Finance Geek

Fiftieth in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital. We expect the series to run for a year after which we will collate the posts into a book. You can find the rationale behind the series here, and the list of questions here. We welcome your comments on any and every aspect of what we are doing.

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If you are an entrepreneur who is raising money you should talk with multiple VCs, simple as that. To do otherwise would be crazy. No individual VC can be guaranteed to invest and having some competition in the deal will cause most investors to move faster, and it may make them offer better terms. Talking to multiple VCs will also help hone the pitch and may generate feedback and contacts that are useful for your business.

I don’t think we have made an investment recently where the company hasn’t talked with other VCs, and if we were to find ourselves doing so I think we would want to know there was a good reason why not.

So creating some level of competition between VCs is a good idea. The more interesting question is ‘how much?’.

The following advice is for the average company that is successful in raising venture. Super hot companies can keep more funds in competition with less work, and should maybe do so, and companies that find it hard to raise venture will probably need to talk with many more VCs, and may struggle to get any competition going.

The first decision to make is how many VCs you should talk with. I would say at least four or five, and more if you don’t feel sure that at least one of the top four or five on your list is likely to want to invest.

Once you get past the second or third meeting I would narrow down the field to three or four. More than that will leave you no time to run your business. Then when discussions get serious I would narrow down to a preferred partner and keep a second investor warm. There is no need to turn anybody off at this stage, simply progress investors at different speeds.

The next, and more difficult decision, is how much you make each VC feel the heat from their competitors. The high level answer to this is that the more competition they feel the better it is likely to be for you. You should however follow these guidelines:

• Don’t over-play the competitive card until the VC is emotionally bought into the deal. It is never too early to let it drop in conversation that you are talking with other investors, but going too far too early will cause people to prioritise other deals.
• Maintain your integrity – taking an investment is the start of a long relationship and if you undermine trust by over-stating the competition or sharing information you shouldn’t then you risk losing the deal altogether.

The final, and most difficult question, is how much information about a conversation with one VC you should share with other VCs. At the early stages of your conversations it is OK to talk in generalities about the level of interest you have and the sort of deal you are hoping to get, but if you share specifics about individual funds and especially the terms they might offer you will come across as loose tongued. As you build trust with a potential investor and they start to show a real desire for the deal it is common to give more explicit guidance about the terms that they will need to offer to win the deal, particularly to your preferred investor. At this stage some entrepreneurs share the names of the funds they are talking with, particularly if they have had conversations with any of the top firms. I think that can be OK if it is done in the right way, although you then risk the parties talking with each other. Sharing specifics about the deal that a VC is offering you is almost certainly going too far. Offers are made in confidence and that should be respected.

Lastly, once you have signed a termsheet with a VC you have made an in-principle decision to go with your chosen partner and the right thing to do from a moral and most likely legal perspective is to end all your other conversations.

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Yesterday Amazon announced the $775m acquisition of robotics group Kiva Systems. These squat orange robots automate part of the shelf picking process for ecommerce companies. Instead of the workers walking to the shelves, the robots bring the shelves to the workers who then stay in the same place. With a robotics system in place one human can do the work that would have taken six previously. It turns out that shelf pickers do a lot of walking – up to 20 miles per day in Amazon’s warehouses. There is more detail in the video above. If you like robots you will enjoy this video, and if you don’t like robots you should watch it anyway. The humans and robots work together in a nice co-operation. We will see more and more of this type of co-operation.

This is interesting because it is another move by a major internet company to vertically integrate its value chain. This is a strategy also employed by Google and Apple, and this acquisition by Amazon has echoes of Google’s deal last year to buy Motorola’s handset division. Just as Google’s deal creates concerns that it won’t in the future play fair with other handset OEMs who use Android so Kiva customers that compete with Amazon will worry whether whether they will get the same service going forward. You have to think that the reason Amazon wants to own this technology is to stop their competitors using it – particularly eBay/GSI and Walmart. Or maybe they were worried that eBay/GSI would buy the Kiva and stop Amazon using it. (Amazon is currently a customer via it’s acquisitions Zappos and Quidsi, but doesn’t use Kiva in it’s home grown warehouses.)

