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Raising Money in London Almost Killed Our Startup

95 points by sherm8n 12y ago

daredevildave 12y ago
Glad you guys made it through. Fund-raising is hard. Doing it across an ocean is even harder. It definitely feels like trying to raise in another country is a massive burden that may not be worth it.
- sherm8n 12y ago
  In hindsight, that was easy to see. We went where the money was. Had we closed, it would have been worth it!
  - elmar 12y ago
    Just curiosity, the investment was in Delaware C-corp stock or on a new UK entity?
    - sherm8n 12y ago
      Delaware C-corp
elmar 12y ago
It is great that you survived this near-death experience. From my experience VC's and Angels from Europe and US are two completely different animals. For fun just watch Dragons Den UK vs. Shark Thank US. Venture capital firms in Europe vs. America: The under performers http://iveybusinessjournal.com/publication/venture-capital-firms-in-europe-vs-america-the-under-performers/ http://iveybusinessjournal.com/publication/venture-capital-f...
- madaxe_again 12y ago
  It's a very different kettle of fish. In the UK, investment in tech startups is pretty barren - investment tends to be placed more readily with traditional engineering ventures - weapons, aerospace, material products - but for software... not so much - or at any rate, not in the model of angel rounds, etc. The scene in the UK is rather more "be bought" - people aren't anywhere near as willing to pour capital into a business, and instead prefer to buy equity from founders. Dragons Den is a good take - large amounts of equity, low valuations, founders selling chunks of their company far more for the expertise and connections and clients of the investor than for the money. I'm not really too sure where this difference in culture arises from - I suppose in some ways business in the UK is far more conservative, less ebullient, and still dominated by an almost Victorian attitude to business relationships and social status. Edit: Worth mentioning, I suppose - run a (not so startup any more, we're nine this year) in the UK, sold a minority stake a few years ago to a well aligned investor-partner who's a few years "up the curve" from us. Happened in the way these things do when they actually happen - we weren't looking, they approached us, we bit their arm off, and haven't looked back.
  - elmar 12y ago
    On my view, probably the two main differences. 1- No unicorns "Given the weak public market for young companies in Europe, the primary avenue for their exit is a trade sale (merger or acquisition) rather than an IPO. Moreover, there is compelling evidence that exits via trade sales are, in general, not as lucrative as exits via IPOs. Thus, it has been argued, a key reason why VC firms in Europe underperform their American counterparts is the absence of a stock market that is eager to trade the shares of new companies." 2- No former entrepreneurs VC's "Success breeds success: many American venture capitalists have run start-ups themselves. European ones tend to be bankers and lawyers with little operational experience and less appetite for risk. That is why they have focused on more mature companies rather than on young start-ups… And it is why Europe’s new angels are determined to focus on infant firms."
    - pcrh 12y ago
      >No former entrepreneurs VC's In my experience this is the critical matter. The entrepreneurial business scene in London is dominated by the finance sector, which mostly involves shuttling money through various assets in order to harvest a bit each time it moves. As such, a lot of early stage technology VC is geared towards "tax efficiency" on the behalf of investors rather than potential for big gains from the technology. Note that this is raised as an issue several times in the OP. In contrast, one can easily raise multiple millions in order to attempt some novel wheeze in stock trading or playing some game on the financial markets.
      - elmar 12y ago
        the typical UK/European VC as a financial education background, never started or worked in a Startup, and loves excel sheets with extensive projections and economical ratios.
  - genmon 12y ago
    I think the UK is catching up. TechCrunch has some good stats [0] -- from that piece: London startups received $1.35BN in VC in 2014; US-based Internet companies took $11.9BN that same year. A big gap, definitely, but I wouldn't say barren. In my experience, it's true that the UK tended more towards the "buy a stake in the business" mindset rather than the Valley-style "invest in this startup for a future exit" mindset... but that's been changing for a few years, and change is accelerating (more seed-stage funds, more tech-savvy angels). But yeah, the Valley-style mindset isn't evenly distributed yet. [0] http://techcrunch.com/2015/04/02/londons-startups-hit-a-high-of-682m-in-vc-funding-in-q1-2015/ http://techcrunch.com/2015/04/02/londons-startups-hit-a-high...
HarrietJones 12y ago
This is going to be rough sherm8n. Hold on to your hat. I'm sorry if this upsets you. To be honest, I'm suprised you've received any funding. You're a company that increases Twitter and Instagram followers. This is a deeply dodgy, largely unproven and mostly saturated market and you're charging prices that'll leave you out of pocket. No way are you worth $600,000. There's no way you can get enough customers. You can spin this as a story about how you should never leave the comfortable bubble of San Francisco, but to my mind it's yet another story of how insane things are over there.
