Seed Capital: The UK is onto a winner…if only it read TechCrunch

As I progress into the development of our first feature web app I’ve naturally been thinking about funding – and voraciously consuming everything I can on the same.  As is typical, the quality and volume of online content in the UK on this matter is weak compared to the US.  However, I did come across one very interesting development in the UK launched in 2012:  The Seed Enterprise Investment Scheme (SEIS).  Touted as long-standing Enterprise Investment Scheme’s “little brother” the benefits of SEIS look amazing on paper:

  • 50% of the investment can be clawed back in tax rebate
  • 100% of the investment can be set off any equivalent amount that is subject to Capital Gains Tax
  • Maximum raise of £150,000

There are other T&Cs, of course, but they are relatively permissive and Indicago would certainly be a candidate.  Here’s a use case:

Sally sells a rental property for a tidy profit and invests £20,000 in NewCo Ltd for a 2% stake.  50% (£10,000) of that can be clawed back in her annual HMRC Self-Assessment meaning her net investment is £10,000.  Furthermore Sally can offset any Capital Gains Tax that would have been due on that £20,000 from the sale of her property – a saving of £5,600.  In other words, of her £20,000 stake in NewCo actually costs her only £10,000 and saves a further £5,600 tax liability – a 78% net saving!

This is a great scheme for seed investors.  There is, however, one obvious drawback:  SEIS doesn’t cover Convertible Debt.  Why on earth not?  This is a classic example of good legislation that fails to acknowledge obvious trends.  Given the difficulty in pricing startup businesses (which has been one of the key drives of Convertible Debt financing as it kicks the pricing conversation down the road to a properly priced financing round) I cannot see why Convertible Debt wouldn’t have been included in this scheme.

Which leaves me wondering:  Could you structure an equity-based seed round (which subsequently takes advantage of SEIS) but where the equity stake ‘floats’, and is defined by any subsequent priced round?


Fred Wilson on the 10 Golden Principles of Web (& Mobile) App Design

Fred Wilson has released an “oldie but goody” regarding his view on the 10 Golden Principles of Web (& Mobile) App Design.

Given that we are knee deep in app design right now the post was both timely and relevant – I’ve summarized his points below:

1.  Speed:  If your application is slow, your mainstream users won’t use it; though power users may.

2.  Instant Utility:  The service is instantly useful to users.  There are tricks to this – for example getting over the ghost town effect with APIs. Google Video made people wait a week for getting videos up on the site.

3.  Software is media:  A voice, an attitude, a style, a personality e.g. Fox versus CNN.  Software should have a personality and speak to the user in the same way that media brands do.

4.  Less is more:  Particularly when you launch.  Do one thing really, really well to start with.

5.  Programmable:  Make it possible that others can build on top of or connect to your application – e.g. read/write APIs.  Allow 3rd parties to infuse your application with their energy.

6.  Personal:  Allow personalization so that your users become stakeholders and feel ownership of your application.  This can create problems – a community can start to feel like it is in charge (FW thinks that’s a good thing BTW).

7.  “Restful”:  Have clean, comprehensible URLs throughout your application.  Aids discovery and sharing so that the web at large can discover and get access to your application in deep ways.

8.  Discoverable:  When you launch a web app it is a needle in a haystack – how is anybody going to find yours.  Understand and act upon SEO.  Make it discoverable not just by Google but ALSO by wider social media – virality (applications need to be built from the ground up to be viral).

9.  Clean:  The application cannot be busy on the page.  Don’t make users bothered by lots of stuff.  Use white space, fonts, limited functionality per page.  Make is so people know right away what to do on the page.  Quoted the Tumblr login as a good example.

10:  Playful:  USV lives by mobile, social, global, playful, intelligent and…  The game dynamic in an application can be used to direct users – quoted Weight Watchers as being a “game” – establish goals, meet goals, report back.  e.g. LinkedIn – friends who were manically trying to link to as many people as possible.


