(Post) MBA Blog

Last Thursday a group of MBAs at Judge had the great privilege of an informal, roundtable discussion with Julie Meyer. This was thanks to Alan Barrell, the Cambridge angel, who asked her on our behalf.

Julie Meyer was a coup for a number of reasons. She is the founder of FirstTuesday, the regular networking events that matched start-ups to VCs in the late 90's, becoming in the process a global phenomenon. Julie was very much the poster child of the Internet generation, especially in London, where I had my eCommerce start-up in 99-00, (before the crash made me pack my bags for charity work in Central Asia!). Yes I hit FirstTuesday. Yes it was inspiring.

Secondly, Julie is one of the most accomplished networkers in the industry. It's fair to say she has possibly the most valuable contacts-books in venture capital today; forget rolodexes, we're talking full-on databases!

Last but not least, Julie co-founded Ariadne Capital after selling her stake in FirstTuesday. Ariadne is a new, fresh approach to venture capital; certainly one to watch. Ariadne is even on the lookout for new people!

These are the notes of the meeting. She conveyed more valuable information in less time than a new MBA could hope to transcribe, so the notes are necessarily a little on the 'raw' side.

On Venture Capital
Julie felt that VCs do not seem to have enough accountability for their actions and on the other side, entrepreneurs just wanted to spend other people's money.

The current VC model is to take 2% of funds under management, but it doesn't have to be this way!

Any venture capital firm has two clients, the funding institution and the entrepreneur. The interests of both these clients needs to be aligned, but this is rarely the case. Indeed, we should be overemphasising this alignment, due to the unstable human element in any deal/start-up.

On Start-ups
Any start-up needs to be sales-focused and when Julie comes across a good sales-person she grabs them. Sales has been somewhat looked down upon in the industry (even at INSEAD, where Julie took her MBA). Sales people are important because reference clients are crucial, particularly in the early days. In terms of the flow at Ariadne, it's capital -> sales -> talent.

Start-ups need to think globally, and they can only do this effectively by being in the right circles. Julie has very close relations with players such as Microsoft (Steve Balmer in particular), Cisco and Apple as these guys will be the trade buyers. Julie said that the trade sale should be the priority for start-ups, rather than the IPO, at least in this market. Few start-ups will achieve a successful IPO, so it is sensible to rely on the trade sale for an exit; the IPO may be a red-herring. Of course, this kind of exit means networking like mad from the start!

Ariadne is currently looking at a number of high-tech areas: P2P, business intelligence, WiFi and security. These companies are generally convergent and disruptive. Ariadne is not currently looking at life-science/biotech.

On The Ariadne Way
Ariadne's business model is one of investor and advisor, for instance Julie's ability to reduce the sales cycle for start-ups. A lot of VCs actually started out as advisors and then became investors. Kleiner Perkins for example started out 30 years ago as a firm advising small companies on government grants.

Ariadne is a demand-focused, customer-centric organisation. The firm looks for markets that are crying out to be serviced and then tries to find the technology that will service that need. The average deal size for Ariadne is 3-5 million. Deals are normally Series B or C, although rarely it is Series A.

Ariadne will seek institutional funding in 2004; it is currently funded by private investors exclusively. In terms of the structure of Ariadne Capital, it has 25 founding investors and 8 executives in residence.

On Ariadne People
In terms of the kind of people at Ariadne, Julie said that diversity of work background is extremely important. She herself had not come from a VC background when she started the firm, and this allowed her to come to it with a relatively fresh perspective and set of ideas. This is why she values diversity in the firm, which has people from consulting, industry, investment banking and technology. Regarding folks coming to VC with technology backgrounds, she thought this was great and very important, but these people also need to concentrate on scaling up the business.

And great deal structurers don't have to come from investment banking! Bundeep Singh Randar (COO) of Ariadne is one of the best deal structurers in the industry, yet is not from investment banking. Ariadne is breaking the rules! Ariadne is looking for people who are change agents, who are not waiting for the market to change before they do anything.

On 'Julie'
Julie mentioned that she felt she moved too quickly with her prior venture, First Tuesday, and that she teamed up with people whose priorities were not properly aligned with each other and the venture.

Julie's formula for replicating success in Ariadne: look for the people that have already been successful and figure out how they achieved their success. "Successful entrepreneurs are my universe!" she said.

The concept of fairness in deal is crucial to Julie and the team at Ariadne. Adversarial situations will not help in the long-run. Squeezing start-ups of equity until they have only a tiny amount will correspondingly reduce their motivation, which is bad for everyone involved.

(Author's note: Ariadne is Greek, the name of "the daughter of Minos and Pasiphaë who gave Theseus the thread with which he found his way out of the Minotaur's labyrinth..")

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Yesterday I had the pleasure to meet Nick Corfield. Who is Nick? Well, if you're my age, (see below), you'll remember a publishing/word processing system called FrameMaker. That's was Nick's little brainchild and very successful it was too; he sold the company (Frame Technology) in the mid-90's to a growing outfit you may know called Adobe.

We had a very productive round-table session at the Judge, mostly of questions and answers, after his introduction. He's an ex-Cambridge man, having read maths tripos in the early eighties. He then shot off to Sillicon Valley, as at the time there really wasn't much in the way of start-up city in Cambridge. Fair enough. Nice bloke - he once climbed Mount Everest. You see? You only get that kind of person at Cambridge. 'S what I've been telling you all along!

