Architecting valuations (building a house of cards)

In a day and age of valuations as  score card there are in some cases extraordinary efforts being made to forcefully make certain milestone valuations happen (100m, 500m, 1bn etc).

The right way to make a high(er) valuation happen is of course to have someone just pay that price with fair and appropriate growth / later stage financing terms. Lots of companies can pull that off – even to the point where new later stage investors are just getting common stock.

But that is not what is going on in many cases. This is what’s going on:

New later stage investor: “Hey so I don’t think your company is worth $500m; maybe $200m – BUT if we can agree that I can get a 2x liquidation preference on my $50m and a full ratchet I would be ok with it. You should be fine with it because you told me next round will be $1bn+  – so we both win. You get your $500m valuation now, you don’t get a lot of dilution and I know I’ll make a safe 2-3x.”

Basically this means the new later stage investor will still make a 2x return if the company is sold as low as for $100m (!). And

Careful what you wish for – setting precedents as an early investor

I suppose this about short term greedy vs long term greedy.

It is short term greedy to put onerous terms on to an early stage company just because you can. This is not about finding (or adjusting to) the right price – this is about unreasonable participating liquidation preferences (multiples thereof), too high a dilution from the get go (30%+ seed rounds etc) instead of adjusting the round size, taking key rights away from the entrepreneur or angel investors, etc. There’s a large torture tool kit folks can use if they want to.

It is long term greedy not to do that because of the compounding returns on reputation for being a fair and good to work with investor (get in to the better deals long run) + the added bonus of not screwing up the company as an investor.

But there’s another, slightly more selfish, reason you may want to ease off the torture tools as an early investor: it’s because they may be used against you come next round.

So say you negotiated a 2x participating liquidation preference (not pari passu) for the Series A – the folks leading the Series B may want that too. And if you invested

Giving and taking as an investor

Giving and taking as an investor

The ultimate act of giving as an investor is of course when you wire money. Hopefully you give a lot more over time by helping the entrepreneur a long the way.

But as an investor you also do a lot of taking. It starts with shares. But it goes on with reporting requirements, board meetings (although they should be giving opportunities), info requests, LP conference attendance for CEOs, the (hopefully only) occasional wrong opinion / advice, etc. It can be a long list.

Nearly everything in life and business is about giving and taking. But every now and then as an investor you need to step back and check whether you are giving or taking more. And if you ain’t doing a lot of giving, you may want to slow down on the taking part too.

I think net-giving is the best long-term strategy for investors.

Entrepreneurship is the new normal in Europe

Entrepreneurship is the new normal in Europe

A few weeks ago the folks at the factory put together a great pop-up (as you do these days) tech conference called Startup Europe Conference. Lots of people came from all over Europe – an ecosystem of increasingly connected dots.

What stuck with me though was something Christophe Maire said in passing. He probably didn’t think much of it; I’ve been thinking about it a lot since then. He said, “you know, entrepreneurship is now the new normal in Europe.”

Christophe is right; something has changed over the last 1-2 years and we didn’t notice it. Thinking about it, the attitude has developed like this over the years:

  • Wow we’re a [Berlin / Stockholm / London / etc] startup
  • Wow we’re a startup
  • Wow we’re solving this really big problem

And politicians, media, non-tech folks have started admiring their local scenes and celebrating them. It’s not a freak show any longer.

Don’t get me wrong – there is so much left to do; but I like this new normal.

The panel at the conference was a few weeks back and I’m not even sure what we were talking about. But I do know it was called “50 Shades of Green” and was fun:

Europe, it’s time to kick off the blockchain revolution

Even in the tech community there are a few people left that think that the blockchain is something you lock your bike with (and oddly enough, they would be right if you assumed a connected smart-lock that uses the blockchain!).

Don’t get me wrong – there are some great teams out there across Europe building blockchain apps / services and investors willing to back these folks real early. But there should be 10x more on both sides.

Right now I am thinking how we can help more to get this thing started in Europe. We are putting our money where are mouth is and have backed our first team recently (enabling market places on the blockchain) and I hope we do a lot more soon. I’m encouraging every first time entrepreneur to look at the blockchain closely. I have the same conversation with entrepreneurs in between companies. I’m thinking how our existing companies can embrace the blockchain. I need to do more.

