Oxford VentureFest 2009

Oxford Venturefest, held at the Kassam Stadium provides the regional focus for start ups and VC investment, as well as providing a forum for VC information exchange, mentoring and learning. Over 1,100 registered attendees, dozens of little presentation booths and some large (but jam packed filled) seminar and lecture theatres made for a busy schedule from 7am to the evening dinner session.

By way of context, it appears to me that the local start-up community draws heavily from engineering (motor business has concentrated design and metals engineering in the area), biomedicine (spawned from the University and the local hospitals), energy tech (with Didcot, Harwell, Culham and Aldermaston all nearby). On top of that, we have at last begun to see the rise of local internet based companies. Oxford’s innovation cluster is coming into the C21st.
From this event, I’ve concentrated on two sessions that I think were at the heart of what was on offer: one for entrepreneurs wanting to sharpen their skills, and one on investors trying to get to grips with the success factors for current investment.

Ian Walton – Ian [dot] walton [at] coaching-ideas.com

Listening to Ian Walton on “how to innovate” made me realise how many entrepreneurs I know simply rely on native talent to innovate, and how many would benefit from having a few more tools in their mental toolbox.  This was a session that was clearly at the core of what Venturefest is trying to do for entrepreneurs, and which added well to its networking and innovation focus.

Ian used lots of practical examples and ‘classroom exercises’ to get the basics of the mental tools for innovation over to us all.  In doing a quick “you have 30 seconds each to find a connection to the nearest person you don’t already know”, we quickly discovered that the old saw of “six degrees of separation” holds true in any random room full of people.
Given the history of Oxford as being on the interface between cultures, nations, politics, religion and commerce for over 1,000 years, it should come as no surprise that the core theme of Ian’s segment was on the value of connecting across interfaces as the driver of innovation. What has been surprising is how slow Oxford has been, apparently, in building its entrepreneur cluster compared to the explosive VC driven growth in places like Bristol and Cambridge. Though late to the party, Oxford is making up for it by having vibrant, large scale, and high profile events like this one to demonstrate that it is ‘getting with the programme’.

Ian walked us through some interesting examples of innovation (from a banana to a $40 computer), and talked us through the steps of invention and innovation. The ability to deliver both the invention of something genuinely new and the innovation of that idea into commercial reality is the combination that creates real value. Crossing from invention to innovation on the ‘cusp’ is the part of the problem that most find hardest. Many can invent, but few (people or teams) can innovate. Even fewer can actually live on the cusp and take inventions and move them to innovation through observation, experiment and real world experience more than once.

He explained that there is a clear path to bringing invention to market. The four stages on that path may not be all covered by one person or team, and are rarely smooth transfers, but the path exists, and understanding where you are on it tells you a lot about the skills and the team you need at that time.

1 – Creative state of mind
– Ideation
– Invention
– Scientific insight
– Patents

2 – Apply invention to a consumer problem – a burning platform, or compulsion to act
– Contextualise
– Consumer insight (not just ‘is it a problem’, but what ‘would it take consumers to change their behaviours’?)
– Consumer engagement, watching and understanding consumer behaviours.

3 – Innovation management – get it built properly
– Project management
– Build out
– Legal

4 – Go to Market, using the 6Ps!
– Proposition
– Product
– Packaging
– Price
– Place
– Promotion

Ian helped us to use three simple tools to enhance our innovation, Chunking, Core Innovation Toolset, and Socialising:
Chunking UP and DOWN. (look up from an idea the Purpose, Intention and Group Membership of an idea, and look down to components, specific examples and associates), then joining them up across levels with new linkages.

He described the Core Innovation Toolset, which is made up of tools in Observation, Imagination and Inquisition:

Observation (behave like a social scientist)
– A Day In The Life Of (DILO) – what are our customers doing each day?
– A Year In The Life Of (YILO) – on a longer timeframe, what effects our customers and how?
– Ethnography – what are the groups and what are their social mores, structures and rules?
– I Wish I Knew – what don’t you know about your customers that you would like to know and how might it change your approach?

Imagination (behave like an author)
– Analogy and Metaphor
– Perspective changes
– Mindreading
– Wargaming
– Coaching

Inquisition (behave like a detective)
– What is already known
– Search for evidence in new places
– Ask witnesses, someone else must know
– Find motivations

We do better when we share. Entrepreneurs network and share as that is what helps them live on the cusp. Market creators tend to be more formalised, but still need innovation skills to succeed with early stage products. Socialising our ideas is almost always positive.

At the end of Ian’s segment, we came away thinking that we did not need Kaizen, or other imports, but simply to open our thinking and change our processes to suit the needs of the innovation we were pursuing.

Oxford Capital Partners provided a session for investors with a strong panel that was based on “Accelerating Growth”

The panel was lead by:

David Mott, Co-founder and Investment Director, Oxford Capital Partners led a lively session on what investors have learned from investing in high growth companies over the last 10 years.

On the panel were:
Ben Holmes (Index) – £300m seed fund, £400 main VC
Richard Marsh (Oxford Capital Partners) – standard structure but very busy locally in tech and medical.
Klaas de Boer (Entrepreneurs Fund) working for Dennis Brenninkmeijer and family; (Thomas is now at Good Energies, yes, that family)
Jay Patel (Spark Ventures) – digital media and soft-tech Interesting that they run the Isis Funds from Oxford colleges.

