Seedcamp has teamed up with JAG Shaw Baker (a technology focused law firm based in London) to produce a series of short articles highlighting some of the key intellectual property (IP) issues that affect startups. By underlining some of the common issues and providing practical advice, this Understanding Intellectual Property series will touch upon the protection of IP, ownership, data protection and privacy, infringement and web / domain name issues.
Our first ‘Understanding Intellectual Property’ article explained some of the frequently encountered ownership issues and provided guidance on how to ensure your startup obtains full ownership and control of its IP. Once ownership has been established, the next step is to understand what rights might protect your business and how such protection might be achieved. For example, while some rights will arise automatically (such as copyright) other IP rights require registration and the payment of official fees (for example, registered trade marks and patents).
In our experience, companies with a comprehensive understanding / awareness of IP protection tend to fair better as they are more likely to recognise issues early on. Unfortunately, there is no one-size-fits-all, off-the-shelf strategy that can be applied to startups – that is especially true when disruptive or new technologies are involved. Instead, it is necessary to develop an appropriate IP strategy tailored to your business. The next few articles will help you to do that by providing an overview of the key IP rights and providing some direction to help avoid the common mistakes. The focus of this article is brands and trade mark protection.
The importance of trade mark protection will be, in part, dictated by the nature of your company’s business. For some startups (such as those providing consumer products/services, luxury goods or where brand loyalty is especially important) trade mark protection may well be the most important IP right to the business. Trade mark protection is, however, vitally important to every high-growth / venture-backed / technology business and should not be overlooked.
In the UK, your brand may be protected by both registered and unregistered rights. A registered trade mark affords the best level of protection: it prevents third parties (whether competitors, counterfeiters, or other third parties) from:
a) using identical marks in relation to identical goods and services;
b) using identical or confusingly similar marks in relation to identical or confusingly similar goods and services; and
c) where the mark has a reputation, from taking unfair advantage of, or is detrimental to, the distinctive character or the repute of the trade mark.
In the absence of a trade mark registration, an owner might be able to rely on its unregistered rights attaching to the trade mark by bringing an acting for ‘passing off’. Passing off does not protect the trade mark itself, but does protect against a misrepresentation of the ‘goodwill’ (i.e. the attractive force that generates sales revenue) attaching to the trade mark.
The main problem for startups is that it usually takes a number of years to build-up a goodwill that is protectable by an action for passing off. As a result, a startup’s brand is most vulnerable in its first few years. Trade mark registrations may seem expensive but it is almost certainly better than being forced into a rebrand 18 months down the line. Registered protection is therefore always recommended. Unregistered rights should be thought of as a secondary or additional layer of protection and not relied upon in lieu of registered rights. Investors too will expect to see trade mark registrations covering the core elements of the brand in each of the markets that are essential to the business.
In order to formulate a trade mark registration strategy, you will need to consider the following points:
What is capable of registration? It is possible to register “any sign” (for example, words, logos, slogans, domain names, colours, etc.) provided it can be represented graphically and is capable of distinguishing the goods or services (i.e. the trade mark must be distinctive enough to differentiate it from other brands). There are a number of other exceptions so it is worth seeking advice from your lawyer / trade mark attorney if in any doubt.
What mark is best to register? As businesses will often use several marks (words, logos, slogans, etc.) it is important to formulate a strategy and establish what element of the brand you should seek to register. If money is no object it is advisable to register each mark and element of the brand separately, in each jurisdiction. This is, however, vastly expensive and clearly not practical for all startups. As a general rule, the broadest protection is obtained by registering the brand name as a word in block capitals (examples include “GOOGLE” or “APPLE”). If funds are available, the next priority is likely to be your company’s logo. To obtain the broadest protection it is usually advisable to register the mark in black and white and not in colour.
Which goods and services? When filing a trade mark application it is a requirement to specify the goods and services to which the mark will be used. Careful thought is needed to establish which goods and services the application should elect. If the specification is too broad the mark may be susceptible to revocation; too narrow and the trade mark will not offer the necessary scope protection. Your lawyer / trade mark attorney can help you formulate a strategy.
