The coffee shops of Mayfair

On Behvaioural Economics, Creative Disruption, start-ups and VCs (phew!)

2009-09-24T16:04:22+01:00

Thanks for all your comments on my recent post on Techcrunch. Great to be part of this conversation.

Have had a few questions on the references I made.

The first is Predictably Irrational from Dan Ariely.

Recommended to me by DVC.

The Second is Technological Revolutions by Carlotta Perez recommended to me by my friend and fellow investor Nic Brisbourne.

And of Course the wonderful Mr Spolsky (though we differ when it comes to his views on venture captial) laughs in the video at Clotaire Rapaille. His book I am reliably informed, is worth reading the introduction. And maybe a few of the highlighted passages. I have not read it myself.

There's also a lot of facinating conversation right now about innovation and how we all as entrepreneurs, VCs and managers should be pushing forward. Jason at 37 Signals makes a strong point for turning young innvoative comapnies into world beaters. I suspect he's wrong about the VCs forcing an early sale (our economics focus us on building big businesses), but directionally he's right. Original post is here.

Someone worth reading on this is Umair Haque and his current riff on "awesomeness". Verbose, thoughtful, insightful and usually right. Haque is someone who has read a lot of Joseph Schumpeter, who in turn influences Perez, which sort of brings us full circle.

But maybe not full-full-circle. Maybe Mr Schumpter was not the origionator at all. Jason quotes Thomas Jefferson as an early advoate of Creative Disruption!

“Periodic revolution, ‘at least once every 20 years,’ was ‘a medicine necessary for the sound health of government.’”

Mass Personalisation and Venture Capital: not just 3D Printers.

2009-06-10T11:17:00+01:00

One of my Investment themes at Advent is Personalisation.

Why?

eCommerce is clearly one of the few bright spots right now and we’re still in the realm of simple investment stories around backing companies selling stuff online. The Chemist Direct investment thesis? The “Superdrug” of tomorrow. ASOS? The Arcadia of tomorrow. ChainReaction (my personal favourite) is the Halfords of tomorrow. Vente Privee the TKMaxx of tommorrow. Etc etc.

So we’re getting better and better at selling standard product online.

However, there’s an interesting batch of companies who’ve been funded which I expect to see more and more money chasing: Retailers selling product SKUs of 1. A product that personalised and unique to each purchasers.

How can this stack up?

The web is one low-cost route to market and can be leveraged to offer everyone the tools to create their own products. The challenge for businesses is getting the back-end right to be able to manufacture and fulfill.

On “simple personalisation” Europe has some excellent first-wave companies. Spreadhshirt and personalised t-shirts, still growing nicely. Moo.com and cards. Graze.com and healthy food boxes.

What interests me is the second wave of far more complex manufacture & fulfilment or completely new products. GlassesDirect is a great example: something made specifically for me. Not to mention the operational ball-ache of made to order glasses and the drop shipping challenges of fulfillment.

Tailorstore is another great example: We all want tailored shirts but here’s something made in Asia, and delivered to the UK via Germany, from a business based in Sweden.

There is real innovation here: at the technical, operational, manufacturing and financial level. This is a great playground for die-hard entrepreneurs: intellectual challenges, people saying “it can’t be done”, creative solutions and grinding out deals.

I would love to meet more companies in this sector.

There is also a level beyond this: companies coming up with products that are not currently available. I love the idea of being able to design a new car online specifically for me or design a new gadget and get it made by a 3d printer. It’s just I’m not yet convinced this is en-masse right now. Tell me if I am wrong.

When personalisation goes wrong: an ecommerce story.

2009-06-09T09:04:00+01:00

"A story of dried mangoes and split yokes"

A key investment theme for me around ecommerce is personalisation. I have a new post coming on this but a quick bit of background on the sector by way of anecdote. Two examples from recent personal experience:

Graze have a beautiful box and bodenesque (innocentesque ?) branding for middle class brits. They also have a very comprehensive online form to fill out so you spend 15 minutes telling them exactly what you do and don’t like so they can tailor it for you. However my first box arrived and I contained something I hate: Macadamia Nuts. I cancelled it. I am sure it was my fault. I am sure I missed a tick box somewhere. But the point is that if you raise expectations for a perfect product (which by definition a personalized product is), then too much choice can be negative.