My guess is that this is another phenomenally aggressive move by Amazon. They have brought significant extra complexity into their business and will now have to learn how to manage a robotics company on top of all their other disparate businesses, and the only reason to take on that complexity is to crush the competition. It makes me wonder where they will go next. Perhaps they will buy Fedex…..

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My latest column for The Kernel. It was published last Thursday.

The LP Update Meeting

Everybody answers to somebody, Nic Brisbourne reminds us. What happens when VCs are hauled into the boardroom to justify their investment decisions?

I’m just back from our semi-annual update to the LPs in one of our funds, and I thought I would share the experience with you all. As a reminder, LPs, or limited partners, are the investors in venture capital funds. They are typically pension funds, insurance companies or specialist investment houses known as FOFs (“fund of funds”).

These meetings are the equivalent of board meetings for our portfolio companies. We have around a dozen LP update meetings a year across our four funds and they are the most important moments of contact we have with our investors.

My hope is that the following description of the meeting will help explain the information we request from startups and the pressures we sometimes find ourselves under which we then have to pass on to our portfolio companies.

The agenda at the meeting today was similar to the usual agenda and I’ll go through each of the four items.

Manager update

We see our LPs relatively infrequently; they each look after interests in a large number of venture capital and private equity funds, and they occasionally shift responsibility for looking after our fund to new people, so we always begin by reminding them of who we are, why we are special, and our investment strategy.

Then we update them on how we are doing compared with our peers and on any changes to personnel and our funds under management.

Market update

Having set the scene about us, we go on to provide data on the market as context for the performance of our funds. One of our slides today showed VC exits over $100 million since 1996, split between the US and Europe. The data shows that there were over 150 such exits for US companies, up from around 100 per year in the previous peak in 2005-2007, whereas Europe has yet to exceed the 40 or so deals at this level we were seeing at that time.

We were seeking to make the point that our recent good run of exits was impressive, given that we are based in Europe, and that the high level of US deals last year bodes well for Europe going forward, provided the macro-economic picture holds.

Another slide showed venture investments in Europe by sector, and provided the basis for a discussion about our sector strategy. (Our mission is to back the best entrepreneurs wherever they are, so compared to our peers we expect to be overweight in some less fashionable sectors.)

Portfolio update

This is the longest and most important agenda item. We present the performance of the overall fund and comment on changes since last time, with a particular focus on changes to the value at which we are holding our investments.

Then we talk through the key portfolio companies in some detail. We typically focus on the top half-dozen by holding value and the partner responsible for each of these assets presents a couple of slides covering what the business does, why it is important, how the company has been performing and the likely timing and value of the exit.

Having been pretty quiet for the first couple of agenda items, the LPs typically spring to life with questions during the portfolio update. They are keen to make sure they fully understand any changes in fund performance and our plans for the key assets.

They are on the look-out for discrepancies with what we have presented previously, whether we have sufficient reserves, and any signs that we are too bullish about our valuations or exit projections. (One of the unfortunate legacies of the poor performance of most of Europe’s VCs in recent years is that LPs have become a cynical bunch.)

There are strong parallels between the way we present our portfolio and the way our portfolio companies present their revenue projections and pipeline at board meetings. It is during these sessions that confidence in the future is built or destroyed, and credibility as a manager is won or lost.

They are hugely important for us, as the LPs in our current fund are the best prospects we have to be LPs in our next fund. We are therefore prudent about setting expectations, including for individual portfolio companies, but having set expectations it becomes very important that we meet or exceed them.

Summary

In this section we discuss any pending changes to the firm that our LPs need to be aware of – and, in some cases, approve. For example DFJ Esprit’s merger with Tempo Capital that was, by coincidence, announced today, was discussed under this agenda item in a previous meeting. Fund extensions and annexes are also discussed here.

I hope this gives you some insight into a little talked-about aspect of life as a VC. In particular, I hope it comes across that VC partners have to stand up and make commitments about the performance of the companies they have invested in.

When working with portfolio companies our primary motivation is to help them be as successful as possible. The quality of data and the accuracy of projections that we report back to our LPs is an important secondary consideration, but, at the end of the day, it is results that count.