Trade mark searches. Before filing the trade mark application we would always recommend having your lawyer / trade mark attorney perform some basic trade mark searches to identify any major issues or obstacles. This pre-emptive step will sound out the availability of the mark for registration, identify obvious infringement risks and highlight any major issues. This information will help formulate a strategy to navigate the issues and avoid wasted fees pursuing trade mark applications that eventually fail.
Where should you seek to register a trade mark? Trade mark protection is, by its very nature, territorial. In other words, to benefit from registered trade mark protection your brand will need to be registered in each jurisdiction which is important to the business. This includes core markets in which your startup provides (or will provide) goods / services and any jurisdictions where its products are manufactured. In formulating a filing strategy the following should be considered:
a) the trade mark registration process in the UK is fairly simple. All being well you can expect to register a trade mark within 12 months or sooner from the filing date;
b) if your company operates (or will operate) in more than one EU member state, it is usually more cost effective to apply for a Community trade mark (CTM) rather than individual national applications. A CTM comprises a single application that, once registered, protects the mark in all 28 EU member states; and
c) if you intend to file trade mark applications in a number of jurisdictions at once it may be most cost effective to use the ‘Madrid System’. The Madrid System allows brand owners to make one application to a number of contracting countries (including the US, China and Australia) in one go.
When is the right time to make an application? It is important to file an application as soon as possible and ideally before your business officially launches. As explained above a startup’s brand is at its most susceptible for the few years after launch. Registering a trade mark will dramatically reduce the risks.
Costs: Costs and fees for trade mark registrations will depend on many factors and you should speak to your lawyer or trade mark attorney to obtain an estimate.
a) the official filing fee for a UK trade mark application is £170 per mark plus £50 for each additional class. The fees of your lawyer / trade mark attorney in advising and submitting the application will be charged on top;
b) the official filing fee for a CTM application is €900 for one mark in up to three classes and €150 per additional class. Again, lawyers’ / trade mark attorneys’ fees need to be added;
c) official filing fees in the US depend on the type of mark and the basis for registration. Specialist US advice is also usually required; and
d) if you intend to file in several jurisdictions at once, it may be more cost effective to submit applications through the Madrid System (explained above). Costs will entirely depend on which jurisdictions you wish to designate.
Trade mark creation, management and protection are therefore critical to any business seeking to obtain and maintain brand loyalty and ensure commercial success.
JAG Shaw Baker is a firm dedicated to advising entrepreneurs, companies, and investors in high-growth industries. The firm advises on all aspects of venture and growth capital, as well as other corporate finance transactions, corporate structuring, intellectual property and growth and exit strategies. It also acts as general counsel for high-growth companies.
Seedcamp is Europe’s leading pre-seed and seed investment fund and mentor network, and provides its startups with an ongoing Learning programme, known as Seedcamp Academy. Sessions are provided on a variety of topics; from marketing, to product development, to fundraising, to legal. Ambitious startups with disruptive products/services and global aspirations are invited to apply.
This article contains general information only. It does not constitute legal advice. You should consult a suitably qualified lawyer on any specific legal matter or issue.
This guest post is written by Joaquin Figaredo, Co-founder & CEO of HOKO, a deep-linking platform for mobile apps that allows apps to connect smoothly. HOKO joined Seedcamp in early 2015 and have been attending our Academy learning sessions. In this article, Joaquin shares his learnings from a recent Branding workshop.
I recently had the privilege of attending a Seedcamp Academy session hosted by Gabbi Cahane. Its content was really valuable for every startup out there as we all strive to become successful businesses, so I wanted to share what I learnt and the key takeaways I gleaned from the session.
First of all, lets define what we mean by ‘brand’;
Brand is everything you make, and everything you do.
Your brand assets include your products and services, your business model and technology, your people, your visual identity and even your tone of voice.
Since your brand incorporates all these assets, the fundamental goal to building a kick-ass brand is that everything around it has to be consistent, coherent, and clear. It means clarifying your vision (Purpose), defining your target customers (Positioning), and reaching them with the right messages and the right channels (Personality).
Your purpose is what truly defines you; what influences everything you do, and what lets you develop over time. Your customers can be attached to your products, but can only be truly connected to your purpose over time. Think about how attached people were to their blackberry, and think how deeply connected they are to Apple. Kick-ass brand.
One of the best things about your purpose is that it stays with you over time.
