Archive for the ‘Entrepreneurship’ Category

Introduction to SEIS

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The slides from my “Introduction to SEIS” talk at the Hacker News London meetup on 25th May 2012 (video below) can be downloaded here.

Written by jackgavigan

May 25, 2012 at 4:00 pm

UK angel investment on hold ’til April?

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On Tuesday, the Chancellor delivered his Autumn Statement to Parliament. It included the news that, following this summer’s Treasury consultation, a new Seed Enterprise Investment Scheme (SEIS) will be introduced next April, offering “50 per cent income tax relief on investments” and “a capital gains tax exemption on gains realised in 2012-13 and then invested through SEIS in the same year”. There will also be changes to the rules governing EIS and venture capital trusts.

I’m not going to regurgitate all the details here – you can read all about them in the Statement itself – but it’s clear to me that the new scheme will spark interest in angel investing amongst high net worth individuals (i.e. rich people) who might not otherwise have considered it and that can only be a good thing. From a personal perspective, I’m pleased that the government is enacting measures that will benefit startups across the whole of the UK, instead of just in one small region.

However, there’s one small problem – these measures don’t come into effect until 6th April 2012. We’ve got a whole four months between now and then, during which (a) any potential angel knows that a new, more favourable tax treatment of angel investments will be coming into effect in April, and (b) the old rules will still be in effect.

Since yesterday, I’ve been trying to figure out why an angel who will be able to take advantage of SEIS would choose to invest between now and April. I thought I was missing something but, if I am, nobody has yet enlightened me. In fact, Robin Klein is of the opinion that angels should wait, if they can. If they do, this raises the prospect that, for the next four months, very little, if any, angel investing will take place here in the UK. However, come April 6th, we’re likely to see a flurry of deals.

So, sit tight, batten down the hatches, tighten your belt and don’t book any holidays for the first week in April.

Written by jackgavigan

November 30, 2011 at 8:51 pm

A Tech City University?

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UC Berkeley's Sather Tower, more commonly referred to as the Campanile

I’ve been openly skeptical about David Cameron’s plans to turn East London into a “Tech City” to rival Silicon Valley, blogging about the important role the California state government’s Master Plan for Higher Education played in supporting the development of Silicon Valley and opining that, instead of focusing on one tiny area, “Cameron should concentrate on doing his job (improving the educational system) and simply get out of the way of entrepreneurs by reducing taxes, red tape and other costs for all start-ups, not just the ones in East London.”

In late May, a poll conducted at London Business School’s Global Leadership Summit reinforced my opinion. Attendees were asked “How best can government stimulate entrepreneurship?” and given four options. The results were:

  1. By improving incentives (e.g. by taxing entrepreneurs less) – 33%
  2. By creating incubators, and other geographical clusters of entrepreneurial activity – 18%
  3. By preferential procurement from entrepreneurial start-ups – 5%
  4. By reducing red tape and promoting greater flexibility in the business environment – 44%

A few things have happened since then.

Firstly, the Treasury has begun an open consultation on plans to encourage seed investment by angels and word has emerged that the Tech City Launchpad concept is to be “rolled out nationally” (although what exactly that entails remains to be seen – with luck, it means that the kind of support offered to Shoreditch-based tech startups will be available to any startup, anywhere in the UK).

This is very welcome news. It indicates that the government is actually interested in doing more than just jumping on a bandwagon and generating a few positive headlines.

Goofing around at the Googleplex

Secondly, I’ve just spent a few days in Silicon Valley. I’ve spent a lot of time in California over the past few years but, this time, I made a point of deliberately hanging out in Silicon Valley for a couple of days. I went to a 106 Miles meetup, visited the Googleplex, hung out at the Coupa Café in Palo Alto (I can recommend the mango smoothies) and met, informally, with a couple of VCs.

Driving down Sand Hill Road (a mecca for anyone seeking to raise money from VCs) brought home to me the pivotal role Stanford University has played in the development of Silicon Valley. I knew, intellectually, that Silicon Valley had been built on an education master plan but it wasn’t until I was driving along, with the Stanford campus on my right and a slew of VC firms’ offices on my left that I really understood Stanford’s role as the focal point of Silicon Valley.