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Mergers and acquisitions have a notoriously high failure rate and as a result investors knocked a couple of percent off Cisco’s share price yesterday following the announcement of their $5bn acquisition of NDS Group. This morning the Financial Times’s Lex column ran a piece which gives a partial explanation of why big companies push ahead with acquisitions in spite of the stats and antipathy from their shareholders. This is the money quote:

Many acquisitions fail. But for most tech companies they are an unavoidable risk as competition and technical advances relentlessly drive down prices and margins on legacy products. Witness the recent margin pressure in Cisco’s core switching business.

There was a second Lex article this morning, this time about Chinese internet darling Tencent which gives the other part of the explanation, they can’t organically add new products and businesses with enough pace to offset the declines in their legacy businesses and deliver the growth their investors demand. This quote from Lex explains how Tencent’s management is offsetting declining subscription revenue growth by growing their revenue from games, including by acquisition (e.g. of US games developer Riot Games, a $400m deal last year):

Sales growth from subscription fees and virtual items on Tencent’s social networking platforms slowed to a fifth year on year in its fourth quarter, from 25 per cent during the same period in 2010. As a result, Tencent depends even more on its online games to support sales. ….. To roll out blockbuster games fast enough it has turned to acquisitions.

The good news for entrepreneurs and their investors is that as the pace of change continues to accelerate new markets spin up and get big in shorter and shorter periods of time making it harder and harder for large companies to respond organically. Moreover, the faster a market gets big the more valuable the market leading startup will be when it comes to exit. This logic is playing out up and down the scale from $20m exits to much larger ones.

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Forty-ninth in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital. We expect the series to run for a year after which we will collate the posts into a book. You can find the rationale behind the series here, and the list of questions here. We welcome your comments on any and every aspect of what we are doing.

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The heart of a venture capital deal is an exchange of cash today for an obligation to grow the value of your company and eventually find an exit. Hopefully the reason that you raised venture is that value growth and exit were in your plans anyway, in which case the major difference is that once the money is in the bank it becomes much harder to change course, e.g. to run a lifestyle business. In other words, raising venture capital commits you to a path.

If you hit your plan then most likely you won’t want to change tack and raising venture will simply have been an enabler. It will have got you access to cash and other resources that will have helped you build your business. The bigger difference comes if you miss your plan, in which case raising venture will most likely have limited your options you have going forward. When an investment misses plan most VCs will either want to double down and have another go at hitting the original plan or sell early, and they will exert whatever pressure they can to make their preferred option happen. That is their duty to their investors.

If your VC does want to double down and go again they will want to understand what lessons were learnt from the failure the last time round and be happy that the plan has changed in the right ways to maximise the chances of success going forward. Often that is as simple as agreeing with the revised plan that you come up with, but sometimes they will want more changes or different changes to the ones that you propose. Often those changes will concern the speed of investment. Sometimes they will involve changes in personnel.

Hopefully you will have kept an active dialogue with your investors through the re-planning process and the new plan that emerges will appropriately reflect everyone’s opinions and influence and there won’t be any difficult discussions.

So far I’ve described what investors will want, begging the question ‘to what extent will they be able to get it?’. The first and simplest answer to this is the legal one. The more money a company has raised, the more the founders will be diluted and the investors will have proportionately greater formal and legal rights to control the company and influence operations. After Seed and Series A rounds the investors typically have a minority stake, but sometime around the Series B or Series C the investors will typically rise above 50% at which point they will have formal control of the company. The founders may have negotiated extra rights for themselves which mean that formal control is not absolute, but this doesn’t alter the fact that as more money is raised there is a steady transfer of power and control to investors.

In practice the situation is always more complex than the legals suggest and depends on the individuals involved. Some VCs have big personalities and will have a bigger impact than their equity stake alone would command. If the VC concerned has good judgement and relevant experience then this should be a good thing for your company, but it is something you should consider before taking his or her money. Similarly some founders and CEOs have big personalities and use that to bend investors to their will. Finally, some founders and CEOs are particularly critical to their businesses, particularly at the early stages and they can leverage that fact to increase their influence. In the end it comes down to legal control though and strong individuals can ultimately be over-ridden if their positions lack legal support.

