Showcase for Early Stage European start ups

Library House, the folks who cover the UK and increasingly the European venture scene are going to be holding a one day event on 27th June in London which they bill as "a one-day showcase celebrating Europe’s web innovators".

The interesting thing about this event is that Library House is looking to showcase not just established companies like WAYN and Shozu, but also new upcoming companies which have not been funded.

I'll be on a panel and going along, as I suspect will a number of other entrepreneurs and investors. If you're an early stage European entrepreneur you should check it out - you can apply here.

The falling price of failure

Josh Kopelman has written an excellent post on why it's cheaper and faster to fail in today's market and the positive effects this can have on innovation.

"Companies used to waste millions of dollars of VC money – and entrepreneurs used to waste years of their lives – working on a failed hypothesis. Now, the cycle is much shorter."

Like Josh, I remember the cost of doing business in the 90s when it really did cost a lot of money to build a web business: Sun (or even worse, Digital) hardware, Oracle software and sky-high marketing costs were all significant drain on the bottom-line.

There are some key concepts to grasp.

1. It's ok to fail - we are terrible at appreciating this in Europe where people are often so afraid of failure they end up not even trying
2. The cheaper it is to fail, the more ideas we can test
3. There's a big difference between an idea and a business
   

A few weeks ago in my long post about Y Europe can seed new stars I tried to make a similar point, which may have been lost but which I believe in very deeply:

Starting small doesn't mean that you're not going to need funding to hire and scale up if you have a real business to pursue, but what it does mean is that you can find out very quickly and cheaply if your idea has traction. There is a big difference between an idea (which is easy to discard) and a business that has taken on people, costs and commitments (which is very hard to discard both rationally and emotionally).

We have a great opportunity today to test more ideas, which we can do very quickly and cheaply, and start businesses which have a better chance of succeeding.

I really hope we can adopt these lessons and leverage the really exciting new funding cycle that Josh highlights in this very cool and excellent chart from Peter Fenton.

Let me know what you think.

First meeting of OpenCoffee Club

It's happening tomorrow in London from 10-12 in Starbucks inside Esprit, which is at 178-182 Regent St.

Thanks to everyone for your great comments and positive feedback so far.

There seems to be an interesting crowd coming along tomorrow from VCs & investors like Nic (Esprit Capital - not fashion), Avid (Accel), Robin (TAG) to entrepreneurs like Michael (Firebox, MindCandy), Phil (Crowdstorm, Kelkoo UK), Judith (Second Chance Tuesday), Richard & Damon (Zebtab), James (Studentbeans), Joel (Messagr) and the recently funded Walid (TrustedPlaces) as well as Sam Sethi, folks from Skype and top-notch developers.

We don't really know what to expect, but it's exciting that people are coming along and we'll have a chance to meet and chat about whatever is on people's minds.

Separately we have OpenCoffee Clubs popping up in Ireland and Croatia - plus I'm really excited to be working with Brad Feld (Mobius) who will be hosting a club in Colorado and helping me spread the word among the VC blogging community on his Feedburner network.

We'll be pulling together a wiki in the coming weeks - and already some great people have registered (www.opencoffee.info and www.opencoffee.biz), kindly offering to donate time and energy into helping to foster the community. I've registered opencoffeeclub.com and .org - so anyone who's interested in helping out and pulling OpenCoffee resources together, please let me know.

Looking forward to seeing people tomorrow and helping to grow the OpenCoffee movement.

Ben's presentation on VC Funding at FOWA

Ryan Carson and many others were real fans of Ben's presentation on VC funding at FOWA - even one of the Slideshare founders loved it :)

So thanks to Ben, here it is:



There's no doubt the process of getting funding (from anyone, let alone VCs) can be pretty complicated and nontransparent, but this is a great presentation which really cuts to the chase and explains the basics.

Fred Destin and Nic Brisbourne in the UK and Brad Feld, David Hornick and Fred Wilson in the US also do a great job on their blogs of making VC more accessible. There is also a new resource worth checking out calling Startupping.

Having been an entrepreneur who raised money from VCs at Firefly and Lovefilm and an angel investor backing entrepreneurs (Spotrunner, Daylife, Moo, Mindcandy etc) in both the US and Europe and now that I'm working with a VC firm, I completely agree with Ben's view that VC funding may not right for every business but where it makes sense it can make a big difference.

