Sean Park Portrait
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Kublax (RIP)

Today Kublax announced that it was closing down:

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…

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Comments
  1. At 3:54 pm on 16 Feb 10 Kublax Finaly Throws in the Towel said:

  2. At 2:58 pm on 16 Feb 10 dan_mux said:

    Well its an eye opener to me, and your analysis is interesting.

    £2-5 million investment!? Should have taken no more than £300k to get the product complete. How much to market it properly, not £2-4M?

    If you do decide to incubate something look at http://www.wehuhu.co.uk as a comparison- for info less than 3 man months work. the simple UI (and api) belies a strong model, nicely architected to scale with cloudlike data stores

  3. At 5:16 pm on 16 Feb 10 Money Dashboard said:

    Money Dashboard fully appreciates the difficulties Kublax have faced with fund raising and are sorry to hear of their misfortune.

    Money Dashboard offers an alternative to Kublax. We are very secure and well financed – we've already received £1M in funding at the tail end of 2009.

    Given the trust our users are putting in us it is important for us to ensure that the product is thoroughly tested and well executed before launch.

    Our free online personal finance software tool, also using Yodlee technology is currently in the process of beta testing. Currently we have more people subscribing than we are able to welcome to Beta but look forward to inviting you to join in staggered groups over the next few weeks as we continue to polish our feature rich service.

    Money Dashboard not only enables you to tag your transactions but also helps you to set up budgets, allowing you to track your spend using our monthly tracker.

    With Money Dashboard you can build a realistic picture of your spending, identify where savings can be made and set a budget you can actually achieve.

  4. At 5:24 pm on 16 Feb 10 parkparadigm said:

    Dan thanks for comment, as you point out, it is probably worth elaborating a bit on my thoughts on why I felt the risk/reward (Sharpe Ratio) on this type of opportunity would be optimized at north of £2 million. Short version it's not product development (or at least that is not the primary driver.) It's not a book but might be a post, and is certainly more than 140 characters so might take me a day or two to find 15-20 minutes to write up.

  5. At 8:28 pm on 16 Feb 10 dan_mux said:

    You see thats my problem as soon as you say “its not product development” I get uncomfortable. I know it takes more, I know I'm being naive, I've failed to market a v strong (hardware) product in the past. I'd love to read your views on what the breakdown of the £2M would be. It will help me understand where I'm about to fail again.

    (btw the Money Dashboard post is not a valid response to your article or the comments)

  6. At 1:08 pm on 17 Feb 10 Fred Destin said:

    Kublax was clearly tainted by early-days team instability and an unexciting Mark I product. We can advise but we do not execute — by the time Tom came on board I was clearly of the view that Kublax was not going anywhere and did not warrant an in-depth look. Unfair probably, but hey. When you are a clone (as the TC article was titled) you have no room for failure. Even in Mark II, I found the “Tour” video painful (could hardly hear it even with sound full-on, and really boring) and the customer benefits section weak (“Automatic Categorization” wow, I 'm signing up !) … so starting with a negative bias, it was unlikely I would seriously engage.

    On top of that the last fundraising was run by an outfit I had never heard of (Fairfax investment bank) and that did not do their homework. (a) they did not know Kublax had talked to Atlas in the past and (b) they can't sell shit. Here is an abstract from their intro email: “I appreciate that this is an early stage venture, though I’d be very grateful for your thoughts. The company is based in London. If the company is of further interest, full financial information is available. Alternatively, if Kublax isn’t of interest I’d welcome the opportunity for a quick meet/chat to understand the areas you do look at. I would not want to unnecessarily take up your time.” NOT “this is a fantastic consumer finance play from a Seedcamp winner that …” BUT “this is early stage” and “I would not want to waste your time”. Could they not leverage the Seedcamp links a bit more agressively for direct investor contact ? Who hires a banker to raise £1M?

    Financial profile was another killer. By 2012 the company was making £7M and was vaguely B/E. Next…

    Unfortunately D.O.A. , probably b/c poorly advised on fundraising.

  7. At 2:00 pm on 17 Feb 10 dan_mux said:

    Man I just dont get the figures involved! a £7M turnover (i assume) and just breaking even wtf.

    IT and hosting – 100k per year, office 100k per year, 6.8M left for 90 employees? How much does Yodlee charge! Kublax's indian outsourcing was probably a mistake too

    I'm convinced an uber leightwiegh outfit would prosper in this domain – but still waiting on Sean's post to see the error of my ways!