Longer ago than I care to remember I wrote a list of characteristics that I would seek in a start-up business model.  I thought it might be an interesting exercise to assess the prospective model for Indicago against that list:



Fit with Indicago

Seek Attractive Cash Flows and Non-Linear Scaling Cash flow timings should generate float or…enter a market where incremental growth isn’t capital intensive and marginal costs are low or……your revenue model works on a subscription basis.  Subscription model…tickNon-linear scaling…if we do it right, tick.
A Rising Tide Floats All Boats The business should capitalize on a strong trend that looks set to continue for at least 5 to 10 years.  Rise on a tide, and then work out how to beat it.  There’s a few megatrends which I feel we are plugging into here:  (1)  Massive upside on smartphone usage (about 4 billion users of headroom, in fact), (2)  Increased adoption of internet-enabled TV, and (3)  The emergence of the ‘asset-lite’ lifestyle (think Elance, PayPal, Kindle, Zipcar, Spotify).  Coupled with the increased spending on healthcare / wellness I feel like we are plugging into some strong tides here. 
Be a Value Innovator Satisfy (growing) demand better and cheaper than the current alternatives.  I expect that we can offer 50%+ discounts on traditional alternatives and ultimately offer an order of magnitude more content versus competitors. 
Avoid Team McKinsey Operate in an industry that DOES NOT attract the best business minds.  The most attractive industry will be fragmented and poorly served by non-professional managers / owner-managed competitors.  Ok this is a little controversial but that doesn’t make it untrue.  Would I rather be up against the army of Stanford CS grads that get gobbled up by the financial services industry each year, or the health & wellness industry which doesn’t attract that kind of talent?  (There’s an obvious own-goal here which I’ll conveniently ignore!) 
Lead Profitability Understand the economics and KPIs of your peer group and establish a cost / revenue model that drives increased profitability.  Lead the profit curve for your industry.  Unknown.
Serve Homo Sapiens, not Homo Economicus Understand that customers are not rational.  The Value Proposition, and business plan, must be assessed against the fundamentals of behavioural economics.  Not sure how we do this until we test the proposition.  However, given the strength of the academic research that we have backing up the proposed product features – and which has empirically tested actual behavior – I would hope we have derisked ourselves here considerably. 
Sell to businesses They are more likely to respond to a differentiated proposition as professional buyers, easier to build scale with big early wins, and a more concentrated market so lower marketing costs  Whoops!
Don’t Gobble the Customer Budget Pricing levels should be a relatively small % of the customer’s overall budget for, or benefit from, using the service. Given healthcare / potion / pill spending per person in the US our price points should be extremely comfortable, if not impulse-spend money.

We have a name

I’ve been agonizing a little over the name for the corporate (non-consumer) parent brand or the business.  I wanted a name that in some way reflects the way the business will be run.  However, this goal was compounded by the difficulty in finding names that have a .com URL and that aren’t being squatted in cyberspace.

One of the things I really wanted to get across with the name was the desire to make rational, data-driven decisions.  And so, with the kind help of Google Translate I extended my search into the world of Latin where, as it turns out, the combination of the words “data” and “driven” work very well together.

Welcome to Indicago.

Naming brands

I think I’m in love with Google.  Again.  Earlier this year they came out with Google Surveys – short, single-question survey questions ideal for getting fast data on logos, price points, brand awareness, etc.  The idea wasn’t novel.  There were a number of competing products out there on launch.  However, they have executed beautifully and, even though I’m left with some questions about how they infer demographic information from respondents, I can’t imagine that I won’t use them again – particularly when their response costs are a market-beating $0.10 per response (for non-targeted responses).

I used the service to name our new MVP.  We had brainstormed 7 possible names that felt like viable candidates for the product.  However, I wanted to avoid the subjective decision making that often goes into these things and let our target market determine their preference.

Here’s the output (Note:  I’ve masked the names)

MVP Naming

As you can see Name A is a conclusive winner.  I registered the domain name this morning.  What I love about this output is that it is weighted to be representative of the internet population (our total addressable market) and, on the basis of the confidence intervals given (first and second place do not overlap), I can be very confident that the winner is not anomalous.

We have designers working on logo design this week.  It’ll be back to Google Surveys for sure…

Web first for me…then mobile

As I was explaining our web-based MVP concept to a good and trusted friend the other day he asked, “Why won’t this be a mobile app first?”

I love questions like this.  It forces me to properly articulate things which I may only have a generalized sense of.  My answer included:

  • Analytics:  The analytics ecosystem for web is far ahead of mobile
  • A/B testing:  To my knowledge you can’t even do this on the App Store, and on Play, and it’s just crucial for rapid optimization
  • Economics:  Giving 30% to Messrs Apple and Google really sticks in my throat (Ok, I’m letting things get personal but I don’t imagine investors much like this either)
  • Design / UI:  I get the strong sense that web is more forgiving than mobile, particularly when you are just starting out (there’s no public rating from disgruntled early users for a start!)
  • Diagnostic Insight:  You get the chance to do intercept surveys, live chat, follow up calls, etc.