Last night I stayed in Berkeley, just a couple of blocks from the UCB campus. In fact, I can see the Campanile from my hotel room. Walking around downtown Berkeley yesterday, I could see the influence the university has had on the vicinity. Its left-leaning, libertarian culture permeates the local area – street vendors hawk hippyish jewellery and knick-knacks, the coffee shops’ noticeboards display posters for political and literature-themed events, there’s a bustling all-vegetarian café and a Tibetan souvenir store within a stone’s throw of the campus boundary, and the surrounding streets house various Centres for research into this or that.

You don’t really get the same degree of influence around the various schools and colleges of the University of London, probably because LBS, LSE, UCL, KCL and ICL are located within central London, while both Stanford and Berkeley are geographically removed from San Francisco.

Some people get embarrassed and/or defensive when they’re wrong. I like to think that I don’t (although I say “like to” because I’m sure that my friends and colleagues can cite many instances when I have, in fact, been both embarrassed and defensive when I’ve been proven wrong). I could write an entire blog post on the topic of being wrong (and I probably will, when I get the time) but the pertinent fact here is that I now believe that Cameron’s vision of building the British equivalent of Silicon Valley in East London may not be such a silly idea after all. However, I still think it’s going to take more than £200m and a catchy name to make it happen.

If I’m right and Stanford did (and continues to) play a pivotal role in the development of Silicon Valley, then the way to create a British Silicon Valley is to establish a British Stanford. It just so happens that, in the Olympic Park, we have the perfect site for a new campus for a University of London School of Technology, Innovation & Entrepreneurship, with plenty of space for commercial premises that can be leased by startups and joint ventures affiliated with the new university.

The opportunity to establish a new university, on its own, contiguous campus, is one that will probably not present itself again in our lifetime.

Written by jackgavigan

August 13, 2011 at 5:58 am

HM Treasury consults on encouraging seed investment by angels

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Seed stage funding is not easy to come by in the UK. My friend Hussein (who is far more experienced and knowledgable in this space than I am) reckons that a large part of the reason for this is the lack of competition amongst VCs in Europe. In the US, investing at the seed stage is a way of reserving a seat at the table for the ‘A’ round. Here in the UK, there’s so little competition amongst VCs that they don’t need to compete for a seat at the table. As a result, startups are starting to eschew the UK/European scene and raise money in Silicon Valley instead.

Credit where credit’s due – the government has not only recognised that the lack of seed funding is hampering startups in the UK but they’re actually doing something meaningful about it.

On July 6th, HM Treasury announced a consultation on a proposed scheme called the Business Angel Seed Investment Scheme (BASIS). In my opinion, this is an incredibly important consultation and the outcome is likely to have an impact on startups in this sector for years to come.

The government is effectively asking for our opinions on what steps they should be taking to encourage seed investment and improve the EIS and VCT tax-relief schemes. They are considering introducing EIS-style tax breaks for business angels and one of the things that I’m particularly glad about is that it looks like convertible debt stands a good chance of being included within the scope of eligible investments.

If you are at all interested in this sector, you should download and read the consultation document and submit your answers to the Treasury’s questions ahead of the submissions deadline on 28th September.

Written by jackgavigan

July 26, 2011 at 8:51 pm

Posted in Entrepreneurship

Google’s Big Tent

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I went to Google’s Big Tent event today. It’s essentially a conference following on from the far more headline-grabbing Google Zeitgeist, that focuses on “the big issues facing the Internet today”. This year, it was organised in partnership with Privacy International and the Index on Censorship. There was a variety of speakers, including Eric “We view everything as a ranking problem” Schmidt, Jeremy “I’ll ignore the question you actually asked and, instead, answer the question I wish you’d asked” Hunt MP and Wael Ghonim, who unwittingly became one of the faces of the Egyptian uprising after being arrested in Tahrir Square, and held for 11 days.