In conclusion, if you hit your plan then raising VC won’t make too much difference to how you run your company, but if you miss your plan things might be different. The extent of that difference will depend on your relationship with your investors and the extent to which your revised plan fits with their ideas about what should be done differently.

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Please take a few minutes to read the passage below about the upcoming Capital On Stage conference in London. Arjen Strijker (the conference organiser) and I had a meeting of minds when we spoke last week about the importance of demystifying venture capital, it is one of the reasons I write this blog, it is why he started his conference and it is why I’m promoting it now.

One of the cool things about the conference is that it turns the normal pitching format on its head and has VCs selling to entrepreneurs. As you will see from the piece below, DFJ Esprit wasn’t present at the inaugural Capital on Stage conference in Amsterdam, but we will be at the London edition, and if you have a startup I hope you will consider applying.

What follows below the line is Arjen’s pitch for his event.

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The Conference That’s Demystifying Venture Capitalism

Normally, conferences about funding are places where startups pitch to investors in the hope to get a cash injection to kickstart or accelerate their business. They mostly fail, because they don’t know what investors really want. At the same time, investors often complain that they receive so many inappropriate pitches and business plans. We wanted to change that…. 

Capital On Stage is an unconventional and invitation-only conference about funding that touches all these aspects in a refreshing way. The format is somewhat daring: 20 venture capitalists pitch themselves to 200 cherry-picked tech startup founders, instead of the reverse. During the day, it’s all about demystifying venture capital(ists) and the funding process.

The first conference was held in Amsterdam in September last year and was sold out weeks in advance and was a great success, even though most VCs needed to get used to the idea of pitching themselves. We wanted all investors to pitch on stage in less than 5 minutes, explaining about themselves, their views on the market, their added value, and what they’re really looking for. The participating VC firms included Index Ventures, Wellington Partners, Doughty Hanson, Newion Investments, Prime Ventures, Solid Ventures, Hummingbird Ventures, GIMV, Endeit, and Balderton. 

Due to the success of Amsterdam, we’re now doing a 2nd CapitalOnStage in London that will take place on Tuesday April 24 at Norton Rose headquarters, right at London Bridge. Like last time, tickets aren’t expensive for startups, but aren’t easy to get a hold of. Only founders (no employees) of Internet companies who work on a scalable product and are ready for (another round of) seed, early, A- or B round of funding are invited. Those who receive an invitation can also attend the Open Office Hours in the morning, where it’s possible to meet with the 2 investors of their choice for 15-minutes each. 

If you’re a startup and ready to get funded, apply for an invite today via our website.

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As I’m sure you’ve noticed big data has been a hot topic for a while now. Everyone is rushing to use big data technologies like Hadoop and Cassandra and VCs have been pumping money into companies associated with the big data trend for at least the last couple of years. However, if you probe what the excitement is all about then once people move beyond the point that we are now generating data in unbelievable huge volumes and that there must be value in it somewhere then many people draw a blank.

So I was interested when GigaOM put up a post this morning titled 10 ways big data changes everything. I read through the ten ‘case studies’, and summarised them below. I’ve put my opinion on the trend in italics after a summary of the GigaOM case study. There was, in my opinion, a lot of fluff in the examples they chose, and of the ten there were only two that really stood out to me as areas with the depth and breadth to be home to multiple successful startups, and they were business intelligence applications of big data and virtual assistants.