I finished the answer by saying that if we nail the value proposition and get to product / market fit, then of course a natural channel extension will be mobile.  But that’s all it is right now – a channel extension.

So after answering this question, the next day I read this post.  As so often happens someone out there has articulated my views more succinctly, more intelligently, and with more additional insight than I can.  Most notable quotes for me are:

User acquisition is ultimately about retaining the user through all stages of the user lifecycle. If you don’t focus on that, at each step of your website or app’s onboarding and main user activity flows, you will lose a percentage of users. I believe this is the primary reason that mobile is failing.


I have heard privately from an app maker with a 100m+ downloads that 50% of people don’t even open their app after downloading.


All in all, mobile service apps turn out to be a horrible place to close viral loops and win at the retention game. Only a handful of apps have succeeded mobile-first: Instagram, Tango, Shazam, maybe 2 or 3 others (Games drive short-term revenue but don’t get me started on that topic – sell a billion $0.99 games with 30% taken off the top by Apple/Google and you now have the equivalent revenue of a Call Of Duty opening weekend). Take Path, one of the most promising mobile-first startups. I don’t want to rag on them because I love the app, but it’s just a good example. Color would also work well. With 5-10 million downloads, Path has retained less than 200,000/users a day according to AppData.


You have an entirely different onboarding story on the web. You can test easily, cheaply, and fast enough to make a difference on the web. You can fix a critical bug that crashes your app on load 15 minutes after discovery (See Circa). You can show 10 different landing pages and decide in real-time which one is working the best for a particular user. You can also close a viral loop: A user can click an email and immediately be using your app with you. You can’t put parameters on a download link and people don’t download apps from their computer to their phone. Without the barrier of a download + opening the app to try your product, you can prove value to the user immediately upon their first impression, as is with Google. In addition, the experience of signing up for a service is superior in every way. Typing is easier. Sign-up with OAuth is faster. Tab to the next field. Provide marketing alongside sign-up as encouragement. Auto-fill information is a feature in every browser. The open eco-system of the web and 20 years of innovation has solved many of the most difficult parts of onboarding. With mobile, that kind of innovation is lagging significantly behind because we create apps at the leisure of two companies, neither of which have a great incentive to help free app makers succeed.


In conclusion, I want to say that I don’t think mobile is going to stop growing. We are not going web-first because people use the web more than mobile. I use my phone more than anything else. I just don’t think that an entrepreneur who wants a real shot at success should start their business there. The Android and iOS platform set us up to fail by attracting us with the veneer of users, but in reality you are going to fight harder for them than is worthwhile to your business. You certainly need a mobile app to serve your customers and compete, but it should only be part of your strategy and not the whole thing.


Haters gonna hate!

I was out on Thursday, Friday and Saturday night.  That’s unusual for me, even in New York City.

On Thursday I was representing Nat, who was too ill to go out, at a social for an old colleague.  A lot of our NYC friends were there (the degrees of separation are limited!) and it was a great night.  Friday and Saturday were also with friends, but I’ll be the first to admit that at least some part of this is in an effort to network – these nights were fun, but also useful.

Which brings me onto a key learning as an entrepreneur:  On telling people I’m pursuing the entrepreneurial dream, followed by a short elevator pitch (which needs to get better) the categorization of reactions is as follows:

The Hater:  These aggressive skeptics immediately start to pick holes in the product, usually with a thinly disguised scowl.  Specific content varies but Friday night’s version was a classic:  “How can you possibly launch a product for women when you are a man?”  Getting, and answering, these challenges can be useful but this woman was truly obnoxious so I disengaged as quickly as possible.  I noted later that she was glued to her iPhone for most of the evening.  Lead designed by a man.

The Explorer:  These guys listen to the elevator pitch and then usually precede any response with, “You know what you should do…”.  I like these guys, they are great for ideation, but right now ideas ain’t the problem.

The Enthusiast:  Usually the people who harbor their own designs for entrepreneurship are the most enthusiastic responders to your plans.  These guys are morale boosters and are a pleasant tonic to the Haters and the Explorers.

The Connector:  Maybe a subset of the Enthusiast rather than a category in their own right, these guys listen, enthuse, and then say, “I know someone you should meet…”.  Sometimes it’s pay-dirt, sometimes it’s not.  But these guys are why I was out three nights in a row.


