It'll be interesting to see who turns up and what the atmosphere is. There are a few VC names I've seen before planning to be there and it'll be good that there are but it really is the angels that need to appear.
VC's aren't angels and to be fair to them it's really not their job to act that way but whilst Saul's started shaken things up since his arrival at Index, I can't help but be astounded by the inaction of some of the other firms.
These are *huge* markets and we haven't seen the biggest players even begin to emerge. YouTube will be a drop in the ocean compared with the company that will rise to challenge Google (and one will). Despite the possibilities, the British investment community seems to be largely watching what's going on at home on their TV sets. Almost no-one's clambering down into the pit.
The fact that there are almost no angels in the space has created an eerie pre-battle calm with VC's on one side of a £3m chasm and entrepreneurs on the other. Each is lining up in ranks waiting for the other to make a move but the entrepreneurs don't have the equipment to cross the chasm and the VC's don't seem to think it's worth it.
Turing the tables
Imagine as an entrepreneur you turned up to your weekly investor meeting and explained why you weren't making any money:Investor: "So tell me how's the market looking?"
Entrepreneur: "Great - big and hungry"
Investor: "Excellent. And sales?"
Entrepreneur: "Not so many"
Investor: "As in?"
Entrepreneur: "None."
Investor: "No sales to a big hungry market? Is there something I'm missing?"
Entrepreneur: "Well you see the thing is we've got two products. The first is a cheapy and to be honest it's a bit of a hassle but everybody wants it. It's a loss leader though - we're hanging back for the enterprise sales. That's where the gravy is"
Investor: "Could you convert the early customers into enterprise customers? "
Entrepreneur: "Sure, about one in ten"
Investor: "And does that make it worth the hit on the other 9?"
Entrepreneur: "Easily - in fact one in 30 will generate enough cash to find the whole company for the next 10 years"
Investor: "So why aren't you working the conversion funnel?"
Entrepreneur: "Totally a load of work. It's nothing like dealing with an enterprise client - and the costs... do you know how much we spend on legal for a £3m sale?"
Investor: "Would you need to spend that much on one of the lower tier sales."
Entrepreneur: "Doubtful."
Investor: "So you could use these smaller sales as loss-leaders to generate the profits from the bigger sales. The problem then is that you need to change your strategy right?"
Entrepreneur: "Yes."
Investor: "So how do you plan to change?"
Entrepreneur: "Change?"
Investor: "So let me get this straight. The strategy is not to make any sales apart from the very occasional one that appears by chance."
Entrepreneur: "Well, it's a bit of a blunt way to put it but that's pretty much it yes."
Investor: "How on earth are you planning to survive?"
Entrepreneur: "(laughs) No need to worry on that front my friend . We might not be selling anything but we're certainly not roughing it. You invested so much money in us that we can actually live off the interest. Odds are that we'll land an enterprise customer at some point and not even void the termsheet. Is it time for lunch already! Why don't you join me, I know a lovely little place in Green Park?"
Put me right
I know I'm being flippant and I know that's going to get people's backs up but I wrote it for a reason. If I was an investor in some (though not all) of the funds that claim to inhabit this space I'd be pretty annoyed with them.Is what I've written wrong and if so why? I'm presuming it must be because I know there's a lot of smart people working in these funds.
The model for building software companies has changed. It's tens of times cheaper but it's still not free by a long way. The returns are just as high if not higher and yet the investment model is refusing to budge. Why?