TailorStore solves my problem of over-paying for tailored clothing. Which is a big problem for me. After a similarly convoluted online form-filling process (but this time involving a measuring tape, my wife, an old shirt and a mirror) I got a shirt ordered. However when the shirt came, the shirt did not fit. A bit of forensic investigation revealed an error in one of their pictures on how to measure for a shirt. This was their fault and after an awful customer service episode I have a credit note, but the point here is that there is a now a useless shirt on my shelf that has pissed me off and destroyed the margins of Tailorstore.

As an investor this is another area of caution for personalisation businesses: Returns can completely alter the profitability of a standard ecommerce operation but when you can’t sell the returns on…

My twitter-stream now dominated by journalists and PR & self-promoters. Just as the big web cos redesign on status updates, it is over!

2009-05-05T10:32:00+01:00

PaulFisher

Sex on Google. When SEO goes right.

2009-04-09T20:58:18+01:00

Getting a high ranking on Google is the holy-grail for most of the companies I am working with (even the software companies). SEO is still the stuff of massively expensive agencies or wonder-employees who understand the direct monetary value of their magic.

(Over the last 4 – 6 weeks I know 3 not-insignificant web businesses who have had a hit to their top line due Google changing AGAIN. My theory, backed by only anecdotal evidence, is that Google are finding times a little tougher and are clamping down in a multitude of ways to squeeze every last penny out of customers. I digress. The key point is that Google is hard to game, even if you’re kosher.

However, sometimes we get a pleasant surprise. As my Friend Nic would quote, a black swan.

What is it worth to have an organic listing at sixth place for the search term “sex”?

What do you think all those wildy profitable “adult entertainment” web businesses would give?
I am sure there’s an agency out there who could give a tangible value to it.

Well that’s just what has recently happened to one of the portfolio sites of Mint Digital (Mint is one of my one of my personal investee companies).

Mint recently partnered with Channel 4 to create a site for the Sex Education show Sexperience. I am sure there are lots of people who would claim to be able to tell me why or how it happened. Intuatively it feels right but also completely wrong.

Now that they've got it up, I don’t suppose they'll be able to keep it up there forever.

In the meantime I can only wish is that 4 were smarter about monetization. No wonder they’re in trouble.

The British economy: no-one knows what's going on

2009-03-24T11:00:58+00:00

An amusing couple of headlines that have to read together to appreciate, from this morning's news services on the UK inflation numbers.

I could launch into a rant on the "Daily Mailisation" of the BBC reporting, personified by the excruciating Mr Peston of the BBC.

A better message I think is that this is another example that no-one has a clue where it is going. Having spent the best part of the last 6 months with both corporate acquirers and investment banking, the only consistent theme is that no-one really knows what's going on.

Venture Capital into Ad technology reaches $580mn in 2008

2008-09-25T15:00:00+01:00

I have got some research done for a speech at today's Ad:Tech conference to look at Global Investment into the online ad / technolgogy Category: I knew it was large but not trending to one billion dollars a year! What's even more interesting is that this is only the disclosed data, and some of the deals that I know would push the total higher still.

Interesting to see that Europe accounted for $258mn of this which is 45% of the total. This is remarkable because European VC typically only accounts for around 20% of the USA on an industry-wide basis. This just shows the strength of the European market for Advertising models.

Rather predictably, Ad-Networks was the largest sub sector by volume and value: partially explained by the sector being a little "mature " for VCs now and the best plays will have obvious scale.

Our recent investment round into European local advertising player Qype was announced too late to qualify as first half investment. But Qype has a very innovative business model and is far more than just a UGC review site. There's been a lot of blog chat about Qype and I want to put forward our view in a forthcoming post.

