You may have noticed that I haven’t posted much in the last couple months and given all the interesting things going on in the world it certainly wasn’t for lack of material. Breaking my arm obviously didn’t help increase my productivity (or make typing very easy) but it wasn’t the main reason for the silence. It’s much simpler than that: I was busy!
Busy investing in a whole bunch of super exciting and interesting new businesses. Busy working on the sale of ODL Group (where I was the lead independent non-executive director) to FXCM to create a true global leader in FX trading. Busy working with my partner Uday and FT Advisors on a number of interesting strategic advisory projects, in particular focused on the electronic and algorithmic trading space. Busy helping two of our portfolio companies raise follow-on financing. Busy working on our own corporate structure and capital raising where I hope to be able to communicate some exciting news in the not too distant future. Busy.
So what have we been investing in? Here is a quick rundown (in alphabetical order):
Babuki – 2008 seedcamp winner, launching soon (will update) with an innovative platform for social gaming
Blueleaf – investment information management and planning software “to help people like you see all their savings and investment accounts in one place; understand their financial information more completely, more quickly; securely share information and collaborate with spouses, family or advisors; save their data, even if they change financial institutions; and maybe most importantly, help them stay financially safe and secure.”
Timetric – builds services to make sense of time-series statistics, based on the Timetric Platform: a proprietary service for publishing, analysing, and performing calculations on very large quantities of time-varying statistical data. Have a look at this neat little demo website they have built for tracking equity portfolios.
Metamarkets – provides global, real-time media price discovery by aggregating billions of electronic media transactions in order to deliver dynamic price data, proprietary price and volume aggregations, and comprehensive analytic media market views to sell-side media principals.
[not yet closed - will update soon]
Over the next few weeks or so, I plan to do a proper write-up on each of these businesses and the reasons we think they have bright prospects. So watch this space.
There’s nothing more valuable than an unmet need that is just becoming fixable. If you find something broken that you can fix for a lot of people, you’ve found a gold mine. As with an actual gold mine, you still have to work hard to get the gold out of it. But at least you know where the seam is, and that’s the hard part. - Paul Graham
In the latest of his series of great essays, Paul Graham makes the obvious – but all too often overlooked – point that one of the best ways to create value is by working to “fix things that seem broken.” He also highlights the fact that sometimes it pays to step back from your daily environment to get a clear picture of what is broken:
You may need to stand outside yourself a bit to see brokenness, because you tend to get used to it and take it for granted. You can be sure it’s there, though. There are always great ideas sitting right under our noses.
At the end of 2006, after a long, successful, and mostly exciting and enjoyable career in capital markets I took that step outside. And my suspicions became convictions. Finance seemed broken to me. And it bugged me. It still bugs me. It bugs me when super smart people (who aren’t financial or market professionals) resign themselves to accept crappy advice and ill-suited products and services when it comes to their finances. It bugs me that so many bright, energetic, ambitious people working within the financial services sector continue to be trapped in the status quo of 20th (even 19th) century business models, their talents misdirected when the alternative is so much more appealing.
And so I thought I should try to fix it. Not all of it. Not all at once. But more than just a single facet. I haven’t got it all figured out yet, but I think I’m headed in the right direction and most importantly I’ve learned more – about the industry, about people, about building value and about myself – in the past 3 years than in the 10 before combined. I’ve never worked harder and I’ve never had more fun. And I’ve met some pretty amazing people too.
A few days ago, Fred Wilson commenting on the (ridiculous) inclusion of venture capital in the financial stabiliy bill wrote this:
The only systemic risk the VC business is creating for the financial system is attempting to put the current one out of business by financing entrepreneurs with new ideas for banking, brokerage, insurance, and other financial services. I’m not joking about this. I believe entrepreneurs will use technology to reinvent the way financial services are provided to consumers this decade.
“Using technology to reinvent the way financial services are provided to consumers this decade.” Nice. In fact that is our elevator pitch. I just hope Fred doesn’t mind if we use it.
Admittedly a very small holding (acquired via our investment in CohesiveFT) and with some mixed feelings (more on that below) but nonetheless an excellent result for an exciting and important technology and the team behind it led by the one and only Alexis Richardson…yes today SpringSource (VMWare) announced its acquisition of Rabbit Technologies – the company behind the world’s leading implementation of AMQP, RabbitMQ.
