Paul Wallbank – Brilliant Communications

Category: Investment

  • Lessons in crowdfunding from an unsuccessful Kickstarter campaign

    Lessons in crowdfunding from an unsuccessful Kickstarter campaign

    “I’d rather eat a bullet than do a Kickstarter campaign again,” says Moore’s Cloud founder Mark Pesce in the latest Decoding The New Economy video when asked about crowdfunding his project.

    Moore’s cloud is an internet of things company that focuses on lighting, “we think it’s interesting and something that expresses emotion” Mark says.

    With their first project, Moore’s Cloud looked to raise $700,000 to build their first project but fell well short of their target.

    Falling short lead to Mark and his team executing a classic business pivot from a static lights to Holiday, a system of intelligent fairy lights.

    “We took exactly the same technology and put it into a different form factor,” said Mark. “It’s as if we took the light and unwound it.”

    The failure of the Kickstarter campaign gave the Moore’s Cloud founders an education on how crowdfunding works.

    Customer focused from day one

    An important aspect of crowdfunding is it’s very customer focused. From day one of the campaign, the venture has to devote resources on relations with those who’ve pledged a contribution.

    Most startups don’t have those resources, or the time and skills, to deal with those relations.

    “People say it’s a better way of getting investors. I would have to say ‘it’s not better, it’s different.’” Mark says about crowdfunding.

    The psychology of investors

    One of the differences is the psychology of investors. Mark was urged by the CEO of Indiegogo, Slava Rubin, to set a low target as participants like to back successful campaigns.

    “There’s a whole bunch of psychology I didn’t understand going in,” says Mark. “If we’d had a goal of $200,000 we probably would have filled it in the first two weeks.”

    “Once a campaign is fully funded, it tends to get overfunded.”

    A truism of business is that banks will only lend to you when you don’t need the money and it strangely appears the same thing applies to crowdfunding.

    We’re in the early days of crowdfunding and there’s more to be learned about the way it works and for which ventures the fund raising technique works best.

    The experience of campaigns like Moore’s Cloud are part of how we’ll discover the nuances of crowdfunding and the psychology of the crowds that contribute.

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  • Finding the smart money

    Finding the smart money

    Around the world startup communities are working to connect with local investors, in Sydney and London two groups are showing how it is done.

    “We’re looking at turning idle money into start money,” is the aim of Sydney AngelEd says one of its founders, Ian Gardner.

    Fitting startup companies’ capital needs into the established criteria of investment managers is an ongoing problem that AngelEd’s founders want to resolve. “We see startups becoming an asset class,” says Gardiner.

    AngelEd, to be held on November 7, aims to educate high wealth investors and asset managers on understand the risk, benefits and hype around angel investment, particularly in tech companies.

    The global search for funds

    Startups around the world are struggling to engage with investors – in London, the local tech community has set up City Meets Tech to introduce British investors to high growth companies.

    London should have an advantage in this field given its leading role in the global finance industry, however the challenge for the tech community is to find financiers who are prepared to accept higher levels of risk than mainstream investments.

    “The City is generally risk adverse and doesn’t understand tech and tech start-ups,” says the City Meets Tech website, “though really it’s about understanding the business and managing risk though unfortunately innovation requires at least some risk.”

    Australia’s trillion dollar superannuation system should similarly give Sydney an opportunity that to become a global centre however it suffers from a similar, if not worse, conservative investment culture to London’s.

    Turning Sydney into a global finance centre has been an objective successive state and Federal governments for twenty years but the sleepy, comfortable and risk averse culture of Australian fund managers offers little to attract foreign investors or companies.

    Much of Australia’s is problem is the insular nature of local fund managers with all but a tiny part of the nation’s retirement savings being put into the top local stocks, listed property funds or domestic infrastructure projects that are notable for their lousy returns and extortionate management fees.

    Breaking that mentality is going to be the key to both AngelEd and the Sydney’s success as a financial centre.’

    Competing with the world

    While London and Sydney are struggling with the challenges of encouraging investors into the high growth sectors, cities like Singapore and New York are developing investor communities that are attracting entrepreneurs to their cities.

    Many governments dream of being the next Silicon Valley and while it isn’t likely anyone can recreate the circumstances that led to Northern California becoming the computer industry’s world centre , a vibrant and accessible capital market will be necessary for any place hoping to be a global cnetre.

    For Sydney and London, the success of initiatives like AngelEd and City Meets Tech may be critical for both centres’ future in the global digital economy.

