
Raising Money in London Almost Killed Our Startup - sherm8n
https://medium.com/good-audience/raising-money-in-london-almost-killed-our-startup-6ed9fca1ba88
======
HarrietJones
This is going to be rough sherm8n. Hold on to your hat. I'm sorry if this
upsets you.

To be honest, I'm suprised you've received any funding. You're a company that
increases Twitter and Instagram followers. This is a deeply dodgy, largely
unproven and mostly saturated market and you're charging prices that'll leave
you out of pocket. No way are you worth $600,000. There's no way you can get
enough customers.

You can spin this as a story about how you should never leave the comfortable
bubble of San Francisco, but to my mind it's yet another story of how insane
things are over there.

~~~
onion2k
_To be honest, I 'm suprised you've received any funding. You're a company
that increases Twitter and Instagram followers. This is a deeply dodgy,
largely unproven and mostly saturated market and you're charging prices
that'll leave you out of pocket. No way are you worth $600,000. There's no way
you can get enough customers._

Unless the followers are actually relevant, interested and verified-as-human-
beings accounts. If that's the case then $600k is a fraction of what the
company could be worth.

There's a lot of 'ponzi scheme' follower increasing apps and systems ($5 for
5,000 followers, 'team followback', etc), where people sign up to get more
followers by automatically following other people who join the scheme, but the
number of good applications that can find people who would genuinely be
interested in hearing your message is, essentially, zero. There _is_ an
opportunity in the space but the problem is a hell of lot harder to solve in a
worthwhile way than just increasing the vanity metric of "# of followers".

~~~
sherm8n
You clearly get it.

~~~
caseysoftware
I think it's a more familiar pattern than people want to admit.

We (OP3Nvoice at the time, now Clarify) went through Techstars London 2013. As
much as the team loved London and the program, they just couldn't raise there.
Fast forward a couple months and they've moved to Austin, TX. (I joined then.)

Moving to Austin created some challenges but within a couple months of
restructuring the UK company to a US, the dollars started flowing and within 2
months, we ended up raising about $1.4M.

All of that said, we have some _great_ advisors and a couple small investors
from London and they've been insightful and asked some hard questions. But
despite both groups speaking English, the cultures and risk tolerances are
wildly different.

And yes, Kyle is a great guy. :)

------
greghinch
The main problem here seems to have been a lack of understanding that it's
essentially a requirement now in the UK to be set up for EIS/SEIS if you want
to raise money. Investors expect it.

We've been through several rounds of fundraising, and as an American from the
bay area over here, it's definitely not the same environment as you hear about
from YC companies, etc. raising in the Valley. But the UK/European market is
absolutely smaller and more fragmented (language barriers alone are massive)
so opportunities are not nearly as large. You also don't have the same degree
of FoMO[1] going on, as there just haven't been enough big exits. I wouldn't
expect that climate to change any time soon, or with any expedience.

But definitely be registered as a company in the UK, and set up for
SEIS[2]/EIS[3], if you want to raise money here.

[1]
[http://en.wikipedia.org/wiki/Fear_of_missing_out](http://en.wikipedia.org/wiki/Fear_of_missing_out)

Edit: Links to relevant docs on gov.uk

[2] [https://www.gov.uk/seed-enterprise-investment-scheme-
backgro...](https://www.gov.uk/seed-enterprise-investment-scheme-background)

[3] [https://www.gov.uk/government/publications/the-enterprise-
in...](https://www.gov.uk/government/publications/the-enterprise-investment-
scheme-introduction)

~~~
sherm8n
We were set up for SEIS/EIS and had an accountant review every thing. They
then drafted the advance assurance to send over to HMRC. Definitely worth it
to get this done before you start fundraising.

------
nemesisj
I'm an American, running a startup in Scotland, funded by a Scottish angel
syndicate, which functions in many ways like a "mini VC". There is intense,
constant griping both in Scotland and in the broader UK about the funding
climate vs. Silicon Valley. Having been involved in a South Florida startup
previously, I can assure everyone here that there are much worse places to
raise money and run a tech company than Europe.

Most of the horror stories around fund raising in Europe that I've heard
involve B2C companies, or very low revenue-per-customer B2B companies that are
constrained by many of the same challenges around customer acquisition (low
average rev per customer, not very sticky, can't afford an inside sales team).
This makes these B2B companies effectively the same as B2C in many ways.

The key thing to recognise, in my opinion, is that it's extremely difficult to
raise money for a software company that's pre revenue or likely in search of
product/market fit _in almost any market_ other than a few cities in the US
(NYC, Valley, Boston, Others?). Sure, there are counterexamples, but this
seems to be true in general. This isn't just a European "problem" and my not
even be a problem at all.