The media needs to shed more light on this – we need to talk to them. Our politicians should embrace the blockchain for government services; create a competitive environment regarding the ability to use blockchain within the legal system etc. We need to

The Lisbon Awakening

The Lisbon Awakening

Man was I in a bad mood when I touched down in Lisbon. The last days had been stressful, a comically bad Bayern team were well beaten by Porto the evening before and I had to leave my home at 4am to catch the flight.

Well Lisbon sure did change my mood quickly. I went from grumpy cat to curiosity to extreme enthusiasm within a few hours. Every now and then you’re in a city for the first time and you just “feel it”.

It then struck me that I had felt like this before. I had seen this movie before. This was the Berlin movie:

  • The tech scene is organic – it happened on its own, came out of nowhere. That is much more fun and sustainable than any kind of political or targeted economic strategy.
  • There are a ton of constraints (funding, local talent base, etc.) so entrepreneurs need to hustle to make things happen. Hustle is good.
  • Berlin was an economic void, Portugal had a massive economic crisis and Lisbon sure isn’t letting that crisis go to waste.
  • Entrepreneurship has the real chance to be a center stage act, not a side gig. It’s everywhere.
  • The city is very, very cool. You just want to be here.
  • You
Leaped like a tiger, landed as a bedside rug – the risks of overselling your round

There is a German saying that goes something like this:

“Als Tiger gesprungen und als Bettvorleger gelandet.”

A rough English translation is “leaped like a tiger, landed as a bedside rug” – it basically means someone came roaring in to say a negotiation / argument / situation but essentially was overselling and or bluffing from the start in an over the top way – eventually the bluff is called and all credibility is lost. The outcome for the former tiger, now turned bedside rug, is never a good one.

Every now and then I’ll see this failed stunt in startup fundraising and it ends in tears a lot of the time. Actually I am seeing it more and more so I thought I’d write about it. It’s important because it can ruin your entire raise and risk your company – without any need.

The movie goes like this. “Hey you need to know we have XX term sheets at XX valuation and funds X, Y and Z are really keen. You have until XX to decide.” Sometimes the founders will say that, sometimes the existing investors will put in a call to us.

Per se that is OK –

Onboarding your investors

Onboarding your investors

Your job is hard enough as a CEO to be dealing with a board / investors that only roughly understand what is actually going on. This happens more than it should.

So one of the things you can do to make sure your investors / board are really up to speed from day 1 is to run them through a structured onboarding process. Here are some ideas on how to do that:


Cross publisher app constellations & bundles

Cross publisher app constellations & bundles

We all know that folks increasingly prefer to use their favourite app from a specific developer / publisher for a specific use case vs. say using a wide range of apps from a single developer / publisher that is trying to cover all the bases. You can’t be great at everything and user experience on mobile matters so much more than on desktop – so that’s why highly vertical applications are winning.

Most of these vertical apps are freemium services and you can do a lot with them without paying. But once you want to go premium say with a whole bunch of these apps – that can get a little pricey on a per month basis and folks aren’t yet used to that (vs the old world where you paid hundreds up front to have MS Office etc. as part of your new PC).

So Evernote, Lastpass, Pocket and Wunderlist (a portfolio company of ours) teamed up to offer a pretty cost attractive bundle of their premium services for a limited amount of time.

Screen Shot 2015-01-14 at 08.04.50


Now these folks can do that because they have

Low gross margin allergy

Low gross margin allergy

I saw this a while a go on Michael Moritz’ bio and it has stuck with me since:

Screen Shot 2015-01-11 at 18.14.35

I have no problems with Cabernet grapes, I quite like garlic, I do have hay-fever (not sure about Wildgrasses though) but what stuck with me is the allergy to low gross margins.

I have a severe allergy against low gross margins too.

Why? I am going to over-simplify a lot and there are a ton of exceptions and caveats – but here it goes:

If you are building something difficult, that creates real value to users / customers / companies, something that is hard to replicate and unique with a great distribution model – well then you generally get to charge a lot more for your product than it cost you to produce it.  This can apply to anything from a unique consumer app to a niche SaaS company. There are a million ways to get there.

If you are doing something relatively straight forward (e.g. buying and selling on for a margin), something that is not so hard to replicate, something where customers will think twice about the price – well then you

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