aka 'highlights of the last few months'

It's been quite a while since I posted anything and it's time I did.  The last few months have been pretty busy so I thought I'd write some notes about the main items in one post and then we can pretend that I'm current again.  I'm well aware that the sheer size of this post means it's unlikely to be read fully by most people.  There are some pics so perhaps that might be enough to hold your interest :)

Later this week, I'll write a separate post about the things I'm working on now and I'll try to keep more up to date from then onwards.  

All of the following covers October to December.

 

Silicon Valley comes to the UK

SVc2UK was a 5/6 day conference with events taking place in Cambridge and London.  The aim is to introduce students from universities to high-profile folks from the Valley and inspire the students to consider startups as a career path (either by founding or joining them).  I was involved in this conference back in 2009 and decided to join the the new team for the 2011 events.  This year the conference was preceded by a several 'Appathons' (read: hackathons), which took place at 6 Universities, including Cambridge.  You can find out more about the Appathon and the conference via www.svc2uk.com but here are some short notes and some pics.

-- Cambridge Appathon --

The hackathons were 2-day events aimed at students and the theme was open government data.  I ran the Cambridge event on behalf of Cambridge University Entrepreneurs and we had about 80 people taking part over the course of the weekend.  Representatives from Google, Facebook, Apple and the Technology Strategy Board were present to advise the student teams and folks from the local tech community also got involved.  At the end of the weekend, we awarded Amazon Kindles to three winning teams (as decided by audience vote) and everyone was encouraged to enter the national competition too.  One of the Cambridge teams also won the national prize (a trip to SV).  Yeay!

Given the sheer amount of brain-ache involved, I could (should?) write a separate post on how to run a hackathon.  Maybe I'll get around to it at some point but in the meantime, here's the team that actually pulled this together: Matko, Alastair and Andy, Ben, Ivan, Simona, Saar, Roger.  I'm also especially grateful to the sponsors/supporters of the event: Red Gate Software, Cocoa Controls, Nick (at Google), SVc2UK, ideaSpace and the Cambridge Computer Laboratory (who hosted us for a weekend).  Below are some pictures of the event itself and the national awards ceremony at Downing Street.

-- SVc2C Conference --

This was the main part of the conference and the guests from the Valley were in Cambridge for two days.  In that time, they took part in a pretty large number of events and hopefully met a lot of interesting students.  If you're interested in the list of guests, you can check them out via the link on the conference website.

You can find videos of this year's sessions on the Vimeo account.

 

Stanford online courses

I did all three of the inaugural classes. Machine Learning, Artificial Intelligence and Databases ... and I enjoyed them in that order.  The following is a short summary/review of each.

ML-Class was fantastic since you had to write actual scripts and I really looked forward to both the videos and exercises every week.  At times, the exercises felt a bit contrived (one line of code in a file) but there were occasions where I had to really think properly to *get* that one line.  Once you got the hang of matrix multiplication the exercises got easier.  The scores don't really mean anything since you could repeat the questions until you got a perfect score. At some point, I'll go back over the iTunes U content from the profs 2008 class.  It has more theory/maths and covers reinforcement learning, which the applied course didn't.  You can find my 'programming' exercises [on GitHub][Github ML Repo].

AI-Class was a very different course and it didn't seem as 'slick' as the ML class but I learnt *way* more maths, specifically about probability.  Since I was terrible at probability at school, I really wanted to get a better handle on it and this class really made me work.  I have pages and pages of calculations for some of the in-class questions and I hope I can retain what I've learnt.  At times there was only a cursory overview of a topic before moving on but I should have expected that from an "Intro to..." course.  This was the only class with *both* graded homeworks and exams. Overall, I was in the 'top 25%' according the statement I got (overall mark was 95%).

DB-Class was the one I least understood but the one I originally thought I was going to stick with.  Within the first few lectures, I knew I was going to find it tough.  Relational Algebra made no sense to me and the videos seemed to cover each example once and move on to something else.  Since I didn't have enough time to find additional resources, I ended up barely following along and basically flunked the course.  There was a mid-term and final exam and the homeworks could be repeated until you got a perfect score (but I ended up not bothering).  No idea what score I got but you needed >50% to get a statement and I didn't get one :)

In general, I was very impressed by the dedication and effort the profs and the teams working with them put into the courses.  Although the profs were the folks centre stage, there were a group of largely unsung heroes who kept things running, put together exercises and enabled everything to happen.  This method of learning is really going to take off and if people can figure out how to deal with proper certification, then it might even challenge the notion of going to University.  There have been a slew of new courses available and I think I'll try two more if I can fit them in (i.e. Probabilistic Graphical Models and Model Thinking).

