they prefer (for now) some structures, and this partly has to do with governance & institutional restrictions (which is usually imposed on them by their LPs and from prior experience of where things can go wrong) and partly due to economic return alignment as things stand as of today (more on that below). A non-institutional investor (eg. someone participating in crowdfunding), by contrast, has less limitations and thus can invest in whichever structure she or he wishes to.

From the relationship point of view, a founder circumventing traditional pools of institutional capital of high quality (let’s put aside those less value-add investors which generate some of the pain founders feel when raising), might be passing up more than just a source of capital. They may also be inadvertently declining key industry/financing relationships, as well as investor experience that cuts across industries and founders they’ve worked with in the pas.

Thus, the original question of whether to ICO or to pursue traditional Venture could be broken up into these parts that are included in the conflated question:

1) What does the investor(s) bring to the table above and beyond their capital? Do you need that value-add for the specific project being worked on?

2) How many investors will be allowed to invest in Token sales / ICOs by their LPs and get comfortable with the idea of questionable liquidity to fiat in the short to medium term (thus forcing founders more towards crowd-funding via ICOs and at the exclusion of traditional VC)?

3) Will the ICO/Token-Issuance deal-structure be the preferred investment structure over traditional equity/convertible rounds in the next 5 years for professional/institutional investors due to reduced complexity?

4) How will governance evolve in the ICO world to capture some of the best practices which have been honed over years in the VC world, within the ICO world?

In the words of my colleague Kyran Schmidt —

The question of governance is an interesting one and I think we may well see evolution in structures so that token builder incentives more closely replicate the traditional incentives provided by venture capital — e.g. milestone-based financing. You could even see blockchain-based smart contracts as an enabler for that e.g. capital is only sequentially released to a foundation or developers if certain milestones are hit (network usage, transactions processed, etc).

My colleague Tom Wilson has this to say on this point —

I don’t think the primary driver behind higher governance in ICOs will necessarily be VCs’ LPs, but it will likely be a driver as the market matures and LPs understand the space more. I think that many of the key governance matters (information rights for example) actually help companies rather than hinder and hence why they’ve become standard in all financings and will find their way into ICO docs etc. Good governance can actually align interests and ICO companies should look to incorporate rather than fight against such rights.

I also think another driver of higher governance in ICOs will, unfortunately, likely be a large high profile failure (i.e. a team, ‘company’ or protocol developer, that has raised a large amount on an ICO making off with investors’ money) — this will not only drive the market to get hotter on governance matters but will inevitably drag the regulators and legal system to look into regulations around ICO offerings (this will probably happen quicker in jurisdictions where it’s possible to offer to non-sophisticated investors).

So, what do I expect to be the outcome over the next few years? Firstly, I think that there will be some mapping of traditional investment best practices into ICO structures, secondly, I think more and more institutional investors will get comfortable with investing in the new structures and assets being created by ICOs, and lastly, as an industry, we will develop better ways to leverage relationships with token developers, token holders and sources of capital.

Continue Reading