Maintaining the discipline of the MVP

I’ve done over 80 depth interviews. The last 10 or so were concept testing the WOWU calendar scheduling product and the feedback was positive.  I also conducted a (very) low grade landing page test and got an 8% sign up rate.

It’s impossible to say for sure but I do feel like I have some degree of early concept validation.  For that reason, my natural reaction is to head straight into development.  I already have a shortlist of designers and developers that I want to work with.

However, I am committed to Lean Startup principles:  It’s what investors will expect as it is by far the most capital efficient way to build a business.  So, at the cost of a few weeks, I’m going to run a Concierge MVP.  Specifically, I’m going to take all the features of WOWU*, and maybe even add in a few left-fielders, and power them with human effort; my own Mechanical Turk.

I plan to run the MVP for one week running from the weekend of 8/9 December to 15/16 December.  I’ve yet to conduct the objectives, test hypotheses, success metrics, experimental design, planning, or “product” creation.  More on all that later this week.

*This was a temporary working title for the coming soon page smoke test, it’ll be changing of course.

Competitive advantage through insight

As a result of the 80+ depth interviews that I’ve conducted in the last 6 weeks I’ve necessarily been thinking a lot about the value of customer insight and the need to drive that insight into the business and make it actionable.

That’s a laudable goal, of course, so why do so many business do it so badly? In all the businesses in which I have worked customer insight has been highly localized and role specific: There’s the account manager who knows her clients like the back of her hand; the marketing department using a very well developed segmentation model and client personas; the CEO with the strong sense of his most valued customers’ strategic challenges that relate to the business offering.

Given that most businesses are distributing actionable customer insight so poorly one of my visions for the business is to gain competitive advantage by ensuring that everyone is “all informed” – to distribute insight to all 4 corners of the business consistently throughout the year.

I think there’s a few relatively painless ways to do that:

· Lead by example: Management should take the lead and regularly conduct all-hands show ‘n tell sessions on insight areas – competitor, customer, market, industry.

· Minimum one customer per week interaction policy: I’m absolutely committed to this – everyone, and I mean everyone regardless of what department you work in, has to speak to at least one customer per week. Just one. But the conversation needs to be substantial and feel like a light depth interview, for which we’ll provide training. I have never ever been able to understand how non-customer facing functions can operate optimally without knowing where the money is coming from.

· Quarterly insight jams: One day per quarter where we take stock – confirm what we know about our customers / competitors / market / industry, share new developments, and get everyone thinking hard about the actionability of the data and answers the golden question: Given what you learned today, what are you going to do differently tomorrow than you did yesterday?

Measuring the effectiveness of such a program will be hard – but can anyone argue that this would fail to become a source of competitive advantage if implemented in any business in which they work?

Should features pay for themselves?

Not all features can operate on a standalone basis, but many can. WorkoutWakeup is a good example of this. It’s just one feature of what should ultimately become part of the core product but, for the time being, can operate as a standalone app (accepting that, right now, that approach is more out of financial necessity than anything else).

And so this has got me thinking about our product development strategy: Is it feasible to operate with the expectation that, wherever possible, features have to prove themselves in the marketplace and so “earn” their place in the core product before integration?

As I see it the benefits of this approach are as follows:

· Test, iterate and prove features at arms-length branding before loading into the main product – thereby reducing the release risk to the core brand

· Release product faster and gain a source of positive cash flow earlier to fund further development activity

· Build a business that gets accustomed to pushing product out of the door little and often, and maintaining discipline on value creation (i.e. If it doesn’t gain market traction then what’s the justification for integrating it into the core product)

· Monetize features twice – first as a standalone application and then again as a value addition to the core product which either justifies a higher price point or enhances the value prop

· Access app store (iTunes, Google Play) distribution channels which ultimately may not be appropriate for a feature rich core product

· Build a portfolio of product that ostensibly makes the business cast a longer shadow than it otherwise would in terms of PR, perceived size, talent attraction, etc.

Of course, some features will only work as part of an integrated whole and, in those cases, the validation techniques will necessarily be different. However, I can’t help thinking that, at this very early stage, the benefits of rolling successful feature apps out of the business and then loading into a core system post-product / market fit will be highly beneficial to cash flow, core offering value, and the all-important sense that the business is moving forward consistently throughout the year.