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  • Venture capital investors as mentors

    Venture capital investors as mentors

    LinkedIn founder Reid Hoffman has a wonderful post on his blog detailing what he wished he knew when he first pitched his business to investors.

    His seven myths of pitching are well worth reading whether you’re seeking capital from Silicon Valley venture capital firms, a sceptical bank manager or your mum and dad.

    The first point is the most pertinent — a successful financing process results in a partnership that delivers benefits beyond just money.

    Raising investor funds is only a step in the journey of creating a successful business, it is by no means the end point.

    Hoffman’s point is something every business founder needs to keep in mind, those early investors are important mentors and their advice could prove to be more valuable than the money they bring to a venture.

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  • Valuing Twitter

    Valuing Twitter

    Now microblogging service Twitter has released documents ahead of a stock market float, it’s possible to start looking at the viability and stock market valuation of the company.

    When Facebook’s float was first mooted in early 2011, we looked at how the social media service stacked up against Google a decade earlier. The question was ‘is Facebook worth $50 billion?’

    The stockmarket answer was resounding ‘yes’ despite an initial fall that saw investors face a 50% loss in the early days of Facebook being a public company. Today the stock has a market valuation of $122 billion, with an eye popping price/earnings ratio of 122.

    So how does Twitter stack up at the valuations being discussed? Quite well it appears when we put it against Google, Facebook and LinkedIn.

    Company Google Facebook LinkedIn Twitter
    Market Cap 288 123 27 13
    P/E 25 288 901 29

    For Twitter, the real challenge is making money from the service and their latest idea is marketing the service as an essential companion to watching TV.

    The discussion over how Twitter makes money exposes another problem for the service in it has no obvious revenue stream which makes comparing the platform to Facebook or LinkedIn rather problematic.

    Facebook has advertising while LinkedIn has premium subscriber services both of which are problematic.

    Not having an obvious revenue model may not turn out to be a problem – as LinkedIn’s P/E shows – and Twitter’s founders are probably more likely than anyway to be the digital media industry’s David Sarnoff.

    It may be Twitter makes its money from giving advertisers, marketers and others access to the massive stores of data the company is accumulating.

    Whatever way it turns out, Twitter’s going to be the hot IPO news for the tech industry for the rest of the year. At current prices, the investors will be lining up to buy the stock.

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  • Big Data needs big databases

    Big Data needs big databases

    While the tech industry’s startup hype this week has been focused on the impending Twitter Initial Public Offering, a much more fascinating company quietly completed a major capital raising.

    MongoDB provides an open-source, document database program and last week raised another $150 million from investors that values the company at $1.2 billion dollars.

    Databases lie at the heart of Big Data and businesses need better computer programs to manage the overwhelming amount of information that’s pouring in every day.

    As every business is unique, larger corporations find they spend huge amounts of money on their databases. The enterprise that buys an Oracle, IBM or SAP system usually spends tens, if not hundreds, of millions of dollars in adapting the system to work for them, often with less than spectacular results.

    While implementing MongoDB or any other open source program doesn’t eliminate implementation costs, it is often easier to setup and maintain as most of the information about the system is shared and freely available rather than locked inside the vendor’s proprietary knowledgebases.

    Probably most important of all, the data structures themselves are open so customers don’t find themselves locked into a relationship with one vendor because all their information is in a format that can only be read by one system.

    Open source is where Big Data, social media and cloud computing intersect – without the data itself being open and accessible, most cloud computing and social media services will almost certainly fail.

    So MongoDB and the other open source products are the quiet, back of house technologies that keep the internet as we know it ticking along.

    Bloomberg Businessweek reports there’s some very serious investors in MongoDB.

    The deal attracted new investors such as EMC Corp. (EMC:US) and Salesforce.com Inc. (CRM:US), along with previous backers Red Hat Inc. (RHT:US), Intel Corp. (INTC:US), New Enterprise Associates and Sequoia Capital, according to MongoDB.

    Sequoia Capital are one of the longest lasting Silicon Valley venture capital firms whose greatest success was being one of the first investors in Apple Computers and New Enterprise Ventures have a similar pedigree with companies like 3Com, Juniper Networks and Vonage. Investment by industry leaders like Intel, Red Hat, Salesforce and EMC in the company also shows MongoDB isn’t the standard Silicon Valley Greater Fool play.

    When there’s a gold rush, it’s those selling the shovels who make the big money and the investors in MongoDB and similar services are hoping they’ve found some of the modern day shovels.

    That may well turn out to be the case and while the smart folk make more money from the technologies that drive social media and cloud computing services, the rest of us are distracted by the latest shiny thing.

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