It was an interesting change of pace from the commercial world I normally inhabit and gave me a lot of food for thought. Some of my takeaways were:

  • Despite claims that legislating for online privacy would stifle innovation, nobody could actually cite an example of this happening. Ever.
  • Privacy International’s Simon Davies pointed out that existing laws to protect people’s privacy (e.g. the Data Protection Act) are not being implemented anywhere near rigorously enough.
  • “I did not want to assume a leadership role… [I believe that] We should always trust the wisdom of the crowds.” – Wael Ghonim speaking about his role in the Egyptian uprising.
  • “We voted with our feet, we moved to Hong Kong. We were unwilling to be subjected to the laws of mainland China.” – Eric Schmidt, speaking about the perils of operating in countries with less-than-sparkling human rights records.
  • Mr Schmidt also described a French law requiring that passwords be stored in cleartext as “foolish”.
  • Google is building a dashboard to let people see all the information Google holds about them.
  • Jeremy hunt’s two big predictions for the Internet in the UK: The Need for Speed and Must be Mobile. He spoke about the potential need for the government to get involved in ensuring the roll-out of high-speed broadband, so that the UK could reap the same benefits that countries like South Korea have.
  • Google’s David Drummond pointed out that the more the West restricts free speech, the more repressive regimes will use that fact to justify their actions.
  • UNOSAT’s Satellite Sentinel Project uses satellite imagery from commercial satellites to monitor places like the Sudan for signs of conflict, then leverages the high profile of celebrities like George Clooney to publicise the fact that atrocities are happening.
  • Google’s Jared Cohen (formerly of the US State Department) averred that the rapid, viral spread of the YouTube video depicting the murder of Iranian protester Neda Soltan directly influenced Barack Obama.

Written by jackgavigan

May 19, 2011 at 12:31 am

Exactly what impact will the Tech City Launchpad competition have?

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Update: In the Budget 2013 speech, George Osbourne announced a new tax break for employers called the Employment Allowance which “will work by taking the first £2,000 off the employer National Insurance bill of every company”. It’s great to see blanket measures like this that benefit all companies, no matter where they’re located and I’d rather the powers that be focus on measures like this that will have a real impact and clear benefit, than PR/fluff initiatives of questionable benefit like the Tech City Launchpad and the recently-announced new “High Growth Segment” that will supposedly unleash a wave of tech companies floating on the London Stock Exchange (as if they couldn’t already float on AIM, like ASOS did).

So, top marks for the Chancellor. However, I think he can do more. Specifically, I think the next step should be to introduce an exemption on employers’ NICs for early-stage startups who pay salaries out of angel or seed capital. Implementing such a measure would be straightforward (HMRC could leverage the mechanisms already in place to support SEIS and EIS) and would provide a very powerful incentive for startups to employ people, and further encourage potential angel investors.

I hold very strong views on what the government’s role in encouraging enterprise should be. I’m also not a fan of targeting specific geographic areas. So, as you can imagine, the new Tech City Launchpad competition is getting right up my nose.

This is a competition for funding in digital projects. From the literature: “We are focusing on the existing technology and media cluster in East London, and we encourage companies within it to apply. However, the competition is open to companies across the UK, if they wish to carry out a project in the Tech City area.”

The first startup I was involved in (more than 15 years ago now) was based out of a spare, windowless room in the offices of one of our angel investor’s established companies. The second (during the dot-com boom) was based in Ladbroke Grove because that’s were we found cheap office space. The startup I angel-invested in recently doesn’t even have an office yet – it’s currently run out of the founder’s home, outside of London entirely.

Cheap office space is the primary reason a series of startups have sprung up around Shoreditch (and I hear that rents are rising rapidly). I believe that the purported benefits to a startup of setting up shop in Shoreditch are overstated (I’m not saying that they don’t exist, merely that they are exaggerated or would also apply were a startup to locate themselves in another part of London), which means that the rationale behind encouraging startups to locate themselves in that specific area is tenuous at best. Unfortunately, the government seems to have bought into the “Silicon Roundabout” hype – a media-friendly story that’s being pushed by various parties, including some who stand to benefit from an influx of startups to the area (and who are, of course, absolutely delighted with the Tech City Launchpad initiative).

The government would  be far better off supporting entrepreneurship across the whole of the UK, rather than just in one tiny area and I question how effective a competition like this will actually be, particularly given the fact that political considerations are likely to affect the judging (which pretty much rules out any startups operating in the financial sector).