  8. […] Park at Park Paradigm is providing some insights (as an early stage investor) on what may have been the cause of this demise. As for any startups […]

  9. At 1:35 pm on 18 Feb 10 parkparadigm said:

    Uber-lightweight might work. Depending on exactly the scope of what you are trying to achieve. And indeed from a return-on-investment point of view, with such an approach the bar is commensurately low and so even a modest operational success can drive good financial returns. But – and this is just my opinion – to make real inroads into the PFM space I think requires significant investment in both the product and perhaps even more importantly in the brand / brand awareness.

  10. At 2:08 pm on 18 Feb 10 parkparadigm said:

    Thanks Fred for your clarity of thought (as always.) Re-reading your comment I was forced to acknowledge in my own mind that they never recovered from their first, failed iteration (product, management, fund-raising…) and so despite thinking Tom was a great (but insufficient) addition, and certainly a step in the right direction, my left brain realized it was almost certainly too little, too late and ignored my right brain which liked the idea and really wanted to see it executed properly.

    I wasn't aware that they had hired Fairfax (or anyone else for that matter) to raise money for them. Given the context (size, access to seedcamp network, etc.) this is indeed a bit of a shocker and I hope you are at least taking some humouristic liberty in describing their email because the alternative is almost too depressing.

    Your first point – “we can advise but we do not execute” – is very appropriate and again forced me to admit that some (much?) of my frustration with Kublax originated from the feeling that here was an obvious opportunity that was being thrown away through poor execution.

    I don't have the resource to commit to it at the moment but wonder if there is any assets worth buying out of the wind down (ie below replacement cost.) Would be curious if anyone has had a look.

  11. At 2:21 pm on 18 Feb 10 parkparadigm said:

    Aside from the fact that it is a bit weird to have a discussion with a company (as opposed to a founder or employee thereof), thanks for the link-free comment / advertorial. 😉

    And since you are here, I would be very curious as to why Money Dashboard didn't acquire Kublax at the 11th hour (unless of course you did indeed try to and the Kublax shareholders were completely unrealistic wrt terms.) At the right price this would seem to me to have been a no-brainer and if I were a Money Dashboard shareholder I'd be quite disappointed a deal didn't get done (again subject to Kublax shareholders being sensible.)

    (Which – as an aside – raises the point that there is entirely too little early stage m&a activity in general, but that is the subject of another post for another day…!)

  12. At 2:42 pm on 18 Feb 10 parkparadigm said:

    Not going to have time to write a post anytime soon I suspect, so here is my quick take. For many products and services, a very lean / boot-strapped approach to building a company is ideal (in terms of optimizing financial risk/reward – ie start-up financing equivalent of maximizing your 'Sharpe Ratio'.) For some products and services however (and I would include PFMaaS* in this group) I believe the optimal execution plan is much more capital intensive and requires a more explicit and deliberate approach to building brand awareness and customer acquisition.

    Given the nature of the service and the monetization model, it is critical to ramp up user numbers quickly; and to quickly create a trusted brand. In order to do this I think requires a well-executed mix of both new and old media: people need to think 'oh yeah, I've heard of them' before they get sucked into the conversion funnel. This isn't cheap. Especially the old media (and yes this includes – gasp! – TV commercials and the like.)

    And of course product is important. Very important. Yes you can (and should) still iterate, and not worry about perfection with each version, but the “trust bar” is set higher (when it comes to finance / financial services) and so you need to absolutely make sure you clear it. Which also incrementally adds costs.


    * Personal Financial Management as a Service

  13. At 2:50 pm on 18 Feb 10 parkparadigm said:

    I don't know whether Moneydashboard will fail or not, my first impression of their site and product left me a bit cold, but I don't think your assessment of the UK market as non-viable is right. If anything, there are many characteristics of the UK market that make it more attractive (for this kind of business) than the US market. Moneysupermarket.com (MONY:LN) has a market cap north of £350mn. It's not Google but I'd suggest it's enough for most VCs… And no it's not exactly the same thing, but it is entirely relevant imo to understanding/calibrating the market opportunity. Will have a look at wehuhu when I get a moment, thks.

  14. At 6:55 pm on 18 Feb 10 Fred Destin said:

    I don't buy uber leightweight when convincing people to hand over their bank details and having a credible lead gen strategy on the back end that does not expose users to security or privacy concerns. Not everything can be Ultra Light.