- sherm8n 12y ago
  I appreciate the feedback here. I agree that there are tons of services that will help you increase with dodgy followers. However, that's a different market.
  - timdaub 12y ago
    Could you elaborate on that? What is your market then? What is your greater goal/long term vision? Why would I want to hire your company for social-media management? In my opinion, a successful social-media presence involves direct engagement with customers but most importantly business-specific knowledge. For example, the Deutsche Bahn has a great social-media presence as they emulate a free and quick telephone service via Twitter. At any time, I can ask them what train I should take, which one is delayed, how I get from A to B, which tickets fit me best, etc. In your eyes, how is this possible using your platform?
    - sherm8n 12y ago
      This is something on our radar. How do we provide a managed customer service solution? I would run customer service for Deutsche Bahn myself. I'd want to see how well I can match their brand/voice and then write code where possible.
      - 1337biz 12y ago
        But that is pretty much what any social media agency does or am I missing there something?
buro9 12y ago
Another London startup story: https://medium.com/@buro9/the-journey-of-a-london-startup-what-i-learned-when-my-company-failed-c67acd74b862 https://medium.com/@buro9/the-journey-of-a-london-startup-wh... We had 50k users, some revenue (meeting our targets for that point) and the growth we had projected for that moment in time. We failed to raise money to get us past the end of our runway though. Annoyingly, whilst the startup failed the product is still growing as an open source thing. It now has over 75k active users and has multiple installed instances.
- easytiger 12y ago
  I can't say trying to monetise yet another forum not working doesn't surprise me.
  - buro9 12y ago
    We had revenue, and the revenue was 10x that for forums with adverts and our monetisation was far less intrusive (visually and on a privacy basis). The instance I still host has over 300 sites on it now, and remains profitable. Though without the company, this is now going into a non-profit which owns the server instance. The profits being used for charitable purposes. We did not fail to produce revenue from communities, we failed to make the argument to investors about the potential market and to grow to seize it. We could have remained a lifestyle business on the revenue, but our target was growth and we failed to sell that to investors.
    - sfjailbird 12y ago
      I enjoyed your write-up a lot, and contrary to GP I think your idea and market analysis were really good. There is still a huge gap in this space and I've wondered many times why it hasn't been filled. I certainly don't look forward to the day I have to choose some forum software. Disqus is probably the best I've seen so far, and it is far less ambitious than you were.
    - darkmighty 12y ago
      Your product itself seems very good, there's just one glaring inconsistency for me (perhaps I'm wrong): the product is ambitious but your goals are not -- and to get a huge growth you need to at least target a huge viral market. The good old forums are not a huge viral market, imo. For example, you could have tried to replicate a reddit environment: anyone can create a forum with a single click on your domain (don't even mention pricing), you could aggregate all forums on a front page to attract viewers, allow site wide discovery, etc.
MrDosu 12y ago
Funny how i just spend a few minutes reading something about a company, followed a few links and all I know is that the founders like sunglasses. No idea what they are doing.
- recentdarkness 12y ago
  Well there is a link on the word 'startup' right at the beginning pointing to: http://www.goodaudience.com http://www.goodaudience.com
  - MrDosu 12y ago
    Yeah, right next to Waldo :D
jackgavigan 12y ago
The headline suggests that it was their choice of London as a fundraising location that almost killed their startup but I don't think that's true. While it's certainly more difficult to raise money in London than in San Francisco, the real problem seems to be that they ignored a critical piece of advice: > The lead investor encouraged us to get it closed quickly and not try to do anything fancy. Having said that, it's deeply disappointing that they still haven't heard back from HMRC on the advance assurance for SEIS.
- dwightgunning 12y ago
  Indeed, you can basically stop reading the article at that sentence. Always get the round closed quickly and don't try anything fancy.
nemesisj 12y ago