If your purpose comes from your company’s heart, it doesn’t matter if you have to pivot your business at some point (chances are you will), your identity will remain intact.
To define your purpose, try asking “Why?” This is the most powerful question you can ask when defining the purpose of your company:
Once you define your purpose, it’s time to position your company and your products.
“Our product is for absolutely everyone” might sound ambitious, but is that really true? Words don’t impress our investors, facts and numbers do. So unless you have unlimited resources – actually, even if you do – the best way to take your product or service to market is by differentiating your company and focusing on a particular target audience.
Be careful however, it’s not about being different for the sake of it. It’s about being different with the right context. Your positioning should be aligned with your purpose and a well-thought strategy. Try focusing on those customers who are suffering the most about the need you are trying to solve. Focus on those early adopters who will become your champions.
To have a good start, ask yourself these questions:
Once you define your positioning, it’s time to build your personality. What do we mean by personality? The simpler definition of the word personality is, “The combination of characteristics or qualities that form an individual’s distinctive character.” But wait, isn’t that positioning? Yes, it kind of is, but personality encompasses the attitude around this positioning, and the perception it creates to your audience.
Personality is how you communicate with the world. Every message you publish, every email you send, every slogan you use. Make sure that all those messages are aligned with your purpose and your positioning. Your customers should love your messages, and if you are being bold enough, those who are not your customers might hate them – and that’s okay!
Now that you understand it, go get some attitude now! And don’t forget that this attitude has to be consistent throughout your organisation. It should be permeated through every person in it, injected into every product you make, and sealed in every single message you give to the world.
At HOKO we’re still learning a lot about all the above, and it’s an exciting journey as we emerge from the early stages of our company’s growth. Check out the HOKO blog to see how we are developing in this area; as I discover revelations about our brand I will be sure to share them!
This guest post is written by Christer Holloman, CEO and Co-founder of Divido, which lets retailers allow their customers to pay for anything in interest-free instalments, increasing basket sizes and conversation rates by an average of 20%. Divido joined Seedcamp in late 2014 and have been attending our Academy learning sessions. In this article, Christer shares his learnings from a recent B2B & Enterprise Sales workshop.
I saw the headline of this post for the first time as an email subject line along with an invite to attend a one hour workshop with Tim Jackson. It seemed almost too good to be true, but was it? I signed up to find out and here are my key takeaways…
Back in 1997 Tim founded an auction site called QXL; he listed it on Nasdaq and LSE in 1999 and the company was later acquired for $2bn by Napster. Today he runs an early stage investor and advisory firm called Lean Investments.
To deliver on his promise of showing us how to grow our businesses by 45%, following this one hour session he referenced Damien Tanner’s Mediacore Playbook which focuses on three particular themes; List Building, First Contact and Continued Engagement.
The session was peppered with other examples and hands on advice, but here is a selection of the tips that resonated the most with my team and that we are now incorporating in our B2B acquisition strategy.
Regardless of whether your strategy is to contact people by email or by phone, you want to build good prospect lists. The key is to improve the way you collect the input, then how you enrich, merge and clean it.
When it comes to enriching data Tim recommended DueDil – which we are already using at Divido. Because the industry we operate in is heavily regulated and we are operating under a license authorised by The Financial Conduct Authority, we don’t want to do business with just any retailer. They need to be of a certain size, have at least two years of audited accounts, and be in good financial standing, etc. DueDil helps us establish that before we start investing time in the prospect.
Once you have developed a solid list it’s time to make the first contact. Again, there are some great tools that can help you do this and Tim gives examples like SalesBeach and QuickMail.
When it comes to the logistics, Tim recommends you start with around a thousand contacts and drip feed them tweaked versions of a template to see which ones appear to generate the best response. Use automation features to adapt the messaging in the 2nd email to create the illusion you’re sending these personally one at a time. It’s also important to not send too many per day, as when they do reply you need to have the bandwidth to reply to them straight away while the lead is hot.
As the cycle for a B2B sale is longer than your average B2C equivalent, it’s important that you put activities in place to create reasons to re-engage with your leads over a longer period of time using site analytics, webinars, white papers, etc.
At Divido we host an industry breakfast seminar once a quarter and invite high profile speakers talking about topics that are of interest to our audience of prospects. It’s a great opportunity to develop relationships over time.
