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:
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.
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?
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.
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.