Technofile Europe

T-Shirts for vinyl

My favourite t-shirt from International T-shirt Day in Berlin last weekend:

See the full photo-stream here.

A first conversation about getting beyond SEM

We had a great turnout at Monday's inaugural networking event for online marketeers, which we rather unimaginatively called Beyond SEM.  What struck me was the openness with which the 8 presenting companies shared their good and bad experiences with different online marketing techniques.  With 45 people in rather cramped surroundings, good networking was inevitable!

The most exciting categories of online businesses were represented: fashion eCommerce (Koodos, BuyVIP, Inspirational Stores), mass customisation/ crowdsourcing (Spreadshirt, MOO, Glasses Direct, Crowdstorm), other e-tailing (Warehouse Express, Swoopo, Astley Clarke), ticketing (Seatwave), travel (isango, dealchecker), entertainment (LoveFilm, GameDuell, WeeWorld), online marketplaces (Price Minister), consumer services (MyDeco, moveme.com, RatedPeople, Qype, Zoopla, Wonga), and enterprise SaaS/services companies like KDS, NTRglobal, FRSglobal, TradingPartners, Fizzback, eCourier and ShipServ.

The evening also confirmed our thesis that -- even among B2C Internet companies -- there is a wide range of experience and sophistication with online customer acquisition tools: from managing hundreds of thousands of keywords in SEM campaigns, to experimenting with Facebook widgets, to scalably generating good quality content to drive SEO traffic.

I can't share the slide-decks with you, but here is a sample of the range of methods tried by participants and their variable outcomes:

 

The challenges all these companies face are similar:

• Declining effectiveness of traditional lead gen
• Dependence on Google
• Too much data, not enough proven ROIs
• Proliferation of new media
• So many levers – from keyword pricing to post-click optimisation

I think it's crucial for European marketing professionals to exchange ideas more freely so that we can accelerate learning and avoid re-inventing the wheel as often as possible.  This is particularly important for those companies competing globally, since they face competition from US Internet companies that are often (though not always) ahead of the game.

My original plan was to get some Internet companies over from the US, in order to share practices from both sides of the pond.  That didn't work out this time, but is something we will work on for future events. 

We also learned that it's difficult to combine B2B and B2C in the same event, even if the front-end of customer acquisition (online marketing) is similar.  I have no doubt that our B2B companies learned from the hard-core consumer-focused marketeers, but the lessons going the other way were far fewer.  This may reflect where the B2C companies are in terms of their market lifecycle -- most remain focused mainly on customer acquisition and less on retention and the consumer equivalent of account management.  The exceptions to this were the larger businesses like LoveFilm and Warehouse Express, who have made an impressive science out of nurturing consumer accounts over the long-term.

A big thanks both to the VCs who sponsored the event, opened their portfolios and encouraged their companies to participate (Accel, Advent, Atlas, DFJ Esprit, Wellington) and to the battle-hardened experts who joined the discussion: Robin Klein, William Reeve, Michael Ross and Jamie Jaggard.

What next for this forum?  There was fairly universal agreement that it's worth running something like this on a more regular basis.  The event really only scratched the surface of the many questions raised:

• How do we use widgets and other means to drive profitable traffic from social media?
• How do we 'industrialise' the creation of content that drives SEO traffic so that this activity scales better?
• How do we reduce the time and effort it takes to build an effective, scalable affiliate programme?
• How do we combine offline and online campaigns in a measurable, effective way?
• How do we apply lead gen methods like affiliate networks and social media marketing in a B2B context?
• What is the best way to link email marketing with web analytics to get a 360^o view of the consumer every time he visits?

Over the coming weeks we'll cook up ideas about tackling these questions in more focused events so that we can bring this crew together again.  Do send me your suggestions, ideas, quibbles. And I promise we'll increase the square footage per head to enable more expansive thinking!

Can VCs reinvent themselves?

I nearly missed it, but Peter Rip of CrossLink Capital wrote a very thoughtful article on the future of venture capital for BusinessWeek back in April.

He basically demonstrates how the traditional venture capital model of the 1990s -- with its reliance on very large 'hits' -- no longer works.  This is something we've known in Europe for many years, but he makes a case that even in Silicon Valley, VCs now need to learn how to generate returns from a more balanced approach to risk.

In Peter's view, VCs should take a page from private equity's playbook, learning how to handle valuation, exit timing and funding risk, in addition to the traditional focus on markets, innovation and team.

In other words, VCs need to manage their investments as much for the downside and middle-exit scenario, as for the big upside.  This is really what traditional growth equity investing has always been about, and it's clear that in the current environment the growth equity niche is growing into a more established asset class. 

