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Do Purpose was the first book published by our portfolio company Unbound under it’s ‘channels’ initiative. Unbound is a crowdfunding platform for authors and has now published several notable books working directly with authors, including best seller Letters of Note and The Wake which was shortlisted for the Man-Booker prize. The channels initiative is a way for traditional publishers to work with Unbound to crowdfund the books that they then publish. That’s exciting because it opens up crowdfunding as an option for many more authors than Unbound can work with on it’s own.
I finally got round to reading Do Purpose last weekend. It was like a shot of caffeine in the arm. Short, to the point, and highly inspirational. The book is structured as a series of vignettes with titles like “Speed matters”, “Patience matters”, “Your people are your brand”, “Teams gather around change” and “Sleep is the multiplier of energy” that made me think and reflect on my life, Forward Partners, and some of our portfolio companies. There wasn’t much that I hadn’t heard before, but reading this book helped me reconnect with what’s important and gave me new resolve and energy.
Lots of entrepreneurs I talk with don’t business books because they take too much time. Not this one. I got through it in under an hour.
Running a startup (and an investment studio…) is a marathon not a sprint. It will be hard work, and unlike a true marathon there will inevitably be periods when you have to run flat out, but you need to look after yourself if you want to get to the end of the journey.
The trade-off between work and family is the most visible – you work late at the office and it matters to those waiting for you at home – but the other two are equally important. Looking after yourself through exercise, meditation or whatever floats your boat is key to performing well at home and at work.
The trick that the most successful people pull off, according to Friedman, is to stop thinking about work-life balance as a zero sum game and find activities that improve all the elements of their lives. Compromises are still made, but with a full understanding of what’s most important. Three tips for doing that are to be real (i.e. authentic), bring the different parts of your life together, and look for creative solutions to work-life balance problems.
CBInsights analysed 101 startup post mortems and found the following reasons for failure:
Many of these can be prevented with discipline. My friend Stephen Allott who was CEO of Micromuse, a UK startup that peaked with a $3bn valuation on NASDAQ, once described managing a startup as a process of identifying problems, putting a box round them and then finding and implementing solutions. Taking that approach it is possible to avoid failing for many of the reasons on this list.
E.g. failing because the team isn’t right is preventable in most cases. It’s difficult, because it takes discipline to look at team questions thoroughly and real courage to address issues when they arise, but discipline and courage are two of the things that separate great entrepreneurs from the rest.
Going further down the list, poor marketing, ignoring customers and losing focus are all also questions of discipline and execution.
Going back to the top, even failing because there is ‘no market need’ shouldn’t really happen. Taking the ‘identifying problems’ approach I described above you would make establishing market need the number one priority. That puts you in the mindset of testing demand before you put much effort into building a company, and if it turns out there is no market lead it feels more like an experiment that didn’t yield the result you hoped for than a failed company.
The big take away here is to be structured and deliberate about the way you build your business and to face the hard problems first.
In my fifteen years as a VC I must have seen well over a thousand pitches and advised over a hundred entrepreneurs on their pitch decks. Here at Forward Partners we work with very early stage companies which has meant more time spent helping craft stories to raise investment than when I was at DFJ. In short, ‘how to pitch well’ is an important topic for us and one we spend a lot of time reading and thinking about.
Tomasz Tunguz of Redpoint Ventures writes a good blog, and given the above when I saw his headline The secret ingredient to the best startup pitches I clicked straight through.
The secret, which I’ve already given away in the headline, is to cultivate a sense of inevitability. Tunguz put it like this:
The most successful pitches argue the market will unfold inexorably in the way the founders envision on a relevant time scale. And, that this startup in particular will dominate share in that new world.
That’s great advice. When I think back to the investments that I’ve been most excited about it’s when I’ve been certain that the world will develop in a given direction and that other investors haven’t yet woken up to the new reality. I haven’t always been right, but at the point of investment I have felt strongly that a certain market outcome is inevitable.
There are a myriad of techniques for making a story convincing, but everything starts with the conviction of the storyteller. Entrepreneurs following this advice should make sure they really believe, and then be clear about the inevitability they are predicting and why it’s happening. Simply pointing to trends is much less powerful..
Two developments have changed the face of startup investing in the UK in recent years.
The first development is increased capital efficiency. Entrepreneurs can now achieve an awful lot with very little money. We see this all the time at Forward Partners where we invest right from the idea stage and most of the companies get a first version of their product live for less than £30k (that generally includes founder salaries and time spent doing customer research). When startups can do more with less money the returns from investing small amounts of money go up, and that can be seen in rising Series A valuations and declines in the average amount of money raised before exit.
The second development is SEIS and EIS. Along with many other governments around the world ours believes that a healthy startup ecosystem is critical to the future long term economic health of the country. That has resulted in a number of policies designed to stimulate startup activity of which the most important is the Enterprise Investment Scheme (EIS) and it’s younger brother the Seed Enterprise Investment Scheme (SEIS). Both of these schemes use the tax code to make it more attractive for high-net-worth individuals to invest in startups.
These two developments combine to make startup investing much more exciting than it ever used to be and we have seen a massive increase in the number of individuals who want to be angel investors.
However, finding and assessing investment opportunities is still a difficult and time consuming business. I’ve been a venture capitalist since the first internet bubble and what I’ve learned is that it’s hard to assess investment opportunities unless you have a thorough understanding of the company’s product and market and unless you’ve spent some serious time doing due diligence on the business. Similarly, from the other side of the table fundraising is still a tough thing for entrepreneurs to pull off and building a company remains as hard as ever.
Forward Partners and Crowdcube are both attacking elements of these problems.
The great thing about Crowdcube is that it makes it easier for people to invest in startups. For me the most important things they do are select start-ups they think are likely to succeed and give investors a standardised investment process that’s almost as easy as buying a movie on iTunes. That makes it possible for investors to cost-effectively invest small amounts and make lots of small bets on different startups.
Rather than help individuals to make investments Forward Partners focuses on making it easier for entrepreneurs to build great companies (it’s still hard though…). I could give lots of examples but perhaps the best is the way we work with solo-founders. Rather than pitching their powerpoint idea to potential technical co-founders, solo-founders who take investment from us pair with our developers and customer development team to quickly validate their idea and launch a site. Then, after a couple of months they can work with our Head of Talent to find a co-founder from a position of strength. We recently published a case study of how that played out for our portfolio company Snaptrip.
Whilst we have different models both Crowdcube and Forward Partners work to make investments in startups, and whilst we haven’t done a deal together yet I hope that we might do in the future. We add value in different areas and should compliment each other nicely.