1. Mining social media and other music sites to predict the next Lady Gaga – GigaOM highlights Next Big Sound as a key company in this market. Will this idea work? So far Next Big Sound has ‘two undisclosed major record labels’ as customers for this service, making it too early to tell.
2. Finding opportunities for energy savings by comparing consumption patterns – observing yourself is powerful in any context and making consumers aware of how the different things they do effect their energy consumption is no different. Comparison with other others is one way to drive behaviour change, but simple displays showing realtime energy consumption may have more impact.
3. Virtual assistants – software tools that help us with the more routine tasks we have to deal with. Siri is perhaps the most famous example, but there are many others. GigaOM chose to highlight a datacentre management assistant technology called Autopilot from a German company called Arago. Virtual assistants combine analysis of large volumes of data with artificial intelligence and will, I think, have a huge impact on many aspects of life over the next ten years.
4. Data fuelled recommendations – GigaOM gives the example of Foursquare which is making recommendations based on the data it gets from its users checking in and leaving tips and comments. Recommendations get more powerful when they have more data and I think the future will see recommendations based on data from multiple sources – Foursquare, Facebook, Twitter, and anything else that is getting traction with consumers. Ultimately I see this as a subset of the 3. Virtual assistants.
5. Tracking disease epidemics – GigaOM tracks the story of how Twitter tracked a recent outbreak of cholera in Haiti and how that can be of use to aid agencies. There are numerous examples now of social media being used to good effect in crisis situations which is great. I’m not sure if it really counts as big data though.
6. Business intelligence – GigaOM describes how a startup called Parse.ly is helping publishers analyse publishing data to see what content is driving traffic and predict what might work in the future. I think business intelligence is most obvious near term application for big data and that the most obvious short term startup opportunity is technologies and services for this market. Unsurprisingly this is where most of today’s hot big data companies are playing.
7. Mining cellphone billing records – GigaOM describes a number of use cases for this data including helping with malaria education in Kenya. I see cellphone billing records as one more dataset that can be minded to good effect. It is no different in principle to social media data and ultimately the successful services will be the ones that are able to draw value from multiple datasets.
8. Using data to predict and create video hits – Netflix is the case study this time. I am sure that by mining user data Netflix will be able to better guess how popular new video content will be, but it isn’t clear from the GigaOM article how much better it will be than traditional human based analyses which focus on success of similar content in the past.
9. Touch screen interfaces for interacting with big data – touchscreens offer new possibilities for manipulating large datasets with novel graph and chart interfaces. I’m not so sure about this one. Funky charts have value in presentation situations, but I think that most of the insight from big data will be gleaned by analysts who work by looking at different cuts of the data and zomming in and zooming out.
10. Hospitals using big data to improve efficiency – GigaOM describes how electronic patient records have delivered some improvements, but that there is a way to go. There is huge opportunity for IT enabled cost savings in healthcare delivery. The challenges are more organisational and bureaucratic than technical though and the opportunity for startups is to build services highly tailored to the healthcare market in which they work rather than exploiting the latest big data technologies.

One interesting thought which occurred to me whilst compiling this list is that it will likely get much easier for companies to realise the latent value in their data. Over the years we’ve seen a lot of plans from companies that put some value on data generated as a by-product of their main business and only a few of them succeeded in monetising that value. Going forward we will see more businesses dedicated to making money out of data which will be keen to help other companies monetise their data assets. Peer Index and Datasift are two UK based companies that are doing this already.

Finally, some of you may have noted that advertising wasn’t mentioned in the GigaOM list. Better targeting and tracking of advertising is very data intensive and to my mind a clear

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I have been writing this blog since we founded DFJ Esprit five and a half years ago. When I started blogging was hot, and still growing fast. VCs like Fred Wilson and Brad Feld had already been blogging for a couple of years and (like me) many others were jumping on the band wagon.

Now blogging is not so hot, and many have stopped blogging, or blog less frequently. I regularly used to get asked for advice about starting a blog. These days not so much. When I started writing new blogging tools were being released all the time, now I can’t find a decent blog editor in the Android market.

There is, of course, a new hotness every six months or so, but Twitter and Quora stand out for me as the two platforms that professionals in the VC/startup industry have become most excited about over that period. I have flirted with Quora and use Twitter regularly, but have stuck primarily with blogging because my thoughts are of the long-form variety and I value the discipline of committing my thoughts fully to paper.

However, I wonder from time to time whether blogging as a medium is on the wane and I ought to look elsewhere. I write to build awareness for DFJ Esprit and our portfolio companies and to engage in debate around the topics that interest me (many of which relate to investment themes) and whilst I could write my thoughts down fully in private, these other reasons for writing require an audience, with the implication that I should go (or at least consider going) where the audience is.

