Today, 21 European early-stage VC firms released a standard term sheet they will use as guideline for their future investments (actually they released 2 term sheets – one for “general use” and another designed to facilitate the EIS tax relief for investments in small private companies). Both docs were drafted for the UK market, but the general idea should be the same in most countries. Especially first-time entrepreneurs in Europe without much experience in dealing with investors can benefit greatly from this document. While the terms will still be adjusted as required for each transaction, these general guidelines give entrepreneurs a good idea of what is considered “common practice” in a term sheet. This will also help to reduce legal costs and speed up the whole investment process.
Of course not all start-ups will end up winning. Some might have been able to negotiate more favorable terms if the SeedSummit term sheet had not been published. But the positive effects will surely far outweigh such drawbacks (TechCrunch readers seem to agree – so far almost entirely positive comments). Even with all the information available on the web about term sheets, there are still many entrepreneurs out there who have no clue of what should and should not be included in a term sheet. Even top MBA candidates have this problem, as I observe frequently among my students at IE.
As with most innovation in the European VC sector, this move comes more than a year later than the US Series Seed documents, which were adopted in March 2010 by a group of prominent US seed investors, such as SV Angel (Ron Conway), First Round Capital, Mike Maples, and others. But better late than never!
Good news for my friend and CEO of Acens José Cerdán, good news for the Spanish start-up scene in general: Acens has just announced that it was acquired by Telefónica for a rumored €80 million. Acens was founded in 1997 and provides cloud hosting and housing services for more than 100k business customers and operates large data centers in Spain (about 6,000 square meters). Acens hosts over 200k websites, can provide VPN services and allows companies to outsource their entire server infrastructure.
If the price tag of €80 million turns out to be correct, the Acens acquisition price will have surpassed Tuenti’s by €10 million. Not bad! Compared to tech exits in other European countries or the US, this figure might not seem exceptional. But considering the unfavorable start-up environment in Spain, this is a very important signal, both for investors and for (potential) entrepreneurs that exits to local buyers are possible.
The acquisition comes just one day after Apple announced the launch of iCloud. While Acens is a B2B company and does not target individual consumers like Apple, there is clearly a trend here and that is towards hosting everything in the internet.
José has done an amazing job running and scaling Acens since 2007. He was a guest at the Menorca TechTalk and has an interesting bio, having founded his first company at the age of 22 and being a current advisor to the current opposition leader and head of Spain’s People’s Party, Mariano Rajoy.
I am happy for José and his team. Let’s hope that this acquisition gives a boost to the entire start-up scene in Spain. Enhorabuena José!
A couple of weeks ago, Telefónica announced the launch of Wayra, a program that will support the creation of high-tech IT companies in Latin America and Spain. Basically, Wayra is a business incubator, although it wants to be more than that and calls itself a business “accelerator”. (Future) entrepreneurs can submit their projects, even if they’re only at an idea stage, and the 30 teams with the most promising ideas will be given the opportunity to present in front of a jury which will then narrow the selection down to 10 projects (this occurs on a country level). The first three countries are Colombia, Mexico and Spain, and the goal is to have this initiative running in eight countries by the end of this year. This will bring the number of supported projects to 80 by the end of 2011.
Every project will get access to Telefónicas top-notch technological infrastructure, and in addition will receive financing of $30k to $70k during the first six months and will obtain all the necessary support needed to establish and build a successful company (office space, mentoring, day-to-day management, technical support from Telefónicas R&D department, etc.). Wayra will also help the most interesting of these projects to obtain additional financing after the initial six-month period.
The idea behind this project is to facilitate the creation of global tech companies out of Latin America and Spain, which, despite some great successes like MercadoLibre, is still very difficult. Many potential founders move to tech hubs like Silicon Valley, New York, London or Berlin because they can’t find the necessary environments needed to create and grow an international company in their home countries. Access to capital is difficult (especially finding “smart money”), it’s hard to find skilled employees and the overall environment (legal, etc.) is often not supportive of entrepreneurship.
Wayra’s mission is to plant the seed from which local “Silicon Valleys” can emerge over time in the target countries, enabling talented individuals to pursue their dreams without having to leave their home country and fostering innovation and entrepreneurship in the region. A great initiative, I am looking forward to seeing the first projects emerging from the program.
When I left the USA in 1995 and moved to Europe, the start-up scene on the Continent was pretty dead. But a lot has changed since then, and events like TechTour 09 are further proof that there is great talent, capital and great ideas in Europe too. And in a crisis, surprisingly, these three elements are more likely to ignite into a successful start-up.
Last night I spoke at the TechTour dinner thanks to a kind invitation by fomer Fon European, MD Robert Lang, now at Result (disclosure: I am an investor in Result). Nina and I left Madrid around 4pm and arrived in Lausanne at 7pm, stayed until 10pm and then flew back to Madrid. It was a short stay but in those 3 hours we had enough time both to speak and to learn from some of the 150 entrepreneurs and VCs gathered at the event.