I'm an American, running a startup in Scotland, funded by a Scottish angel syndicate, which functions in many ways like a "mini VC". There is intense, constant griping both in Scotland and in the broader UK about the funding climate vs. Silicon Valley. Having been involved in a South Florida startup previously, I can assure everyone here that there are much worse places to raise money and run a tech company than Europe. Most of the horror stories around fund raising in Europe that I've heard involve B2C companies, or very low revenue-per-customer B2B companies that are constrained by many of the same challenges around customer acquisition (low average rev per customer, not very sticky, can't afford an inside sales team). This makes these B2B companies effectively the same as B2C in many ways. The key thing to recognise, in my opinion, is that it's extremely difficult to raise money for a software company that's pre revenue or likely in search of product/market fit in almost any market other than a few cities in the US (NYC, Valley, Boston, Others?). Sure, there are counterexamples, but this seems to be true in general. This isn't just a European "problem" and my not even be a problem at all. When I was playing in rock bands, we quickly learned we needed to play venues that fit our style. Playing in front of an old folks home crowd wasn't going to work. This sounds amazingly stupidly simple, but there's plenty of people ignoring this lesson in startupland with regards to fund raising. If you're sitting anywhere but a few select markets, reading Valley blogs, you're going to be in for disappointment when it comes time to apply all of your Valley knowledge in a non-Valley environment. B2B land is so much easier than B2C land, and there's plenty of investment out there. Most software and most money made from software is in B2B land. Why not try it out? You could be surprised.
bontoJR 12y ago
Welcome to Europe. Comparison between Europe tech startup scene vs the Silicon Valley one is quite unfair. I am based in Switzerland, you cannot imagine how hard is for a tech (worser if service) company to raise money. The model is extremely broken because the mind of an average European investor is completely different respect to the average American investor. In US the normal startup funding process works around a working prototype and how fast you can ship, in Europe, mainly here in Switzerland is about the protection you can give to a product with trademarks, patents and other things. So when you ask for money the first question is: is it protected? Or, can we protect it? Are barriers good enough so we can skip short-term competitors? The second huge problem is the exit. In US, the IPO is a kind of fallback alternative to the acquisition, that is the main goal in a reasonable amount of time, so this makes the IPO not the favorite exit-strategy at all. In Europe it's actually the same, but the acquisition model simply doesn't work. You don't have any big tech company here giving the real exit-strategy option to investors. So the only chance you have to get them, is to prove that you can literally make a certain amount of money even in the worst case. Nobody believes that Apple, Amazon, Google, Facebook or whatever can acquire a Swiss startup company in the first 5 years of its life, so the result is that tech companies can barely raise money. IMO, the Silicon Valley model is very risky, the motto "fail fast, fail often" is certainly attractive, but has a lot of downsides for funders and people involved, on the other hand the European scene is too slow, too hard and is always complaining about the fact that we are unable to compete against the Silicon Valley. I think the right balance is required, but it's just an opinion.
- lordnacho 12y ago
  I'm in CH as well. I was talking to a VC guy who moved here from the US, and he has a similar story. People here are very conservative. The whole IP protections thing sounds like a business school teaching. Anyway, would be interesting to chat if you're near ZH.
  - bontoJR 12y ago
    I actually work in Zürich! Definitely!
easytiger 12y ago
$225k? You don't need an angel, you need a bank loan.
- rdl 12y ago
  For a startup, outside of some very rare circumstances (inventory financing or equipment financing, with pre-existing great credit), you're not going to be able to borrow $225k with corporate liability. It would be entirely on the founders. Having financed 2 businesses with personal liability (credit cards) and lost about $200k each time -- there are reasons you might not want to do this. It still makes sense in some cases. I'd probably do it again. It's probably not a good option for most people most of the time, especially if they can raise investment. External investment also provides other benefits (validation, connections) that debt financing on credit cards doesn't.
mattlutze 12y ago
In a nutshell, - Had a funding plan - Got there quick with angels - Got too big for your britches - Discounted adviser's advice and got in bed with a big VC firm, doubling target funding - Got bit by the big firm legal and the money got cold. I kinda feel like this is going to happen even in the bay area if you start playing with major industrial investors or get too big for your britches. Way cool that y'all were able to recover from the experience and are much wiser for it. But, other than the (not small, for sure) difference between US and UK laws (which your firm should have figured out), is it not so much an issue of raising funds in London as it is business practice maturity?
- humanarity 12y ago
  Yes I think that's one lesson: the risk of pursuing additional funds was not allowed to discount the utility of the 600. Perhaps if risk (say 10% success of more involved raise) were accounted for the 600 would have been more like 60, making the smaller deal 4x better. If someone offers me 600 I'll try not to lose my shorts. At the end of the day it's not a lot of money -- esp in London!!
rdl 12y ago
Techstars encouraged a US company to move from SFBA to London?
- jedc 12y ago