I was also particularly interested to see five investments into companies who are measuring advertising effectiveness. The great thing about the web is that it allows brands to quantitatively judge the success of campaigns. We at Advent believe there is an exciting opportunity emerging for Advertisers to find out which half of their ad-budgets are being wasted. We are very interested to see European companies tracking, measuring, analyzing, and quantifying online advertising effectiveness.

We're also excited to see companies who are helping brands develop new forms of advertising, especially online short form content, but more about that in further announcements...

Here is the powerpoint.

Ad Tech Paul Fisher

View SlideShare presentation or Upload your own. (tags: industry advertising)

Below is a list of the businesses and the amounts. If I have time (something my post rate will show I don't have lots of) I'll add a little more "colour" to the list.

Ad Exchange
AdJug
AdGent 007
ContextWeb
TargetSpot

Ad measurement
Digital Revolution Technology
Vizu
VoloMedia
XPlusOne
Integrated Media Measurement

Ad network
AdScale
Adconion
Mochi Media
IGA
Broadband Enterprises
Demand media
DirectoryM
Giant Realm
Gigya
Graspr
Jivox
RockYou
SaysMe
Tremor Media
Undertone Networks

Ad technology
Invidi Technologies
Ads Clicks
Videoplaza
Keybroker
Coull
OpenAds
AdMeld
Click Forensics
iBloks
Invision
Jobster
Kiptronic
MediaBank
MediaBoost
V Links

Agency
Uniteam Communication
Bruce Dunlop & Associates
i-level

Local Ads
Local Labs
Local Marketers
WebVisible

Mobile ads
AD.IQ
Blyk
Acuity Mobile
Ad Infuse
mSnap
Ringleader Digital
Smaato

Out of home advertising
Ocean
Hanger Network
JobDig
SeeSaw Networks

(Advent Ventures conducted the research using data from RealDeals and proprietary research.)

On Qype, The Southampton Echo, a dodgy swimming pool (or Regional newspapers, business models and Qype)

2008-06-18T09:13:00+01:00

I make a conscious effort to never write adverts for portfolio companies, but bear with me on this one.
A few weeks ago I wrote a long review on Qype* for a swimming pool in Southampton (read it here and in news paper form here ). I was so delighted with the review (and so angered by the crappy swimming pool) that I decided to cut and paste the review into a letter to the editor of the local rag, the Southampton Evening Echo.
I am stunned to say that last week it was published as the star letter on the highest circulation day for the paper (ah me, I have finally hit the big time).

Why am I telling you this?
Because it’s a perfect illustration of how traditional business models are under attack by something they can’t defend. Look at the quite stunning evidence here and here.
The Daily Echo loved the Qype product so much they (unwittingly) reproduced a review straight from its pages.
Qype has loads of great content. My review was a rambling monologue against local government masquerading as a swimming pool review, but Qype is packed full of really well written, relevant and trusted content. Stuff that regional press love. The Southampton Echo loved it so much they took it lock stock onto their old fashioned news paper.
Just imagine how much US regional press would love to have ads from craigslist.
Just imagine how much Yell.com would love to cultivate a community of users as loyal or innovative as Qype or some of its competitors.
This begs one of the most annoying questions from VCs: “if this is such a threat to local news papers**, why aren’t they just doing it themselves?
And there’s the answer right there. They could. But they don’t. And that’s why there’ll always be great opportunities for smart entrepreneurs.
One other reason for wanting to write about Qype is it’s an excuse. For not writing here much recently. For me, Qype is the new blogging. I am stunned (and slightly embarrassed) that I derive so much self satisfaction from spouting off opinions on things from croissants at The Wolseley to the local plumber. But writing reviews has got me hooked.
*Qype is a portfolio company of Advent Ventures.
**of course you can interchange this with MySQL & Oracle, Bebo & AOL, BT & Skype etc. etc.

Thefunded.com: Empty vessels make the most noise

2008-04-16T08:37:00+01:00

There's a bit of a hoo-haa right now about the impact of thefunded.com. See here.