I’ve dug out some nuggets from the wide ranging discussions, and tried to put them into some sort of order. Hope they make sense!

Investors are really propping up their own portfolios, pushing out the successes in their own portfolios and helping them over the recession. Given that, there are a few, but fewer, new deals that are closing.  Investors are more cautious, and where they can they will then do more due diligence. [Personal note: There are cynics who would say that any investor will always say ‘maybe’ in order to take a free option on your success – many entrepreneurs have found that a VC will offer them terms in January, then not close until July when the price should have (but did not) rise. Basically, a ‘free option’ to invest where the investee company is taking all the risk, as they will be left with a badly priced deal and no time to do another when and if the ‘maybe sayer’ finally decides to move. Sadly, times to invest are now extending out by up to 3 times the time it used to take for the same business. So any VC that says 'yes' or 'no' quickly is your friend nowadays.]

EF are finding new investors to their funds and are finding that there is a lot of money chasing few deals hard. They are also finding that they are reaching further afield across Europe. Their warning was that companies are finding it very hard to meet financing targets set before the recession hit, so that refinance is harder. It was a general opinion that getting a syndicate with deeper pockets together at the beginning was a good strategy for investors starting with new investees now. Again, this is a risk reduction strategy for the VC’s, but it adds time to the process and increases the risk for the investee that any one of the larger syndicate will find a reason not to invest, which leads to the whole deal falling over.

There is some good news from larger angel investors who are syndicating with seed funds to help funding get away for start ups. Angels move fast, are decisive and take a more active view of smaller start ups. Tensions between angels and VCs can be minimised by making clear the opportunity to exit at an early stage versus the time and capital required to build a massively successful company over a longer period.  VC’s need an angel cluster to grow seed companies in local areas. They only really work once a few angels get together and work on the decision making and company support. VCs appreciate this, and want to work with it.

Corporate Venturing is changing: risks of restricting the exit paths by having a corporate venturer from the same space have not materialised, and this segment does appear seem set to expand. However, it is slow as corporate venture arms have several layers of control to cut through to make an investment.

Jay from Spark was keen to point out that investee companies really need to have come patience, and faith, and to deliver on their sales targets. If they do, they have a good chance of getting investment. Investees should remember that investors have to invest to make money, so they are both aligned on that point at least.

He also looked at how the senior management were motivated to get into the new company. If you are just looking to create a job for yourself, you are going to struggle to get funded by him. If you have taken a personal or financial risk, then that demonstrates more commitment and passion.

Sadly, few investors have serial entrepreneurs (those with 3 or 4 successes) that come back repeatedly, so most management teams are untested as entrepreneurs. It is always a loss to the VC community when someone sells up, buys a vicarage and dabbles  in politics!

We had all seen the Sequoia presentation (yes, that one), and while it was generally seen as an over-reaction, it contained some good advice to lower cost base, lower head count in one hard hit, and to drive up revenues before trying to bank at least 18 months of cash. Simple, common sense advice for any start up, which may well hold long after the recession ends. Since your competitors are also suffering at least as badly as you are, if you execute better and conserve cash better then you may well inherit the market. If you can combine that with getting to know your customers, that will make you a winner.

If you have some investment, keep on top of your investors; talk to them while looking at least a year ahead about any funding needs. Good advice from EF!

A side chat covered how to spin out or divest any non-core operations. You can fund those separately – a kind of ‘two for one’ offer to your investors.

The underlying thread was that investee companies needed to think about the way in which their investors need to behave. There are clear differences between the CF/Banking background of EU VC’s and the Silicon Valley Serial Entrepreneur VC community. Investees need to think hard about how to narrate their needs to the investors and how to relate to them. The one thing that VC’s need is a management team that is fully in control and execute amazingly well. That saves everyone time and effort. Where a VC has an entrepreneur on its Board, this can provide a good channel for discussion and understanding, but the balance of CF, finance and entrepreneurial experience is what makes good VCs great.

Advice for seed companies? Lots!

1 – not all companies can or should be Venture Funded. A minimum entry point is a £30m exit and serious potential for growth
2 – not all management teams can be funded. However the way in which an entrepreneur finds an investor says a lot about the ability of that new company to research and sell!
3 – what you achieved with no money at all is a good guide to how well you will do with some money. The more risk you can take out before investment, the better prepared you are for investment!
4 – soft issues are as important as hard ones: how resilient are you, how does the team really work, what energy levels can you see, what are the family support structures? Those things are important too.
5 – 70% of VC backed CEO’s are replaced within 3 years. Get used to it.
6 – Most VCs would confess that they spend far too little time inside the company and learning how it works. They would also confess that they would not make very good entrepreneurs. That is your job, not theirs.

A good day at Oxford VentureFest.

For those who were there, the little black things that got everywhere are “thunderbugs”, a member of the thrip family. Hope you managed to wash them out of your hair! Even better, can someone tell me how to get one out of my macbook screen!?!?!?!?!