If you have any questions on funding, please post comments and if I know I'll answer and if not I'll try get you answers. If you're an entrepreneur in London come along to an OpenCoffee club or start one locally and try persuade your local VCs to come along and see what they're missing :)

OpenCoffee Club

What is it?
This is an attempt to establish recognized, open and regular meeting places where entrepreneurs can meet with investors (and anyone else who fancies coming along) in a totally informal setting.

The key is a regular place and a regular time - it's not important who comes along, some days it might be no one - just that people know if they want to meet, this is the time and this is the place.

We want to create some density for people -- a few places where people know they can meet or bump into others.

Something that can be replicated anywhere else at little or no cost -- though we do want to build a list of all the places (wiki to come) where entrepreneurs can meet and know people might be around for them to talk with.

Where and when is it?
The first one will be held every Thursday morning from 10-12 starting from March 1, 2007.

Click here to check out
The Regent St, London OpenCoffee Club Meetup!

I'll be there every week so if you want to drop by and chat - or just share the wifi - I'd love to see you.

I will be at the Starbucks inside Espirit which is at 178-182 Regent Street.


Who's invited?
Anyone. This is not about meeting me (or anyone else in particular), hopefully it's about giving people focussed times and places where they can hang out and connect with others -- not locked inside an office or at a private members club.

Why?
Well, one of the things I've heard repeatedly over the last few weeks is:

1. investors are inaccessible
   
2. entrepreneurs need regular physical space to meet, not just each other but also also network with investors and corporates

I totally agree with point 1-- we all get an enormous amount from informal contact.

What I don't agree with is the idea that the space should be permanent, owned or closed (private office or members club) -- I should be able to go to cities all over the world and know which places (and at what times) I'm most likely to meet other entrepreneurs.

There are thousands of public places with cheap wifi (check out Skype Zones or FON).

What can you do?
If you're an investor or entrepreneur, start and promote your own OpenCoffee Club location -- please let me know so we can maintain a list (again: wiki will follow soon).

If you're in London on a Thursday morning come along and hang out from 10-12 to Starbucks on Regent St.

Hope to see some of you next week, feel free to e-mail me [saul at klein dot name] or a leave comment if you fancy coming along.

Thanks are due...
To Ryan Carson and the team, who put on FOWA in London this week- they are really trying to inspire the startup developer culture and did a great job with their event bringing an excellent group of people together from across Europe. They even tempted some stars from the over the ocean to join us like Bradley Horowitz, Tara Hunt (who really opened my eyes to the ideas behind BarCamp) and Kevin Rose.

To Sam Sethi and Mike Butcher, who are doing a phenomenal job getting people in London and the UK talking about startups and at who's breakfast this morning this idea germinated. Robert Loch is also really bringing people in London together with his Internet People dinners.

To the very excellent Michael Arrington who introduced me to Reshma Sohoni at 3i who I know is going to start the second OpenCoffee Club on her side of London.

To the ever inspirational Scott Heiferman, one of the smartest brains on the web and the man behind Meetup.com - as well as game changing businesses like itraffic and fotolog.

To my very good friend Danny, who is letting me out the Starbucks is hidden upstairs inside Espirit, it pretty big, almost unused and it's been a secret meeting place for him for way too long :)

To my wife - our family's OpenCoffee Club pioneer.

Processing feedback on Y Europe

Thanks to everyone so far who has commented on last week's post on why Europe can seed great startups in the coming years.

There has been a really encouraging response so far: not only in the really thoughtful comments people have left but also in the e-mails that I've been sent.

I'm delighted that people feel this is an issue we need to be addressing and are keen to participate.

As suspected a few issues have kept on surfacing:

• crisis of confidence - fear of taking risks, fear of failure
  
• inferiority complex - the Silicon Valley shadow looms large and long
  
• lack of dense networks - for hiring, funding or just bouncing around ideas
  

A few things I want to be clear on so far:

• we don't have a name yet for what we'll be doing (thanks to Phil and Sam for suggestions, keep them coming)
• we're not planning an incubator (i'm really not convinced that's the right model) -- right now we're just starting a conversation and finding out what people need and want to help them succeed
  
• we do want to gather people together in the summer to get the ball rolling

There has been a lot of quality thinking on this issue for some time now (see a great post from last year by Gabor) and what's clear is that there is no silver bullet.

Let me repeat, I'm still not sure the YCombinator model is right for where we are in Europe - it might be part of the solution. But now we're talking, I know we'll find the right approach (maybe approaches) that will work for us.

I still think better education, awareness and transparency of information on how companies are built, funded and exited is one of the biggest issues. If you want to find out more about funding and you're at FOWA, you should stop by and hear Ben Holmes' presentation on Tuesday.