 

Learning to code

I've also been trying to keep up with learning Python via LPtHW (see GitHub repo for progress).  I'd describe myself as chugging along and I'm glad that I'm not finding anything too difficult.

The trickiest part is finding ways to actually fit some coding into things I need done.  Since I finished analysing my PhD data, I've not had the need to write scripts or manipulate data in any substantive way and I don't fancy re-writing any of my old stuff (NB I also tried to collate all of that and added it to GitHub too).  I'm sure I can find something worth doing and I suspect it might involve Django sooner than I thought.  

I also signed up to Code Academy's 'Code Year' but I've not opened any of their emails yet (and I suspect I won't have time). 

Events and occasional startup stuff

As always there have been a bunch of events and startup-related items in the last few months.  Normally I wouldn't bother mentioning these but I'm in a list-y mood.

• - Seedcamp Demo Day (Sep)
• - CharityHack (Oct - not that I did much)
• - Silicon Roundabout Social Club (Oct)
• - Product Camp (Nov)
• - Connections talks (Nov & Dec - Cyberwarfare and Energy)
• - Eric Ries - Lean Startup (Jan - UK Book Launch)
• - HackerNews London Meetups
• - Visit to Olympic park (ok, so this was waaay back in May and should have had it's own post but I never got around to it)

Pics of Visit to Olympic Park (in May)

... and finally

I manged to get this done in October.  Took a while.

A few days ago, Seedsummit released a Term Sheet intended to be (or become) standard across Europe for early stage investment.

It’s been several days since the announcement and so far I haven’t seen much in-depth commentary on it (other than acknowledging its existence and how difficult it must have been to achieve consensus). That might be because the announcement seemed to come as a surprise, so perhaps folks haven’t had a chance to digest it yet. Or maybe nobody cares?

One post from the Guardian offered some criticism, but beyond that it’s all been a bit quiet. Since no-one else has posted any thoughts, I thought I’d go through the document and offer my opinions. I’ve put the notes in a more comprehensive post and summarised the main points here (mostly because going through a legal document is a little bit dreary).

Main comments on Seedsummit term sheet

There are a few of things that founders should be careful of. First is the liquidation preference, where founders should be getting the non-participating option (Option 1). Second is vesting, since founders probably want to adjust the values described. Third is how the option pool is set up (before/after the funding). Finally, the anti-dilution provisions don’t seem to provide any useful information so founders should check this carefully if they’re presented with it. For more detail on any of these points, see the relevant section in the detailed review.

The overall impression I got was that these are documents for dealing with VCs (edit: It seems an additional note was added to the download page to this effect). Unsurprising since it was put together by 21 VC firms from across Europe. Surprising because I’m guessing no Angel investors were involved, despite the term sheet being advertised for ‘early stage’ financing. Since Seedsummit is trying to build a network of european investors (and credit to them for that), I did find it a little odd that there didn’t seem to be any Angels listed as helping to create this document. Perhaps it’s because the Angels aren’t investing on a pan-european basis? I’d love to see a Series A term sheet for comparison and my gut feel is that the Seedsummit document has a lot more in common with Series A than with Angel docs. This does beg the question, what does ‘seed’ actually mean?

What does seed mean?

In 2009, I set up and ran the first iteration of Springboard (a seed accelerator). We were helping early-stage teams to get a product out the door and to start getting feedback from users (customer development). When teams came out of the programme, I considered them ‘seed-stage’, i.e likely to be ready for seed investment, wherever that may come from. Ideally, the team would have a version of the product that was being used by early adopters. The team would be adapting that product based on feedback, although they would likely have little/no revenue. That basically sums up what I picture in my head when I think of ‘seed-stage’.

Over the last week I’ve met several VCs from different firms and asked them directly what seed means to them. For each of them, seed-stage investing involves companies that have a product, customers and revenues. This was pretty much the case for all the VCs I spoke to. I wish I’d probed for more detail as to what kind of revenue/customer numbers they expect but never mind.

In any case, despite using the same language, there’s obviously a gap between the above viewpoints. I’m not suggesting either of them is right or wrong but I think it’s important to point out such differences, especially in the light of the new ‘standard’ term sheet.

What does this term sheet mean for founders?