I’d far rather see the government taking steps that will support all startups, no matter where they’re located.

EIS is a great scheme but it’s somewhat limited in scope. Is there something more the government could be doing to encourage investment by VCs and funds into UK startups? (And, by the way, startups don’t typically generate a profit for at least a couple of years, so giving tax credits against corporation tax is of limited utility).

How about tax breaks on, for example, employers’ national insurance contributions, to make it easier and cheaper for startups to employ people?

How about expanding and improving the talent pool from which tech startups can recruit by  encouraging and facilitating engagement between startups and universities? Is there any real reason why students couldn’t do work experience, industrial placements or projects for tech startups?

Such initiatives would have a far greater long-term impact than throwing £1m at a small number of startups in one tiny area of the country. Of course, they wouldn’t generate the same media coverage but the government should really be asking themselves whether they want to give the appearance of encouraging entrepreneurship or whether they actually want to do it.

Written by jackgavigan

May 9, 2011 at 4:26 pm

Posted in Entrepreneurship

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Enterprise Investment Scheme

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I was at an event for entrepreneurs this afternoon, which included a panel with some VC/angel-types. During the panel, it became apparent that a lot of the audience (ostensibly there to get tips on raising capital) had never heard of the Enterprise Investment Scheme (EIS) which is, quite frankly, pretty shocking.

I’m not going to go into the benefits of EIS but I will say this: No would-be entrepreneur should expect to be taken in any way seriously if they’re not familiar with EIS.

Hopefully that’s clear enough!

Written by jackgavigan

May 3, 2011 at 9:22 pm

Posted in Entrepreneurship

Mediocrity, not failure, is the worst-case scenario for startups

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There’s an excellent article over on OnStartups.com, about the dangers of mediocrity.

Back in 2000, I was CTO of a startup called ZedZed.com. The founders (I was the first employee) had raised £800,000 in seed funding and we got things rolling in November 1999. Four months later, the dot-com bubble burst and the VCs we’d been talking to about a multi-million pound investment round seemed somewhat less keen. However, the original seed investors were pleased with the progress we’d made and were prepared to continue funding us to the tune of another £800,000.

However, in June 2000, we decided that the prospects for raising the money we needed to execute on our business plan before the end of the year were remote and, rather than limp along, the board opted to shut the company down and return the investors’ money. We effectively mothballed the company, left the site running on a server in a data centre, laid off the employees and took freelance contracts to pay the rent while we waited to see if the investment climate improved. It never did so we continued on our separate ways.

Had we opted to keep going, we’d probably have survived well into 2001 before running out of money. It’s unlikely that we’d have been able to raise another investment round but it’s possible that someone like Lastminute.com might have been interested in sympathy-acquiring us to get our content management platform. The bottom line is that it wouldn’t have been a stand-out success. So, the decision to shut the company down was the right one.

Obviously, it’s important that you believe in your business idea but it’s equally important to keep a sense of detachment and recognise that, although your idea may a good one, its success or failure may well depend on circumstances that are beyond your control.

Or, to put it another way, you need to know when to quit.

Written by jackgavigan

April 19, 2011 at 8:20 pm

Posted in Entrepreneurship

Big Company vs Startup

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It’s a common fallacy amongst startup folks that large companies are incapable of being innovative or nimble.

Two words: Utter crap.

During the first five years of my career, I worked for small- to medium-sized companies, ranging from a small software house/systems integrator with about forty staff to a three-man dot-com start-up. Then, in the summer of 2000, as the dot-com bubble was collapsing (and after we’d shut down the aforementioned dot-com startup), I took a three-month contract consulting on e-commerce projects at Deutsche Bank, a 130-year old, multi-billion pound/dollar/euro bank that employed about 8,000 people in London alone, and over 100,000 people globally.

You’d imagine that this company would be a case study in Companies That Are Incapable Of Being Innovative Or Nimble but nothing could be further from the truth. At the time, Deutsche Bank had identified ecommerce as a key area for exploitation and it had a lot of very smart people working on a variety of projects that were aimed at giving it a head start on its competitors.What’s more, the company seemed to be very comfortable with the fact that not every project it invested in was going to be successful – an attitude that reminded me more of a venture capitalist than a massive financial services firm.