But I really like Peter's suggestion that even early-stage investing can take a more measured approach to risk to reduce the variability of outcomes.  By focusing as much on capital useage, valuation, timing of follow-on financing and timing of markets, VCs can increase the number of 3x returns while still having a shot at the occasional 20x. 

What Peter does not mention in his article is the importance of capital efficiency.  A lot of the middle-exit risk VCs take is the result of overcapitalising companies, which depresses returns precisely in the most likely range of outcomes, ie exits of $80-120m (see Why you have to build companies for less).  By focusing more on core metrics early on and controlling cash useage VCs (and the founders they back) retain more options to make a positive return.

Like Kennet, Peter's fund sat out the post-bubble market of 2001-2003, making few investments.  Unlike Kennet, his conclusion is now to move into adjacent markets (cleantech) and focus on selective early-stage investments.  This is because a rise in later-stage valuations (driven by VCs looking for deals closer IPO) has created a price bubble. 

I agree that too many VCs are making bets on the near-term IPO queue, but I also believe there are plenty of capital-efficient, appropriately priced investment opportunities in mature growth companies.  The key is to find these entrepreneur-led businesses (which typically do not need to raise capital), and to have an investment proposition specifically adapted to their needs.  This is why growth equity is so different frmo late-stage VC.

Green can save you money?

Green IT conferences are proliferating, like Green IT '09 which just took place in London.  (Where are the slideshare presentations?  Where is the video footage?   For tech industry event organisers the guys at Tech:Touchstone seem to be in the dark ages...)

Sorry for that mini-rant. 

Let's hope the green IT initiatives don't become casualties of the recession.  Thinking about green IT is good.

Unlike industrial green initiatives, succesfully improving the 'green' credentials of IT usually results in cost savings. For example, companies clearly have a strong financial incentive to reduce the energy consumption of data centres.  Similarly, using video conferencing and remote support tools reduces travel costs and carbon footprint all at once.

If you're attending the Cloud Computing expo in Prague next week, please check out the session on Green SaaS being given by Lluis Font, the CEO of NTRglobal (disclosure: Kennet portfolio company).  Lluis is a great evangeliser of green computing, and he has some surprisingly simple ideas on how companies can save money and be greener at the same time.

I won't be able to attend, but I'm looking forward to hearing from you all about the event!

What cyberwar?

I've got a real issue with the breathless, paranoid tone of a lot of media coverage lately.  The combination of the 24-hour news cycle and too many news outlets, amplified by P2P communications methods like Twitter, is generating too much panic and too little analysis and reflection. 

I confess I sometimes miss the way we watched news 20 years ago, gathered as a family at 8pm for the one evening news programme, which presented 24 hours of digested, verified, analysed news for our consideration.

We're seeing the exaggerated effects of this play out in spades with coverage of the swine flu, and (especially in US broadcast media) even with the smallest of stories.  Witness the over-the-top reaction of news anchors to Arlen Specter's leaving the Republican Party (best summarised by Jon Stewart here).

In future posts I'd like to explore further some of the negative effects this excessive media hype has on government policy making in particular, and whether anything can be done about it.  In the meantime, thanks to The Economist for exposing one particular story as being the result of a political turf war rather than a real global threat: the recent reports of serious cybersecurity attacks on US infrastructure. 

We all read the news stories about Chinese hackers' breaching the US electricity grid and several national agency computer networks.  There was something faintly hard to believe about the sudden panic.  Now it turns out that this story was leaked, and hyped, by intelligence agencies fighting for control over cybersecurity.  Read the detail here.

It's an appalling abuse of the viral power of today's media, and makes it difficult for any of us to tell real dangers from fiction.  Let's hope that more of the supposedly serious media (like The Economist) improve their record of exposing these stories, preferably before they go into hype-mode.

Good support for bootstrapping @GeeknRolla

Over lunch today, Nic was complimenting one of the current crop of great bootstrapped entrepreneurs William Reeve (LoveFilm, Graze, Zoopla). As it happens Will gave a presentation on our favourite topic at last week's GeeknRolla conference.

I wasn't there but my colleague Mike said it was a very useable presentation, full of practical advice (and real-world examples) on managing your cash flows and scaling your business while in bootstrap mode.  I especially like his approach to funding yourself by improving your working capital cycle.  The presentation is embedded below for your viewing pleasure:

Geek n Rolla: WReeve Bootstrapping, Scaling and Cashflow

View more presentations from wreeve.

Taking flash mobs to a new level

In this case, for a viral video advertising stunt (for a local TV reality show):

I think the first-mover for this kind of gimmick was T-Mobile whose dancing mob took over Liverpool Street Station in London in January:

I love this kind of stuff.

