The problem with crowd-funding ...

When Kickstarter launched in 2009 I was sceptical. I'm still sceptical in 2016. Whilst I thought the concept of crowd-funding was an interesting open door for a lot of new projects, I also saw the downside - the potential for a lot of people to take money and not deliver. 

The market for crowd-funding has bloomed and there are now 30+ sites you can browse for projects and products to back. I've put money into two gaming projects (as that's my background) but more to see what the process was rather than I was desperate to back these specific games. Neither of them have made it to market, reinforcing my scepticism.

Projects that fail to find backing

If your project isn't good enough it just won't get traction and therefore wont get funded. There is no mystery here. The public is more educated than ever and project that isn't worthy of attention will not draw the cash. In the early days a slick marketing campaign could help a less than interesting project get its funding, but those days are long gone.

Projects that find funding

These projects/ideas fall into 3 main categories in my mind:

- Marginal
These are projects that just scrape past the post. There was probably a concerted effort by the founders and some pre-awareness, but they just made the target

- Mainstream
These are projects that make their target in less than 60% of the available time and end with 150%-200% of the target. The product is probably a reasonable idea but typically the amount invested in these is on the low side - so the risk level is average.

- Mega
These are well marketed and slickly put together. The bulk of the funding was pre-arranged before the campaign went live and the over-performance in crowdfunding probably means that they could and should have gone through another funding route.

Here are my top-6 things to consider:

#1 Founders

One of the bigger issues is the background of the founders of the projects seeking funding. There is no way that the crowd funding sites can sanity check the people behind the projects so it really needs to come down to the individual to take a closer look. Its the case that some of the people looking for crowd funding don't have the background and track record that would make funders hand over cash outside of the crowd funding sites. Its one of the areas where the sites could do a lot more/better to protect the users. The projects I have backed - I knew the founders and was happy to fund their projects - but this is not typically the case.

#2 Tracking

Lets assume that you've backed a project that is interesting and that the founders are capable of delivering the idea. Project management of the delivery is often completely anonymous. Getting the semi-regular update emails is OK, but if like me you have a technical background, you want a bit more insight into the delivery, the problems, the solutions etc. Even if you're not technical then a more granular insight on the delivery schedule would be more inclusive.

#3 Trust

Thinking about the above, if you don't know the founders and you can't get a good oversight on how the project is progressing then how can you build trust? You cant, plain and simple. So without transparency and trust between the funders and the founders then why are we surprised that there is a disquiet with many crowd funded projects?

#4 Realism

Do your homework. Make some enquiries into how the project should be put together and then judge whether the founders have a realistic time frame or funding amount to turn the project into reality. Even if your understanding is basic it should be enough to broadly assess the projects credentials. If it doesn't look realistic, it probably isn't.

#5 Copyright

So many crowd funded projects run into copyright issues. They unknowingly infringe on someone else's IP and end up getting bogged down with due process. Google around and see just how many other products are similar before committing. The more you can find the more wary you should be. Its part of the taking-your-time and do-your-homework approach you need before crowd funding.

#6 Compliance & Accounting

There are different schools on thought over if crowd funded amounts are Capital or Revenue. Look at the location that the founders state as the home of the project and then look at the rules relating to that location. If the project is likely to loose funds through an overly aggressive tax regime then its also likely to run out of money, or that's what history would suggest.

Closing Summary

In the end its a case of buyer beware. If you just don't take the time to go through some simple due diligence checking then every now and then your not going to get anything for your money. It's not hard these days to get some baseline information that can  give you a better sense of who is involved and what the potential issues might be in delivery - you just need to spend the time.

A Crypto Future for Good

Crypto-Currency

Recently the BBC featured this article about a new bit-coin derived service that rewards walkers with a virtual currency for each 5 miles they walk. Bit-coins are not new, but this is the first genuine attempt to connect crypto-currency to a genuine real world cause. With obesity on the rise and the follow-on problems with diabetes, this kind of initiative is welcome.

