Making Innovation Flourish

Building effective university-industry links

Yesterday, NESTA hosted a series of events with Silicon Valley Connect that involved venture capitalists, entrepreneurs and academics from California.  The underlying topic was, inevitably, how to replicate (whatever that means) Silicon Valley’s success in the UK.

More specifically, however, the panel I chaired focused on how to stimulate university-industry collaboration.  It featured speakers from Stanford’s Media X programme, Turner Broadcasting, Google, a Stanford engineer and two representatives from the UK – from Cambridge Enterprises and UCL Advances.  A few clear themes emerged.

Failure is acceptable

For the guy who founded SurfControl (which recently sold for just over $400million) it may seem surprising that Steve Purdham should say ‘Failure is acceptable’ in his ‘what I wished I knew’ article.

As it happens I would go a step further and say not only is failure acceptable but it should be seen as inevitable.

For early stage companies to be genuinely innovative, break in to new markets, beat off the competition and make great returns for investors they have to take risks and ‘swing for home runs’. The reality is that if you are running an early stage company you are taking numerous (managed) risks every day and are not always going to be successful. You can fail to raise all the money you hoped to, fail to get the technology to work just the way you wanted, fail to get a break with a significant customer and so on.

Failure at some scale will constantly plague early stage businesses. Investors often try and put pressure on companies to avoid failure but with it often goes the entrepreneurial, risk taking spirit that is essential to an early stage company’s success. I don’t celebrate failure but it should be seen it as inevitable in a risk taking business.

'I wish I had raised more money....'

Professor Jeremy Stone writes a great article in the 'what I wish I'd known series' and I want to comment particularly on this sentence: “I wish I had raised more money than I needed and worried less about dilution”.

Let me hijack his point and build on it: If you’ve got the choice –don’t do it on the cheap.

Why? Well, firstly – time. It takes a shocking amount of the senior management's time to close a funding deal (be prepared for at least 6 months of road shows and negotiations). Instead of building your company you are forced to be out pitching for more investment.

Secondly – The right level of funding can get you to a really good milestone. Too many companies just don’t give themselves enough runway to get to a really worthwhile milestone…so the next round investors don’t give you (or your first round investors) the valuation you were expecting.

Thirdly – IT NEVER GOES TO PLAN. Revenues are usually slightly further out than you expected. Scientific milestones take longer to meet than you anticipated. Key management people unexpectedly leave or fail to deliver…in short, something happens and you put your self at great risk of ending up with cap in hand trying to get more money when you are in a really bad negotiating position.

Even if it takes more dilution it is still worth making sure you are funded to a significant milestone AND you have some money put aside for contingency.

Does anyone have any rules of thumb for how much contingency costs you should budget in for an investment / funding round?

Are we all cut out to be entrepreneurs?

In my last post I mentioned that NESTA and the BVCA have asked a handful of successful entrepreneurs to reveal 'what they wished they'd known' when starting up their business. We'll be publishing their responses each week. First up is Peter Denyer from Vision Group.

I liked Peter's point of view that successful entrepreneurs must have the ability to adapt and solve problems. But I would go a step further and draw out a lesson that says if you are not the sort of person who likes change, and if you would rather avoid being faced by problems every single day - then entrepreneurship is probably not for you. This isn't a bad thing; it just means that we're not all cut out to be entrepreneurs.

I think a lot of first-time entrepreneurs struggle to grasp that fundamental to their job is managing change...constantly. So, if you don't want to think about reorganising your company 'about once every 12 months' and coping with 'continual stress' then perhaps it's time to pass the baton to someone who thrives in that environment...?

Read Peter's full response.

Mixed signals from the future

Just back from the Future of Web Apps (FOWA) conference, and it seems that most of the posts so far cover the developer/tech side of the coin, so I hope my business perspective will add to the conversation...

I was definitely amongst the minority at the conference, being both female and not a developer. I went along in hopes of catching a glimpse of the future as well as a peek at the Seedcamp stand & winner, as I was thrilled to hear from my Investments colleague that NESTA is backing Seedcamp (more on this later). While I never quite managed to catch up with the latter, I'm pretty satisfied that I did get a preview of where online innovation is headed.

For some reason, in the past I've always considered the 2 facets of 'Web 2.0' meme to be discrete: one definition being all about 'the social web' (social networking), the other being about 'the web as platform' (web-based applications). But I came away from the conference realising that the point where these two definitions converge is the most interesting and useful. Quite a lot of the speakers I caught touched on making web apps social.

