Brits Go to Silcon Valley

Spectator Business

June 2008

Twenty British internet start-up CEOs walk into Google’s headquarters… no this isn’t the start of a joke, but a day in WebMission – a trip which aimed to bring the best of British web talent to the US.

What was the big idea? WebMission Co-Founder and serial entrepreneur Oli Barrett says, “The basic plan was to help 20 leading web entrepreneurs attract opportunities, and to give them a platform from which they could showcase their companies. To do that, we secured the support of sponsors, Government and leading industry figures, we went at the same time as a major industry conference, and we made companies apply to take part, which raised the calibre significantly and helped to generate a buzz.”

Over a hundred companies applied for places and after a rigorous selection process led by Dragon’s Den Doug Richards, TechCrunch’s Mike Butcher and UKTI a lucky twenty (see profiles below) boarded the plane for California. The companies disembarking at SFO in some respects couldn’t have been more different – they ranged from a news prediction game to a company which delivers personalized restaurant recommendations to your phone to a site which allows bands to raise money directly from their fans. The one thing they all had in common was that they’re all riding the tide of the collaborative working and information sharing known as Web 2.0.

And why were they headed for Silicon Valley? There’s the obvious reason – that many of the Technology giants with whom the Webmission attendees met – Amazon, Facebook, Linkedin, Sun , SalesForce, Google, Bebo and Oracle – are based in and around San Francisco. For many, the San Francisco Bay Area is like visiting Mecca. But beyond the companies there is a whole eco-system which is primed to help start-ups. Charles Armstrong, CEO of Trampoline Systems says, “The density of ventures in the Bay Area is so much greater than the UK – or anywhere else for that matter. This isn’t just true for the internet scene but the technology scene in general. That’s led to all kinds of secondary differences like the quality of funding infrastructure, the cohesion of the start-up community and the supply of talent.” Techcrunch’s Mike Butcher adds, “In general, UK entrepreneurs who have moved to the Valley say it is easier to do a start-up here, that people ‘get’ your idea faster and there is a wide talent pool to draw on. No-one says Europe is not a place for start-ups, but there is less friction here and less aversion to risk and failure.”

For a bunch of web 2.0 companies it was slightly ironic that the first stop on the trip was a brunch at the home of Craigslist CEO Jim Buckmaster’s house. Buckmaster describes Craigslist (a free classified advertisement service) as firmly rooted in Web1.0 – i.e. there’s none of the ‘interactivity’ that marks newer internet ventures. That hasn’t stopped him from establishing Craigslist in approximately 450 cities in 50 countries and selling part of itself to online giant eBay (a deal which has recently turned sour). A lot of the discussion at brunch was around the investment culture – no sooner had the Webmission companies landed when their Blackberries were hit with some figures by Pricewaterhouse Coopers and the National Venture Capital Association on the trends in venture capital deals in the first quarter of 2008. The overall amount venture firms invested dropped both year-over-year and quarter-over-quarter to $7.1 billion – less than any quarter in 2007. Techcrunch’s Erick Schonfeld said, “the concern is whether this is the beginning of a steeper decline that we will begin to see over the next few quarters.” Jim Buckmaster commented that, “It may get difficult for start-ups wanting first round financing, because venture capitalists are having to pour money into their later stage companies to keep them afloat until exits reappear. Angel investments are less likely to be affected

SF-based Brit expat Bob Goodson runs YouNoodle, a website where early-stage companies, particularly in universities like Oxford and Cambridge, can look for talent, funding and media attention. He follows start-ups closely and says there are several companies in Silicon Valley waiting to IPO – when the conditions are right. Goodson was one of the first employees at U.S. local review site Yelp, which raised their last round at a $200M valuation. It is rumored that Yelp is one of those in waiting. On that topic he is not forthcoming, but added that three of the first IPOs are also likely to be related to social networking sites – LinkedIn and Facebook are among those waiting on the sidelines. Slide – which makes applications for social networking sites – is another.