  Not that I've ever heard. But considering they applied and were accepted to Techstars in London, Sherman and Karl had a ton of connections to London that they were using to fundraise. Techstars wants founders to be where founders want their company to be.
rwallace 12y ago
> I know what you’re thinking. Why the f*ck would you move out of the mecca for startups?!? Actually no, I can understand perfectly well why you would move out of a ridiculously expensive city - but not why you would move to one of the few cities on earth that is about equally ridiculously expensive.
syde_effect 12y ago
Glad you guys made it through. An off-topic question here. Why not facebook? If the goal is to reach out to genuinely interested people which you guys seem to do quiet successfully using twitter and instagram, why neglect facebook?
- nailer 12y ago
  Not OP but having worked on Facebook apps in the past I get the feeling that people honestly don't want to be 'fans' of brands on Facebook. There's so much irrelevant stuff appearing on your timeline spamming your friends. Seeing the odd product from a brand you follow on Instagram (here's our new dress) and Twitter (new cocktail ingredients) is more relevant.
greghinch 12y ago
The main problem here seems to have been a lack of understanding that it's essentially a requirement now in the UK to be set up for EIS/SEIS if you want to raise money. Investors expect it. We've been through several rounds of fundraising, and as an American from the bay area over here, it's definitely not the same environment as you hear about from YC companies, etc. raising in the Valley. But the UK/European market is absolutely smaller and more fragmented (language barriers alone are massive) so opportunities are not nearly as large. You also don't have the same degree of FoMO[1] going on, as there just haven't been enough big exits. I wouldn't expect that climate to change any time soon, or with any expedience. But definitely be registered as a company in the UK, and set up for SEIS[2]/EIS[3], if you want to raise money here. [1] http://en.wikipedia.org/wiki/Fear_of_missing_out http://en.wikipedia.org/wiki/Fear_of_missing_out Edit: Links to relevant docs on gov.uk [2] https://www.gov.uk/seed-enterprise-investment-scheme-background https://www.gov.uk/seed-enterprise-investment-scheme-backgro... [3] https://www.gov.uk/government/publications/the-enterprise-investment-scheme-introduction https://www.gov.uk/government/publications/the-enterprise-in...
- deleted 12y ago
  [deleted]
- sherm8n 12y ago
  We were set up for SEIS/EIS and had an accountant review every thing. They then drafted the advance assurance to send over to HMRC. Definitely worth it to get this done before you start fundraising.
edoloughlin 12y ago
TLDR: We had our funding lined up. Our lead investor advised us to keep it simple. We made it complicated. It almost killed us. Apologies if that comes across as snarky, but that's honestly what I got from this.
- tankenmate 12y ago
  The other point is that UK investors expect investments to be tax efficient for them; this means EIS/SEIS. It would be equivalent of going to US investors and saying, we'd like you to invest in our company but you'll only get tax breaks in the UK so too bad.
humanarity 12y ago
I guess the risk is higher in London because the funding pool is smaller, so if it goes to pot there's less places to turn, tho well done for getting all those commitments. What is your relationship with the funders now? Is there anyway to expedite the legals? When Ron Conway speaks about "getting your round over quickly" are the legals conducted differently in SF? Ultimately I think xkcd could draw a nice graph showing how the delay between commitment and consummation is directly (exponentially?) proportional to the probability of the deal falling over. It's never closed Til the money's in the bank is one thing I've learned.
kyleblarson 12y ago
When the author says "committed" does that imply "term sheet in hand"?
simonswords82 12y ago
As I was reading the article a voice in my head was shouting "TIME KILLS DEALS! GET IT CLOSED". Clearly the difference in approach here in the UK versus our cousins in the US caused delays that even a large self-sustaining business would seriously consider before undertaking. Sorry it didn't work out but very important lessons learned I'm sure.
- sherm8n 12y ago
  It does and I learned that the hard way. The legal process was the delay and I should have pushed it along faster.
recibe 12y ago
A couple of points mentioned by the author: - (Author and partner) went to UC Berkeley and studied engineering there - (Author/partner/concept) certified by techstars Does such namedropping impress VC's, or is this simply vanity?
dougs 12y ago
https://medium.com/@doug_scott/response-to-raising-money-in-london-almost-killed-our-startup-71d83db6479b https://medium.com/@doug_scott/response-to-raising-money-in-...
dougs 12y ago
I am the angel investor and I have helped many companies raised many times. The simple fact is that the UK has lots of money looking for a investment home ( £1 billion plus invested last year ). Three years ago tech investment in the UK was almost zero. This money was offered but the deal was not simple as can eb seen on my post: https://medium.com/@doug_scott/response-to-raising-money-in-london-almost-killed-our-startup-71d83db6479b https://medium.com/@doug_scott/response-to-raising-money-in-...

