12 Dec 2011

Write Up: Mobile Monday 28th November 2011 “Sunshine beaks through the clouds for Start-Ups and SMEs?”

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In its second event of November, MobileMonday London focussed on growth opportunities and support for SMEs and Start-Ups. The formal part of the meeting was followed by networking for VCs, angel investors, accelerators and companies looking for support.

John Spindler, CEO of Capital Enterprise set the scene with his presentation below, before chairing a panel discussion on what the opportunities he described would mean to SMEs and Start-Ups.

Presentation at MobileMonday London 2011-11-28 John Spindler

The panel was:

  • James Mawson, Founder and Editor, Global Corporate Venturing,
  • Ben Whitaker, CEO, Masabi,
  • Anthony Clarke, Chair of the British Business Angel Association (BBAA),
  • Frederic Lardieg from Vodafone Ventures,
  • Jamie Finn from Telefonica Digital. 

What do you expect or would you like to see the Chancellor include in the next day’s Budget to encourage SMEs?
Anthony expected the government to match existing Angel syndicates on new investment, though this was limited to poorer boroughs, and would like to see mentors get tax breaks for working with SMEs. James F would like to see the first round of investment funded by government to “seed” SMEs, allowing investors to concentrate on growth. Ben agreed he would like to see the government taking the risk in the earlier stage, so that banks were not the only or main source of initial investment. James M wanted to see easier access for SMEs to programmes for growth investment, and Frederic also wanted to see easier access to seed fund grants, with VC funds focusing on core investment, and Anthony noted that the Federation of Small Businesses statistics showed support for SMEs was much smaller than those for big business. Audience suggestions included tax reductions for start-ups, additional corporation tax reductions for SMEs, incentives for the hiring of the first few employees within a business, and a reduced threshold for business rates for small business making the transition from home-based to business premises.

How did the panel rate the attractiveness of the mobile market in the UK currently?
James F thought the UK market had a lot of scope, especially for an HTML ecosystem which was virtually empty at the moment. James M thought that the UK and Europe may currently have less of an innovation ecosystem than in the US. Ben agreed that although there was lots of talk there was less actually happening, his opinion was that companies needed to bring solid plans and prototypes to the table for entrepreneurs and investors rather than just ideas, a lot of mobile ideas were also more likely to appeal to angels rather than VCs. Anthony noted VC investors were looking for scalable mobile businesses, in the order of 20 times return rather that the 2-3 times return more common in purely mobile app ventures. Frederic however did think the UK was an attractive market especially in the mobile space and had seen significant returns from companies in this area.

What advice did the panel have for application developers seeking investment?
Ben emphasised picking the right investor for your specific business which may not necessarily be a VC but instead EIS or grants, also look realistically at the returns, for example based on number of products and whether there was ongoing service attached to the service. Frederic agreed that a scalable business was essential for VCs so there might be opportunities in developing a platform around a product, or adding data collection as a service. Anthony noted that angel investors were looking for an order of 10 times growth over 5-7 years, he noted that in 2010 750million Euros were invested in seed investment, but SMEs needed a convincing bus plan. James F has personally invested in core apps businesses and could see potential in this area. Ben also noted that generally focusing and maturing in a core business was important, so peripheral activities should be de-emphasised, and the pitch should concentrate on return value rather than being overly technical. James M thought that corporate funding sometimes offered more opportunities than VCs especially at the seed stage, as corporates could benefit from the ideas and R&D initiatives, not just the direct financial returns.

An audience member questioned whether it was more important to get the volume of users or the product business model secured first? The panel thought there were possibilities in both approaches, and also noted the US model for big investors need a business model plan which showed the longer term returns and service opportunities – a lot of the US investors were now looking for investment opportunities in the UK and Europe, which was positive as statistics showed the US has invested around 5 times as much as the whole of Europe in this space.

Only 2% of SMEs applying for VC funding get it, what’s going wrong?
Frederic thought the reason was often that applications were not for scalable businesses (even if they were successfully running in other ways), however he noted that VCs cumulatively have invested more than 2% overall. Anthony pointed out that getting past the gatekeeper was often the initial issue, as companies chose the wrong investment types for the wrong targets, either too much or too little, or for lifestyle businesses not suitable for equity finance. Ben noted the common 3 step plan to IPO model touted in Silicon Valley was not always suitable for different types of businesses, so different approaches based on longer term growth may be more appropriate, it was important to match the investment with your particular business. Finally John noted the business plan should be based on evidence of a business model based on real research and demos.

What are most common mistakes made by Start-Ups looking for investment?
Frederic thought getting together a full management team including technical and business experts was important (there are events where these matches could be made if you didn’t already have the full team). James F emphasised focusing on a key area especially for limited sized teams, Ben agreed with concentrating your pitch on core products and services and also noted the need for complementary team members, as well as being concise in your pitch. Anthony thought there were lots of common mistakes, such as not showing a personal commitment to the business (e.g. personal investment of money or time), asking for product development investment rather than doing the front-end work to have a working prototype developed and some sales committed before asking for investment, and realistic valuations of the business.
The issue of trust and openness was also brought up, Frederic also thought that investors wanted a trusted environment so be as open as possible, and James M agreed but noted entrepreneurs needed to be able to balance trust with managing threats. The panel generally agreed noting that asking for NDAs was not considered beneficial, being completely open was also useful to getting your product known within the investment community.

The panel considered some questions from the audience:
What was the best order for investment criteria? A business plan, getting the users and then planning for growth was one approach. How do you balance the optimistic returns required by investors with realistic valuations? This could be achieved by basing projections on realistic costs and the likelihood of growth, but ultimately solving real business needs may produce ambitious numbers. Was it a good idea to file patentable innovations before being too open? Being able to show patents applied for could be useful it would feed into market validation, but ultimately real users were more important. Was “sweat equity” also important to demonstrate for Start-Ups? It was important to demonstrate this commitment in addition to or instead of financial commitment depending on your circumstances.

John asked the panel to sum up their advice to companies looking for growth investment. James M emphasised that in addition to VC funding, entrepreneurs needed to consider all investment opportunities in the wider world including Angels, corporate and individuals. Ben noted Masabi was actively seeking entrepreneur talent and technology so talk to them! Anthony summed up his advice as stay positive as there was money available, do the research and find out which areas are popular with investors. Frederic rallied the audience to keep doing what they were doing and encouraged them to speak to Vodafone Ventures who were always happy to help innovators. James F agreed that the entrepreneurs who succeed where the ones who kept trying!

With the session over, Jo Rabin thanked the panel, the chair, the MoMoLo volunteer team and the event sponsors ICT KTN.