The companies had a chance to see what the VC culture was like for themselves when they presented their business plans to a collection of a dozen Venture Capitalists. The investors they were presenting to were – according to the Webmission companies – quite different to the ones they meet in Europe.
Skimbit CEO Alicia Navarro (the only female CEO on the trip) commented, “From what I can see, the biggest difference is the number of early stage seed VCs. There are about 10 in the UK, and about 500 in the Valley. The VCs in the UK also seem to come primarily from a banking background, as opposed to an entrepreneurial or product background, which makes them more risk averse.” Douglas De Jager added, “The Valley has a vast pool of successful entrepreneurs, and many of these now invest as angels. The interest these entrepreneurs show in the ventures of others, particularly in the ventures of first-time entrepreneurs, very much undermines the seniority structures which still persist in the UK. It is par for the course in the Valley for fifth and sixth-time entrepreneurs with billion-dollar exits to mix freely with the youngsters who haven’t yet started a business, but who have bid dreams.” Rummble CEO Andrew Scott says three words describe the Valley’s spirit: “Openness, optimism, and funding. By ‘openness’ I mean the willingness to share ideas, be available, engage with one’s peers and the sense of entrepreneurial community that pervades the Valley. So often the first or second line in The Valley is ‘What can I do to help you?’ But having said that, with entrepreneur-driven web conferences gaining traction in Europe there’s a culture shift in the same direction in progress; it is an exciting time to be a start-up in Europe.” Not enough to stop Scott from moving Rummble to San Francisco later this year however!

While the feedback was mostly positive, the California-based VCs often expressed a desire to give money to UK start-ups who were prepared to move to the US or at least have significant operations and executive presence there. Josh Goldman, an entrepreneur-turned investor now at Norwest Venture Partners in Palo Alto, commented that this is mainly a result of living through the forest fire that was the tech crash of 2000. “It is true that the earlier the stage of the company, the more we feel the desire to have our investments geographically closer to one of our offices. It’s not a hard-and-fast rule of course, we’ve done early-stage deals all over the world, but the bar is higher as they get further away from our base. It actually isn’t so much for day-to-day oversight of the company… frankly, if you find yourself doing that, the company probably isn’t a great investment or is really struggling. The real reason is that early-stage companies need more executive recruiting, introductions and deal making assistance within the industry and our network of contacts is centered in this area. Basically, the closer they are, the more we can help ensure their success by leveraging our network and looking for synergies with our other investments and partners .”

There was definitely a frustration amongst the Webmission companies about this stance. Trusted Places CEO Sokratis Papafloratos says, “We’re already part of a global scene and it’s easier than ever to collaborate across borders. I’m originally from Greece; my co-founder from France; our engineering team is in Tel Aviv and we’ve worked with people based in the US, Ukraine and Spain.”
NVP’s Goldman thought the Webmission companies were impressive. “The quality was higher than I expected. The organizers did a very good job of bringing companies in compelling spaces at the right time in their growth. I’m currently pursuing discussions with three of the companies we met there… a much higher number than I’d have expected. As a percentage, that’s much higher than we’ve gotten from many of the big conferences and events in the U.S.”

The VCs imparted some valuable information. One Venture Capitalist told The Filter’s CEO David Maher Roberts , “Don’t look like you need the money”. Zebtab’s CEO Damon Oldcorn was given this piece of advice: “Just keep nailing the deals. In the end that’s what makes the difference.” Another told GroupSpace’s CEO David Langer, “hurry up, stop talking about what you’re doing and launch. Stealth and speed are the two greatest weapons of any start-up.”