My own personal interest in crypto-currency (CC) goes back a couple of years. I've managed to mine a few bit-coins, have delved into the block-chain to see how they are created, watched the valuation of each coin fluctuate wildly and completely failed to find anything that I really wanted that I could use the bit-coins for. 

I have throughout all this been telling anyone who would listen that CC's as a concept have the potential to change everything. Particularly for people with little or no specific skills base or those people that work in sectors that are historically low paid (healthcare etc.) 

Imagine scenarios where putting rubbish in a bin creates revenue? A Nike Fuelband style device on your wrist communicates with a recycle bin to reward you for depositing rubbish. Now suppose that multiple deposits in a time-frame amplifies the reward. As soon as rubbish has a value you'll never see litter in the street again, or anywhere else for that matter - I've said that for years.

There are a lot of social and societal issues that could be tackled in the same way - with CC's rewarding low/no skilled input into society, providing a revenue opportunity for the person and lessoning the welfare/local authority bill in the process. 

So what's the problem?

There are a few issues with CC's at the moment. 

- Stability
The current CC's suffer from a stabilising influence like the Bank of England does for Sterling. Our money is protected from volatile movements by the Bank of England's moderation of the market. Bit-coins have never had this and therefore are subject to wild swings in value.

- Security
CC's need to be deposited into a virtual wallet system. I've never seen my bit-coins, they don't exist physically, I know they exist because I can see them in my bit-coin wallet. The wallet system is not 100% flawless and its still possible for wallets to be hacked or stolen completely. They also rely on passwords and if you lose or forget your password there is no system to recover it, its lost for good.

- Market
At the moment most of the mainstream business environment doesn't want to deal with CC's, mainly for the two reasons above but also because they don't have the skills and tools internally to deal with CC transactions. Its changing slowly and some of the banks are heavily investing in the people and tech they need to manage CC's. However, its still not possible to pay your phone bill with a CC transaction - which is a major limitation.

- Trust
For anyone wanting to get involved with CC's there are still trust issues for something that you can't hold in your hand. Users need to know that they are going to receive what they have earned, when they earned it and that they can spend it the way they want to. There still needs to be some formality developed for CC users - CC generators need to be regulated and managed (maybe by the FSA?)so there is some faith with the users that they are involved with something that's going to function correctly.

Summary

I'm an advocate for the future of CC's. I don't think that bit-coins are the solution, but something based off the block-chain principle will emerge that starts the revolution. If you're interested in CC's and want to read more, here are a selection of links outlining both the argument against as well as for CC's.

Wall Street Journal
Nature.com
UK FinTech
Investopedia
City AM

Is the Bubble Ready to Burst?

A non-tech investor recently asked me if I thought the tech market was heading for a crash. "Yes" I replied without hesitation. 

The current tech market and environment has all the warning signs of a crash coming, its just a question of if we choose to get ready for it, or ignore it on the basis that there are still gains to be made right up to the moment it goes bang. It isn't the same as the dot.com burst of the late 90's but the same signs are there and a large part of the tech market seems happy to ignore what's on the horizon.

A combination of rapidly increasing share prices, market confidence that the companies will turn future profits, individual speculative activity in shares, and widely available venture capital has created an environment in which many investors were willing to overlook traditional metrics, such as P/E ratios, in favour of basing confidence on technological advancements.

So what am I basing my future prediction of a tech-bust on?

The current "Unicorns" need to go public to provide their investors with a return on that investment and keep confidence in the market. A small number could be sold but at a certain top-line valuation this is particularly difficult - there aren't that many buyers. The Unicorns are growing revenues very aggressively which is a positive but the question is more over their ability to generate a profit. They are raising new monies constantly and burning most of the money to maintain the growth curve. Ultimately they will need to show a path to baseline profitability with attractive margins to justify their valuation. Sceptical doesn't describe it with me, I'm sure that a lot will not end up being sustainable and its at that point that the confidence will collapse.