To monitor success Tim recommended some specific KPIs to keep track of:
If you improve your List Building by 10%, your First Contact by 20% and your Continued Engagement by 10%, combined you will achieve an overall improvement of 45% (1.1 x 1.2 x 1.1). In other words, everyone can improve their business by 45% in one hour if they improve the way they do some of the basics.
Tim’s session reminded us all that there isn’t one silver bullet to get the job done and that success is directly correlated to effort; trial and error.
This guest article is written by James Moed, Seedcamp’s Expert in Residence and was previously Director for Financial Service Design at IDEO. For the past 11 years, he’s advised both innovation leaders and design teams, helping them to combine fresh insights around customer behaviour with inspiration from other sectors, new business models, and emerging technologies. In this article James presents the three key things a startup should consider before focusing on design.
About 12 months ago, I walked into my first mentor session as an Expert-In-Residence at Seedcamp – three hours to help 6 startups in 30-minute back to back sessions. The forced intimacy felt awkward. I had just spent seven years at IDEO where I would patiently dissect big company innovation problems over weeks or months. Here at Seedcamp, I’m expected to offer meaningful advice in half an hour to teams with about 50 other issues burning up their inboxes.
In most cases, it’s assumed that I’m a “design guy.” While Seedcamp founders are far more fluent in design and user experience than most corporate VP’s I’ve met, sometimes I still find myself staring at demos and wireframes. Not just a few founders have looked at me in hope that I might sprinkle some IDEO ‘designy-fairy-dust’ on it.
Well firstly, I’m not that kind of designer – rather, I’m the guy who can help you translate user insight into product features (and design decisions) that make business sense. Secondly, even if if I were, before any conversation about pixels, there are a few core topics to tackle first.
Here are three things to talk about before talking about design…
Often, by the time I meet Seedcamp founders, they’ve come through multiple weeks of pitching. Session after session of convincing investors, advisors and others that they know exactly whom their product is for and what it needs to do to win over those customers. By the time that process is over, many founders believe their own pitch a little too confidently.
Some forget that their first job is to figure out the big questions, gain fresh insight and validate assumptions – not prove that customers WILL do what the pitch deck says.
Often this bullishness translates into customer acquisition at the expense of learning. One company I met had the luck of a charismatic founder, great connections, and customers lining up for trial. The sales pipeline was impressive (and made a great story for investors) but the team didn’t actually know if customers would use the product as predicted. They had to resist the temptation to sign up too many early users. Just managing those customer needs would have distracted the team from the test/learn cycles they needed to focus on. A significant pivot a few months later proved the wisdom of a bit of patience.
Getting to product-market-fit is supposed to be a bit messy…
Before you add a whole bunch more stuff to your UX backlog, be honest about the big assumptions you still need to test.
Will your users behave as you expect? Do you know their real “job to be done”? Are you sure you’re targeting the right people? How might you gain more confidence quickly and cheaply?
After a decade of beating the drum of customer insight and empathy, I get real naches when I meet a founding team that has already thought through their customer personas. Building personas is an easy exercise and a great way to start seeing your customers as real people – not just “users.”
However, many conversations that start with a rich persona soon give way to questions about why users aren’t responding to the product in real-life. It often goes something like this: “Our product makes life so much easier for X, if only they’d take the time to learn it!”
So – why won’t your target user put in the effort?
Many teams put so much thought into building a better solution, they don’t realise how much patience and support new users need to learn it. Even the most detailed personas often fail to capture how reluctant many users are to try something new.
Don’t just imagine the benefit the user will gain from your great new service, think about the risk they’re taking if they get it wrong (lost time? lost reputation?)
How can you mitigate that risk?
(I’m a big fan of Canva’s approach. They’ve designed an easy way to create graphic design projects online, but the tools, while intuitive, require some practice. That’s why their onboarding process goes overboard in building users’ digital confidence with a bit of game-motivation, and lots of humour.)
If your user seems too risk-averse it may be worth re-examining your target user. You’re going after people who might use your product – but how badly do they need you? Let’s say you’ve come up with a tool that enables digital marketers to create Scorsese-quality promotional videos in half the time. Sure, you could market your service to high-end marketers (“Cut your spend in half!”) but changing their behaviour will be tough. After all, those folks already have a solution they’re used to, even if takes lots of time and money.