I would claim I am in a pretty unique position to comment on this story. For 5 years I worked with a series of start ups with, amongst others things, the job of raising VC for them (Glasses Direct, Reevoo, Rawflow, Zeus, OmniPerception). I negotiated with numerous VCs and sat in hundreds of pitches. Literally.

I have seen the good the bad and the ugly of VCs. Nowadays, on the other side of the fence I see the good, bad and ugly of entrepreneurs.

Adeo Ressi (CEO of thefunded) claims to have two main aims: To make the funding process easier “entrepreneurs should pitch to 10 firms at once, closing in 2 months, having reasonable economic terms. none are true now” (I think this is factually incorrect). Secondly he aims to get a wider breadth of firms funded.

Lofty ideals indeed. Let’s analyze the two things he’s doing:
1) Giving presentations advising entrepreneurs on how to raise funding
2) Running thefunded.com

Giving Presentations

Giving useful advice to entrepreneurs is great. Especially if it is sage advice from people who’ve done it before. Even better if its fresh from the current market.

• Lots of what Adeo presents is fundraising 101. It is a useful footnote to the great stuff from the likes of Guy Kawasaki .

• Some of what Adeo presents is good: Stuff like “its OK to walk away from a VC offer you don’t like, run fundraising discussions in parallel not in series, try and get multiple offers” etc.

• Some of what Adeo presents is plain wrong. For example the stuff about VCs deliberately trashing companies they want to invest in, or a rule on only ever pitching to general partners.

• Some of what Adeo presents is dangerous. For example “always go for a 20% option pool” or “ never give two board seats”. All companies are different and this “advice” is woeful.

So my advice to entrepreneurs when listening to Adeo’s current presentation on the conference circuit is to listen with interest, don’t take it as gospel, and get some advice from someone who really knows what they are doing.

TheFunded.com

This is a vibrant community that aims to help entrepreneurs raise money. That’s a great aim. I also like the way its bringing more transparency & visibility to the VC industry which despite all the efforts from VCs (most notably Saul Klein) remains a tough world to get your head round.

My central problem with thefunded is that it doesn’t actually help entrepreneurs that much. At best it’s something to use after you have made a long list of people to go and talk to. At worst it’s a stack of incredibly subjective views that are plain wrong.

Why isn't much use? Accuracy. The wisdom of crowds needs a crowd. The US VC market isn't massive. By comparison, Europe is small.

I will save the long essay till another day, so here are some bullets:

• Some VCs can be very difficult in meetings. This ranges from mild arrogance through to yawning, falling asleep or being proactively obnoxious. Some VCs need to pull their socks up and thefunded.com helps with this.

• However, some VCs see aggressive questioning as part of their selection criteria. Its not my style but I know some VCs, who have helped their entrepreneurs make a lot of money, who aren’t the easiest of people to deal with.

• Just because a VC is rude in first meeting, doesn't mean they won't add lots of value when on your board. Being a VC requires a range of skill sets: analyzing strategy, negotiating contracts, making intros, running acquisitions, leveraging brand. The funded.com doesn’t give much insight into this.

• One meeting wonders. The problem with thefunded.com is that it gives poor execs who crash after one meeting a disproportionately louder voice than those who have had 2 years of experience. For example, I doubt that the Skype guys have written on the site?

• VCs say “no” more than “yes”. Some people simply don’t like to be told “no”. To quote venturebeat; “VCs say “no” to a lot more entrepreneurs who request backing than they say “yes” to, which suggests the ratio of critical reviewers to positive reviews will be quite high.”

• There’s a theory in VC land that the noisiest entrepreneurs who complain most about investors “not getting it” are only those who didn’t get funded. I wonder if there’s a link there….?

So this post has been inspired by a question from Mike Butcher on twitter musing if thefunded would kill the European VC scene.

My response is that there is not a cat in hell’s chance.

It’s a useful tool in that it gives a bit more visibility to a sometimes impenetrable industry. It’s also nice to see a bit more power with the execs.