In brief, founders should do their homework. In going through this document, I spent quite a while researching and there’s actually a lot of information out there about what the terms mean and the impact they might have. As we now have a European VC term sheet in the open it’ll make comparisons with US VCs a lot easier. Any major disparities will quickly be picked on by the popular startups who might go elsewhere to raise money. Indeed, the real test will be whether or not a ‘hot’ new startup uses these terms and as they stand, I doubt that will be the case. Founders will still need lawyers and VCs will still be willing to negotiate terms.

We’re not quite at the point-and-click stage for early stage financing but with more and more information being put into the open, it does become easier for startups to make better informed decisions.

If you haven’t already, you can go check my review of the Seedsummit terms now.

Did you find this useful? Upvote and comment on HN

Photo credit: Affärsbilder by Dan Eriksson on Flickr

Please read the summary post (above) before reading this one.

Summary: Last week, Seedsummit released a Term Sheet intended to be (or become) standard across Europe for early stage investment. To achieve this, 21 European VC firms convened and agreed on a ‘standard’ set of terms. The aim of producing this document is to make “… seed funding easier to access, better to understand, and fair for all parties”. If you want to, you can download the general term sheet for yourself. I’ll go through this document below.

Things to note

Before I get into the document itself, there are a few things I should point out:

• The most important is that I Am Not A Lawyer. Anyone dealing with legal docs should obviously get legal advice. However, since this term sheet is meant to be “reader-friendly” (as SeedSummit says), I’d hope that someone like myself should be able to understand and interpret it to some degree. If not, one of the benefits of this document diminishes since I still need a lawyer to translate it for me.
• I’m only reviewing the general term sheet, not the EIS specific sheet.
• I’ve read typical angel investment docs since I’ve led one angel investment before (for someone else). Hence my point of view is likely to be influenced by that.
• I’ve never seen a term sheet from a VC so I can’t make any specific comparisons between the new SeedSummit sheet or a prior VC term sheet (though I’d like to).
• Obviously, everything you read is here is just my opinion. Whether you agree or disagree, I just want to see some discussion.

---

About Seedsummit

I realised I know very little about Seedsummit itself so I looked around their website and also for other links via Google.

In a few words, SeedSummit is Europe’s answer to AngelList. More specifically, it’s SeedCamp’s answer to AngelList (it’s run by the same people rather than independently). It seems there are about 120-ish investors (assuming all profiles are visible) and the investment range is from 10k to 500k EUR (which is the kind of range I consider to be ‘seed’). Randomly clicking through the profiles, I see that the majority of them say “I am investing: My own money”. At first, I took that to mean there were more Angels on the platform but looking closer I noticed that some of those profiles are of Partners in VC funds. Although these folks have ‘skin in the game’ I expect they only invest via their funds so it would have been more appropriate to say “Money from a fund”. In any case, this made it more tricky to guess at the ratio between Angels and VCs on Seedsummit, so I gave up trying. If anyone else knows the answer, please let me know.

Comments on the Seedsummit Term Sheet

I’ll go through this term by term and note my comments so you can follow along with the document. I’ll skip the stuff that doesn’t warrant much discussion (e.g Company, Founders, etc). Since this document was based on the Series Seed documents from the US, I’ll also make a quick comparison between them.

Structure of financing

The pre-money valuation includes the employee share option pool, which effectively dilutes the founders a little more than they would otherwise have expected. There’s a pretty good post by Fred Wilson on valuations and option pools and I’d recommend people read that for more information.

Type of security

This basically says that the new shares have preferential rights (i.e they are not common stock).

Liquidation preferences

There are two options here and both state “… one times the original purchase price …”, in other words it’s the same amount of money the investor put in. Had this been anything other than ‘one’ it would be cause for concern. The main difference between the two options is whether the investor is non-participating or fully-participating which are quite different.

Non-participating means that the investor can do one of two things when there’s a ‘liquidity event’ (e.g acquisition). They can either make sure they get their money back (i.e one times the purchase price), with any left over being divided amongst the other shareholders. Or they can choose to get an amount in proportion to the shares they hold. They will take whichever returns the most money. Obviously, both the founder and investor want the sale to be as large as possible so both will be aiming for the latter case. In the case where the exit isn’t quite what the investor imagined, then they’ll try and get their money back. It seems there is an example of this in practice when Fred wrote about Slide.