When I was playing in rock bands, we quickly learned we needed to play venues
that fit our style. Playing in front of an old folks home crowd wasn't going
to work. This sounds amazingly stupidly simple, but there's plenty of people
ignoring this lesson in startupland with regards to fund raising. If you're
sitting anywhere but a few select markets, reading Valley blogs, you're going
to be in for disappointment when it comes time to apply all of your Valley
knowledge in a non-Valley environment.

B2B land is so much easier than B2C land, and there's plenty of investment out
there. Most software and most money made from software is in B2B land. Why not
try it out? You could be surprised.

------
buro9
Another London startup story: [https://medium.com/@buro9/the-journey-of-a-
london-startup-wh...](https://medium.com/@buro9/the-journey-of-a-london-
startup-what-i-learned-when-my-company-failed-c67acd74b862)

We had 50k users, some revenue (meeting our targets for that point) and the
growth we had projected for that moment in time. We failed to raise money to
get us past the end of our runway though.

Annoyingly, whilst the startup failed the product is still growing as an open
source thing. It now has over 75k active users and has multiple installed
instances.

~~~
easytiger
I can't say trying to monetise yet another forum not working doesn't surprise
me.

~~~
buro9
We had revenue, and the revenue was 10x that for forums with adverts and our
monetisation was far less intrusive (visually and on a privacy basis).

The instance I still host has over 300 sites on it now, and remains
profitable. Though without the company, this is now going into a non-profit
which owns the server instance. The profits being used for charitable
purposes.

We did not fail to produce revenue from communities, we failed to make the
argument to investors about the potential market and to grow to seize it.

We could have remained a lifestyle business on the revenue, but our target was
growth and we failed to sell that to investors.

~~~
darkmighty
Your product itself seems very good, there's just one glaring inconsistency
for me (perhaps I'm wrong): the product is ambitious but your goals are not --
and to get a huge growth you need to at least target a huge viral market. The
good old forums are not a huge viral market, imo.

For example, you could have tried to replicate a reddit environment: anyone
can create a forum with a single click on your domain (don't even mention
pricing), you could aggregate all forums on a front page to attract viewers,
allow site wide discovery, etc.

~~~
buro9
That was on our roadmap.

We felt that one of the strong differentiators was how much control we gave to
forum owners to shape the structure and identity of their space.

What we had planned was to focus on one market such that we'd have a small
critical mass within that niche... in our case cycling forums which tend to
exist with geographic focus yet have shared needs we could fulfil... and then
create a directory from that to answer a "Find your local cycle forum"
question before later making that question much broader.

We knew from feedback that "community", "shared interests", "forum"... all
these things are nebulous and vague, they say nothing to anyone. Offering a
directory and creation method would fail because no-one searched for those
things, and no-one created those things.

We chose one segment to do well, from which we could expand into the other
segments nearby (all sports and recreation interests), before expanding into
entirely unrelated spaces.

We had a plan, but it required time and growth to execute.

------
jackgavigan
The headline suggests that it was their choice of London as a fundraising
location that almost killed their startup but I don't think that's true. While
it's certainly more difficult to raise money in London than in San Francisco,
the real problem seems to be that they ignored a critical piece of advice:

 _> The lead investor encouraged us to get it closed quickly and not try to do
anything fancy._

Having said that, it's deeply disappointing that they still haven't heard back
from HMRC on the advance assurance for SEIS.

~~~
dwightgunning
Indeed, you can basically stop reading the article at that sentence.

 _Always_ get the round closed quickly and don't try anything fancy.

------
bontoJR
Welcome to Europe.

Comparison between Europe tech startup scene vs the Silicon Valley one is
quite unfair. I am based in Switzerland, you cannot imagine how hard is for a
tech (worser if service) company to raise money. The model is extremely broken
because the mind of an average European investor is completely different
respect to the average American investor. In US the normal startup funding
process works around a working prototype and how fast you can ship, in Europe,
mainly here in Switzerland is about the protection you can give to a product
with trademarks, patents and other things. So when you ask for money the first
question is: is it protected? Or, can we protect it? Are barriers good enough
so we can skip short-term competitors?

The second huge problem is the exit. In US, the IPO is a kind of fallback
alternative to the acquisition, that is the main goal in a reasonable amount
of time, so this makes the IPO not the favorite exit-strategy at all. In
Europe it's actually the same, but the acquisition model simply doesn't work.
You don't have any big tech company here giving the real exit-strategy option
to investors. So the only chance you have to get them, is to prove that you
can literally make a certain amount of money even in the worst case. Nobody
believes that Apple, Amazon, Google, Facebook or whatever can acquire a Swiss
startup company in the first 5 years of its life, so the result is that tech
companies can barely raise money.

IMO, the Silicon Valley model is very risky, the motto "fail fast, fail often"
is certainly attractive, but has a lot of downsides for funders and people
involved, on the other hand the European scene is too slow, too hard and is
always complaining about the fact that we are unable to compete against the
Silicon Valley. I think the right balance is required, but it's just an
opinion.