But it scares me that entrepreneurs will read the funded .com and either believe it to be truly representative or treat it as proper advice. This is very far away from the wisdom of crowds.

Right. I’m off to try and persuade some investee CEOs to stop focusing on executing the business plan and instead write reviews of VCs on thefunded.com (ahem)

CPC, CPA, lead generation does not work

2008-01-22T10:05:00+00:00

Idea
This is the idea that the old CPA and lead gen models are inadequate measures of performance and therefore their pricing needs to change.

Problem (s)

The problem here is knowing when a user clicks on an ad, and then buys a product, if it is as direct result of that ad.

What lies behind these issues is that click-through does not correlate to purchase.

It is worth a brief diversion to say a bit about why click-through does not correlate to purchase:

1) Clickers
Research shows that some users are just “clickers” and will click on anything. Clickers make performance marketing less accurate. Clickers are not stupid, they are your wife. And they skew results.

2) Non clickers
Non-clickers make performance marketing less accurate:
“respondents said they were twice as likely to notice a web ad, not click on it, but visit the advertised site later (61 percent) as they were to click on an banner ad to reach a site (30 percent).”
DoubleClick Touchpoints survey, 2006

3) Click before purchase

The last click before a purchase is not the reason why that purchase was made. Intuitively this makes sense: I am personally more likely to click on an ad for Dixons than I am for ABC Online electrics ltd. This is a result of 20 years of brand-building from Dixons.
The question then becomes: why should I pay a lead-gen fee or CPA to an affiliate if they have not done the work? This is the most potentially disruptive one to all those elegant business models that we are backing.

Solutions

How are people solving the above problems?

1) Clickers & non clickers

Agencies are trying to solve the problems posed by clickers but it’s not easy. One of the most compelling is that from Double Click who offer ”view-throughs”. With View-throughs, lead generation / CPA is paid even if the browser buys within 30 days of viewing. The problem is still far from solved.

2) Paying rewards based on effectiveness

If advertisers and their agencies are able to come up with one generic and widely accepted measure of effectiveness, then results can be paid. This is a fascinating area and I have covered here .

3) Media mix optimization
Due to the quantitative holes in performance marketing, some advertisers are seeking to attribute value to “total exposure” rather than pay for specific clicks: paying for exposure across the media mix.
NBC is trying out a metric called “total audience measure”, which tallies TV and online impressions: “you have to understand, every medium has a different effectiveness level”. Beth Comstock, president of NBC Universal Integrated Media

Opportunities for growth companies

The big issue for many start-ups with a revenue-model based on CPA or lead gen is the question of whether the last click before a purchase is the real reason for that purchase being made. I personally believe that the current system is the least-worst mechanism that we have and therefore PRICING WILL STAY THE SAME: The downward pressure on CPAs that would come from recognition of additional brand building will be netted-off by the overall shift in spending from mass to performance marketing.

It doesn't concern me too much that the last click before a purchase is not the reason why that purchase was made. Why? Because a great web app will act as a "noise reduction agent" to cut through the advertising clutter. This is one of the compelling things about Moveme.com (Advent Portfolio company): there is a clear development towards reducing the noise and concentrating on signal strength from publishers.

Affiliate Networks themselves are seeing some questions from advertisers about the true effectiveness of affiliate network campaigns . I have previous posted on this.

All web properties; from small blogs, through growing media-networks (like glam.com) to massively trafficked ad-driven models like Dailymotion will have to continue building bigger and more comprehensive databases of their users: profiles, demographics, likes, dislikes. Advertiser demand for this data will only grow.

I am also convinced that we’ve not seen enough from companies targeting specific influencers in key communities. I’m excited about businesses helping advertisers go after influencers in specific niches or providing horizontal tools to go after influencers in multiple verticals.

Finally, the enormous shift away from mass marketing and into analyzing performance marketing and targeting will create fascinating opportunities for growth:
• Managing customer data-bases
• Analysing customer data
• Automating the measurement and performance of advertising dollars on-line and offline