Learning from the men behind the Obama Web strategy

Last fall I wrote about how Obama's campaign made such good use of web marketing to mobilise  grassroots supporters and spread campaign messages.  His team have continued to press that advantage from the White House, most recently rallying the 13 million people in Obama's email database (and 5 million in social networks) to lobby Congress in favour of the proposed budget bill.

Derrick Harris over on GigaOM yesterday kicked off an analysis of how the Obama technology gurus (Dan Langer and Luke Peterson) harnessed integrated email databases with traditional voter calling efforts to leap ahead of the McCain camp.  What is particularly impressive here is that they did it using off-the-shelf technologies at relatlively low cost and in a way that clearly scaled very very well. 

In Part II of the article out today, details emerge that make this project a poster-child for web marketing best practices, and for what ambitious government IT projects could be if they were run by commercial, web-savvy people and not Pentagon bureaucrats. 

Laptops, open-source databases, cloud computing resources, VoiP, mobile phone applications, and every flavour of SaaS.   This is definitely not the Microsoft generation -- the campaign team used more GoogleDocs / EditGrid spreadsheets than traditional Excel. 

Both the UK and US governments could learn a thing or two from Obama's team about IT procurement for data integration projects...  Let's hope some of it rubs off.

More laughter needed

I feel like we need to do more to pry people from their growing depression about the crisis around us.  Laughter, drink and dancing are good anti-dotes for the blues. 

My US colleagues kicked it off with an official Kennet "Get out of the Funk!" party a few weeks ago at this great venue in Burlingame. In the sidebar is a rather blurry Blackberry photo of the event (did you guys burn all the real evidence?).

I'm actually going to steal their slogan for a spring party at ours in the coming weeks (girlwithoutawatch's idea) -- anything to get people dancing and talking about something other than the credit crunch.

Humour is the best offense, so here is a great sample of T-shirts to mock the financial crisis, from the Spreadshirt community of course...  My favourites (warning: potentially offensive!):

• Jump! You F***ers!
• Have a bowl of Credit Crunch
• Financial Crisis by artpolitic (see right)
  
• Goldman Sucks

Don't be glum, shop!

This morning we announced an investment in BuyVIP, one of several fast-growing online shopping clubs in Europe.  This is one of those unusual, uniquely European business models -- basically the online equivalent of a fashion outlet mall. 

If you're a private shopping club virgin and want to try it out, you can find a membership referee or coupon code on a site like Retailmenot or Squidoo.

The private sales model was pioneered by Vente-Privee in France and quickly copied in pretty much every country in Europe.  BuyVIP is probably the biggest player after Vente-Privee, with 3.5m members in Spain, Italy and Germany.

It's fair to say that the companies in this sector have had revenue growth unlike anything we have ever seen in Europe.  In this volatile economic cycle, discount eCommerce is thriving as consumers flock online to find bargains. 

BuyVIP and its competitors basically operate similar models: they run frequent, short-duration online sales (70% off!) of surplus fashion goods.  The sales are only open to members of the club, a feature designed to protect the brands' image and keep the sales from being crawlable by price comparison engines.

What we like about this market in particular (apart from the explosive growth) is that private online outlets are becoming a key distribution channel for brands.  At €1bn+ in 2008 and growing, it's a channel that the fashion industry is starting to build into regular supply chain plans.  We're already seeing this concept evolve from a way to dispose of excess inventory into an incremental outlet for current-season goods. 

Picking the best business to back in this market seems difficult on the surface.  There are 3 or 4 European players that have shown great traction in their home territory, including Brand Alley (GB), Brands4Friends (DE), Privalia (ES), Private Outlet/Andrino Group (FR). Most have received hefty doses of growth financing from angels and VCs.  But we had to choose, and we're excited to back BuyVIP for several reasons:

• BuyVIP has the most experienced, solid management team of the lot, led by Gustavo Garcia Brusilovksy, and including serial entrepreneurs CFO Gerry Heydenreich and COO Luis Krug.
• Apart from Vente-Privee, BuyVIP has the most international footprint, with leadership in Spain and Italy and a growing presence in Germany (with more countries to come).
• BuyVIP has a very helpful board and shareholder base, including Bertelsmann (with great contacts in Germany and elsewhere) and Michael Kleindl (co-founder of AdLink). Media relationships are going to be an important way to gain members in this market.

So how does this deal fit with our stated strategy of backing mostly bootstrapped, founder-owned businesses, you might ask?  Well, for us the key question is always about capital efficiency.  We're happy to invest in companies that demonstrate an ability to create significant equity value with modest amounts of capital.  BuyVIP meets that test. And contrary to rumour, we do like working with existing investors, it just depends who they are ;-)

Congrats David -- I'm looking forward to seeing an evolution in your wardrobe... no excuses now!