Individual business areas were allowed the scope and given the necessary support to explore new ideas, relatively free from bureaucratic constraint. Over time, I came to realise that, in the zero-sum game of the financial markets, companies like Deutsche Bank are fiercely competitive and that competitiveness leads them to react very quickly to opportunities (and, indeed, threats).

A firm’s ability to be innovative and to react  rapidly to take advantage of market opportunities does not depend on its size. It depends on its leaders. More accurately, it depends on its leaders’ propensity for change and appetite for risk. (Note that when I talk about leaders in this context, I’m not referring to those at the top of the company, but those who run individual business areas.)

It’s no surprise that startups have a propensity to be innovative and nimble – it’s easy for a small, new company to change and pivot, and, after all, a startup wouldn’t have started up in the first place if its leadership lacked an appetite for change and risk. However, an appetite for risk is not the exclusive purview of those who found startups. An entrepreneurial approach can work just as well within a large company as it can for a small one, and many large companies seek to foster an entrepreneurial culture. At Morgan Stanley, I undertook a project to investigate what underpinned the entrepreneurial culture within the Commodities and Emerging Markets departments and whether the same approach could be replicated across the rest of the company.

I think that people in the startup scene sometimes get a big snobbish and look down their noses at big, established companies (possibly in part because they lack the cool factor  possessed by startups) and there are lots of stories about large companies that failed to react to newer, smaller competitors. However, there are also lots of  large companies that have continued to thrive although I suppose that “David Vanquishes Goliath” makes for a better headline than “Actually, Elephants Can Dance”.

Written by jackgavigan

March 9, 2011 at 11:13 pm

Building Silicon Valley in East London?

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Everyone’s talking about David Cameron’s plans to turn London’s East End into a “Tech City” to rival California’s Silicon Valley.

I’m skeptical.

Back when I was working for Morgan Stanley, I once had a one-to-one with Colin Bryce, the European head of sales and trading. At the time, Morgan Stanley seemed obsessed with replicating Goldman Sachs’ success by taking more risk (this was before the credit crunch, during which Morgan Stanley lost $9.6bn and nearly followed Lehamn Brothers into bankruptcy). I felt that, as a company, we were not as competent in certain areas like risk management as Goldman Sachs was, but that we had other areas where we were potentially stronger.

“I don’t want to beat Goldman Sachs,” I told Bryce. “I want to win.”

My point was two-fold. Firstly, Goldman Sachs are always going to be the best in the world at being Goldman Sachs. They got to be the way they are over decades. That’s not something you can replicate overnight or even over the course of a few years. If you try to copy them, the best you can hope to achieve is second place. Secondly, by trying to copy others’ strengths, you risk overlooking your own. Or, to put it another way, focus on what you’re good at.

Silicon Valley is the result of decades of development, growth and investment, beginning with the defence sector. After WWII, the R&D divisions of companies like Lockheed Martin bred a generation of scientists and engineers. In the ’60s, the Californian government came up with an education strategy to support those companies, which turned Stanford, UCLA, UCB and UCSC into some of the top universities in the United States.

It’ll take a lot more than £200m and a trendy name to replicate that success story. The best example I can think of is Ireland, where (notwithstanding its recent economic difficulties) more than a decade of encouraging FDI by American technology companies and a huge investment in education (including the decision to make studying a European language compulsory for all secondary school students, which led to Microsoft choosing Ireland as the base for its European and South American operations, thereby turning Ireland into the largest exporter of software in the world), combined with an enterprise-friendly tax environment, gave birth to the Celtic Tiger.

Britain’s already tried to replicate Silicon Valley, with limited success (Silicon Fen and Silicon Glen). Instead of targeting a specific geographic area (East London landlords must be salivating at the prospect of a government-funded property boom), Cameron should concentrate on doing his job (improving the educational system) and simply get out of the way of entrepreneurs by reducing taxes, red tape and other costs for all start-ups, not just the ones in East London.

Photo: During the 19th century, Royal Marines based on Ascension Island constructed water catchment areas out of concrete near the summit of Green Mountain.

Written by jackgavigan

January 17, 2011 at 10:38 pm

Posted in Entrepreneurship