  15. At 6:57 pm on 18 Feb 10 Fred Destin said:

    I am afraid I used the quotes for a reason :-(

  16. At 7:26 pm on 18 Feb 10 dan_mux said:

    The “hand over their bank details” thing kills half the funnel off immediately, anything manual has the same effect. Mint.com found a sweet spot, enough people willing to trust mint for the sake of simplicity. Perhaps they, and the investment in brand marketing validate your point.

    Trust is a tall barrier to overcome, so I can see brand playing an essential role here. However If you could hit the same slick experience with the user knowingfeeling like they have not given any of their secrets away, then you could find another point on the graph where you wouldn't have to hit the same level of investment in building a trusted brand.

    Well, I'll find out soon.

  17. At 10:03 pm on 19 Feb 10 georgiolino said:

    Having used Kublax for about a month and then left it, I can bet you any amount they used “externally supplied” software developers. It shows in the inferior user experience, in the lack attention to detail, in the lack of understanding of basic cultural expectations.

    You can get your capital structure and all that right (despite the Fisher separation theorem), management, etc – all can seem right. Ultimately it's the people who actually execute it, who make it good, alright, or complete rubbish. Kublax was not good. Not satisfactory in any way.

    The days of pushing crap software to mugs are over. You have to be good, or you go away to sell trinkets…..

  18. At 10:21 pm on 21 Feb 10 parkparadigm said:

    Thanks for the first hand view. Clearly product quality is key. Kublax Mark I clearly struggled with this and I didn't have occasion to look closely at whether or not they were able to make progress more recently. Sounds like they fell well short. Having a great idea and/or identifying a great market opportunity are necessary, but far from sufficient ingredients to create a successful company; excellent execution is of course absolutely critical.

  19. At 1:31 pm on 25 Feb 10 jennasantos said:

    I think the main issues from a business and investment perspective was

    1. No compelling technology: It was essentially a user interace skin on Yodlee (and a not very good one)
    2. High costs: Despite the fact that it was just a skin, it burned through almost a million euros of VC??? WTF??? Where did that go?
    3. No user traction: Apparently, they only had about 2500 users signed up, so essentially, their poor VC backers spent Euros 4000 to acquire every user! WFT 2???
    4. No revenue model: Enough said.

    I don't know if the issue was bad management, inexperience, or just incompetence. But I have a hard time seeing how adding more money (to your tune of 5 million or so) into something like this would not be akin to flushing money down the toilet. Maybe this made sense in the bubble years, but in this recessionary time? The irony is that they were trying to convince consumers that Kublax would help them manage their finances!

    I'd love VC comments who have actually inside understanding into Kublax' demise

  20. At 3:39 pm on 25 Feb 10 parkparadigm said:

    Well they did have a revenue model, which if I'm not mistaken was very similar to that of other PFM sites. It's one thing to have a model, quite another to have revenues! Clearly to your point 3, and like many data businesses, there is a minimal viable traction threshold below which you create no value. As someone who grew up in markets, I would call this a failure to attract sufficient liquidity to the platform. As you point out, they were nowhere close to reaching this.

    I'm not sure there is a bullet-proof algorithm for determining exactly where this minimum viable liquidity threshold lies, but I suspect with a bit of work you could come up with a pretty good estimate. We did some very rough back-of-the-envelop analysis with respect to this and felt that for a business such as Kublax, the number of active users would need to be (at least) on the order of 50,000 to 100,000 (ideally mostly within one region – greater London being the obvious place to start for example) before you could start to extract any real value from the platform. Given their product and financing, we didn't think this was going to be achievable and so didn't take the matter further or undertake any more rigorous analysis of the company or it's product.

    I don't know if the €1 million number is actually correct (it seems to me they raised less but I stand ready to be corrected) but it is clear that there was a lot of money wasted but perhaps not in the ways that most observers would guess. This wasn't Boo.com, nothing was gold-plated; quite the contrary actually. One needs to remember that Kublax started out in the summer of 2007, ie they've been around for c. 30mo which gives a burn rate of approximately €30k per month which in and of itself is unremarkable. The main problem was that during the first 18 months of the company's life, much of the money that was spent was wasted as they failed to 'move the ball down the field.'