Many Unicorns - darlings of the stock market - and other privately held companies will be shutting their doors as they find it impossible to raise more cash with their bloated capital structure and their huge infrastructure costs. Any smaller or more nimble company that can actively cut costs to get at or near profitability will survive but many will not.

I still think that the best way to understand the current situation is to hark back to the last downturn. Mark Cuban (His Broadcast.com company sold for $5.7 billion several months before the dot-com bubble burst) recently said that there is no question whatsoever that we are in the midst of another one. The key piece of learning from the last one? There is no doubt that a lot of people will be devastated when it pops. 

“The biggest of all losers will be anyone who has borrowed money to invest in private companies,” he said. “You were stupid. You blew it. You lost. That simple.” - Mark Cuban

A Perfect Storm?

Absolutely. The start-up market is overheating.

Funding a tech start-ups has never been this easy! One of the prime causes has been because of mutual funds and hedge funds getting in on the action, altering not only the funding landscape for tech start-ups, but also the equation by which valuations are created and therefore expectations.

The concern is really around the valuations for businesses that are defying explanation and negating the established wisdom. Entrepreneurs and investors are deviating from more traditional valuation methods and performance metrics to more radical ones. Another cause quoted for increasing valuations is the trend of protections for late investors that cause valuations to inflate further. These conditions have put the market into a state of very inflated and artificial valuations.

The companies themselves are burning through cash like there is no tomorrow. Throwing money at every aspect of marketing, infrastructure and, in particular, salaries has become the accepted investment strategy for start-up growth - everyone wants a Unicorn. All this perpetuates the vicious cycle of raising more money and spending more money. For the amounts that some of these businesses have raised, there is extreme scepticism on actual profitability.

Where does this end?

As to if the unicorns are in some kind of tech-bubble - I'm not sure. There is so much money vested in their success its likely that more money will just find its way into their eco-system. I'm hesitant to say to-big-to-fail but close. Companies further down the scale are very likely to fail if confidence falls, new money will dry up or only go to the unicorns. Confidence is everything when it comes to investing.

In any gold rush the people who make the real money and the people who build the picks and shovels. A lot of the infrastructure providers have had a long stretch of capacity development through overspending by VC backed companies. They are the real winners.

Pitch Perfect

I've just attended WebSummit 2015 in Dublin. Its one of the largest gatherings of start-ups, investors and business angels during the year. Attendance is typically in the 20k bracket and its a popular event with celebrities such as Bono from U2.

This years event included several live pitch stages where anyone could stand up and live pitch their start-up directly to a group of investors in front of an audience. One of the pitch stages was sponsored by Audi and I watched a number of start-ups pitch during the course of the event.

For a lot of the people using the pitch stage, it didn't end well. We saw a succession of young hopefuls go down in flames under the weight of badly thought of ideas, unworkable business models, rampant ego's and twisted understanding of how investment works.

Anyone who really understands how investment works wouldn't get up on one of the these stages because they understand the damage that a bad pitch or a bad investor reaction to a pitch can be.

Let me just quantify that slightly.

- A bad pitch is an unrealistic, non-commercial or niche idea that has no audience or is unlikely to monetise itself.

- A bad pitch reaction is when you pitch to the wrong people, investors come in flavours and you need to find the right audience for your pitch. Pitching to just anyone who identifies themselves as an investor will ultimately lead you to a bad pitch reaction.

So what makes a good pitch and what is the right scenario to pitch in?

Creating a quality pitch deck takes time and expertise. If you're a first time entrepreneur then get help. Accountants and lawyers are the first port of call and then subject matter experts can all help you get the right vernacular. The slides must be accurate and succinct and must cover all the right aspects that the potential investor will need to know to understand if this is an idea that appeals to them.

Simply:

1. Who are you / who are the team

2. What is idea / problem you're solving

3. What is the solution your developing 

4. What is the revenue model / who is the customer

5. What is the cost of developing the solution

6. What is the time-scales / time to market / 1st £ of revenue

7. What is the exit strategy / Time to exit

At the end of this the investor should be able to rule you in/out of their thinking. They either understand what you're saying, like it and want to continue or they don't get it and you both need to draw it to a close and move on to the next opportunity. 