RabbitMQ was born of a JV between CohesiveFT (my partner Amy sits on their Board) and L-Shift and was spun out as an independent entity under Alexis’ leadership about a year ago. The mixed feelings I alluded to above are only because we were quite excited by the prospect of helping Rabbit grow as a standalone business, given their already excellent market share, the existing and extremely fast growing market for their product (messaging), the already strong brand and market adoption of RabbitMQ and a number of successful open-source business model pioneers and exits to emulate. As we did not have the capital required to make this happen we could not put a credible alternative on the table. To be fair, there were always a lot of moving parts and there is no guarantee that we could have put a better, workable deal forward and clearly joining the VMWare family is an awesome opportunity for the company and the team.
In any event, I’m really excited and happy for them and proud to be associated with them, even if only in a small way. Here’s to hoping this is a homerun deal for VMWare! (And yes having “Rabbit” in your name is one of our investment criterea…)
A couple of months ago, I had the privilege to have been invited to speak at eComm 09 in Amsterdam. I have posted on this previously but recently the video of my talk was posted and perhaps will make it easier to understand my accompanying presentation. If you can spare 20 minutes (there is an additional 10 minutes of q&a at the end) and are interested in understanding how Nauiokas Park defines our opportunity space, please have a look as it is probably the most succinct expression of the worldview we bring to investing and analyzing potential investment opportunities.
And here is the presentation again, in case you would like to follow along as you listen to the video:
Well-built developer platforms are the future of every industry. (-ReadWriteWeb)
Note: Their is a small glitch around 7:40 where the video skips over a few seconds; funnily enough (for the conspiracy theorists out there) this is exactly where I say that had ZSIN’s existed, the extent of the disasters that occurred in the mortgage securitization markets would have been at least an order of magnitude smaller…)
Huge congratulations to Stefan Glaezner and Eileen Burbidge for creating the White Bear Yard space for start-up entrepreneurs in central London. I’ve seen the space and it’s terrific with the only (very small) downside being a reasonably long walk from the nearest tube station.
Since we embarked on our Nauiokas Park adventure, one of the elements of our vision has been to create a common working environment allowing us to be close to the companies we invest in, but more importantly bringing together the hard-to-quantify but very real benefits of having a shared working environment. Having spent 15 years working on trading floors, I know what the advantages (and disadvantages) are and for very early stage start-ups. In particular the benefits of just having some people around are huge.
We have a few different – and hopefully smart, interesting – ideas of how we would do this but they will have to wait until we have the necessary funding. Until then I’m only too happy to heartily recommend that any London based start-ups looking for space (and funding) talk to Stefan and Eileen and try to get a desk or two at White Bear Yard.
Instead, Wall Street needs to be reinvented from the bottom-up: by a new generation of radical innovators, to create thick value, for an authentically shared prosperity.
Building a disruptively better global financial system is the central challenge —and the largest, richest opportunity — for today’s economic revolutionaries. It’s time for Finance 2.0.
Investors, entrepreneurs, and radical innovators of all stripes: it’s time to It’s time to go big, or go home. You’re happy that social gaming is worth billions. That’s nice. But it’s also chump change. Because the gains that can flow from better capital markets are worth trillions.
Finance — not video games, advertising, cleantech, or social nets — is where 10x+ returns lie for today’s venture investors, and life-changing fortunes lie for entrepreneurs.
Hallelujah. Anyone who knows us knows that this is right out of our pitch book. And yet. It’s not easy. And I’ve been wondering why that might be. How much of it is a ‘turkeys not voting for Christmas’ problem? Or is it a question of ‘Lord, make me chaste. But not yet…’? I don’t know, hard to tell. Anyhow I’m sure we’ll get there in the end, but there is so many exciting opportunities and so much potential sometimes I struggle to understand why we aren’t reduced to beating back hungry investors with a stick. I guess the real answer is that we need to spend more time seeking capital and less time investing it. But I tell you that just doesn’t seem right. It should be the other way round, no?
