Seedcamp: thoughts on the evolution of a European startup

Why write this post?
People often ask me about Seedcamp - why we started it, what's it about and where's it going. I also haven't put any thoughts down on the subject of building startups in Europe for over two years. It occurred to me that as a European startup itself, looking at Seedcamp might give a view on both. So this is a lot longer than 140 characters but hopefully this answers some of the questions. Anyway, here goes....

Why did we start Seedcamp?
The genesis of Seedcamp was a post I wrote back in February 2007 called "Y Europe can seed the growth of its new stars". The thesis was that there was no reason why Europe couldn't produce great start-ups, we had:

1. Plenty of technical talent
2. Access to increasingly sophisticated risk capital
3. More and more role models & an emerging startup ecosystem of mentors
   
4. Globalization of the web which no longer put the US at the centre
5. Radical lowering of start-up costs

None of this has changed in the last 3 years - if anything, it is more true than ever given:

• the further development of open source;
  
• the emergence of cloud services;
  
• the bootstrapped role models of 37signals, FreshBooks and the like;
  
• the mass-market adoption of new distribution platforms like Facebook & iPhone
  

So what's the real problem with Europe?
Mike Arrington knows that its not just that people like long-lunches. The problem is our region's cultural complexity and geographic fragmentation. When you include Africa and the Middle East, there are over 50 viable markets within a 5 hour time zone - the same time zone that separates New York and Silicon Valley. Instead of 50 states with one government, one language, one currency and one set of media - we have 50 countries. Say no more.

If you want to get everything in one place, there is nowhere better in the world than the Valley. It is perfectly self-contained.

But if you want to tap into the diversity of talent, ideas and culture you can see from Cape Town, Tel Aviv, Budapest, London, Amman, Kiev and everything in between then you need a different and more distributed approach.

Can Seedcamp's distributed approach work?
We don't have the density of the Valley and quite frankly never will, so we need to deal with what we have and make the best of it.

Personally, I believe passionately in the distributed model. I think over time, with the right institutions and networked infrastructure it is capable of producing serious technical and business alchemy.

Seedcamp was designed to be a way of bringing together the different strands of the ecosystem together - entrepreneurs, investors, advisors, academia and corporates. A grass roots attempt to bring some cohesion into the region's diverse and highly fragmented startup scene with a focus on the first-time, most inexperienced entrepreneurs.

Seedcamp is one several positive initiatives, including the great work Mike Butcher is doing taking Techcrunch across Europe, that Loic & Geraldine Le Meur do every December with their LeWeb conference and the forum for European founders Brent Hoberman & Marc Samwer put on every summer with Johnnie Goodwin & Jeffries.

We all have a very long way to go
I know people say that long-term thinking is unfashionable in our industry, but I agree with Fred Wilson and my dad that great things take time. In my mind, helping to bring some cohesion to our region's distributed network of talent, capital and advisors is a 15-20 year project.

No single organization can achieve this. Even if Seedcamp is not ultimately a success - as measured by the success of the entrepreneurs who have been funded by it or experienced its programs - hopefully it will have helped to inspire some of the right thinking.

Getting to the right point takes time, and the cycles that kicked off what we now know as Silicon Valley began nearly 50 years ago.

Investing legends like Arthur Rock (Fairchild Semiconductor), Don Valentine (Cisco, Apple, EA), Don Lucas (Oracle), Dave Marquardt (Microsoft) and John Doerr (Netscape, Amazon, Google) and the entrepreneurs they backed created franchise businesses that still dominate the technology industry today. But maybe more importantly, all these businesses created the raw materials (talent, seed capital and technology) for next generation of the today's winners like Google, Facebook, Salesforce.com and many many others.

In Europe and Israel, we have been going for no more than 15 years - so we need to maintain the perspective to think long-term, to build great franchise businesses and have the patience to reap the rewards of the ecosystems they will help to create.