We simply do not have enough experience in Europe yet of building great early stage businesses - but it's happening and there are more and more knowledgeable people around (entrepreneurs, investors, service providers etc) to ask questions and find answers.

So let's keep asking questions -- or start asking them at least -- and please keep the comments coming.

If you want to discuss this in person, I'll be at FOWA tomorrow and speaking on a panel at lunchtime on Wednesday wiht my friends Richard from Moo and Tariq from Netvibes. Looking forward to seeing you there or online.

Y Europe can seed growth of its new stars

Europe has so far under-delivered in terms of globally successful technology startups.

But we're starting to turn a corner in Europe as we start to leverage some of our emerging assets. We've always had great talent (especially in academia & research institutions), but now we also successful entrepreneurial role models, sophisticated early-stage financing and the ability to start and test businesses at low-cost as well.

We should stop worrying about why we're not Silicon Valley and start thinking about what we can do with the great advantages we have. So this is really a call to arms: for first-time European entrepreneurs to let us know what they need to improve their chances of global success and for serial entrepreneurs and investors to figure out how we can better support the best ideas and talent.

We have a real chance to improve how we find, develop and accelerate the growth of our best European ideas - we need to work together to figure it out.

London's emerging young entrepreneurial scene
This issue has really come into focus for me as I've started to spend time with some of the rare people who are coming straight out of university to start Internet businesses. Some are staying in the UK and some have headed off to Silicon Valley - but I've been really impressed by the appetite for building startups by this group drawn primarily from Oxford and Imperial universities.

For the London startup community, Imperial and its talent pool must be one of our best hidden secrets. It's rated 1st in Europe and 4th in the world for technology by the Times Higher Education Supplement. Imperial's Computer Science department has around 600 undergrads and 400 PhDs, so it's great to see some of these people begin to start companies. In fact the student body has created Imperial Entrepreneurs (disclosure: I'm one of the founding patrons) to help potential student entrepreneurs reach out to London's established entrepreneurial and venture community to kick start opportunities.

How they've been doing it in the New World
Here in the old world, this is new news but in the US of course this is an old story. Schools like Stanford, MIT and Berkeley have long been known for producing great teams who come straight out of school and start significant businesses.

In fact in the last five years, this phenomenon has spread beyond this technical trio to encompass even liberal arts schools like Harvard (Facebook) and the amazing alumni like Scott Banister and Max Levchin of University of Illinois at Urbana-Champaign who have been behind great businesses in the last 10 years (LinkExchange, Ironport, Overture, PayPal and Slide).

Stanford with Google and Yahoo! to its name is the benchmark by which all other schools are measured. At Stanford, talented students not only have a faculty that encourages innovation, but of course they have Sand Hill Rd (and developed angel networks) on their doorstep for funding plus an MBA program and hundreds of technology businesses in the area to draw from for hiring.

These networks become self-perpetuating and are replicate anywhere. Silicon Valley is unlikely to ever be equaled as a magnet for innovation unless something very fundamental changes, but there is no reason why London in particular and Europe in general can't start to really compete in the creation of global success stories.

So how can Europe start to compete?

1. Availability of Talent
   
   Europe has incredible depth and breadth of talent. Skype is perhaps one of Europe's first global Internet success stories and it has exposed me to some of the most amazing developers and product people working in technology today -- these are people who are from Estonia, Denmark, Russia and Sweden.
   
   We think of these markets (like India) as being a source of cheap talent, but this misses the point entirely - this talent is world-class. Check out the stats on Topcoder and you'll see that Russia, Poland not just holding their own with the US but ahead in competitions - and Ukraine and Slovakia not far behind. Given the web was developed at CERN and some of the great successes of the open source market like Linux and mySQL were both born in Europe we shouldn't be surprised.
   
   Somehow we have persuaded ourselves in Europe that the US has all the talent, but if you look at the chart from Eurostat below you'll see that in 10 European countries including Lithuania, Ireland, Belgium and Switzerland have more science & technology graduates per head of population than in the US.
   
   Now of course you need more than just great engineers, mathematicians or biologists to make great disruptive companies but this mix and diversity of talent is actually something where London and many other major European cities are blessed. There are plenty of experienced commercial marketers, product managers and financial types around to help build out a business once it starts to take hold.
   