A wise man (not being sarcastic – he really is wise) once told me of a very large private equity firm where he used to work at one time. He said they had a lot of smart and ambitious people. And a few well, Forrest Gumps. The latter took care of investing, while the former focused on the much more important job of raising more and bigger funds. I thought he was joking. I’m now pretty sure he wasn’t. (Note to self: area no. 697 of financial services ripe for disruption: allocation of capital to private equity managers…)
There has been much recent angst in the venture capital world about funds that are too big, and indeed the same debate flares up from time to time in the hedge fund world where many strategies (although not all) have analogous scaling problems (over-crowded trades, positions too big for the market, opportunities too small to ‘move the needle’ of a big fund.) But investors time and time again prefer to take the safe route and ‘buy IBM’. The classic fail-conventionally-versus-succeed-alone trade. Don’t get me wrong, there are some amazing big funds – where as an investor you get to eat your cake and have it too: ie great returns and the ‘safety’ of a tried and trusted organization – but there are also many many mediocre funds who have grown out of their edge and had their business objectives perverted into raising and keeping ever larger amounts of AUM, rather than having the objective of generating the best possible risk adjusted returns. I guess the fund-of-fund structure was one answer to solving the dilemma of how do you scale allocation of funds into many small and/or new managers, unfortunately more often than not, many of these funds find it easier and safer (reputationally not financially) to slide back into allocating to the same old, same old. (And a few bad apples discredited the whole concept by just putting all their money into a ponzi scheme and taking fees for their trouble!) I’ve thought about this a bit, and I must admit I have yet to come up with a clever mechanism that would solve the problem of efficiently (and safely) getting investment capital out into the ‘long tail’. But I’m sure it exists. Especially with the tools and access to information available today.
We also need to fix the supply-side by taking away the naked incentive for asset managers to blindly pursue AUM growth as a priority. This is easy. It was the first thing I said I’d do differently – three years ago – if i ever managed outside capital. It seemed so bloody obvious: management fees pay the cost of running the business, carry or performance fees are the juice. So set management fees at the level of the operating budget. Simple. You would think investors would love this as it reflects the true cost of managing the investments and aligns interests. Sure, it is a bit more complicated than just multiplying the capital by a fixed percentage, but only a bit: the cost structure of an asset manager is not exactly complex – people, an office, some travel, IT (more or less depending on the strategy) and some professional fees (legal, accounting, etc.) Further if there are economies of scale to be had in the strategy in question, these would be naturally passed on to the investors as the costs as a percentage of assets would naturally decline as assets grow, but the managers would be indifferent to this and so aim for an amount of assets that allowed them to create the best returns net of management fees. Indeed this is exactly what Paul Kedrosky suggested the other day. (Once again perhaps we were too early!) We thought potential investors would love this. The reality (so far) is that most have been at best indifferent and in a few cases outright skeptical – “That sounds too clever, why don’t you just stick to 2% like everyone else…” (I’m not making that up!) ie Don’t rock the boat. And that’s a problem, because we’re all about rocking the boat! And I can’t see how we can be otherwise and remain credible when our value proposition is to identify and invest in disruptive business models… (Sigh.)
Anyhow, Umair don’t lose faith, we’re working on it!
As many of you know, last week was ‘seedcamp week’, the third one since following Saul and Reshma’s initial inspiration in 2007 when what was to become Nauiokas Park became one of the founding investors alongside the (better known and more established) giants of European venture capital. In fact I think it is fair to say that seedcamp may well have been the catalyst which tipped me down the path to creating Nauiokas Park which until that summer of 2007 had only been one idea amongst many percolating in my brain. So perhaps we are in fact the original seedcamp startup!
The concept and the competition has come a long way in a very short time and is testimony to Reshma’s energy and skills and Saul’s vision; I think the best gauge of their success is trying to imagine the European startup scene without seedcamp: hard to do. Perhaps the most exciting aspect of seedcamp’s evolution for me is seeing a more diverse and mature group of entrepreneurs rising to the challenge. And when I say mature I don’t mean older or later stage, but mature in the sense of marrying technical brilliance and/or an inspirational idea with a pragmatic and well-conceived business model. Gone (or mostly) are the ‘build-it-and-they-will-come-and-we’ll-sell-them-online-ads-or-something’ innocents of yesteryear. In their place this year we had a great, diverse and passionate group of talented entrepreneurs who not only had a lucid approach to building a business and making money but also seemed to be incredibly well prepared in terms of knowing exactly what they didn’t know and getting the best out of the amazing group of mentors that is the seedcamp community. Indeed my greatest regret this year was missing a day of mentoring due to an unavoidable (and unscheduled!) board meeting – not only because it meant I didn’t get to meet as many of the teams in person as I would have liked, but also because I didn’t get to soak in the advice and world views of the many other great mentors in parallel.
