Dan Applequist introduces: "Theme for today is, "are we in a bubble?"

It's a panel discussion, chaired by Martin Fiennes of Clarity Capital Partners.

MF: Introduces the panel

Madhuban Kumar, advisor to Doughty Hanson Tech Ventures

Azeem Azhar of Reuters: "plenty of scar tissues from the last bubble"

Sam Sethi of Vecosys, "he too comes with scar tissue"

Jan Kuczynski, Research Manager at Wireless World Forum

Each panelist gets 5 minutes:

Azeem Azhar:

What made it a bubble last time? Large number of exits at high valuations, particularly for immature companies. This created a ripple effect, and large amount of money led to drop in quality of businesses and teams. What suggest overinvestment right now? LibraryHouse reckon £24m into Seed/Series A investments across Europe. In 2006, UK alone was £84m - big increase, not including some of the larger deals (e.g. Blyk). No exceptional IPO exits as yet. This time around the lack of an obvious wacky IPO market (partly because NASDAQ is harder to get onto), suggests this isn't quite a bubble.

Sam Sethi:

Beginning of last year was entrepeneurs saying they couldn't find money, end of the year VCs were complaining they couldn't find investments. This year there's a skill gap, finding rounded management teams to develop good ideas. This time businesses can be built quicker, putting VCs in a position where their big funds are not meeting the requirements of entrepreneurs: they're not needed as much this time around. It's 100k, 200k to get businesses up. There's a gap between the angel and VC market here in the UK - European investment market doesn't tend to have an entrepreneurial background.

Is there anything consistently missing from these teams?

Madhuban Kumar:

Was an investor both times around. Both funds were cautious, they didn't make a single dot-com investment. As Sam says, it takes little to build a company - Excite took 3m to get to market. VCs are looking at 10x exits with same amount of time and due diligence going in. Tech is cheap and mature this time around. There are great teams, great technologies and great markets. Businesses that require little capital are less attractive for VCs. Revenues beyond advertising are interesting. Network-as-gateway is an impediment for VCs entering mobile. Software around dual-mode phones, fixed/mobile convergence, security/virus issues are infrastructure, are all interesting.

Jan Kuczynski

Is the market hospitable for startups now? Consensus last year was that we needed to get more people using mobile content, and that data charges were a huge issue. Web'n'walk and X-Series have helped here (though they're surely v minority for now). We're still not providing good consumer experiences, so we're not ready for investment in mobile games and mobile communities. Companies that iron out consumer experience and help consumers access content will help: mobile search, 2D barcodes, coupons, ticketing. The 2 strengths of mobile are marketing ("closed marketing loop setup" whatever that is), and the willingness of consumers to pay for content via mobile.

MF: Sam, you mention the skill gap... have teams not learned from the last bubble?

SS: Seasoned entrepreneurs are rare, we're seeing the same mistakes. Michael Smith mentioned as an exception :)

MF: Do you find a change in outlook from companies you meet?

SS: We don't get businesses in unless mgmt teams are high calibre - we screen.

AA: In 95/96 no-one had scaled web sites. Today these skills can be bought easily. You don't have to reinvent the wheel these days, though it makes life easier for the competition too :) Youtube is off-the-shelf. Offshoring is commonplace.

MF: What about the role of operators? Still a problem?

MK: Yes. Startups need to understand operator priorities. Circumventing or working around operators are models which are just emerging, but today you have to work with the operators. This makes it hard for investors too; it's high-risk.

Audience: What do you mean by management team skills gap?

SS: Are you someone who's good operationally? Can you start and finish things? The dirty work: doing the numbers, the quarterly VC reports, etc., is important.

AA: Depends on your business. The management team is the first thing people look at, it's more important than the idea.

MK: Ditto, the most important thing is the management team. One way to hedge your bets is to get advisors (rofl, given that she's an advisor!)

Audience: Should online and mobile be brought closer in terms of product delivery? VCs seem more risk-averse in the UK. Is this relevant?

JK: Yes, at the moment, given that we have to work with operators. Online helps you work around operators.

SS: Tony Fish uses the term "4 screens of life": PC, TV, in-car, mobile. Talks about an IP-driven mobile community (you what?). In 10/12/18 months we won't have separate services: presentation divorced from content, etc. It won't matter where you are. Don't devise a strategy based on a single platform. (Hmm, isn't this ignoring the value that context brings? This sounds easy to theorise about and difficult to deliver on - not to say it's impossible)

AA: I was a risky investor. We don't have the same ecosystem here, there's no single thing we can fix. We may get there in 10-15 years.