95 points by sherm8n 12y ago

Glad you guys made it through. Fund-raising is hard. Doing it across an ocean is even harder. It definitely feels like trying to raise in another country is a massive burden that may not be worth it.

sherm8n 12y ago
In hindsight, that was easy to see. We went where the money was. Had we closed, it would have been worth it!
- elmar 12y ago
  Just curiosity, the investment was in Delaware C-corp stock or on a new UK entity?
  - sherm8n 12y ago
    Delaware C-corp

elmar 12y ago

It is great that you survived this near-death experience. From my experience VC's and Angels from Europe and US are two completely different animals. For fun just watch Dragons Den UK vs. Shark Thank US. Venture capital firms in Europe vs. America: The under performers http://iveybusinessjournal.com/publication/venture-capital-firms-in-europe-vs-america-the-under-performers/ http://iveybusinessjournal.com/publication/venture-capital-f...

madaxe_again 12y ago
It's a very different kettle of fish. In the UK, investment in tech startups is pretty barren - investment tends to be placed more readily with traditional engineering ventures - weapons, aerospace, material products - but for software... not so much - or at any rate, not in the model of angel rounds, etc. The scene in the UK is rather more "be bought" - people aren't anywhere near as willing to pour capital into a business, and instead prefer to buy equity from founders. Dragons Den is a good take - large amounts of equity, low valuations, founders selling chunks of their company far more for the expertise and connections and clients of the investor than for the money. I'm not really too sure where this difference in culture arises from - I suppose in some ways business in the UK is far more conservative, less ebullient, and still dominated by an almost Victorian attitude to business relationships and social status. Edit: Worth mentioning, I suppose - run a (not so startup any more, we're nine this year) in the UK, sold a minority stake a few years ago to a well aligned investor-partner who's a few years "up the curve" from us. Happened in the way these things do when they actually happen - we weren't looking, they approached us, we bit their arm off, and haven't looked back.
- elmar 12y ago
  On my view, probably the two main differences. 1- No unicorns "Given the weak public market for young companies in Europe, the primary avenue for their exit is a trade sale (merger or acquisition) rather than an IPO. Moreover, there is compelling evidence that exits via trade sales are, in general, not as lucrative as exits via IPOs. Thus, it has been argued, a key reason why VC firms in Europe underperform their American counterparts is the absence of a stock market that is eager to trade the shares of new companies." 2- No former entrepreneurs VC's "Success breeds success: many American venture capitalists have run start-ups themselves. European ones tend to be bankers and lawyers with little operational experience and less appetite for risk. That is why they have focused on more mature companies rather than on young start-ups… And it is why Europe’s new angels are determined to focus on infant firms."
  - pcrh 12y ago
    >No former entrepreneurs VC's In my experience this is the critical matter. The entrepreneurial business scene in London is dominated by the finance sector, which mostly involves shuttling money through various assets in order to harvest a bit each time it moves. As such, a lot of early stage technology VC is geared towards "tax efficiency" on the behalf of investors rather than potential for big gains from the technology. Note that this is raised as an issue several times in the OP. In contrast, one can easily raise multiple millions in order to attempt some novel wheeze in stock trading or playing some game on the financial markets.
    - elmar 12y ago
      the typical UK/European VC as a financial education background, never started or worked in a Startup, and loves excel sheets with extensive projections and economical ratios.
- genmon 12y ago
  I think the UK is catching up. TechCrunch has some good stats [0] -- from that piece: London startups received $1.35BN in VC in 2014; US-based Internet companies took $11.9BN that same year. A big gap, definitely, but I wouldn't say barren. In my experience, it's true that the UK tended more towards the "buy a stake in the business" mindset rather than the Valley-style "invest in this startup for a future exit" mindset... but that's been changing for a few years, and change is accelerating (more seed-stage funds, more tech-savvy angels). But yeah, the Valley-style mindset isn't evenly distributed yet. [0] http://techcrunch.com/2015/04/02/londons-startups-hit-a-high-of-682m-in-vc-funding-in-q1-2015/ http://techcrunch.com/2015/04/02/londons-startups-hit-a-high...