   Critically, we still don't have a deep pool of experienced startup talent in Europe, but one positive from the bubble of the late 90s is that it bloodied a generation of employees who know what it's like to ride the roller coaster of success and failure in a startup. Of course Silicon Valley and Boston has several generations of this kind of employee but tasting and learning from startup failure (as well as success) is something which Europe needs more time and experience to compete.
   
   Many would argue Europe also needs a major change of attitude (and possibly legislation) here. Failure or bankruptcy is not culturally accepted in Europe, but if we want to encourage the abundance of talent to start and join early-stage companies trying to change the world, we need to accept there will be many many more flops than hits.
   
   If we want European talent to stop feeling disheartened and start saying "I don't have to go to Silicon Valley to do this", we need to support failure and encourage people to take the risks you need to think and succeed big.
   
   
2. Sophisticated Funding
   
   A major part of supporting success or failure is funding. Library House have just conducted some very interesting research which breaks down venture capital investment into geographic clusters which takes an analysis of the US market beyond the national level. In this view, California and Boston are way ahead of the game but the UK is #3 worldwide in terms of investment.
   
   Funding is only one piece of the jigsaw. It's not just the access to capital, but it's access to investors who have ambitions to build big global businesses, not just local players.
   
   Ambitious entrepreneurs have been educated to believe that you need to have a US investor to build a global business, but there is certainly a much more developed and competitive market for backing European entrepreneurs today than there was even 5 years ago. When I started Video Island (now Lovefilm International) in 2002, there were very few Silicon Valley style, top-tier VCs ( Index and Benchmark) willing to back consumer Internet businesses but now there are several in the game (including Accel and Atlas). These established firms and very strong local players like Mangrove, Northzone (Scandinavia), Gemini (Israel), Wellington (Germany) and others, are all looking for and prepared to back teams that want to take on and change the world.
   
   There are also now a significant network of serial seed-investors and entrepreneurs - who are lending both their capital and experience to build and back European start-ups. These include Niklas Zennstrom (FON), Martin Varvasky (Netvibes), Stefan Glanzer (Last.fm), Pierre Chappaz (Netvibes, Wikio), the Samwers (Hitflip, Wunderloop), Simon Murdoch (Lovefilm, Viagogo), Klaus Hommels (Stardoll, OpenBC) and Brent Hoberman (WAYN, Moveme). At TAG alone, we have invested in around 10 European start-ups in the last four years.
   
   There has been quite an active discussion recently about the funding gap for European start-ups, but in funding terms, I don't think there has been a better time to get a start-up funded in Europe. Index has just closed a €350m fund.
   
   
3. Role Models & Ecosystem
   
   The same can be said for the availability of both companies and people are can provide role models to first time entrepreneurs about what can be done.
   
   Larry & Sergey at Google and Jerry & David at Yahoo! needed there to have been Jobs & Wozniak at Apple or Gates & Allen at Microsoft. In Europe, we are only just beginning to recognize that if Niklas & Janus can do it with Skype, then why not others?
   
   Why not indeed. There is nowhere near as many examples of people creating global technology businesses in Europe as in the US, but you just need a few examples. Skype was a watershed moment in how European entrepreneurs can think about their potential, both in terms of exit and global footprint (only around 20% of the business comes from the US).
   
   We now have several businesses born in Europe that have the potential to make a global impact and they are spread across the Continent: including last.fm (London), Netvibes (Paris), Habbo (Helsinki), FON (Madrid), Skype (Tallin & London) and Rebtel & Stardoll (Stockholm). We also have a generation of second and third time entrepreneurs who are not only helping to seed the next generation but are also now focussed on building their own new businesses.
   
   There is also now a growing ecosystem of support services -- lawyers, communication agencies and recruiters -- that have experience working with startups and helping them scale.
   
   
4. Globalization
   
   Perhaps one of the key factors that is swinging into Europe's favour is the changing dynamics of the Internet and globalization. Ten years ago, in fact even five, you could not consider building a global technology business without starting in the US but that is not true today.
   
   The Internet outside the US is bigger than the inside and that trend is only accelerating. Google, eBay and Yahoo all know this and the fact that YouTube is already over 65% international in less than two years from launch shows that the US in no longer an island.
   
   Against many important measures -- broadband penetration, % online advertising spend and mobile phone adoption -- the US is no longer the world's most important market. This is not for one minute to say that the US shouldn't part a major part of every ambitious startup's plans but if for example you want to be in the market with the largest share of online advertising as part of the marketing mix, you want to be in the UK.
   