To change would be a wrench though, so I was pleased to see the chart below this morning, which shows that active blogging is still on the increase. Not crazy growth anymore, but steady growth appropriate for a medium that is hopefully becoming a permanent part of the news, analysis and media landscape.

Seeing this chart prompted me to do a bit more research, to see if it was really true. The Technorati (disclosure: DFJ portfolio company) State of the Blogosphere Survey 2011 largely confirmed that blogs are still growing and important, although they found (predictably) that many marketeers have shifted time away from blogging to other forms of social media (mostly Twitter, Facebook), and perhaps most worryingly they published the chart below which shows there isn’t much new blood in the blogosphere.

Finally, it is also good to see that WordPress.com is holding it’s position as a top 20 site globally.

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inmobi just surveyed 20,000 users in 18 different markets to understand how much time they spend on different media and how much they are using mobile. The results in the infographic below give an interesting snapshot of how far mobile has penetrated into our lives.

The headline figure is that more time is now spent looking at mobile phones than at televisions. PCs are still out in front.

Beyond that we see that people are making an impact in just about all areas, but there is plenty of scope for the impact to increase. E.g. 11% of people have had an in-store purchase influenced by mobile. That is a lot of people, but equally there are 89% who have yet to be touched in this way.

This already significant level of activity coupled with the massive growth rates we keep hearing about for all things mobile (e.g. mcommerce growth of 91% 2010-2011) suggests to me that we will feel the force of mobile in a big big way this year.

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Forty third in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital. We expect the series to run for a year after which we will collate the posts into a book. You can find the rationale behind the series here, and the list of questions here. We welcome your comments on any and every aspect of what we are doing.

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I strongly believe that startups who are raising venture capital should hire a good law firm with relevant experience, but I think it is a mistake to then ask them to negotiate the key terms of a deal. Negotiation works best when both parties work hard to understand what is important to each other so trade offs can be made where each side keeps what matters most and compromises on what matters less. Lawyers are always going to have a weaker appreciation of what is important than the principals team and the best route to smooth and productive negotiations is for management to build an understanding of the terms and issues and lead the negotiations themselves.

That said, it is easy to understand why some are tempted to hand over negotiations to their lawyers. Going toe-to-toe with an experienced venture capitalist negotiating on concepts that are new, difficult to understand, and important to the future of your business is not an easy challenge. But it is one that the best entrepreneurs step up to.

That doesn’t mean that the entrepreneur negotiates alone. The lawyers are often in the room, and always on the end of the phone if needed. It does mean that the entrepreneur takes the time to properly understand the significance of each of the key terms (see 50 Questions: Key terms, part one and part two) so they can work out what is important to them and their shareholders and find the trade-offs that work best. It is important to have good lawyers because without them it is hard to get a proper understanding of the terms and concepts. Good lawyers are also important because they can advise on standard market practice for many of the key terms, and most good VCs stick pretty closely to standard market practice (see 50 Questions: How should an entrepreneur approach the negotiation of key terms).

In my experience when negotiation of important terms is left to the lawyers discussions tend to drag out and often become fractious. The risk with legal negotiating teams is that because they lack a nuanced understanding of what’s important (and why it’s important) they simply push as hard as they can on all fronts, often constructing logically sound, but ultimately specious arguments to back up their case. This undermines trust between the two sides and generally makes it harder to come to a deal.

Finally – please note that this post is all about the important terms in a deal. In any investment round their are tonnes of minutiae – e.g. notice periods for board meetings notice periods and share transfers between family members. Lawyers are best placed to negotiate these and will put many to bed without need for discussion between the principals, and that is as it should be.

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Last week I wrote about the the difference between the skills required in the early days of a company when innovation is the biggest driver of value and the skills required later on when execution and exploitation become more important. My conclusion was that the skills are very different, but that it is increasingly important that the capacity to innovate is retained, and that hiring a professional CEO (by which I mean execution focused) can be a mistake.

One thing I didn’t talk about was the value a founder brings to the business and the post sparked a Twitter conversation with @tewy on the merits of Zuckerberg’s approach of bringing in a professional COO. My final contribution to that exchange was to say that keeping the founder in the company is the best solution, ideally as CEO.