Plus, how many independent technology titans do we have in our region today? Not enough.

A truly great independent technology business is capable of doing what Microsoft, Apple, Cisco, Oracle, VMware have all done - generating a billion dollars in annual revenues. In our region, its hard to look much beyond SAP, Amdocs and Checkpoint - sorry Nokia doesn't count but Skype is on its way.

[An interesting sidenote is that none of Cisco, Oracle, Microsoft, Apple, Checkpoint or VMware took in more than $10m in outside capital. They were just great businesses.]

What can Seedcamp do to help?
Seedcamp is a 2.5 year old startup focused on micro-seed investing, so only so much.

We launched Seedcamp with the idea that we would hold 3 years worth of Seedcamp Weeks and make small €50k investments in 15 companies. Here's the launch post and presentation.

We knew the problem we were trying to address was large enough to be worthwhile and we had a long-term vision for what we could achieve, but like any start-up we only had limited resources to prove:

1. there was a need for our product in the market ("make something people need")
   
2. we could operate to the benefit of all our stakeholders (customers, partners, investors)
   

Seedcamp's first 100 days were like any other startup

• You always need inspiration. I was inspired by the work that Paul Graham was doing with YCombinator and some conversations I was having with John Borthwick about new models for startups.
• You always need some luck. I was really fortunate to be introduced by Mike Arrington at FOWA to Reshma Sohoni.
• You always need a great co-founder. Reshma was at 3i at the time but thanks to some enlightened management from Mike Reid (now at Frog) and Daniel Waterhouse (now at Wellington), she was seconded to help and we set about developing a program and getting support for what would become Seedcamp.
• You always need the focus of a deadline. In July, we set ourselves a launch date of September
  
• You always need ambitious challenges. We set ourselves the two month task of:

1. getting applications from all over Europe
   
2. finding a venue for a week in September (and putting on the event)
   
3. getting over 100 top-notch mentors to inspire and advise entrepreneurs
   
4. raising €2m (enough money for 3 years of Seedcamp)

• You always need some sceptics. We had many.
  
• You always need loads of support. In addition to Index and 3i who encouraged me and Reshma to develop Seedcamp, we had a great group of initial supporters who helped us brainstorm the concept and produce the event including Paul Birch, Sara Murray, Mattias Ljungman, Robin Klein and Jason Goodman.

So after 2.5 years what has changed from the original Seedcamp plan?

1. We have expanded our regional footprint considerably
   
   • We planned to run only 3 events in 3 years all in London - we ended up doing over 22 events in 3 years in 10 countries
     
   • We learned pretty quickly people wanted Seedcamp in more locations and now run Mini Seedcamp's in 7 regional hubs across the year
   • We've reviewed our 1,500 applications from 53 countries
   • We have had winners from Estonia, Romania, Slovenia, Poland and Jordan - we have proven to ourselves that their is both demand for what we offer and great startups from all over the region
2. We built a bigger, more diverse network of advisors & partners
   
   • We started off with 100 advisors at the first Seedcamp week in 2007 (albeit superstars!)
     
   • We now have over 1,000 people to help support startups across every dimension of their journey - product, marketing, business development, investment etc
     
   • The depth & breadth of this network means that at every event in every region we have at least 50 amazing advisors to support the winning teams
   • We've also had incredible support from the likes of Microsoft, Google, IBM, Sun, AWS, Oracle and Facebook to give teams access to knowledge, technology and support
   • We've had additional great board input from the likes of Fred Destin, Alex Hoye, Dave McClure, Christophe Maire, Charles Grimsdale and Oliver Beste
     
3. We've made more investments than we planned
   
   • We planned to make 15 investments and mentor 60 companies
     
   • We've made 21 investments and mentored 280 companies so far:
     - 2007: Kublax, Hypernumbers, MyBuilder, RentmineOnline, Tablefinder, Zemanta
     - 2008: Basekit, Kyko, Mobclix, Soup, Stupeflix, Toksta, Ubervu
     - 2009: Boxed Ice, Brainient, Codility, Erply, Kwaga, Patients Know Best, Platago, Talasim
     

And what hasn't changed?