Skimbit’s Navarro gleaned a piece of information about the kind of investor she should be targeting. “VCs may not be the best source of funding for a start-up, as they expect such a high return on investment, that what looks like reasonable success to me, would be a disappointment to a VC. For example, Kaboodle sold for US$30million last year, which I always thought was fantastic and my benchmark as we are similar. It is actually considered a poor result by VCs, who would want a return of at least US$50million. This may push many promising businesses into the hands of Angels rather than VCs, as Angels would consider such an exit a success.”
Trampoline System’s Armstrong spoke with a VC who had invested in a company that had tried to do something similar to Trampoline “but with a conspicuous lack of success. We had our own ideas about why they’d failed but it was extremely valuable to get a first-hand picture and be able to learn from this investor’s experience.”

Later that day the team had a chance to meet one of the UK’s best known internet success stories. The glamorous international entrepreneurial events organisers Glasshouse put on a “fireside chat” with Michael Birch. Birch is one of the most successful British internet entrepreneurs – together with his American wife Xochi he founded social networking site Bebo in 2005. They sold it this year to online web portal AOL for £420m. The Birchs’ path towards entrepreneurial success wasn’t always so clear-cut. Their early unsuccessful early projects included Lemonlink, an online address book, and Babysittingcircle.co.uk. They finally hit upon success with BirthdayAlarm.com, which they still own, a website with over 40 million members worldwide. Before hitting upon success with Bebo, they founded a social networking site called Ringo but – as Birch puts it – “did a bad job scaling up.” “Within the first week, 30,000 people had checked out the site – this grew to 200,000 within a few weeks. We weren’t making any money on the site yet but suddenly needed $10,000 for a new server to deal with the traffic.” They scrounged the money from somewhere – the site was sold to in 2003 to Tickle.com, now owned by Monster.com.

The week the WebMission companies spent in San Francisco included off-the-record trips to Oracle and Google, master class presentations by lawyers Heller Ehrman, accountants Deloitte and Spark Public Relations and a trip to the Web 2.0 expo where many of the companies made presentations to partners and customers.

The trip’s results speak for themselves. Hubdub CEO Nigel Eccles had a sea-changing conversation – “I had a 15 minute conversation with an entrepreneur in San Francisco. He had spent the last 3 years working on a problem that we were facing. That conversation has fundamentally changed what our focus was in marketing the business. Two weeks later our user sign up rate has tripled. I wouldn’t be surprised if I looked back in 3 years time and realized that was the conversation that made us successful.” Huddle.net’s CEO Andy McLoughlin worked on a potential partnership with a social network and opened a few doors into Microsoft. GroupSpaces made “fantastic contacts with many other entrepreneurs, angels and venture capitalists and is in exciting discussions with a few people following the trip.” Rummble’s Scott had the following to say. “Despite all today’s technology, nothing beats meeting someone in person. Spending time with Silicon Valley luminaries, both in a formal business setting and socially, helped develop relationships to a level which would normally take much longer to achieve starting from a cold call or a regular 60 minute meeting. In addition, a fantastic benefit was spending a week with 19 fellow UK start-up founders. Time you would simply never spend if it wasn’t for the Web Mission trip.” And Webmission leader Barrett said, “Going en masse really worked in our favour, unlocking opportunities which we could never have accessed alone.”

For Silobreaker CEO Kristofer Mansson the trip brought home an inherent difference between the Bay Area and London. “The Valley seems to ooze with confidence and success is almost believed to be a ‘fait accompli’ if you set up your business there. That is far from the truth, of course, but in terms of mentality there’s a real faith in what the Valley can deliver. The UK internet scene isn’t concentrated to a specific area in the same way and although the London scene is pretty vibrant it gets easily lost in everything else that goes on here. But the biggest difference is probably that the UK scene hasn’t produced any really big successes yet that have put UK on the global internet map in a big way. We don’t have any Googles, youTubes or Facebooks to show yet, and success is always the best catalyst for more success, which in turn changes culture and mentality in a hurry.”

So will one of the Webmission companies be the next Google? If their spirit and drive is anything to go by – there’s no stopping them anytime soon.

This was written for Spectator , which you can Download