My speech was about how the crisis is negative for most but a boom for entrepreneurs. More concretely, it was about how the unique European system of high severance pay and welfare payments (in Europe stock options are not common but extremely large severance pay packages are) constitute a source of capital that can allow a former executive to become an entrepreneur. Many unemployed European executives find themselves unemployed with enough money to devote, say, a year of their lives to a start up without additional compensation. Also in Europe, some very talented people get laid off because it is cheaper to fire them than less talented but older colleagues. And those people are exactly the ones who may be needed in a start up. Lastly, the crisis reduces the difference between large companies, as providers of stable employment and start ups. As people realize that there’s risk anywhere, being the master of their own destinies becomes more attractive.
After my speech I was able to speak with some VCs and entrepreneurs that make the European start up ecosystem very lively. There were many VCs of small funds, funds of say less than 100 million euros, generally funded by Family Offices or holding companies of wealthy European families. What distinguishes Europe from America is that institutional funds are less into start-ups, but fortunately wealthy families whose fortunes came from start ups are more active investors in the area. I end with Poken, a Lausanne based start-up that deserves special mention. Poken is a little device that “shakes hands” with other like devices and in so doing exchanges information about their respective owners. Pokens are great for conferences and events as they are time savers for people exchanging information.
Here are some pictures of the event.
This weekend Nina and I were in Rome. Original plans were just to hang out and enjoy what possibly is the most beautiful city in the world but a fortuitous encounter led me to give a talk to a group of techies in Trastevere on Sunday. The talk was very interactive, with me presenting but mostly asking questions about the Italian start up scene. The event was organised by Johanna of Frestyl, which is a website that brings fans and amateur bands together. Freestyl is currently under development and it is one of the investments of my friend Joichi Ito.
If you have read my article about creating businesses Europe you can probably imagine what I spoke about. It´s a mixed picture. The European scene for start ups is better because there is less competition, salaries are lower and medical and legal costs are much lower but it is worse because VCs are rare, markets are fragmented by language and labor laws make failure, common in start ups, extremely costly. But what I found in Italy was discouraging because, as opposed to Spain, where I live, labor laws are even worse, VCs are even rarer, Internet success stories are few, and the Italian language market is much smaller than the Spanish language market. After asking many questions about the Italian startup scene I reached the conclusion that, even though Spain’s economy is doing worse than Italy’s in general, our technology startup ecosystem is doing better. When we built Ya.com, for example, we invested 38 million euros, and sold it for 550 million. Of those 550 million euros, 70 went to 50 employees thanks to our stock option plans. Jazztel was a similar story depending on when employees cashed stock options after IPO, some did very well some didn´t. But out of all of those who did well many new angels emerged. Jon Berrojalbiz is one great example of a successful entrepreneur who came out of Ya.com. He is currently CEO of the very successful Trading Motion and an investor in other strat ups like Isolee. There is also the case of Miguel Salis, who was CFO at Jazztel and is today CEO of Eolia Renovables. Eolia, which was started when Miguel was the MD of my family office in 2004, is now the biggest independent alternative energy company in Spain. Over $1bn was invested, EBITDA is now over $120M and up 110% from a year ago and many jobs were created tons of carbon emissions saved. There are also many cases of companies that were sold successfully in Spain which had nothing to do with me. In Italy, however, I did not hear stories of 70 million euro stock option plans or cases in which wealth was created and distributed in a way that would create an angel network. As a result, the culture for small investors in Italy is lacking and entrepreneurs have to ask their parents or family for money which I consider in general a very bad idea. The only way to do well in VC type investing is to have a diversified portfolio, asking your parents to invest with you is contrary to that.
And then there is the cost of failure. Most start ups fail and that is true anywhere in the world, but in Italy the cost of failure is enormous. If a company shuts down because, for instance, their product had no demand and this company has say 100 employees, the costs for the entrepreneur can be brutal. In Fon, for example, we began with many employees. Unfortunately we had to lay off half of the team at one point and now that we are profitable we have started hiring again. This situation would have ruined us in Italy, because there they have different laws of forced severance payments for companies under 15 employees and over 15 employees. Significant startups can’t exist in this environment since they never know with certainty how many people they are going to need. On top of this, entrepreneurs who fail are seen as crooks. Not as people who tried to create a good product and create jobs but simply failed. Having an entrepreneur president who has barely escaped jail for many years now has given Italian entrepreneurs a bad name and that is not fair. So, on top of everything, I said before up and coming Italian entrepreneurs confront a mood very different to those of say Dutch entrepreneurs, Netherlands being the European country which in my view respects entrepreneurship the most. Now, to end on a positive mood, Italians are still very creative and have many SMEs who thrive on a European and sometimes global basis and hopefully this will soon also be the case of Italian Tech Companies.