Judging this year was both easier and harder than in years past. Easier because almost every one of the finalists had a strong and reasonable claim on being a viable business; harder because it was less easy to choose from such a large and diverse number of relatively closely matched competitors. In no particular order, my favorites were Boxed Ice (whom I had originally met at mini-seedcamp London and been impressed), Erply, Codility, Talasim, Joobili and Fabricly.
Of the finalists this year, once again very few would fall within our investment universe and indeed that is something we’d like to help change going forward. Resource constraints – time, money, people – have not yet allowed us to pursue this but I would love to work with seedcamp to run a mini-seedcamp ‘Finance’ to source, develop and encourage more startups to go after a market that is just crying out to be disrupted. Indeed after the incredible success of the geographically focused mini-seedcamps in 2008/2009, perhaps it might might sense to extend the mini-seedcamp idea down a sectoral vector next. While the variety of sectors and business models represented in the applications this year is certainly more varied than in 2007 or 2008, in my opinion the relative lack of diversity is probably one of the few important remaining weaknesses of seedcamp (and indeed the startup ecosystem in general.) Erply, Pearl Systems and Fabricly, while on the edges of our investment universe are definitely companies we will keep an eye on going forward. Fabricly in particular could become more interesting to us if and when they focus on developing their position as a central clearing-house in the fashion supply chain; I thought they had an excellent team and were unlucky not to have been amongst the winners. I was also very impressed by the team at Erply and would question the thinking of anyone who would consider the opportunity they are pursuing as ‘boring.’ With respect to our investment universe, Codility and Advertag I would say are wildcards insofar as their current business models would not fit within our approach but I suspect both have technologies that could be repurposed to target financial services and markets more specifically. Ones to keep on the radar screen perhaps.
Although I am relatively less active than I might otherwise be as a direct result of my significant commitments (of both time and capital) to Nauiokas Park, I have managed nonetheless to make a handful of angel investments over the past couple years, three of which have been seedcamp winners or finalists: MyBuilder (2007), School of Everything (2007) and Kyko (2008, launching soon…) In this year’s class I’d definitely consider investing privately in Boxed Ice, Talasim, Joobili and Fabricly but unfortunately its clear there is no way I would be in a position to lead any of these given my constraints, but if/when they do decide to raise outside capital I’d love to see a term sheet…
A couple years ago, I had just decided to try to build what would become Nauiokas Park. I wasn’t entirely sure exactly how I was going to go about it but I had a vision of what it might look like and I knew the market opportunity – to develop technology-enabled disruptive business models in financial services and markets – was vast. Also, Saul and Reshma’s inaugural seedcamp had given me an excuse (or a push) to stop ‘mulling it over’ and ‘get started’ even if I didn’t exactly know what ‘it’ was yet.
One of the first things I did was to start building a database of startups and private growth companies that I thought fell into my embryonic firm’s new investment universe, and one of the first companies I added (on August 29th, 2007 to be exact) was Mint.com. I had first heard of them early that year when they were raising a Series A round and the concept had always appealed to me (and I had always wondered why banks had been so oblivious to it.) I had definitely hoped to be able to take a closer look once I had raised outside investment capital (they were already past the seed stage where I could have contemplated trying to play as an angel) and so it was one of the first companies on our internal ‘radar screen’. Well as they say in the start-up game, it always takes longer than you expect and here we are – one giant financial crisis later – in the fall of 2009 and Mint will now be coming off our radar screen (into our archives) having gone and gotten itself acquired by Intuit for $170mn.
On the one hand, it is exciting to see innovation in the space we are calling our own, succeed and be rewarded. And although I’ve never had the pleasure of meeting Aaron, I would like to congratulate him and wish him continued success with Mint and Intuit. Who knows, perhaps I’ll get to meet him in the future. Maybe when he’s contemplating his next venture? On the other hand, I can’t help but wonder if they sold too soon. I have to insert a disclaimer here – I have absolutely no idea what Mint’s financials looked like – so my view is entirely speculative, but I can’t shake the suspicion that if they had enough traction to get $170mn from Intuit, they had already hit and passed the inflection point and could have aimed at becoming (at least) a billion dollar company and owned the space.
Bittersweet? Well partly for not having invested as an angel but that’s just back-trading, so not really. Mainly it’s because – if the company was for sale – I would have really liked to have been in a position to run our slide-rule over it and, if it made sense, put in a bid, either alone or as part of a club deal with one or two private equity peers. If they have attained critical mass – which it looks like they may well have – it doesn’t take too much imagination (if you live in the sixth paradigm) to see them developing into a multi-billion dollar business over the next 5 years or so. Don’t get me wrong, I understand why management, the angels and the VCs, might find this exit attractive, especially given events of the past 24 months, but I can’t help thinking they’d done the hardest part and instead of letting a winner run, took their profits too soon.