   Skype again is a great case study of a business that did well to look East before it looked West. Today Asia is a major part of its community and several developing country markets like Poland, Brazil and Turkey are very significant as well. European companies are ideally placed to take advantages of these globalizing trends and not just because of their location.
   
   Location is important, but in this case, an attitude which is attuned to being open to other cultures is actually more important. No European market is big enough to sustain a single-market player, so no ambitious European technology business thinks either single geography or language. Where Netflix could create a major player by thinking US only, that is not an option for Lovefilm. If you start your business in Tel Aviv, Stockholm or Tallin you can bet you're thinking from day 1 about how you can take your products to a global market - if you start your business in Palo Alto, international is probably an after thought.
   
   
5. Start Up Costs
   
   Open source technologies have evolved to a level of maturity and popularity that if you are a talented developer with a great idea for an Internet application your only really significant costs are your time. Amazon's web services have even started to push bandwidth and storage into an area of affordability.
   
   The barriers are now incredibly low for creating software applications which you can get out onto the Web, expose to a global audience, get feedback and iterate.
   
   Starting small doesn't mean that you're not going to need funding to hire and scale up if you have a real business to pursue, but what it does mean is that you can find out very quickly and cheaply if your idea has traction. There is a big difference between an idea (which is easy to discard) and a business that has taken on people, costs and commitments (which is very hard to discard both rationally and emotionally).
   
   We have a great opportunity today to test more ideas, which we can do very quickly and cheaply, and start businesses which have a better chance of succeeding.
   

Reasons to be Cheerful

There's been a lot of interesting talk in the blogosphere about location and innovation the last few days.

Started by a NYT article, followed by Om (who is travelling in India, so clearly open to the world outside the Valley) and now carried forward by Read/Write Web.

Actually think Fred Wilson has the most straightforward take on it all.

There is no doubt as Fred said that Silicon Valley is the mother-of-all startup hubs and an important place to be seen and heard, but that doesn;t mean you have to start there. What's interesting today is not where you start, but where you end up -- and most successful start-ups end up connected to Silicon Valley in some way.

There are great arguments for Europe becoming a centre for innovation, some of which have been put forward in these pieces and some which have been countered in others.

I spoke to Kulver and his co-founder at Boso before they went to the States and I really think they had solid reasons for being excited to go. They seem to be getting some real benefits and he's right that Silicon Valley offers much better chances of just falling into things and running into people who can help a venture.

This is why it is so important to work with someone who can make these connections happen instantly because they understand what the business needs and know exactly who to connect entrepreneurs with. There are very few people who appreciate the need for this much less have the ability to do it.

If a talented entrepreneur works with the right kind of partners to help build a business based in Europe but focused on a global opportunity, the result can be very powerful - witness Skype, mySQL, Sulake, Netvibes and Last.fm to name a few.

A really smart post points out though while Silicon Valley may ace everyone in commercializing innovation, the rest of the world is an amazing petri dish for discovering great ideas:

Mobility - Korea, Japan, Taiwan, Finland lead in devices and applications

Enterprise Software - lots of new thinking - "open source" oriented from Scandinaviaand some of the emerging E. European countries

Vertical BPO - lots of neat stuff going on in India - analytical, bio tech and number of financial services processes

Security technologies - Israel

Alternative Fuels - Brazil, China - necessity more than global opportunity has fueled a lot of research and innovation

Global Markets - while most of India and China's products are aimed at the west, and not really "innovation", many in those countries are looking at their own challenges - "bottom of pyramid" opportunities and those of fragmented, multi-ethnic markets. Those solutions will be just as attractive in the west.

Public Policy - It is always invigorating to visit Singapore and Dubai. These city states, disproportionate to their size, have a history of attracting innovative companies and experimenting with business practices and policy issues.

There's a lot more to be said on this topic -- in fact the its going on apace at Vecosys -- having seen innovation and startups up close both in Europe and the States, I'm looking forward to seeing the conversation evolve.

Supporting Grassroots Entrepreneurs

Kiva and the people behind it is one of those concepts that you have to give a standing ovation to. This is an amazing organization which is using the power of the web to match entrepreneurs in developing countries directly to micro-finance.

What a brilliant concept and such a vivid reminder that entrepreneurs come in all shapes and sizes.

Check it out and start funding some people across the world who are really getting their hands dirty.

Mind Candy announces $7m funding led by Accel

Congrats to Michael and the team at Mind Candy.

They have created a great amount of buzz and enthusiasm around Perplexcity, their first interactive entertainment property.

Accel leads this round to join Index.