1. We are still a fund - we are not a non-profit. We believe in having a mission which has social good at its core, but we have always set out to be a commercial enterprise that offers a return to our investors. How else could we inspire entrepreneurs to create businesses if we were not one ourselves?
2. But like YC (and Techstars) we are a different kind of fund - we apply a new model to discovering, supporting and launching start ups.
   
3. We address the micro-seed stage - we invest €50k in a start-up in return for a small amount of equity (normally 5-10%), which means the kind of companies we can help leverage the platforms and practices outlined above and the founders typically have low personal burn-rates
4. Our founders are focussed on bootstrapping - we help support teams through to "ramen" or real-profitability (3 out of 8 of this year's winners are already profitable)
5. We help teams that want it, access seed or venture capital - by working hand-in-hand with investors active in seed (€250k-€1m) and venture (€1m+) rounds

What are some of the questions people still ask us about Seedcamp?
We try to be as open as we can about who we are and what we do, but as a startup running fast you aren't always as clear as you think and you can definitely be misunderstood at times. [Mike Butcher should be posting later on today an interview answering some of questions on Seedcamp - will update with link].

So in that spirit here are some FAQs:

1. Who are Seedcamp's investors?
   
   • We raised over €2m to make investments and operate Seedcamp
     
   • Our investors have always been prominently listed on our site
   • They include some of Europe's top venture firms and seed investors, as well as firms large and small actively involved in the startup ecosystem
     
2. Why did they invest in Seedcamp?
   
   • For different reasons but mainly because they share our vision for building the regions startup infrastructure
   • They want to have filtered access to great startup to invest in or advise
   • They like us :) and believe we will make good invests which give a positive ROI
     
3. Can only Seedcamp investors invest in Seedcamp companies?
   
   • Absolutely not, anyone who's a qualified investor can invest in Seedcamp companies
   • Seedcamp investors do often get to know the companies better as they have typically put in the time and commitment to come to Seedcamp events but any mentors, corporates or readers of Techcrunch (who regularly covers Seedcamp finalists) are free to invest and often do
     
   • We love it when people want to invest in the companies, it means we're doing our job :)
     
4. How does Seedcamp judge the finalists for Seedcamp Week and Mini Seedcamps?
   
   • We have an open web-based application process in the months running up to every event
   • Every application is reviewed by and scored at least two judges - the judges are a combination of Seedcamp investors and advisors- all of them very experienced at looking at startup plans and teams
   • We normalize the scores to counteract variations in judging styles and then invite the top 20 teams to attend a Mini Seedcamp
   • In the case of Seedcamp Week, we invite 40 teams to come to London for a 10 minute interview with a panel of judges and then apply the same scoring techniques
5. How does Seedcamp make its investment decisions?
   
   • All Seedcamp investors are invited to participate in the investment committee decision of making any €50k investment as we are allocating their capital
     
   • This group is often more than 25 people which is unusually large (and sometimes unwieldy) group for an investment committee, even a large venture firms would have no more 10 people
   • Like Seedcamp judging, all teams are scored, the votes normalized and a debate held to determine which companies to invest in. As she will spend the majority of timw with the companies Reshma has a veto right
     
6. What if I want to invest in Seedcamp?
   
   • Seedcamp I is now closed.
     
   • Seedcamp was funded in a couple of months by over 30 different organisations and individuals - all of whom have a clear interest in helping to build the startup ecosystem and want to be exposed to the best startups the region has to offer.
   • Some of Europe's best VCs, angels and professional firms large and small participated and Seedcamp welcomes investment from all these groups.
     
   • Our aim has always been that Seedcamp would be 'owned' by the industry and not dominated by any group of institutions or individuals. For that reason, we encourage wide ownership and look forward to expanding and diversifying this base.
     