Some gems from Nick:
1. Networking is crucial, if only to get your first customers.
2. While he didn't start off to build a million or billion dollar company, it was somewhere in-between. He wasn't thinking small!
3. The English accent works wonders in silicon valley! Instant credibility.

Actually I knew the last one, but it's worth repeating, as is my cheerful annecdote. I once got into a recursive loop with a motel clerk outside San Fran:
I said 'thank you' for the coffee,
she (yelled) 'no problem!!',
to which I replied automatically 'Er, thanks',
which brought on another, similarly knee-jerk 'no problem!!'.

This pattern, needless to say, continued for quite a while. Worthy of Monty Python, or at least Benny Hill.

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Another Enterprise Tuesday last night, this time hearing from budding ex-student/academic entrepreneurs. The line-up was:

	Nick Haan, Founder of BlueGnome
	Julian White, Founder of Genapta
	Asim Mumtaz, Founder of Enecsys (middle, beard)

They gave a brief presentation of their companies/business plans and then answered questions from the audience. What did they say?

How did they get their first customers?

Julian: Publicity gave them their first customers, but there is no substitute for getting out there and selling - something a little anathema to British academics.

Nick: Introductions to first customers via VCs, even though these particular VCs were never interested in investing in BlueGnome (i.e. these VCs were being nice!). Other VCs still very much interested in BlueGnome. More came from the scientific advisory board Nick is on.

What financial safety net did they have when starting?

Julian: No safety net!

Nick: University Challenge Fund. Then he just quit his job!

Asim: Looking for different sources of funding and also looking at £10K Pathfinder stage funding

Approach to patenting?

J: Spoke at length to patent agents and 'translated' the idea for them

How did they get their teams together?

J: Team came from the lab, although multidisciplinary. Some of the best ideas the team came up with were over a few Guinesses at the famous Eagle! Be careful when selecting team as you will be working with them for a long time and under great pressure. Perhaps think twice about starting with friends/family?

N: Multidisciplinary; he found Bioogists to be extremely approachable (he is a mathematician I think). Also, don't get people like you for the team, get people with different skill sets.

A: Team from the engineering labs, all working on the same project. The business brains came from an open email to the MBA class.

How much did they need to raise from external sources?

J: They needed less than 250,000, from the University Challenge Fund

N: Raised about 170,000 from the UC Fund

What's the attitude towards VCs?

J: Would rather finance the business through customers than VC, though may need VC funding at some point. Mentioned Mary Spillane, presentaiton coach in respectful tones. (Presentation coach who worked for the Oval Office as well as a number of start-ups in Cambridge)

N: You don't have to go out and raise a lot of money quickly from VCs!

A: Will (try to?) raise about 250,000 from VCs

Why are they doing this?

Julian: Wants to see his idea to fruition

Nick: Wants to do something useful/practical with his research

Asim: He and the team have great belief in the product

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 One of the great things about being in Cambridge is the quality of people you meet. Take Jack Lang for example; great entrepreneur (one of the men behind Acorn computers, ETrade UK and now currently at Artimi), important business angel (early stage start-up funding) and and all round nice bloke. He gave a presentation the other day to Cambridge University Entrepreneurs, a student club set up to promote entrepreneurship, at Michaelhouse Cafe, Trinity Street. Want to know what he said? Read on...

Jack started by mentioning a couple of useful books: "Crossing the Chasm" by Geoffrey Moore, "The High-tech Handbook" by Jack Lang and "The Monk & The Riddle" by Randy Komisar (to note: Kasar says if your idea is brand new, then all bets are off regarding success predictions but if it is a better new, then you better go like a rocket if you are to be successful). Also mentioned at a later date was "Inside the Tornado", again by Geoffrey Moore. Jack noted that the ideas in both of Moore's' books were based upon Diffusion of Innovations by Everett Rogers.

Regarding VC and Angel funding, Jack says there is plenty of pent up money - just not enough decent ideas. Some networks he mentioned were Cambridge Angels, Cambridge Capital and GEIF.

CfEL and St Johns are able to offer space, which while it may not be free, are comparatively low cost, supportive and and flexible. Also, the lawyers Taylor Wessing, may postpone charges if they like the team and the idea. It should be noted that the local partner of Taylor Wessing Simon Walker, has written Tolley’s "Startups, Law and Business handbook”, which is an excellent book of precedents. The government is giving money away as part of the SMART awards and even £40K just for a good idea.

The entrepreneur has to ask him/herself: "why now?, why me?" You have to know yourself if you are to motivate others!

In terms of the criteria VCs use to make judgements, in order they are:
1 A global, sustainable, underserved market need - the Internet is still growing 10-fold every 18 months and PC features 2-fold over the same period (i.e. Moore's Law)
2 A strong team
3 Defensive technology, although no technology patent is really defensible in the long run
4 Believable plans
5 60% IRR. Thats right, 60; you've got to go like a rocket!

Ultimately, its not just the idea (#1) that has to be good, but the whole proposition – team, development plan, potential market

Jack also mentioned the need to connect with the majority of people; how many of us read the Sun or the Sport? We ought to if we are to understand mass markets.

Jack mentioned that in the early days he started with technology and then tried to fit it to a market need; now it's the other way round - he starts with a market need and looks for a technology.

On questions regarding geographical opportunities, he noted China to be of interest, but tha you had to really be there to tap into the opportunities. Indonesia and Vietnam were also of interest, Indonesia being the cheapest, but too unstable, and with correspondingly poor infrastructure and education.

On a question of the relative importance of network(ing), determination and creativity, Jack held that the network(ing) was the most important.


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