Take some time to think about customers who have the need – but lack the means.
Who’s currently excluded from today’s solutions? (Which digital marketing folks wish they could build awesome videos, but feel like they’re too small, too inexperienced, or too budget constrained to try?)
If you can reach customers with the most acute needs, they may become your most important lead users. For example – who were the first customers of the stylist-sends-you-a-box-of-clothes-to-try-on retailers (e.g. Trunk Club, The Chapar) Style-obsessed dudes with no time? Girlfriends looking to replace their boyfriends’ trackies? Nope. The original users were heavy guys – the ones who benefit the most from great fitting clothes, but hate the awkwardness of trying them on in-store.
Beautiful, simple digital design seems to be everywhere (hooray!). UXers have finally won their seat at the table, and today, no startup would dare present any demo that lacked the clean, flat, intuitive look and feel that we’ve all come to expect from “good” design. Seedcamp founders are no exception.
The real test of great UX isn’t its simplicity, it’s the ability to deliver on a user’s needs at every step.
Whenever Seedcamp teams show me their product, the first thing I do is walk through it from the perspective of their customer. At each screen, I’m asking: What does this user need to do here? What does this user need to feel in order to do that? Does this screen deliver on that function and emotion?
Often, what seems at first glance to be a great UX design, starts to feel like it’s missing the mark. A few months back, I was working with a company that aggregates premium content and I noticed that their landing page led the user directly into an explanation of subscription packages. It was easy to read and uncluttered. Still – the effect was jarring. If I’ve just arrived at this site with the promise of viewing a clip of my favourite celeb, the main (the only) thing I need is the satisfaction of seeing that content. That satisfaction could come from a video teaser or even just a big still image – but it’s way too early to be selling me on a subscription In this case, the team was so concerned about communicating the details of their product that they ignored the subtleties of seducing their customer (or as IDEO’s Lydia Howland says, “Oops, your business model is showing.”)
Getting to UX that delivers the right thing at the right time requires that you take a step back and create your user’s service journey.
Journey mapping is core to every service designer’s toolkit, so there are quite a few good guides online. It’s basically a matter of breaking down your product experience step by step, identifying what your user is thinking, feeling, and doing at each point, and determining which of those needs you should consider. Here are a few pointers:
Unsurprisingly, by the time we’ve touched on these three topics, I’ve given the founders enough homework that we can comfortably save the UX design review for a future session. By the time that rolls around, the founders I’ve met show up with much more than just screens. They bring personas, service journeys, and much more specific questions about their UX challenges – all the right ingredients we need to talk about design.
Seedcamp has teamed up with JAG Shaw Baker (a technology focused law firm based in London) to produce a series of short articles highlighting some of the key intellectual property (IP) issues that affect startups. By underlining some of the common issues and providing practical advice, this Understanding Intellectual Property series will touch upon the protection of IP, ownership, data protection and privacy, infringement and web / domain name issues.
This article, the first in the Understanding Intellectual Property series, highlights probably the most important (but frequently misunderstood) issue: ownership. Ensuring that your company fully owns and controls all of its IP is of fundamental significance; failure to get this right is often not just a costly mistake but can also seriously jeopardise the company’s success.
Ownership issues often only come to light during an investment round or acquisition, by which time it may be too late. The risks can, however, be minimised by making yourself aware of the common issues and following the practical steps outlined in this article.
The first point to understand is that your company will not necessarily own the IP that has been developed just because it has paid for, or instructed, the work to be created. In fact, the legal position differs vastly depending on who created the work. For example:
Founders: typically, founders create, develop and register IP rights (or other similar rights) before the incorporation of their company. They might, for instance, coin brand names, formulate algorithms, register domain names, develop the website, etc. Any IP created by the founder(s) prior to the incorporation of the company will be owned by the founders, not the company. Founders also tend not to enter into employment or consultancy agreements with the company for their services. As a consequence, IP developed by founders during the performance of their services after incorporation of the company will not ordinarily be owned by the company.
Employees: the basic rule is that the company will own the IP that its employees develop, provided it is created in the course of his/her employment. Exceptions exist, however, and employment agreements should always contain comprehensive provisions to ensure that IP is owned by the company.