Today I watched the interview below with Ben Horowitz of hot Silicon Valley VC firm Andreessen Horowitz (AH) in which Ben talks about how VCs have traditionally brought in professional CEOs for their networks of customers and potential hires, I guess in addition to their execution skills, although Ben doesn’t mention that. AH have set out their stall as being very pro-founder because part of their mission is to help create some lasting companies with the scale of Amazon, Facebook, Salesforce, Google or Microsoft, and as Ben notes that all those companies, and the majority of other large companies that have stood the test of time, were run by their founders for a large number of years. He thinks that is because founders have a number of advantages that brought in CEOs can never match, namely, deep knowledge of the company, authority with employees, and commitment to a long term strategy/vision.

AH’s approach is to help founders grow into large company CEOs by having people on the AH payroll that help founders build out their networks, i.e. a high expense, high value-added model. As per Martin Stillman’s comment on my last post on this subject, in addition to helping building investors can also mentor founders to become better at execution, either themselves, or by encouraging the use of third party mentors.

I think that as the pace of change continues to increase innovation skills will only become more important and hence a bias in favour of founders will become more commonplace. However, as Ben also notes, this isn’t the same as saying the founder is always going to be the best person to run a company.

The video is 19mins and if you haven’t got time to watch it all the key section starts around 3mins in.

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Reading the Singularity Hub this morning, I was surprised by the following statistics:

• The total world meat supply grew from 71m tons in 1961 to 284m tons in 2007, and is expected to double again by 2050, driven by a combination of population growth and increasing per capita meat consumption
• Around 67 billion animals are slaughtered each year for their meat (worldwide)
• Livestock production uses up c30% of the world’s ice free land and produces almost 20% of the world’s greenhouse gases (more than the amount produced by global transportation)

The environmental, land use and ethical benefits to be had from artificially producing meat are huge. These numbers suggest that the quest for artificial meat is as important as the quest for sources of sustainable energy.

The good news is that progress is being made towards lab produced meat. Researcher Mark Post has announced that his lab is growing burgers in petri dishes and expects to have one fit for human consumption this autumn. This is how the cultivation process works:

Cultured meat begins with muscle cells taken from the rear of a cow for sirloin steak, for instance, or from the area surrounding a pig’s spine for growing pork chops. The cells are then placed in a nutrient mixture that helps them to proliferate. A biodegradable scaffold guides the cells as they grow together to eventually form muscle tissue. Making a hamburger requires joining these pieces of tissue into a coherent whole.

They will need a more consumer friendly description of the process if this is ever to go mass market! It looks like that point is still years away though.

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I’m back now from Mobile World Congress in Barcelona and whilst I enjoyed playing with lots of new devices and meeting lots of interesting people, I am a little disappointed not to come away with more new investment themes or ideas to work on.

Walking the floors and looking at the companies and exhibitors my only big takeaway was that there are a lot of companies looking to help carriers solve their coming network capacity problems – and well they might, operators spend around $135bn a year on capex and they are going to need help dealing with the projected 21x growth in mobile data by 2015 (Cisco). I’m sure some startups in this area will profit handsomely, but dealing with operators is an tricky and expensive business, and there will be many more that don’t fare so well.

My other takeaway came from a Qualcomm breakfast seminar rather than the Congress itself. As I blogged on Wednesday there is opportunity in dealing with the rapid growth in mobile malware.

These two takeaways are interesting, and may spawn investments for us, which is why I put them first, but the biggest thing I noticed is that whereas MWC used to be a hotbed for startups it is now dominated by large companies. Google/Android had a massive presence, as did Samsung and Nokia but to find startups you had to visit the country promotional stands, hunt upstairs in Hall 2, or go searching in the corners of Hall 7.

On reflection I think that might be because MWC is an operator and OEM focused show. In the past these companies controlled distribution and mobile oriented startups came to MWC in search of partnership agreements. These days mobile startups can go direct to the consumer, making the show less relevant for them.

In a similar vein it is interesting to note that Amazon and Facebook weren’t present in any meaningful way. After Google and Apple they are driving mobile forward faster than perhaps any other companies.