~~~
lordnacho
I'm in CH as well. I was talking to a VC guy who moved here from the US, and
he has a similar story. People here are very conservative. The whole IP
protections thing sounds like a business school teaching.

Anyway, would be interesting to chat if you're near ZH.

~~~
bontoJR
I actually work in Zürich! Definitely!

~~~
lordnacho
Have you got an email? Mine has my name in it.

------
mattlutze
In a nutshell,

\- Had a funding plan \- Got there quick with angels \- Got too big for your
britches \- Discounted adviser's advice and got in bed with a big VC firm,
doubling target funding \- Got bit by the big firm legal and the money got
cold.

I kinda feel like this is going to happen even in the bay area if you start
playing with major industrial investors or get too big for your britches.

Way cool that y'all were able to recover from the experience and are much
wiser for it. But, other than the (not small, for sure) difference between US
and UK laws (which your firm should have figured out), is it not so much an
issue of raising funds in London as it is business practice maturity?

~~~
humanarity
Yes I think that's one lesson: the risk of pursuing additional funds was not
allowed to discount the utility of the 600. Perhaps if risk (say 10% success
of more involved raise) were accounted for the 600 would have been more like
60, making the smaller deal 4x better. If someone offers me 600 I'll try not
to lose my shorts. At the end of the day it's not a lot of money -- esp in
London!!

------
MrDosu
Funny how i just spend a few minutes reading something about a company,
followed a few links and all I know is that the founders like sunglasses. No
idea what they are doing.

~~~
recentdarkness
Well there is a link on the word 'startup' right at the beginning pointing to:
[http://www.goodaudience.com](http://www.goodaudience.com)

~~~
MrDosu
Yeah, right next to Waldo :D

------
edoloughlin
TLDR: We had our funding lined up. Our lead investor advised us to keep it
simple. We made it complicated. It almost killed us.

Apologies if that comes across as snarky, but that's honestly what I got from
this.

~~~
tankenmate
The other point is that UK investors expect investments to be tax efficient
for them; this means EIS/SEIS. It would be equivalent of going to US investors
and saying, we'd like you to invest in our company but you'll only get tax
breaks in the UK so too bad.

------
rwallace
> I know what you’re thinking. Why the f*ck would you move out of the mecca
> for startups?!?

Actually no, I can understand perfectly well why you would move out of a
ridiculously expensive city - but not why you would move to one of the few
cities on earth that is about equally ridiculously expensive.

------
elmar
It is great that you survived this near-death experience. From my experience
VC's and Angels from Europe and US are two completely different animals. For
fun just watch Dragons Den UK vs. Shark Thank US.

Venture capital firms in Europe vs. America: The under performers

[http://iveybusinessjournal.com/publication/venture-
capital-f...](http://iveybusinessjournal.com/publication/venture-capital-
firms-in-europe-vs-america-the-under-performers/)

~~~
madaxe_again
It's a very different kettle of fish. In the UK, investment in tech startups
is pretty barren - investment tends to be placed more readily with traditional
engineering ventures - weapons, aerospace, material products - but for
software... not so much - or at any rate, not in the model of angel rounds,
etc.

The scene in the UK is rather more "be bought" \- people aren't anywhere near
as willing to pour capital into a business, and instead prefer to buy equity
from founders. Dragons Den is a good take - large amounts of equity, low
valuations, founders selling chunks of their company far more for the
expertise and connections and clients of the investor than for the money.

I'm not really too sure where this difference in culture arises from - I
suppose in some ways business in the UK is far more conservative, less
ebullient, and still dominated by an almost Victorian attitude to business
relationships and social status.

Edit: Worth mentioning, I suppose - run a (not so startup any more, we're nine
this year) in the UK, sold a minority stake a few years ago to a well aligned
investor-partner who's a few years "up the curve" from us. Happened in the way
these things do when they actually happen - we weren't looking, they
approached us, we bit their arm off, and haven't looked back.