Based on watching the Audi pitch stage at WebSummit, this is what you cant do:

- Tell the investor they're wrong when they play devils advocate
- Dismiss pertinent questions
- Speak negatively in response to a potentially negative point
- Not look directly at the investor whilst being challenged
- Clearly make things up on the spot to negate a question
- Be anything less than accepting about the advice your given

I watched a number of people pitching just fail to deal with the questions from the panel after their initial pitch 4 minutes went reasonably well. The questions are a pre-cursor to a formal period of due diligence and the investor can judge your proclivities, quirks, attitude and personality as part of that due diligence process. 

There are a few things I can recommend as part of the post-pitch questioning:

- Only use positive language - I am, I will, I can, I accept
- Avoid negative language - I guess, If we're lucky, Maybe
- Look at the person who is asking the question directly, not your feet
- If you don't know the answer, tell the investor you will contact them later with the correct information
- Ask questions back following an answer to a question. "The answer to the question is X, is that an answer that is acceptable or meets your investment requirements?"

Summary

There is a school of thought with pitching that "less is more", its something I agree with. Many pitches get way to technical and detailed. I think that 5-8 slides is enough with 1 minute per slide. You should then be engaging with the investor directly opposed to broadcasting to them. Use the discussion as a part 2 of the pitch. Its pretty impossible to secure the deal in the pitch but its very easy to lose the investors interest so the pitch and the audience must line up perfectly, the pitch itself must be meticulous and the delivery must be well rehearsed and optimal.

Good Time to be a Start-Up?

Personally I'm never convinced that there is a good or bad time to start your own business. Recessions are bad but often make for good start-up conditions (cheap rent, grants, loans, start-up incentives). Economic booms mean customer(s) spending in large amounts but the infrastructure costs can rise. Its a discussion that comes up frequently but I'm not swayed either way.

Lets look at some of the reasons why now (October 2015) might not be a bad time for that tech start-up idea you've been mentally developing:

Culture

The culture-shift in society towards entrepreneurial activity means that there is more acceptance than ever about being your own boss, being a start-up and being a crazy entrepreneur type. There is no stigma or negativity in doing your own thing, conversely its become interesting and cool to be running on near-zero money and doing something risky. Society went from being risk-adverse to risk-rewarding in a very short period of time but its a shift for the better. 

Hardware

Between 1995 and 2015 the cost of hardware to power a world-wide web solution start-up has come down by a factor of 100. Long gone are the days of having to buy bespoke hardware solutions from companies like Sun or Oracle at ridiculous prices. Linux solutions will now run on cheap hardware making scale costs far more tolerable to the masses.

Infrastructure

You just don't need to build from scratch any more. Infrastructure has gone from something that you bought or licensed to being completely free of cost. Linux, Apache, MySQL are all examples of infrastructure that in years gone by the costs would have hung large over a start-up. Open Source as a mentality has taken away a massive barrier to getting going.

Time-scales

Business planning and development now takes days and weeks not weeks and years. In fact its possible to get a business live in a day but I would be sceptical of something born so quickly. As a new entrepreneur there are a plethora of boot-camps and hack days that will give you a rapid start over the course of a weekend and can lead your new business from nothing to something in a month or less. Historically this took years and was a huge barrier for a lot of would-be entrepreneurs.

Going Global

Globalisation has helped in a number of ways. The labour market is now anyone in the world that has the skills you need and understands what you're aiming for - not who you could find in your local environment and making do with what you could find.

Equally, your sales market is now also global in nature, if your product is digital then the whole world is your market size.

Both of these have negatives attached to them but in general I see both of them as being 90% positive in nature and helpful to a new start-up.

Mentors

One of the most positive things for new start-ups is the widespread availability of mentors. These are people who have lived the life your heading for, succeeded, failed and moved on to the next idea. There really is no substitute for experience and a good mentor will be able to help you avoid the common mistakes. You'll probably make a whole new set of new mistakes bespoke to the idea your developing, but you should be able to avoid the run-of-the-mill errors that can plague a new start-up.