Fully-participating means the investor gets to do both of the above. They will get their money out first and then will also take a share of any left over money (sometimes referred to as ‘double-dipping’). This is definitely the less founder-friendly option and I expect founders would not accept it (assuming they have enough bargaining power to push back). It does seem a little odd to me that this is listed as an option in an early stage term sheet, especially since terms usually get carried forward into subsequent funding rounds. For an example of how liquidation preferences can affect the way money gets distributed, you can read VentureBeat on liquidation preferences (scroll down to the example).

Anti-dilution provisions

This term, which is indicated as optional, dictates what happens if a subsequent round of funding occurs at a lower valuation than the current one. Except it doesn’t. Those deceptive square brackets could hold a range of scary sounding words and in some cases you might even find equations in there. Since there’s no suggested text here, I don’t have much to say. Feel free to google and you’ll find some variations on what could end up in here.

Important Decisions

A list of things you can’t do without the investor’s consent. The options here basically whether the list is written in the terms or referred to in an appendix. From the suggested list, there isn’t anything I haven’t seen before.

One thing that might be missing is the proportion of shares that must be maintained by these investors to maintain this right. As it stands, the investor could hold any amount of shares and still maintain the right (e.g they could hold less than 5% and still block a sale of the company even if the other 95+% agreed to it).

Pre-emption, Right of first-refusal and Co-sale

I’ve seen most of this before but there are a couple of things I don’t understand. Firstly, for pre-emption, “The Investors my assign this right to another member of their fund group”. I have no idea what this means since I can’t figure what ‘fund group’ is being referred to. Secondly, for the Right of first-refusal, I’m not sure what “…transfers by Investors to affiliated funds” means either.

Drag Along

The important point here is that both a majority of the Preference shares and of the Ordinary shares is required to enact it. Had it only been a majority of Preference shares then it would be drastically one-sided.

Restrictive Covenants and Founders Undertakings

Other documents come into play here, for example the employment contracts. An interesting point is that the founders shouldn’t work on anything else during their ‘business time’, which mean any side projects might need permission from the investors. It’s reasonable to expect founders to commit themselves to the business but they would need to check the employment contract to make sure there isn’t anything untoward. The last sentence referring to immediate dismissal for cause seems a little harsh.

Founder Shares

Apparently the shares held by founders would be subject to reverse vesting. In effect, whatever shares you thought you ‘owned’, you don’t really have anymore. Reverse vesting means that although you have your shares the company will repurchase them from you (at practically no cost) if you leave or are fired. That ‘right-to-repurchase’ diminishes over time. This doesn’t sound like a good deal for the founders but it’s understandable that the investor wants to keep the founders committed to the company.

The interesting part are the suggested figures. 25% of the founder shares vest after a year and the rest on a monthly basis over another two years. This seems a bit excessive to me. Firstly, I don’t see any reason why more of the shares can’t vest immediately and the rest on a monthly basis thereafter. Secondly, I think a three year time frame is quite long and although I’ve seen it for employee options it doesn’t seem appropriate for founders at an early stage. (edit to add: I’ve heard from friends in San Francisco that four year vesting with a one year cliff is pretty standard out there)

For the kinds of startups I’ve dealt with, I’m generally of the opinion that if a founder leaves, then the company is effectively over. Provisions for clawing back shares, like the one one here, seem largely pointless to me. In any case, I think founders will have to look carefully at what the vesting looks like and see if it works for them

Expenses

Option 1 just plain sucks. I find it slightly ridiculous that the investor expects the company to pay for their legal fees and the amount isn’t even capped. Option 2 is slightly better in that everyone pays their own fees but it also includes a caveat that if the founders decide to withdraw, then they’ll have to pay the investor’s legal fees to date. That would seem fair enough but notice there’s no caveat for the case where the investor decides to change their mind. I’d certainly push for that to be added too.

Brief comparison with Series Seed

The Seedsummit term sheet is itself based on the Series Seed documents so I thought it would make sense to do a quick comparison between them.

There are a handful of things I noticed which were:

• Series seed only mentions a non-participating liquidation preference (Seedsummit includes an option for fully participating)
• In the Series Seed document, the investor’s legal expenses are paid for by the company but they’re capped ($10,000).
• Series Seed’s founder vesting is over 4 years (but gives no suggestions).
• No anti-dilution provisions in Series Seed term sheet

If you got this far then congratulations on your patience!

You can either go back to the summary post or upvote and comment on HN

He got the name @paulg and @avibryant sorted it out for him. Seems like the update hasn't filtered everywhere yet since I found the following at http://twittercounter.com/paulg?manual_update=1

Looks like the previous owner was a Paul Gardi. I wonder if he has any idea how many followers his old handle now has (or will have soon).