Consultants (also known as independent contractors): unless there is a written contract in place that transfers ownership, the consultant will almost always own the IP that he/she/it creates. This is a very common issue and often requires the consultant to enter into a written contract to transfer ownership of the rights if such an agreement does not already exist.
Third parties: startup and early stage companies will inevitably contract with third party companies to help develop their product or services (for example, a web-development company, product design specialist, software development provider, etc.). Even though your company has paid for the services, the third party will own the IP unless there is a contract which provides otherwise.
In addition to IP rights, ‘moral rights’ might also exist. Moral rights are separate legal rights that arise automatically in favour of the author(s) of a work (i.e. a founder, employee, consultant, etc.) and may prevent your company from exploiting its IP as it wishes, even if it is the sole legal owner.
Unless there is a contract which provides otherwise, moral rights remain with the author even after he/she has transferred the IP to your company. This can be problematic and it would not be wise to proceed without the security of moral rights waivers from all relevant parties. Although waivers are best obtained before the creation of a work, they can be obtained at any time thereafter.
The potential consequences can be profound: at best, your company may be held to ransom; at worst, your company may be prevented from carrying out its business. Four of the most common direct consequences include:
a) the company is forced to pay over-the-odds for IP that it should have owned in the first place. This typically occurs where a disgruntled consultant leaves and is unwilling to transfer the IP, except for a hefty fee;
b) the company is sued and/or prevented from exploiting certain rights as doing so will infringe the IP owned by the commissioned party / consultant;
c) the company is unable to prevent competitors or counterfeiters from using IP rights that it does not own; or
d) one of the founders leaves the company and sets up a competing business that makes use of the IP that the founder created.
It is also important to appreciate that potential investors / acquirers will expect your company to have full and unencumbered ownership and control over the IP that it requires to conduct its business. In fact, potential investors / acquirers will likely spend a significant amount in legal fees to ‘due diligence’ your company’s IP ownership. If a potential investor / acquirer discovers that a company does not own the IP that it should, typical consequences include:
a) your company may suddenly become a lot less attractive and substantially more risky. Potential investors / acquirers might not be interested or walk away early on;
b) the transaction may collapse, particularly if the issue is serious or is not capable of remedy. This happens more frequently than you may expect, even after a term-sheet has been signed and the deal has been agreed in principle;
c) if the deal does not collapse there will be an unavoidable delay to the transaction until the issue is resolved. This can be particularly troublesome if the company is in desperate need of financing and also increases costs, fees and expenses; or
d) the potential investor / acquirer may dramatically lower its valuation of the company and seek to renegotiate the terms of the deal.
The position may be worse still if an investor / acquirer discovers an issue after the completion of the transaction as the founders will typically have provided warranties and indemnities in their personal capacity that the company has full IP ownership. You may therefore find yourself the subject of a legal claim for the investors’ / acquirer’s damages.
It can be extremely difficult for your company to claw-back the IP that it needs, particularly if you allow a lengthy period of time to pass. Needless to say, getting your ducks in a row early on is essential to minimise the risks. Dealing with the issues as soon as possible will also help.
The following practical steps will also help to identify the issues:
a) keep a written record of who created or helped create the IP important to the company’s business and ensure that suitable contracts are in place with each of them;
b) enter into written IP assignments with each of the founders to transfer ownership of all past IP to the company (visit the Seedsummit website for a free IP Assignment Agreement template);
c) check that the company has entered into written employment agreements / consultancy agreements with each of the founders to ensure all future IP developed is transferred to the company. If not, enter into such agreements;
d) ensure that all employees have signed an employment contract that: (i) assigns all IP to the company immediately on creation; and (ii) waives all moral rights to the fullest extent permitted by law. If not, enter into written employment agreements;
e) ensure that all consultants have signed a consultancy agreement that: (i) assigns all IP to the company (ideally with “full title guarantee”); and (ii) waives all moral rights to the fullest extent permitted by law. If not, enter into a written IP assignment or moral rights waiver with the consultant;
f) check that all third party companies that have developed products / services: (i) have assigned all IP to the company (ideally with “full title guarantee”); and (ii) provided a warranty that all moral rights have been waived to the fullest extent permitted by law. If not, an IP assignment and/or moral rights waiver will be needed;
g) have your lawyer perform an IP audit to ascertain what the issues are. It is advisable to have this done frequently as well as in preparation for investments or another corporate transaction.