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Forty second in a series of weekly posts by myself and Nicholas Lovell of Gamesbrief which answer the fifty questions you should ask before raising venture capital. We expect the series to run for a year after which we will collate the posts into a book. You can find the rationale behind the series here, and the list of questions here. We welcome your comments on any and every aspect of what we are doing.

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A common answer to the question “what should I be looking to get out a first meeting with a VC?” is “the next meeting”. I think that is all wrong. The point of pitch meeting with VCs is to try and get money, not to spin wheels discussing your business. A much better answer to the question is “a quick no, or a tentative yes”. Note the use of the adjective ‘pitch’ to describe the meeting. It is advisable to get to know VCs before you pitch them, so hopefully your first meeting won’t be a pitch meeting. This post is about the objectives for the first pitch meeting, i.e. the first meeting when you are explicitly asking for money.

This will be counter-intuitive to many, but a quick no is helpful because it allows you to focus your time on more productive things, either talking with investors who will eventually say yes, or maybe even on building the business rather than raising money. Good sales people know the value of an early ‘no’, and many of the very best aggressively qualify out opportunities that don’t have a high chance of closure. Entrepreneurs who try and find out quickly if prospective investors are likely to invest are bringing this best practice to raising money, which can also be thought of as selling equity in their business.

Beyond the obvious, a tentative yes is helpful because the conversation can then move onto “and what do we need to do to get to a firm decision?” which will surface any objections and help move the process forward to a quick close.

Pushing VCs to either a tentative yes or a quick no is analogous to another behaviour that comes naturally to good sales people, and that is asking for the order. It takes a lot of courage at first, not least because it might result in a ‘no’, and whilst that is helpful in the long term it is painful when it happens.

A word of caution is appropriate at this point. Pushing investors to a tentative yes or a quick no needs to be done sensitively. It won’t always be possible in a first meeting, but by having it as an objective then you will be in a good position to get there in the second meeting. I would avoid pushing too hard if you feel you might not have conveyed enough understanding of your business for the person to be able to make an informed decision, if the investor wriggles when you put them on the spot (although this raises concerns of its own), or if you are pitching to a junior VC they might not have the authority to make decisions (in which case your objective should be to get a meeting with someone who has). If a VC defers to his partners then feel free to ask them what they will be recommending.

Finally, a word on what constitutes a ‘tentative yes’. A ‘firm yes’ has two parts, a ‘yes I want to invest in your business’ and a set of terms to go with it. You aren’t going to get to terms in a first meeting, but a tentative ‘I want to invest in your business assuming the terms are reasonable’ is achievable. A yes at this point will always be subject to further meetings, standard due diligence, and agreement from the partnership and might also have explicit concerns or qualifications attached to it – e.g. subject to verification of the market size. These qualifications are fine. In essence you are seeking confirmation that your company has enough positives that they would like to invest, and that at this point they can’t see any insurmountable obstacles.

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Most of the posts I write are optimistic and upbeat. Not this one. I have just come from an excellent breakfast hosted by Qualcomm where we had half a dozen talks about the future for mobile. We heard about the potential for NFC, augmented reality, mobile commerce, and mobile operating systems, but the presentation that really caught my eye was about the growth in mobile malware.

We heard that the number of new mobile malware threats identified in December 2011 was equal to the total number of threats ever identified through the end of 2010. A quick web search found many other people saying the same thing, including ZDNet who recently produced the chart below.

In short, mobile malware threats are growing almost unbelievably fast. They are not yet a fact of life for many, and I can’t recall anyone I know suffering from an infected phone, but at these growth rates it won’t be long before we have all experienced an attack.

Unless your phone is an iPhone that is. Kaspersky has only ever found two iOS threats and they were in 2011, and they targeted jailbroken phones.

Android users are far and away the most vulnerable, due to the open-ness of the system and the large numbers of devices that cyber criminals can target. If you are going to build a virus you might as well build it on the platform that offers the most potential victims.

The reason I’m posting this is that when something grows as fast as this I take notice. Rapid change creates opportunity. I’m not sure how this one will play out, but as a consumer I want to protect myself, and as an investor I want to understand who will profit from it.

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