Search Engines

30 years ago the world operated around sales and distribution agreements. You needed someone to do something in their locality that meant that potential customers got to see the thing you made and help them make a purchasing decision. Pre the Internet there just wasn't any option to reach customers directly in a cost-effective way.

Search Engine Marketing (SEM) is now everything when it comes to potential customers/users on-boarding to your new start-up venture. A good SEM strategy can bring millions of potential users/customers to your door and can do it on a cost basis that has never existed before. Get your SEM wrong and of course you won't get much for your money. Get it right and you could be heading from zero to hero in a fortnight. All the best tech businesses are the ones with the best SEM strategies.

Money

There are a lot more active angels investing now than ever before. The UK government has recognised this by actively bringing in tax incentives such as EIS, SEIS and Entrepreneurs Relief. This means the number of people writing £80k seed fund cheques to entrepreneurs has increased massively. For the budding entrepreneur it means a small army of people to talk to about the next funding round to get your business pumping - 15 years ago, even 10 years ago this didn't exist.

Bootstrapping

The tech sector is sensitive to its past. The dot.com era of the 90's left investors everywhere (with the exception of Warren Buffet) with a bitter taste in their mouths over unprecedented levels of investment amounting to very little. Its hard to look past boo.com, as an example. $160 Million of VC cash produced very little. Bootstrapping now means that tech companies have a verified method of getting to the first pound of revenue on very little cash. Investors accept this as valid and most tech start-ups can use this method as part of a structured business/investment plan.

Summary

If you're keep wondering if now is the right time then you're probably never going to commit and start. You can wait and see how the business landscape develops over time but as one factor changes positively I can guarantee that some other metric is changing negatively - its just the way things work. Many would-be entrepreneurs (commonly refereed to as Wantrepreneurs) fail to take the first few steps on the hope that something is going to fall in their lap that will make things safe for them - if this is you then you need to look elsewhere, start-up life isn't for you.

Board Now or Board Later

Overview

When I'm working with a start-up one of the more difficult concepts that comes up is the board of directors. This can range from not understanding what one is through to believing that the board will take the company away from them. Not every start up needs a board right away but the earlier that the board is discussed and the process is in place the better.

The definition of a board is "A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organisation."

The key word here is "oversee". A board of directors is there to advise and guide the company management team, not tell it what to do. The management team is the management team and is not replaced or negated by the board of directors.

Purpose

So if the board is not there to tell you what to do, what is it there for?

Advice: The board should be available to the management on a monthly basis to discuss the current issues within the business, be a sounding board and ultimately give advice to the management team.

Guidance

The board should act strategically while the business acts tactically. The longer term trajectory of the business can often be be seen more clearly and objectively from the boards point of view, and the management team needs to allow the board to act in that way by providing all the information it needs.

Compliance

There are several legal requirements for companies that the board is typically best placed to handle - especially within those businesses that have raised VC cash or have private shareholders in place. The board should manage and inform those 3rd parties on behalf of the company and authenticate information coming out of the company that was destined for those 3rd parties.

Format

The board has a format. There is a chairperson - the ringmaster of the board and ultimately the person responsible for the activities of the board, appointments to the board and the interaction between the board and the company. Directors have a board seat. Lastly the board can have an Non-Executive Director contingent - people appointed to the board to advise but don't have a day to day role with the business. 

Constitution

The benefits of a board of directors can be massive as long as the right people are appointed. The Chairperson is the key position. The Chair needs to be someone with the right levels of understanding and background in the sector the business operates in and needs to have the time available to work on the business between board meetings. The Chair should also have connectivity and a network that will benefit the business.

The Chairperson and the management team should then discuss and agree how many and of what DNA the rest of the board should hold. If the business has a large reliance on technology then at least one board member should hold a detailed background in tech. If the company intends to list on the AIM stock-market then at least one board member should have successfully done that before. 