HarrietJones 12y ago

This is going to be rough sherm8n. Hold on to your hat. I'm sorry if this upsets you. To be honest, I'm suprised you've received any funding. You're a company that increases Twitter and Instagram followers. This is a deeply dodgy, largely unproven and mostly saturated market and you're charging prices that'll leave you out of pocket. No way are you worth $600,000. There's no way you can get enough customers. You can spin this as a story about how you should never leave the comfortable bubble of San Francisco, but to my mind it's yet another story of how insane things are over there.

sherm8n 12y ago
I appreciate the feedback here. I agree that there are tons of services that will help you increase with dodgy followers. However, that's a different market.
- timdaub 12y ago
  Could you elaborate on that? What is your market then? What is your greater goal/long term vision? Why would I want to hire your company for social-media management? In my opinion, a successful social-media presence involves direct engagement with customers but most importantly business-specific knowledge. For example, the Deutsche Bahn has a great social-media presence as they emulate a free and quick telephone service via Twitter. At any time, I can ask them what train I should take, which one is delayed, how I get from A to B, which tickets fit me best, etc. In your eyes, how is this possible using your platform?
  - sherm8n 12y ago
    This is something on our radar. How do we provide a managed customer service solution? I would run customer service for Deutsche Bahn myself. I'd want to see how well I can match their brand/voice and then write code where possible.
    - 1337biz 12y ago
      But that is pretty much what any social media agency does or am I missing there something?

buro9 12y ago

Another London startup story: https://medium.com/@buro9/the-journey-of-a-london-startup-what-i-learned-when-my-company-failed-c67acd74b862 https://medium.com/@buro9/the-journey-of-a-london-startup-wh... We had 50k users, some revenue (meeting our targets for that point) and the growth we had projected for that moment in time. We failed to raise money to get us past the end of our runway though. Annoyingly, whilst the startup failed the product is still growing as an open source thing. It now has over 75k active users and has multiple installed instances.

easytiger 12y ago
I can't say trying to monetise yet another forum not working doesn't surprise me.
- buro9 12y ago
  We had revenue, and the revenue was 10x that for forums with adverts and our monetisation was far less intrusive (visually and on a privacy basis). The instance I still host has over 300 sites on it now, and remains profitable. Though without the company, this is now going into a non-profit which owns the server instance. The profits being used for charitable purposes. We did not fail to produce revenue from communities, we failed to make the argument to investors about the potential market and to grow to seize it. We could have remained a lifestyle business on the revenue, but our target was growth and we failed to sell that to investors.
  - sfjailbird 12y ago
    I enjoyed your write-up a lot, and contrary to GP I think your idea and market analysis were really good. There is still a huge gap in this space and I've wondered many times why it hasn't been filled. I certainly don't look forward to the day I have to choose some forum software. Disqus is probably the best I've seen so far, and it is far less ambitious than you were.
  - darkmighty 12y ago
    Your product itself seems very good, there's just one glaring inconsistency for me (perhaps I'm wrong): the product is ambitious but your goals are not -- and to get a huge growth you need to at least target a huge viral market. The good old forums are not a huge viral market, imo. For example, you could have tried to replicate a reddit environment: anyone can create a forum with a single click on your domain (don't even mention pricing), you could aggregate all forums on a front page to attract viewers, allow site wide discovery, etc.

MrDosu 12y ago

Funny how i just spend a few minutes reading something about a company, followed a few links and all I know is that the founders like sunglasses. No idea what they are doing.

recentdarkness 12y ago
Well there is a link on the word 'startup' right at the beginning pointing to: http://www.goodaudience.com http://www.goodaudience.com
- MrDosu 12y ago
  Yeah, right next to Waldo :D

jackgavigan 12y ago

The headline suggests that it was their choice of London as a fundraising location that almost killed their startup but I don't think that's true. While it's certainly more difficult to raise money in London than in San Francisco, the real problem seems to be that they ignored a critical piece of advice: > The lead investor encouraged us to get it closed quickly and not try to do anything fancy. Having said that, it's deeply disappointing that they still haven't heard back from HMRC on the advance assurance for SEIS.

dwightgunning 12y ago
Indeed, you can basically stop reading the article at that sentence. Always get the round closed quickly and don't try anything fancy.