JAG Shaw Baker is a firm dedicated to advising entrepreneurs, companies, and investors in high-growth industries. The firm advises on all aspects of venture and growth capital, as well as other corporate finance transactions, corporate structuring, intellectual property and growth and exit strategies. It also acts as general counsel for high-growth companies.
Seedcamp is Europe’s leading pre-seed and seed investment fund and mentor network, and provides its startups with an ongoing Learning programme, known as Seedcamp Academy. Sessions are provided on a variety of topics; from marketing, to product development, to fundraising, to legal. Ambitious startups with disruptive products/services and global aspirations are invited to apply.
This article contains general information only. It does not constitute legal advice. You should consult a suitably qualified lawyer on any specific legal matter or issue.
This article is written by Carlos Espinal, Partner at Seedcamp and was originally published at TheDrawingBoard.
One of the options that founders are reminded of more and more above and beyond VC and Angel funding, is Crowdfunding via online platforms such as Kickstarter, AngelList, and Seedrs (to name a few). However, these platforms are not all the same and in this post we’ll cover how they differ as well as what makes them unique.
To help better categorise the use-cases for the different types of crowdfunding platforms, let’s split them into two:
While we won’t delve too deeply into the first category, in summary, it is used primarily as a way to help fund the pre-order of tech product inventory, as usually other sources of cash are needed to make your company viable operationally; this doesn’t mean that this is the only way people use cash raised on these types of platforms, but it does help to at least highlight how it is used by them.
To highlight the above, let’s take a look at the Kickstarter Stats on their site (dated Oct, 2014) (https://www.kickstarter.com/help/stats) to help highlight some conclusions. With some number crunching, what you can see is an interesting set of conclusions:
That said, the largest outlier and most well known tech Kickstarter fundraise was that of one of my favorite products, the Pebble Smartwatch with over $10m pledged. That said, they still raised capital from VCs and Angels. I’ll let you draw your own conclusions from that.
On the other hand, for the second category of crowd-funding platforms, those enabling investors to invest cash in exchange for equity you start seeing a different trend, one of fund-raising designed to help you build and scale your company rather than just to help you build a product.
On these platforms, however, rather than having your contributors provide cash in exchange for a promise or a pre-purchase of a product, your contributors are getting a share of your company. Literally, they are becoming investors and shareholders, with all the pros and cons that entails. What differentiates all the major platforms in this category are factors about how they structure the investment into your company and where they can operate.
AngelList, the dominant platform in the USA, for example, allows startups to raise two ways (in the word’s of AngelList’s Philipp Moehring):
“Offline fundraising” – This option is open to all companies and allows startups to use AngelList’s network and introduction features to connect with investors who might be interested in your company.
“Online fundraising” – AngelList Syndicates allow investors to invest in startups alongside an experienced Lead investor. The company can leverage the network, experience and reputation of Lead investor to raise funds for their business.
Fundraising on AngelList works better if the Startup’s profile is complete, the funding round has momentum, and the founder is responsive to answer intro requests and questions. Thousands of companies have raised funding in this way, or have augmented their existing round with additional investors they found on AngelList. The success rate is similar to what a company would experience offline.
Since the launch of Syndicates, however, more than 250 companies have raised money online through AngelList. The closest analogy for a founder is to think of a Syndicate as a one-time fund pulled together by the Syndicate Lead.
AngelList has closed about 90M through syndicates, and it is closing about a company per day now. They’ve had some european companies that raised from syndicates, including Patients Know Best (Elad Gil), Spatch (Andy McLoughlin), Holidog (Ed Roman), Enevo (Scott Banister).
Since every syndicate is backed by different investors and is variably active, total investment amounts vary from syndicate-to-syndicate. Founders should work with with the lead investor to understand what they usually close. Across AngelList, syndicates have closed up to $1m, with most companies raising between $200K and $500K.
Lots of AngelList’s stats can be found online here.
Companies that have a lead investor with an active syndicate have a more than 90% success rate from start to finalisation. After a deal is announced, investors can make reservations to invest, and closing is started after the allocation minimum is met. Once in closing, about 99% of all deals will be “finalized” and completed. The reason for these high numbers is the pre existing commitment of backers to invest in the lead’s syndicated investments.
