The race the create the Mint.com for the UK has claimed its first victim. Kublax, a Seedcamp 2007 winner which launched in August 2008, has now gone into administration, saying it was unable to secure a further funding round.
I’m pretty disappointed to tell the truth. Not so much because we held a small stake (via our investment in seedcamp) although this is unfortunate, but mainly because I think their business proposition is valid and although they certainly made mistakes along the way, these mistakes were probably avoidable and actually more to do with raising capital and managing a start-up than anything specific to Kublax. Of course to be fair, in any new venture all aspects of execution are at least as important as the idea and/or market opportunity and a two-legged stool won’t stand. Debating which leg is missing or broken and why is ultimately a somewhat irrelevant exercise. The reality is they didn’t make it happen. Nonetheless I feel badly for Tom and Sri, who I know put a lot of passion and effort into building Kublax and stayed focused and pragmatic to the end.
The general (ie non Kublax-specific) lesson that I would put at the heart of a case-study on Kublax is that capital is important. Now that might sound blindingly obvious – and of course it is – but stay with me. The lesson I see is that not all (‘tech’) start-ups can succeed bootstrapping a few hundred thousand pounds into a sustainable business model. As a relative outsider, I have and remained perplexed by the ‘one-size-fits-all’ capital model that seems pervasive in European venture capital, which often in reality turns into a feast or famine of capital for individual start-ups. Kublax was built on a shoestring and quite frankly it showed. The chicken never laid the egg and so the end became an inevitability. But I wonder if it could have been different.
You might be wondering why we didn’t invest in Kublax.* It really came down to one thing: we did not have the capital resources required to allow Kublax to hit ‘escape velocity’. I have looked very closely at Kublax over the last 18 months, and indeed we wanted to invest. However as a result of our analysis, we believed that the best risk/reward scenario would have required them to raise at least £2 million pounds and possibly as much as £5 million. Upfront. Not being in a position to provide this quantum of finance at the time, it would have been foolhardy to commit capital only to be ultimately at the mercy of other people’s investment committees. Further – and accuse me of hubris if you like – we felt strongly that our specific skills, knowledge and networks would be able to materially help the company successfully address some of it’s key strategic and operational challenges. However it would not have been economically rational for us to deploy these resources against only a modest investment. So we were confined to waiting on the touch line for others to drive the process. In the event, none did.
Lack of capital was not the only problem at Kublax, but I think the other key issues that the company faced could all have been addressed given sufficient capital. I will highlight four examples:
- capital structure (specifically who owned how much and why)
- management depth and experience (in particular in financial services)
- product and user experience (never evolved beyond alpha quality); and
- marketing and brand awareness
All of these issues could possibly have been solved with an appropriate infusion of capital from a serious and domain-knowledgeable investor. A cynic might point out that these four factors are pretty much the only four factors that matter so saying you would invest subject to being able to improve these is tantamount to saying you would invest if the company was ‘good.’ Well yes. Sort of. I think in the case of Kublax, the investment decision would have boiled down to a ‘build vs buy’ logic. Starting from scratch is hard and for all its faults, Kublax had done a lot of the basic plumbing (hard, unrewarding but necessary) and didn’t get a chance to start laying the tiles (hard but rewarding.) I find it hard to believe that asset is of no value.
In any event, given Kublax’s seedcamp pedigree, I imagine that most or all of the establishment London venture capital firms had the opportunity to look at Kublax. I think it would be very interesting and helpful to the broader UK/European start-up ecosystem to understand the key factors that informed their decisions to pass. Ask your favorite London VC to comment below.
So would we have invested if we had been in a position to underwrite a £2-5 million investment? Quite possibly. And indeed we would have made a determination on each of the four points above to really understand if these issues could be addressed, and the execution risk reduced accordingly. Alternatively we might have decided (and still might in the future) to incubate something similar ourselves.
In any event I wish Tom, Sri and the rest of the team at Kublax all the best for the future and hope they take away as many positives as possible from what must be a very disappointing outcome.
* I am referring here to what I call “Kublax Mark II” – in the early stages of the company’s life there were some clear management issues and dynamics that overshadowed the business and market opportunity. However seen from the outside, the company and it’s shareholders eventually addressed these issues and seemed to have a fresh start with some new investors coming on board and importantly a new CEO (Tom Symonds) early last year. It’s at this point we became interested (having explicitly passed a year earlier due to our lack of confidence in how the company was being managed.) Unfortunately one of the lessons is that it seems in the world of capital raising you often really do only get one chance to make a first impression…