nemesisj 12y ago

I'm an American, running a startup in Scotland, funded by a Scottish angel syndicate, which functions in many ways like a "mini VC". There is intense, constant griping both in Scotland and in the broader UK about the funding climate vs. Silicon Valley. Having been involved in a South Florida startup previously, I can assure everyone here that there are much worse places to raise money and run a tech company than Europe. Most of the horror stories around fund raising in Europe that I've heard involve B2C companies, or very low revenue-per-customer B2B companies that are constrained by many of the same challenges around customer acquisition (low average rev per customer, not very sticky, can't afford an inside sales team). This makes these B2B companies effectively the same as B2C in many ways. The key thing to recognise, in my opinion, is that it's extremely difficult to raise money for a software company that's pre revenue or likely in search of product/market fit in almost any market other than a few cities in the US (NYC, Valley, Boston, Others?). Sure, there are counterexamples, but this seems to be true in general. This isn't just a European "problem" and my not even be a problem at all. When I was playing in rock bands, we quickly learned we needed to play venues that fit our style. Playing in front of an old folks home crowd wasn't going to work. This sounds amazingly stupidly simple, but there's plenty of people ignoring this lesson in startupland with regards to fund raising. If you're sitting anywhere but a few select markets, reading Valley blogs, you're going to be in for disappointment when it comes time to apply all of your Valley knowledge in a non-Valley environment. B2B land is so much easier than B2C land, and there's plenty of investment out there. Most software and most money made from software is in B2B land. Why not try it out? You could be surprised.

bontoJR 12y ago

Welcome to Europe. Comparison between Europe tech startup scene vs the Silicon Valley one is quite unfair. I am based in Switzerland, you cannot imagine how hard is for a tech (worser if service) company to raise money. The model is extremely broken because the mind of an average European investor is completely different respect to the average American investor. In US the normal startup funding process works around a working prototype and how fast you can ship, in Europe, mainly here in Switzerland is about the protection you can give to a product with trademarks, patents and other things. So when you ask for money the first question is: is it protected? Or, can we protect it? Are barriers good enough so we can skip short-term competitors? The second huge problem is the exit. In US, the IPO is a kind of fallback alternative to the acquisition, that is the main goal in a reasonable amount of time, so this makes the IPO not the favorite exit-strategy at all. In Europe it's actually the same, but the acquisition model simply doesn't work. You don't have any big tech company here giving the real exit-strategy option to investors. So the only chance you have to get them, is to prove that you can literally make a certain amount of money even in the worst case. Nobody believes that Apple, Amazon, Google, Facebook or whatever can acquire a Swiss startup company in the first 5 years of its life, so the result is that tech companies can barely raise money. IMO, the Silicon Valley model is very risky, the motto "fail fast, fail often" is certainly attractive, but has a lot of downsides for funders and people involved, on the other hand the European scene is too slow, too hard and is always complaining about the fact that we are unable to compete against the Silicon Valley. I think the right balance is required, but it's just an opinion.

lordnacho 12y ago
I'm in CH as well. I was talking to a VC guy who moved here from the US, and he has a similar story. People here are very conservative. The whole IP protections thing sounds like a business school teaching. Anyway, would be interesting to chat if you're near ZH.
- bontoJR 12y ago
  I actually work in Zürich! Definitely!

easytiger 12y ago

$225k? You don't need an angel, you need a bank loan.

rdl 12y ago
For a startup, outside of some very rare circumstances (inventory financing or equipment financing, with pre-existing great credit), you're not going to be able to borrow $225k with corporate liability. It would be entirely on the founders. Having financed 2 businesses with personal liability (credit cards) and lost about $200k each time -- there are reasons you might not want to do this. It still makes sense in some cases. I'd probably do it again. It's probably not a good option for most people most of the time, especially if they can raise investment. External investment also provides other benefits (validation, connections) that debt financing on credit cards doesn't.

mattlutze 12y ago

In a nutshell, - Had a funding plan - Got there quick with angels - Got too big for your britches - Discounted adviser's advice and got in bed with a big VC firm, doubling target funding - Got bit by the big firm legal and the money got cold. I kinda feel like this is going to happen even in the bay area if you start playing with major industrial investors or get too big for your britches. Way cool that y'all were able to recover from the experience and are much wiser for it. But, other than the (not small, for sure) difference between US and UK laws (which your firm should have figured out), is it not so much an issue of raising funds in London as it is business practice maturity?

humanarity 12y ago
Yes I think that's one lesson: the risk of pursuing additional funds was not allowed to discount the utility of the 600. Perhaps if risk (say 10% success of more involved raise) were accounted for the 600 would have been more like 60, making the smaller deal 4x better. If someone offers me 600 I'll try not to lose my shorts. At the end of the day it's not a lot of money -- esp in London!!

rdl 12y ago

Techstars encouraged a US company to move from SFBA to London?

jedc 12y ago
Not that I've ever heard. But considering they applied and were accepted to Techstars in London, Sherman and Karl had a ton of connections to London that they were using to fundraise. Techstars wants founders to be where founders want their company to be.