MK: Look at the environment around Sandhill Road (sp? where's that?). US investment style is to take a "portfolio approach" - they make more investments, fast and frequently. The quick exits we've seen are a result of this.

Steve Devo, Vodafone: It's about escalating costs, no? Developers were costing £2k/day. A lack of cost inflation is holding the bubble back now.

Alexander of Digital Wellbeing: Bubble 1.0 crashed because there was no uptake; things were tried and discarded. We need things usable to prevent Bubble 2.0. (What's the betting he's a usability/interaction guy ;)).

MF: How important is ease of use, Jan? (DUUUUUH)

JK: Consumers will use things once the experience is better.

I know I'm routinely guilty of it, but we really need to move the debate beyond this "ease of use is good mmmmkay" style of discourse.

AA: Just back from Bangalore. We have access choices (cable/DSL/WiFi, laptops/desktops/etc.) The mobile is the one device everyone has: there's no Cloud, no FON. Because there are no other choices, you're forced onto mobile.

SS: Hoped Tim O'Reilly was going to announce Web 3.0; "open ID" will be a part of this. There's no identity framework on the internet (erm, apart from "openID"). Web 2.0 was Web 1.1 (yawn). XMPP, SIP, microformats, yadda yadda yadda.

Audience: (early-stage investor) risk-taking with investors is a factor of price. It's like the music industry: low barrier to entry, artists not wanting to give away much, lots of dross, high expectations. It's cheap to start a company, but costs to get attention: the money is for marketing.

Audience: Isn't marketing cheaper today?

Audience: Is there an ambition gap in the UK?

MK: There's a cultural issue between US and Europe, in terms of mentalities. Entrepreneurs are more open over here now: they are seeing that VCs add value. US entrepreneurs want to make a billion dollars when they exit.

DA: Has seen a trend towards collaboration between startups which he didn't see in the 1990s. Is there a different atmosphere around collaboration now?

AA: Yes, partly because people have been through it before. Moocards, skype, flickr all know each other.

SS: People realise they're part of an ecosystem.

.

Comments

[Mike Butcher]

Nice blogging Tom. BTW Sandhill Road is in San Francisco (or 'Silicon Valley'I guess) and has a lot of VCs head-quartered on it. I also agree we should get over 'user experience'. It's a GIVEN that the experience should be good. If it's not then just get out of the business and go and grow vegetables or something. Now let's talk about something else!

[Sam Sethi]

Agree with Mike Good review Tom. Sorry if the insight was not more compelling but the topic was had to raise about the level of bubble no bubble. I would be interested to hear what you think, as not sure of your thoughts or opinion on this topic or those I raised?

[Jag]

Although the theme was bubble or no bubble. There were a few things that stuck out for me last night:

* The point (or implication) that Madhuban made early on about how there's too much action in the "application" space and not enough in infrastructure. And how innovators should look beyond advertising as a revenue model. Personally, I think she was being too kind, and could have been a lot harsher.

* Also another point made by Madhuban - this time made me laugh, she recalled her experience and stated on several occasions that working with the network operators was hard/frustrating/bloodbath etc. Here we go again: I always look forward to the point in Mobile Mondays when everyone starts to rant about the "evil operators". For years I used to think the same thing until I joined the "evil operator" and could see from the inside why we do what we do. So my question to Madhuban, had I had the opporunity to ask it would have been: why oh why did you let it get to bloodbath stage with an operator when investing and parading new mobile innovations? Surely VCs should be filtering out the stuff that won't cut it with operators. Perhaps the VCs should get together with the "analysts" and do their homework before trying to get innovations to market that just won't make sense. I know this sounds really arrogant, I'm not saying that "operators know best", but what I am implying is that both operators and VCs are playing with investors money. It's a serious business and decisions aren't generally made emotionally. The operator has investors, just like the VCs. Both are trying to get the best return on capital invested. A VC who has a hard time trying to get an operator to take an innovation nine times out of ten is doing the wrong thing. I'll give you an example; I get innovators and startups knocking on my door every day, I prob see more startups than most people do. But what pains me a great deal are those that come in and say they got second round funding for their innovative product. In some cases I really wonder which VC was mug enough to allow some crazy things to go to second round funding. I know I'm being harsh, so apologies in advance.