The board members should have two basic abilities, one to deal with the companies core requirements and secondly to be able to plot a route forward for the business. As the company and Chairperson look at the business is should become apparent where the company would benefit from having a board member (sales, marketing, finance, tech etc.) 

Benefits

The benefits of a properly functioning board are massive. The company management should be able to direct the board towards the issues that are holding the company back and get qualified insight back from the board to help the company overcome those issues.

The board should be able to strategise for the management team and bring options and opportunities forward for the management team to consider as part of the development strategy for the company. 

The board should be able to open doors through their combined networks that the business could not access otherwise and be able to bring in expertise that the business can apply to problem areas.

Lastly, the board is the interface to investors, venture capital, share markets and other finance sources to allow the management team to focus on delivering the growth the business needs.

Summary

Its never too early to start the discussion about having a board of directors, the appointment and the use of its members and how to get the most out of it. Its not something that should done lightly or without taking care and attention to learn about how they function and the impact on the company. Start-ups benefit greatly from having a board in place early (as long as its the right people) and establishing trust and a working relationship between the board and the management. If problems set in appointing a board will not save you - it isn't a safety net but correctly dealt with the board should be able to help you pivot out of trouble.

10 Tips for Time Management

Using the following list will help establish where your time currently goes and identify unproductive moments during your work day:

[1] Carry a notebook! Record all your movements, thoughts, conversations and other activities during the week. Create data on how much you get done through a day/week and where your time is going. You'll quickly be able to map out how much time is realistically spent producing results and what percentage of your time is lost on unproductive tasks.

[2] Activity or conversations important to the success of your company should have dedicated time assigned to it. To-do lists get longer and longer to the point where they don't represent a feasible way forward. Go old-school - appointment books work as part of your time management culture. Diarise appointments with yourself and create time silos for high-priority thinking - treat thinking as a task. Schedule when they will begin and end. Have the discipline to keep these appointments.

[3] Plan to spend at least 50% of your available time ring-fenced for thoughts, activities and conversations that produce most of your results.

[4] Schedule time for interruptions. This is a little odd as a concept but if you plan time to be pulled away from what you're doing its less disruptive. Its then possible to tell someone who needs your input or involvement when your next interruption point is and you can leave your planned tasks at the right moment.

[5] Failing to plan is planning to fail as the saying goes. Take the first 20-30 minutes each day to plan your day. Don't start the day until you have a complete break down of what will come when. The most important time needs to be protected and everything else can be sacrificed if necessary.

[6] Take five minutes before every call and task to decide what result you want to attain. This will help you know what success looks like before you start. And it will also slow time down. Take five minutes after each call and activity to determine whether your desired result was achieved. If not, what was missing? How do you put what's missing in your next call or activity?

[7] Put up a "Do not disturb" sign when you absolutely have to get work done. Make sure you do this both physically and digitally. I close the office door which creates a physical barrier to disruptions and then make sure that I have my Skype status set to Do Not Disturb etc. Digital distractions are probably more tempting than the physical type so go to the extremes of logging out of everything if that helps. 

[8] Practice not answering the phone just because it's ringing and e-mails just because they show up. Instantly giving people your attention tends to create the impression that you're always available. If it's absolutely crucial to your business to offer an immediate human response then this has to be part of your time plan. Where possible schedule a time to answer email and return phone calls. I just look at email twice a day as a planned part of my office hours.

[9] If you have staff then think about the level of interaction you need to have with them during the day and make that part of the plan. A new member of staff might take up 80% of your time in the early stages whereas an experienced member of staff might take almost no time. Make sure you delegate correctly to allow senior members of staff to attend to the run-of-the-mill stuff day-to-day.

[10] Remember to review the day at the end and see how your plan held up. If you're not managing to stick to it then there might be other options that allow you to get back on track. If you manage it one day and don't manage it the next then some minor tweaking is probably required. If you're managing to stick to it most days then its probably producing positive results. Either way the post mortem process of going back over the day to see what worked and what didn't is creating knowledge and insight that you can use the following day.