~~~
pjc50
_almost Victorian attitude to business relationships and social status_

I've heard a couple of rants on this subject from people who were in a
position to know. The UK is much more connection-driven than it looks. Much of
our past and current industrial problems I would lay firmly at the feet of
managers provoking needless conflicts with staff and failing to be open to
change. Look at the car industry: the successful firms are _either_ small
enough to fit everyone in one shed _or_ foreign multinationals. While the
local brands coalesced into MG Rover before finally sinking among allegations
of fraud by the directors.

This is partly why the UK startup scene is coalescing in London despite the
very high costs there; you have to get personally acquainted with the finance
people in order to get the money in.

(If anyone has comments on the Scottish startup scene I'd be interested to
read them)

~~~
gaius
El Reg had a good article on this recently, people like Martha Lane Fox don't
become serial entrepreneurs, as soon as they have one successful company they
run off to join quangos where grubby commerce won't disturb their new
establishment social position.

------
simonswords82
As I was reading the article a voice in my head was shouting "TIME KILLS
DEALS! GET IT CLOSED".

Clearly the difference in approach here in the UK versus our cousins in the US
caused delays that even a large self-sustaining business would seriously
consider before undertaking.

Sorry it didn't work out but very important lessons learned I'm sure.

~~~
sherm8n
It does and I learned that the hard way. The legal process was the delay and I
should have pushed it along faster.

------
dougs
I am the angel investor and I have helped many companies raised many times.
The simple fact is that the UK has lots of money looking for a investment home
( £1 billion plus invested last year ). Three years ago tech investment in the
UK was almost zero. This money was offered but the deal was not simple as can
eb seen on my post:

[https://medium.com/@doug_scott/response-to-raising-money-
in-...](https://medium.com/@doug_scott/response-to-raising-money-in-london-
almost-killed-our-startup-71d83db6479b)

------
humanarity
I guess the risk is higher in London because the funding pool is smaller, so
if it goes to pot there's less places to turn, tho well done for getting all
those commitments. What is your relationship with the funders now? Is there
anyway to expedite the legals? When Ron Conway speaks about "getting your
round over quickly" are the legals conducted differently in SF? Ultimately I
think xkcd could draw a nice graph showing how the delay between commitment
and consummation is directly (exponentially?) proportional to the probability
of the deal falling over. It's never closed Til the money's in the bank is one
thing I've learned.

------
syde_effect
Glad you guys made it through. An off-topic question here. Why not facebook?
If the goal is to reach out to genuinely interested people which you guys seem
to do quiet successfully using twitter and instagram, why neglect facebook?

~~~
nailer
Not OP but having worked on Facebook apps in the past I get the feeling that
people honestly don't want to be 'fans' of brands on Facebook. There's so much
irrelevant stuff appearing on your timeline spamming your friends.

Seeing the odd product from a brand you follow on Instagram (here's our new
dress) and Twitter (new cocktail ingredients) is more relevant.

------
daredevildave
Glad you guys made it through. Fund-raising is hard. Doing it across an ocean
is even harder. It definitely feels like trying to raise in another country is
a massive burden that may not be worth it.

~~~
sherm8n
In hindsight, that was easy to see. We went where the money was. Had we
closed, it would have been worth it!

~~~
elmar
Just curiosity, the investment was in Delaware C-corp stock or on a new UK
entity?

~~~
sherm8n
Delaware C-corp

------
rdl
Techstars encouraged a US company to move from SFBA to London?

~~~
jedc
Not that I've ever heard. But considering they applied and were accepted to
Techstars in London, Sherman and Karl had a ton of connections to London that
they were using to fundraise. Techstars wants founders to be where founders
want their company to be.

------
easytiger
$225k? You don't need an angel, you need a bank loan.

~~~
rdl
For a startup, outside of some very rare circumstances (inventory financing or
equipment financing, with pre-existing great credit), you're not going to be
able to borrow $225k with corporate liability. It would be entirely on the
founders.

Having financed 2 businesses with personal liability (credit cards) and lost
about $200k each time -- there are reasons you might not want to do this. It
still makes sense in some cases. I'd probably do it again. It's probably not a
good option for most people most of the time, especially if they can raise
investment.

External investment also provides other benefits (validation, connections)
that debt financing on credit cards doesn't.

------
dougs
[https://medium.com/@doug_scott/response-to-raising-money-
in-...](https://medium.com/@doug_scott/response-to-raising-money-in-london-
almost-killed-our-startup-71d83db6479b)

------
kyleblarson
When the author says "committed" does that imply "term sheet in hand"?