* Jan's point about usability, although obvious, needs to be stated again and again and again. And VCs need to understand this too. For example, when meeting mobile startups, it doesn't very long into a meeting when you ask the question "so what phones does this work on?", and the answer is usually something like "well it works on Series 60 today, but we plan to have Windows Mobile and Java version out in x months time". Our response is usually something like "you do realise that Symbian represents only a small single-digit fraction of all of our sales don't you?", and the reply is something like "well, yes but we can see that changing as time goes on, smartphones will dominate at some point". You know I don't necessarily disagree with that line of thinking, BUT we've got an already established business to run and we're concerned about next quarter's revenues, and in so few cases do you spot something that you could take a punt on being a good earner in 8 quarters time, because the world will have moved on in just 2 ! Next please!

* There was a discussion around skills gap and quality of management teams. I think Sam mentioned this. A very interesting dicussion I think. Got my mind wandering a bit about this. I think it kind of relates in some way to what Madhuban implied about "too many player in applications", and the point that Sam made about starting up on a credit card etc. It's just too easy to knock up clever web apps. There seems to be a lack of deep insight and vision, and I think the reason is exactly because it's too easy these days. Let me use computer programming as an analogy. When I was a kid I was mad about computers. I taught myself programming, insitially in BASIC on RML 380z and then progressed to Acorn Atom, Z80 assembler etc. I created Othello games, space invaders games, and progressed into teenage years to programs for complex solutions to complex problems, like AI, chess etc. All self taught and in my spare time. It was all deep insight, fundamental, inspiring and playing with the building blocks to create great things, from roots high up to the leaves in the branches. When I look at kids these days, all the innovations that have been acheived in the last 20 years shield them from getting at the building blocks. The building blocks these days are more macro than they used to be; windows, widgets, web methods etc. The further up the app space you go, the more prescribed your usage of them becomes and the less differentiation in innovation occurs in the end products. In the last bubble I think we saw a lot more of the "deep innovators", and again if I had the opportunity to make it I would have said something last night, something along the lines of "where have all the high quality innovators and managers of the last bubble gone? I'll tell you where they've gone; when the bubble burst they got stable, low-risk jobs, got married had kids and are quite frankly burned out and don't want to go through that kind of hell again. And the next generation of innovators have all grown up reading O'Reilly books instead of programming Casio calculators"

* Jan's point about 50p increase in ARPU over two years seen by KDDI when they went flatrate data. I didn't know that. Very interesting though. I haven't quite had time to absorb that properly, need to get my head around it. It's not as simple as saying that going flat rate will not get the customer using it more. Reason is that when KDDI/AU did that, the market was already very mature in terms of usage. So, need to think about that one a bit more.

[jamescoops]

I'm afraid to say that, with one or two exceptions, the debate last night was dire. To some extent this was down to the way it was framed but I really hoped for a bit more analysis of MOBILE compared to the wider web 2.0 stuff. Mobile is on a very different point in the curve to the web stuff - B2C mobile was effectively in recession last year.

[Tom Hume]

Sam: sure, that was the theme. I think it's angels-on-pinheads stuff but the event is still worthwhile :) I don't talk Strategy fluently, so can't really comment on the high-level stuff but I get that the investment climate here doesn't mirror that in the US, and yeah that's a shame. My focus personally tends to be more on building stuff.

Jag: cheers for the comments. Guess I'm jaded on the usability front and read too many interaction design blogs to find this stuff in any way new, but you're echoing what I've heard from other folks in operators here. And know what you mean re deep technical innovation and its rarity. The number of graduate CVs we get where the third year project is "building a web site" makes me shiver...

James: I didn't think it was dire. Certainly I got to catch up with a few familiar faces afterwards, including a couple of folks I'd not seen in yonks :)

[jamescoops]

yes always a good chat afterwards - was just a bit disappointed that the debate didnt focus on mobile a bit more.

[Madhuban]

Hi

Just to reclarify, my experience around the 'bloodbath' was not as an investor but more so as a company working for the operators to deliver a joint scheme. Working with one operator is a nightmare, try working with a consortium- having had first hand experience I will not wish it on anyone. My other point which seems to have gone amiss is that it makes sense to know of operator priorities and not to take that lightly under any circumstance. Hence, it pays to do the right due diligence not only as an investor but particularly as a startup in mobile. The end game is about returns be it a startup,network operator or an investor.

[Jag]

Thanks Madhuban, and apologies for not understanding it in the right context. I agree that a consortium of operators would indeed be a total nightmare. I have been there myself! I remember your point about knowledge of operator priorities, I think it was a point well made. I feel really arrogant saying this, and there's probably not really a nice way of saying it, but think there is a lot of hype and misunderstanding about the logic behind operator priorities, products and services in the market. The better developers/innovators understand these, the more likely we are to get successful product, characterised by good return for all parties like you say. Cheers!