And, in closing, here are some pictures of Rome.
In Spanish, we use the phrase “sentido de la orientación” all the time. In English, you can speak about a sense of direction or my preferred, though rarely used term, “sense of orientation.” Being an entrepreneur, I think that what is most needed, is a sense of orientation…in business. It is interesting that now researchers are finding out how the sense of orientation works.
Here´s a summary:
To orient ourselves, we mainly need two pieces of information: where am I and in which direction am I heading? Experiments in the rat have shown that these types of information are directly accessible and independently coded in the brain. When the rat explores a new territory, so-called place cells and head direction cells form within only a few minutes. Place cells are active when the rat visits a particular area, no matter which direction it is facing. In contrast, head direction cells code the direction the rat is heading, independent of where it is. Also humans presumably have these and other types of cells which specifically instruct its sense of orientation. Scientists around Mathias Franzius and Laurenz Wiskott from the Humboldt-University and Bernstein Center for Computational Neuroscience Berlin (Germany) have now developed a theoretical model that can explain the emergence of all orientation-specific cells that are known in rats and primates to date.
Now my personal experience is that most successful entrepreneurs I know have a very good sense of orientation. Many are pilots, skippers, mountain bikers. When I have gone cycling in the mountains with top entrepreneurs like Sergey Brin, Niklas Zennstrom, Michael Dell and others, I have found that they are all very aware of the two key variables that manage orientation: knowing where you are and knowing where you are headed. Loic LeMeur, founder of Seesmic, is an amazing pilot. Needless to say that, in business, knowing where you are and knowing were you are headed is essential.
Moreover, I am convinced that the sense of orientation is not equally divided among men and women and, since I don´t run Harvard University, I can say so. The women entrepreneurs that I know, though, do seem to have a great sense of orientation. I know that there´s nothing scientific about commenting on my life experience and coming to conclusions but for whatever is worth it is what I observe. Emily Cinader, founder of J Crew for example, who was my girlfriend in the 80s when I was at Columbia University, is not only an outstanding entrepreneur, but she definitely knows her way around.
At the same time, there seems to be a genetic component to the sense of orientation. I have a good sense of orientation and so do my four children. The two boys and the two girls. Recently I have been observing the sense of orientation of Leo, my two year old son and it is uncanny. Leo can barely talk, but he can walk, find a water fountain that he saw in a park the previous week, which is out of sight and 200 meters away from him. He just says agua and goes for it. I follow.
I hope one day we understand much more about how we orient ourselves.
This December I finished my entrepreneurship class, which I have been teaching for 11 years at the IE Business School, and it was without a doubt the toughest one I’ve ever had to give. How am I supposed to inspire students to go out and get funding in this market if businesses like Apple and Dell, which generate cash – which have a lot of cash and profit – are seeing their shares hit rock bottom?
Dell’s situation is incredible. A business with more than 20 years of experience that has just earned $700 million this past quarter, with an invoice of $55 billion throughout the world, with no debt and, on the contrary, $10 billion in the bank, is somehow worth only $20 billion: $10 billion more than the cash it has on hand. Right now, the market is only betting against Michael Dell, whom I consider to be one of the best entrepreneurs in the world. Practically the same thing is happening to Apple: it has only $24 billion dollars in cash. If the markets don’t have faith in Steve Jobs or Michael Dell, how in the world are they going to have faith in a recent IE graduate? Right now it’s almost impossible to get anything financed, so teaching entrepreneurship is like giving ocean navigation classes… in Kansas.
Although it’s something that can be learned, that knowledge simply can’t be put to use in these conditions. But I did what I could: I tried to give them the best ideas, to tell them the anecdotes that could best inspire these future entrepreneurs. I tried to be positive, but without straying too far from reality. But it is hard, very hard, to teach entrepreneurship in the current conditions. Especially to students that dipped into their savings or went into debt in order to be able to pay for the Masters offered by IE and get started on something that is almost impossible to finance. Okay. Digg, Facebookand the Huffington Post have managed to obtain funds. Maybe it’s not impossible, but it’s much more difficult. At any rate, whoever manages to grow when there is such little water available…will become king of the desert.
The Instituto de Empresa is one of Europe’s leading business schools. This international business school is oriented to providing top-level training for executives and entrepreneurs. The school offers an extensive portfolio of master’s degree programmes (full-time), executive master’s degrees (part-time) and executive education programmes, designed to equip participants with the management tools and competences that make a successful business organisation. The markedly entrepreneurial and global slant of Instituto de Empresa programmes, together with a firm commitment to new technologies and applied research projects, provide a valid response that meets the needs of today’s business community.
Urban Capital, Medicorp Sciences, Viatel, Jazztel, Einsteinet, Ya.com…