PS If anyone knows where I can find Mint’s financials and projections, I’d love to have a look.
Nauiokas Park – which was set up last summer by Amy Nauiokas and Sean Park, a former head of debt syndicate, credit trading and digital markets at Dresdner Kleinwort – has recruited an ex-NYSE Group electronic trading expert and the former global co-head of financial technology advisory at Deutsche Bank as venture partners.
Nauiokas Park was set up by the pair to offer strategic advice, leadership and capital to growth companies with innovative business models at the intersection of financial services, markets and technology. Nauiokas has in the past featured in Financial News’ list of the Top 100 Women in Finance, while Park is a former Financial News Rising Star.
It has now struck a joint venture agreement with Financial Technology Advisors, a new corporate finance and advisory boutique set up by Udayan Goyal after he left Deutsche Bank in February. Goyal has become a venture partner at Nauiokas Park. The two firms share offices in central London.
Also joining as a venture partner is Sam Johnson, a former vice president in equities electronic trading at Goldman Sachs who left in 2000 to found a trading connectivity solutions company that was acquired in 2007 by NYSE Group. Johnson remained at NYSE, most recently as executive vice president and co-chief executive of NYSE Technologies, until his departure earlier this year, according to Nauiokas Park’s website.
Nauiokas Park has made five investments since its creation, but market conditions have put its focus more on advisory work in recent months, according to its founders.
Nauiokas said of Goyal’s arrival: “When we launched it was clearly a very interesting time in the markets, and while our long-term capital raising and investment strategy has not changed we made the decision to focus our efforts more on consulting and advisory work. As Sean and I turn our attention back to capital raising, it makes sense to bring on a partner who can share in and pick up the advisory side of the business. The partnership with FT Advisors offers complementary skills in a similar sector and critical mass for both firms.”
Park also highlighted the complementary skills of the four partners encompassing financial sector experience and knowledge of the start-up technology industry, citing the “technical skills and network contacts” of Johnson, whom he has known since their days playing rugby at the same university.
Nauiokas said the company hopes to turn its attention to fundraising soon, following signs that investors’ risk appetite is returning in the financial sector. Nauiokas Park is weighing several potential investments, while broader plans over the coming months could include expanding the team at analyst and associate level, particularly in New York.
Nauiokas and Johnson are based in New York, where the company does not yet have offices, while Park and Goyal are London-based, and Park believes the rare approach of having twin bases spanning the Atlantic can yield benefits because the London and New York markets are very different and yet equally important in terms of understanding and investing in emerging opportunities for disruption and innovation in financial services.
– Write to Vivek Ahuja at email@example.com
Aren’t sure what kind of overlap there is between Financial News and Park Paradigm subscribers so hope they don’t mind me posting this here.
If innovation grows at Nauiokas Park, some of the best seedlings come from the fantastic seedcamp nursery. We were particularly pleased that folks like Timetric, CityOdds and GymFu walked away winners from the London Mini Seedcamp in April after we had encouraged them to apply. And so with this in mind I want to encourage ambitious, intelligent and passionate entrepreneurs, young and old(er) to test out their vision, ideas and execution skills at seedcamp week 2009. There is only two weeks left to apply and I sense that the competition for places will be very keen indeed, so don’t leave it until the last minute to get working on your application.
On behalf of Nauiokas Park, I would particularly like to encourage and see more start-ups focusing on disruptive innovation in the financial services arena. There is so much opportunity in this vast sector of our economy and yet it seems as if many or most entrepreneurs tend to avoid applying their technological or business model creativity and innovation to this market. Clearly there are some barriers that don’t exist in other sectors or markets but by the same token, in many instances, the potential rewards are accordingly significantly higher.
In any event, for any ambitious start-up in Europe (or even further afield) today, applying to seedcamp is a no-brainer: even if you aren’t selected as a finalist, the work needed to submit a robust and cogent application will serve you in good stead as you look to build out and finance your new business. If you are a finalist, the contacts you make and the information you will absorb during the week are something that can not be bought for any amount of money. And if you happen to win – well that’s just icing on the cake! So what are you waiting for? Apply! You’ve really got nothing to lose.