Another key theme was interoperability - that is, the need for all these cool tools to be able to work with each other, and to be able to move information seamlessly across from one place to another, without the user having to do anything, and all under a single sign-on. (I'd been meaning to blog about this very same thing for a while, until Michael Geist's article pretty much summed it all up for me with this statement: "The irony of the current generation of online social networks is that although their premise is leveraging the internet to connect people, their own lack of interconnectedness is stifling their potential.") At FOWA Jyri Zengstrom made a relevant analogy comparing all these 'silo'ed social networks and apps to the way the US phone system started up, with different phone networks that didn't allow you to call people who were on a different supplier's network. The same thing happened with IM, and so it is now with social networks & online apps. But change will come.

Speaking of irony, I had a good chuckle about the fact that at a conference about web apps, I couldn't get online. The wifi connectivity was awful, in direct contrast to the Office 2.0 conference where the speed was so fast I am sure things were loading before I clicked! UK conference centres could learn a thing or two from across the pond, but I digress...

Rashmi Sinha and Suw Charman offered very different advice to app developers & web start-ups. Rashmi's talk was aimed squarely at B2C applications, with the advice to launch publicly early, then refine the product based on feedback from real-life users, not a cobbled-together closed group of people you think will represent users. Funny that I had never considered SlideShare, an app that lets you share Powerpoint presentations, as B2C but I guess it is! Suw's talk focused on B2B, where the public launch/refine model doesn't work,  because (non-tech) organisations don't have the luxury of being able to mess around with Beta releases. They want products that work properly, NOW. If you can't deliver first time, they certainly aren't going to hold off buying a tool while you fix bugs or hire support staff. I actually think Suw's talk would have gone down much better at Office 2.0, as I got the feeling that a lot of the folks at FOWA were more interested in hearing about how to get rich quick with The Next Big Thing than how to deliver products that businesses would adopt and use across the enterprise. Which is odd, because I think the latter has great potential for impact and long-term earnings.

On the topic of enterprise apps: I had a look at the Huddle demo - with a critical eye, as I'm a big fan of Central Desktop. While CD isn't pretty, it is chock full of useful features. Huddle on the other hand, is all shiny and 2.0-y but left me feeling a little disappointed with what it actually does. It does offer a sign-off workflow for docs that need approval, and a more user-friendly way of seeing who's in your workspace, but overall I think Huddle's not quite ready for prime time yet. Imo things like Outlook/iCal integration and emailing into the system are essential requirements if you are going for the enterprise dollars.

But the best talks for me couldn't have been more different: youthful optimism from etsy.com's Robert Kalin, and experienced wisdom from Thomas vander Wal. Gum-chewing Kalin flittered all over the place, touching on topics as diverse as the history of money, the way we attach meaning to handmade objects, and how Rockefeller made millions selling oil to the Nazis. Kalin is a revolutionary in geek's clothing, and he wants Etsy to be the forum where crafters, artisans and makers of all types can rise up against the mass-produced soul-less factory goods so common in the WalMart economy. I've been a fan of Etsy since 2005 so I'm one of the choir, but I left his talk feeling there is still hope for changing the nature of markets. Even if you're not an 'act local think global' person, the Etsy story is truly compelling: Kalin was a high-school dropout carpenter who started Etsy from his living room, which in 2 years has grown into a global marketplace selling 7000 items per day and has over 1.4million items on the site from 100,000 sellers.

Thomas Vander Wal's talk was a bit less stream-of-consciousness, but no less inspiring (full notes on the talk here and here). The overarching message I took was that these tools (and the people who make them) need to respond to the very nature of human beings. We as humans have only a certain amount of attention, and we are being bombarded by 'social spam' due to the way social sites don't allow you to filter out all the noise generated by Twitter, Facebook, Jaiku, RSS etc. Sometimes you only want to know one kind of info from a friend/contact - and it should also be noted that not all 'friends' are created equal. Tools need to understand that you only want to hear Sally's views on aeronautics, and that someone you once met at a party is not the same kind of friend as one you grew up with. Social bookmarking needs to evolve so when you're looking at someone else's bookmarks, it only shows the ones that you haven't already seen. Sounds a lot like the semantic web to me.

No wonder there's no UK-born Facebook or Flickr

I attended a presentation by my colleagues from NESTA Investments on Monday, and I have to say I never realised the gravity of the sad state of investment in tech startups in the UK. According to Paul & David, the overall amount of money invested by venture capital in the UK is £10billion. Of this, only £1billion is invested in early-stage companies. Of this pot of early-stage investment, only £160 million goes to tech startups. That's just 1.6% of the total. Sheesh. It's no wonder UK tech startups are struggling. I wonder what the comparative figures are for US venture capital?