Nothing Ventured...

Deirdre Bounds gave a passionate talk at the Venturefest Yorkshire 2008 dinner. As a former stand up comic I expected a few more laughs, but she mainly focused on her journey from 'bedsit to boardroom'.

What was her take home message? Well mainly that if you have got an idea just do it, even if no one around you gets it: if you believe in yourself you can succeed in realising your vision. This was rather at odds with Ajaz Ahmed's talk earlier in the day where he was lamblasting government support agencies for backing 'lame duck' ideas that were destined to fail and that people shouldn't be given 'false hope' that they can become 'supermodels'

I must admit to being more with Deirdre on this one. Sure, we need to screen out the ideas and people that are just plain daft and applaud the ones that are sure fire winners (because they, like Deirdre, will fly without any outside help or an outside investor getting a slice of the action). But in the beauty contest that is innovation and enterprise, the winners and losers will sort themselves out in the marketplace (think dancefloor, not stage). Out there it's execution and the audience vote that counts: the wisdom of crowds, not the opinion of experts. In my experience, most good ideas start off looking pretty ugly or just plain daft to conventional eyes. As Deirdre says 'We need to encourage weird'.

Something for Nothing...

Surely the best deal is the one that generates the greatest return on investment. But those apparently in the know keep telling me Proof-of-Concept funds can't make money. But aren't business angels tying to make money and they are managing their own mini -POC fund. If you can make money on a small scale why, I ask, doesn't this scale up?

If you watch Dragon's Den they are always looking for the largest percentage of equity they can get. But 100% of nothing is still nothing, so you could say that it doesn’t matter whether you get 20% or 40% (this has been the argument of a few VCs who seem to cut much more generous offers than the dragons do) given most will fail.

Surely the point is that for the 1 in 10 early stage deals that really do fly, what percentage you have of that one is very much the differentiator when you come to analysing the overall portfolio returns. Is the problem then that larger funds just aren't prepared to get down and dirty with regards to valuations whereas individual business angels are very much focused on getting more for less? The fact that an early stage business will often get the cheapest money it's going to get i.e. grant funding followed immediately by the most expensive in terms of equity investment does little to help the situation!

Information Wants To Be Free

According to Wikipedia, this phrase was supposedly first pronounced by Stewart Brand in 1984, citing the fact that the cost of dissemination is getting lower and lower. However, the effort required to generate high-quality information ain't getting any cheaper.

But equally a lot of people view their information as free for dissemination as they make their money in other ways, like IKEA. You could say the likes of Google are parasitic and without information to search they wouldn't be able to sell advertising space, but I would argue it more of a symbiotic relationship. The concept of consolidating freely available information then selling easy access i.e. adding value is as old as the Bible.

With the trend towards Open Source the argument goes that enabling technology like operating systems and other basic building blocks that benefit everyone should be free so that, like Isaac Newton, you can reach greatness by 'standing on the shoulders of giants' rather than reinventing the wheel. I think there is a strong argument that if public money is spent on R&D then the IP should be made freely available. However, those who create valuable information (and whose business model requires payment) deserve to have their copyright and commercial integrity respected.

Taxing Times

The Chancellor's decision to change the Chapital Gains Tax (CGT) rate to a flat 18% and abolish taper relief seems like a gut reaction to the fact that private equity bosses are only paying 10% on their 'carry' on successful investments. Caught in the cross fire are entrepreneurs that now are going to have to pay nearly twice as much tax on exit. The fact that the Enterprise Investment Scheme (EIS) allows up to £400K of any gain to be rolled over into a new venture softens the blow, but these changes that come in in April 2008 give a big incentive to exit before then!

Is the World Flat or Spikey?

Jonathan Kestenbaum, Chief Executive of NESTA, spoke at the Leeds University Innovation & Enterprise Gala Dinner about what factors enable innovation to flourish. He focused on one main theme: The world of innovation is 'spikey' and regions need to develop the support infrastructure and conditions to make them more likely to be where ideas 'happen'.

Moving from a linear process to a richer/broader model, bringing together cross functional teams with innovation occurring at the interfaces of disciplines. Ecology/systems of innovation and the view that innovation occurs in pockets, rather than it being able to thrive anywhere i.e. the world of innovation is not flat! Going against Thomas Friedman's thesis The World is Flat: a Brief History of the 21st Century, he argued Atlantic Monthly's view that the "The World is Spikey" is more to the point.

The trick is to leverage tacit knowledge, that shared uncodified stuff and deploy key strengths, rather than simply try to replicate what was done elsewhere: you can't simply clone silicon valley. The emphasis on networking, serendipidy and common purpose resonated with the Connect model.

Those That Could Go Either Way

I'm no economist, but it seems to me that the strength of the regional economy is particularly dependent on loading the dice in favour of success for technology companies that maybe could 'go either way' or operate in a niche. Some contribute high-quality jobs to the economy, such as media companies and those dependent on individual creativity, but will never scale beyond a certain size. Many and often is the key to success for these boutiques, not trying to distort their business model.

Simon Hill, director of enterprise at Yorkshire Forward, emphasised at Vikingar (see previous post) that government intervention is best targeted at companies that have the potential for high growth. The key point here is that we want growth of high-quality jobs and more successful companies. Government support and invention is best targeted, not at the beacons of success (although I can understand the wish to dwell in their shadow), but more the small bonfires that are in danger of just smoldering, unless some help and support in their early stages of development. Getting more reluctant entrepreneurs to try starting a business, or giving high-quality advice and support to fledgling enterprises that could go either way is where the difference needs to be made.