   • The structure is a typical Limited Partner one and the formal fundraising for Seedcamp II will begin very soon.
7. When do you intend to raise Seedcamp II?
   
   • We'll be talking to investors in the next few months about our next fund.
   • We hope to retain many of our existing investors but hope to be able to work with many of the new investors we have met since we began, especially in new regions and in the public/private sector

So are we succeeding so far with Seedcamp?
We've definitely shown that there is a need for what Seedcamp offers.

Whether we have been able to deliver value to the stake holders (startups, partners and investors) is something we'll only be able to judge in time. The reality of startups and the funds that invest in them, is that most businesses take 5-10 years to become great - in fact many will take longer and most will never succeed.

What we know so far:

• Startups: we do know from the research we've done that startups really value the experience and focus on the business advice, networking and validation that Seedcamp offers even more than the access to capital - this is great news.
• Partners: we have had great feedback from advisors and partners. They seem to value not just the filtered access to really promising teams, but something which has surprised us, is how much fun people have mentoring. We have mentors who have become long-term advisors, invested in and in one case become the CEO of a Seedcamp company. Mentors also tell us how much they like the peer-to-peer networking of meeting each another and interacting in a new type of setting (ie not a conference).
• Investors: the Seedcamp fund has its own group of investors (see our site), feel free to ask them if they are happy :) But the investors which matter to the startups are the ones that will fund them - the good news is that within 3 months of graduating from Seedcamp 2007 and 2008, 11 of the 13 startups have received follow-on funding.
  

So where does Seedcamp go beyond the start-up phase, what's Seedcamp II?
We've had plenty of discussion over the last year to think about where to take Seedcamp next.

We like to think we've made a good start, but we really understand how much work there is still to do. We've also learned some fundamental lessons in operating Seedcamp that we'd like to apply to the next phase of our development.

Some of the key things we feel strongly about in terms of improving the model are:

1. We want to continue pushing the federated model - not just deepening our roots in the regions we are already playing in, but also starting to go into regions where people have asked us to take Seedcamp but so far we've not had the resources or bandwidth to go
2. We want to extend our network - one of the things people have liked the most about Seedcamp is how we've been able to bring some cohesion to the fragmented startup scene across the region. We know we can do a better job bringing together active seed investors, tapping into academia and working with public/private partnerships focussed on encouraging startups.
   
3. We should be making more investments - not just because we think the talent is out there and we are only just starting to really find it but because the economics of investing means that to have great returns you have to place enough bets. This is true of growth, venture and seed (look at the portfolio sizes of Jeff Clavier, Josh Kopelman, Ron Conway and TAG) - its especially true of micro-seed and something YC is aware of as well.
   
4. We need to have fire power to follow our winners - early stage investing doesn't make economic sense if you can't follow your winners. Most startups need additional capital - even though as I pointed out above, some superstars don't need more than $10m. Unless you are lucky enough to be the guy who wrote a $300k cheque which turned out to be the only money into Checkpoint as more money goes in you get more diluted. Good seed investors (like First Round Capital) know that you need to firepower to keep funding your winners, both to ensure they have enough capital and to presever your ownership. Managing and allocating reserves is a very tough discipline, but one that great investors practice and do very well.
5. We need to be able to attract and retain a killer team - sparing her blushes Reshma has done an amazing job, as Seedcamp scales we need to add to our team at the highest levels and we need to be able to attract and retain people like that. Micro-seed is a special discipline - it means rolling up our sleeves and working with businesses and entreprenuers that are very unformed. This is not a skill all investors have and if Seedcamp is to succeed we need the best team to support these startups.
   

So will we be able to take Seedcamp to the next level? I hope so, but like any startup, its hard to know what's around the next corner - as I said above, even if Seedcamp doesn't succeed to go from startup to phase two, hopefully we'll have inspired some of the right thinking.

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