    One of their problems – quite possibly self-inflicted and so should have been a warning – is that they spent an inordinate amount of time and energy trying to raise money. Whatever the total amount they raised, I can tell you it came into the company in drips and drabs, meaning that the company seemed to always be living hand-to-mouth and never had sufficient runway to really tackle any key milestones. Now don't get me wrong, I think it is entirely probable that the reason they didn't get more funding more easily is that the team and product didn't cut it, and perhaps the lesson here is that they should have called it a day in late 2008.

    The point I was trying to make in my original post, was that we felt a company like Kublax – ie going after the PFM opportunity in the UK – would be very difficult/impossible to bootstrap with a few hundred thousand of seed capital. Not that you wouldn't start there – as a number of people have already pointed out – this should be sufficient to build a good alpha/beta product and put the foundations of a company in place, but assuming the pilot looked successful (great team, great product, proven execution), you would then need more substantial amounts of capital in order to grow the business past the tipping point to a self-sustaining, cash-flow positive business.

    So to your point as to whether or not adding £5 million to Kublax would have made sense? Well probably not, or only to the extent that you essentially wrote off most of what they had and started from scratch. But I would stand by my opinion that building a successful PFM business (a la Mint) takes more than a couple of clever developers and a few hundred thousand pounds. More generally, I think that all too often the funding mentality pendulum has swung past capital efficiency to capital anorexia, especially in Europe. Sure you can probably build some companies into great, highly valuable businesses with a credit card and some sweat but these are not the rule, they are exceptions. The venture community loves to talk about “lean start-ups” but the reality is most excellent start-ups are not starved of capital. Quite the contrary.

    Kublax had a particularly tortured start in life (I'll leave it to the founders to tell that story) but bottom line, I think their demise was down to the fact that their execution and team were not strong enough to raise the capital necessary to build a great company in the personal financial management space. I think the lesson is you only get one chance to make a first impression and if you screw that up it is then almost impossible to start-over.

    The good news I guess is that the UK PFM space is still wide open and waiting for the right team to grab the opportunity. We still believe in the market opportunity and would love to help the right team nail it.

  21. At 4:15 pm on 25 Feb 10 dan_mux said:

    Good to hear your view, but given that there are 10.5 M online banking users in the UK, and research suggests roughly 20% would trust a provider that was not thier own bank then even if you baged 30% of the market you are capped at 600,000 users.

    Is that enough to be attractive to anything other than a lean start up? I dont know the numbers £1 per user?

    Looking at mint.com and the 5-6x market, thats a target (if you aim for 30% market share) of around 3-4M users – then mint achieved 30-40% of that target after 2 years – if thier figure of 1.3M users is good.

    If this fag packet analysis has any value (shut up!) then a well executed uk 'mint.com' should achieve 252,000 users after 2 years. Enough to support 4 staffers – awesome!

  22. At 8:01 pm on 25 Feb 10 stevenjones said:

    I thought SimplyFinance (http://www.simplyfinance.co.uk) was going to bail them out. I wonder what happened? Maybe they looked at the numbers or the state of the business and decided it was beyond hope?

    I really wonder how true the 2500 user figure is. If you apply the 80/20 rule that would suggest that there would be only 500 active users. Even with £10 per year, that is just £5000 per yer of revenues!!! Also, I wonder if they needed to pay Yodlee on a per user basis or whether it is a flat license.

    By the way, this is a really great blog, with some amazingly insightful commentators

  23. At 8:10 pm on 25 Feb 10 stevenjones said:

    Hello Fred,

    It seems like from your posts the company was run by amateurs. Is your expert sense that if you had a much better team they could have successfully executed on the idea? Or was the idea flawed fromthe beginning given the size of the UK market, in your view?

    Steven

  24. […] thought then that even in the states the numbers don’t add up. I was referring to Kublax when I said this but it holds true for Wesabe as […]

  25. […] have commented in the past, specifically regarding the failure of Kublax, that I don’t think either MoneyDashboard or […]

  26. […] have commented in the past, specifically regarding the failure of Kublax, that I don’t think either Money Dashboard or […]

  27. At 11:44 pm on 16 Feb 12 Segedunum said:

    Wide of the mark.

    There is no way a company like Kublax needed 2 – 5 million in funding. You can easily produce a very competent system on far, far less than that. Basically, any money was squandered and the revenue they were going to get wasn't going to give anyone a return on their investment.

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