Update Jan 24, 2015 – Added Crowdbnk data and streamlined numbers.
Now.. moving across the Atlantic… Let’s look at European crowdfunding platforms Seedrs, Crowdcube and Crowdbnk.
Jeff Lynn, founder of Seedrs, provides some statistics on his platform below:
Successfully Closed Round size distribution. <£100K: 63% £100K to £200K: 23% £200K to £500K: 11% >£500K: 6%
Average round size £160,000
% successful closing (number of deals that close as a percentage of total) 36%
Average time to round close on platform (eg. # of days) 29 days
Rounds closed sector distribution 80% tech 20% non-tech
Ayan Mitra from Crowdbnk also shares his numbers below
Successfully Closed Round size distribution 0-9,999: 15% 10,000-49,999: 10% 50,000-249,999: 20% 250,000-499,999: 30% 500,000-999,999: 15% 1,000,000-2,000,000: 10%
Average round size £537K
% successful closing (number of deals that close as a percentage of total) 42%
Average time to round close on platform 51 days
Rounds closed sector distribution Consumer Product: 5% Film, Art, Design: 10% Food & Beverages: 5% TMT: 60% Leisure, Retail, Services: 10% Other: 10%
Last but not least, Luke Lang from Crowdcube shares his platforms numbers below:
Successfully Closed Round size distribution < £100k: 23% £101-£200k: 39% £201-£300k: 16% £301-£500k: 11% £501k-£1m: 6% >£1m: 5%
Average round size £360K
% successful closing (number of deals that close as a percentage of total) 37%
Average time to round close on platform 32 days
Rounds closed sector distribution 54% tech 46% non-tech (i.e. food & drink, retail, manufacturing etc.)
In general, when considering a platform, make sure you research various things:
In conclusion, crowdfunding as a way of either funding your product or your company’s growth is increasingly going to be a trend that will supplement, and in some cases entirely replace early stage investment capital from institutional sources such as VCs. For sure, at the very least you should consider building profiles on the relevant platforms for you.
Here are some additional resources for you on crowdfunding for your own research:
This guest article is written by Richard Hughes-Jones, ‘The Boss’ at Firewerks and a Seedcamp mentor. He works with C-teams of startups and early-stage businesses to help them scale up. This article addresses a topic covered during a recent workshop with Shoprocket, a Seedcamp company.
One of the biggest challenges that startups face is choice, or too much of it. When it comes to taking a product to market there are a thousand and one different ways that you can do it. Committing to rapid lean style experimentation is a good start, but it can be dangerous if a random approach is taken because this spreads time and resource constrained founding teams too thinly.
Lean experimentation should not be an exercise in launching darts at a dartboard, hoping that you land a bull’s eye.
With clear goals set, founding teams must make informed decisions about where, how and in what order experiments will be focused in order to get the greatest bang for their limited buck. A thousand and one ideas must be intelligently turned into a hundred and one activities that can actually be executed.
A few weeks ago I ran a full day Workshop with the C-team at ShopRocket in which we took on this challenge. ShopRocket offers an enterprise level eCommerce payment solution that integrates into any existing application with one line of code. If you are exploring new online payment platforms then check them out.
With a number of impressive customers now onboard they need to ramp up sales over the next six months. Here’s what we did in the Workshop:
What Shoprocket now has is a highly flexible strategic sales plan. The team can organise themselves around the plan and, in short sprints, quickly target customers in specific markets and evaluate success.
For Shoprocket’s CEO, Anthony Gale, “Actually taking some time to identify all the markets available but focus on the most appropriate ones is really valuable”.
Otherwise, he says “In a startup environment it’s very easy to disappear off in random directions, without the physical and financial resources to execute on them all and understand where real value lies”.
A goal-orientated approach, supported by a clear and executable plan is the essence of good business strategy.
Most importantly, it ensures focus, a quality often lacking in many startups. It’s Mark Suster who reminds us that “the best teams are hyper focused” and are often defined by what they choose not to do: “the scarcest resource in your company is management bandwidth. Spend it wisely” he says. I’d recommend giving his post a read.
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