rwallace 12y ago

> I know what you’re thinking. Why the f*ck would you move out of the mecca for startups?!? Actually no, I can understand perfectly well why you would move out of a ridiculously expensive city - but not why you would move to one of the few cities on earth that is about equally ridiculously expensive.

syde_effect 12y ago

Glad you guys made it through. An off-topic question here. Why not facebook? If the goal is to reach out to genuinely interested people which you guys seem to do quiet successfully using twitter and instagram, why neglect facebook?

nailer 12y ago
Not OP but having worked on Facebook apps in the past I get the feeling that people honestly don't want to be 'fans' of brands on Facebook. There's so much irrelevant stuff appearing on your timeline spamming your friends. Seeing the odd product from a brand you follow on Instagram (here's our new dress) and Twitter (new cocktail ingredients) is more relevant.

greghinch 12y ago

The main problem here seems to have been a lack of understanding that it's essentially a requirement now in the UK to be set up for EIS/SEIS if you want to raise money. Investors expect it. We've been through several rounds of fundraising, and as an American from the bay area over here, it's definitely not the same environment as you hear about from YC companies, etc. raising in the Valley. But the UK/European market is absolutely smaller and more fragmented (language barriers alone are massive) so opportunities are not nearly as large. You also don't have the same degree of FoMO[1] going on, as there just haven't been enough big exits. I wouldn't expect that climate to change any time soon, or with any expedience. But definitely be registered as a company in the UK, and set up for SEIS[2]/EIS[3], if you want to raise money here. [1] http://en.wikipedia.org/wiki/Fear_of_missing_out http://en.wikipedia.org/wiki/Fear_of_missing_out Edit: Links to relevant docs on gov.uk [2] https://www.gov.uk/seed-enterprise-investment-scheme-background https://www.gov.uk/seed-enterprise-investment-scheme-backgro... [3] https://www.gov.uk/government/publications/the-enterprise-investment-scheme-introduction https://www.gov.uk/government/publications/the-enterprise-in...

deleted 12y ago
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sherm8n 12y ago
We were set up for SEIS/EIS and had an accountant review every thing. They then drafted the advance assurance to send over to HMRC. Definitely worth it to get this done before you start fundraising.

edoloughlin 12y ago

TLDR: We had our funding lined up. Our lead investor advised us to keep it simple. We made it complicated. It almost killed us. Apologies if that comes across as snarky, but that's honestly what I got from this.

tankenmate 12y ago
The other point is that UK investors expect investments to be tax efficient for them; this means EIS/SEIS. It would be equivalent of going to US investors and saying, we'd like you to invest in our company but you'll only get tax breaks in the UK so too bad.

humanarity 12y ago

I guess the risk is higher in London because the funding pool is smaller, so if it goes to pot there's less places to turn, tho well done for getting all those commitments. What is your relationship with the funders now? Is there anyway to expedite the legals? When Ron Conway speaks about "getting your round over quickly" are the legals conducted differently in SF? Ultimately I think xkcd could draw a nice graph showing how the delay between commitment and consummation is directly (exponentially?) proportional to the probability of the deal falling over. It's never closed Til the money's in the bank is one thing I've learned.

kyleblarson 12y ago

When the author says "committed" does that imply "term sheet in hand"?

simonswords82 12y ago

As I was reading the article a voice in my head was shouting "TIME KILLS DEALS! GET IT CLOSED". Clearly the difference in approach here in the UK versus our cousins in the US caused delays that even a large self-sustaining business would seriously consider before undertaking. Sorry it didn't work out but very important lessons learned I'm sure.

sherm8n 12y ago
It does and I learned that the hard way. The legal process was the delay and I should have pushed it along faster.

recibe 12y ago

A couple of points mentioned by the author: - (Author and partner) went to UC Berkeley and studied engineering there - (Author/partner/concept) certified by techstars Does such namedropping impress VC's, or is this simply vanity?

dougs 12y ago

https://medium.com/@doug_scott/response-to-raising-money-in-london-almost-killed-our-startup-71d83db6479b https://medium.com/@doug_scott/response-to-raising-money-in-...

dougs 12y ago

I am the angel investor and I have helped many companies raised many times. The simple fact is that the UK has lots of money looking for a investment home ( £1 billion plus invested last year ). Three years ago tech investment in the UK was almost zero. This money was offered but the deal was not simple as can eb seen on my post: https://medium.com/@doug_scott/response-to-raising-money-in-london-almost-killed-our-startup-71d83db6479b https://medium.com/@doug_scott/response-to-raising-money-in-...