How to bootstrap your way through this cycle...

... and why bootstrapping and VC are compatible funding strategies.

As promised, here is the presentation I gave yesterday at the Red Herring 100 conference in Berlin.  Thanks to the hardy entrepreneurs and VCs that got up early after following my colleague Don Stalter through the Berlin bar scene until the wee hours...

2009 M Bleyleben Red Herring

View more presentations from Kennet Partners.

Targeting video junkies with GoViral

You might be wondering why we're making investments at such a blistering pace at the moment, when many funds are slowing down and waiting for the markets to stabilise.  Part of the answer lies in our deal sourcing strategy.  Because we like profitable, founder-owned businesses in particular, we often build relationships with entrepreneurs over years before making an investment.

So as it happens, a number of those relationships came to fruition in the past 4 months, independently of the economic turmoil.  And so we closed investments in Schoolwires, Go Internet Media, Spreadshirt and GoViral (with another one to be announced next week) -- many of them companies we had known and courted for some time.

As promised in last week's post on Web cinema, here's an aside on commercial viral video.  My partner Michael Elias closed an investment this week in GoViral, an ad network for branded viral video.  GoViral is a Kennet 'sweet spot' deal -- bootstrapped, with an experienced management team (ex-Trade Doubler, Leo Burnett, Rawflow), strong commercial traction and growth, and a global market opportunity.

So what the heck is branded viral video?  You've all seen the funny, quirky videos that have made the rounds like wildfire, like Cadbury's gorilla advert and Levi's Moonwalker.   Well, there is some structure and strategy behind getting those videos to 'go viral'.  Brands have cottoned on to the fact that if their video is good enough, funny or edgy enough, it can get a lot of 'free' distribution by getting on to blogs, into emails, and onto social networks.  But to get that level of distribution, the videos need a solid kickstart.  That's where services like GoViral's come in.

GoViral built a global network of web publishers in 80 countries, where it can 'seed' its clients' videos to get the viral ball rolling.  GoViral's videos play in a YouTube-like player, directly within the content of the site.  Once consumers see the video, they can easily share it, blog it, rate it, etc.  The best videos get the most distribution and the most views.  GoViral tracks the video's voyage across the Web and delivers detailed performance reports back to the brand that originated it. 

The key is to work closely with brands to make sure only the best videos with viral potential make it onto the network.  That effort has produced gems like this one, a jam session of extreme street football in Mexico:

But this approach can also be applied to traditional high-quality commercials like this one for Nissan Qashqai:

Or they can be low-budget guerrilla projects like the dynamite surfers from Quicksilver:

When it works, the results can be astounding.  As reported by GigaOm, the Quicksilver video above got 20 million views and generated £68 in sales revenue for every £1 spent on the campaign.

Viral video seeding is in its infancy, but big brands are jumping on board (and not only with video, but also games and widgets).  Check out one of my favourite campaigns, Virgin Media's Right Music Wrongs. 

Web cinema: the next generation

After several false starts in recent years, films made specifically for the Web are finally making it to the must-see list.  This is thanks to both technical advances (eg, streaming HD via Silverlight), as well as format improvements that are better adapted to interactive Web behaviour.  The only missing element is finding a reliable way to get the stuff in front of many eyeballs. 

Unfortunately YouTube seems to be stuck in a crappy UGC time-warp that makes it a poor distribution platform for quality HD content.

A great recent showcase for this kind of production is the interactive Web thriller Kirill, launched last year by MSN and Endemol UK. (See coverage in The Guardian here.)  Kirill is a slick, dark sci-fi drama chronicles the travails of a CERN scientist and blogger (played by David Schofield) who tries to save the world from his exile in a dystopian future.

The series ran in ten 3-minute episodes over a five-week period, and was supplemented with clues and activity on MSN's instant messaging and social networking sites (I know this seems a bit of a waste, but MSN has the bucks...).

Kirill looks hot in Silverlight HD.  It's a great combination of high production values with one of the better technologies developed by Microsoft in recent years. That said, it hasn't yet had the broad viewing it deserves because it was distributed on MSN Video, and in the UK only. 

The only valid online distribution mechanism is viral, and Kirill hasn't been allowed (or encouraged) to surf the viral wave as yet.  According to MSN (quoted here), Kirill got 1.5m streams and 500k unique users during its UK run.  That statement is hard to reconcile with Kirill's traction on the open Web.  If you look at its 130 subscribers on YouTube (where episodes aired unofficially) and fewer than 500 fans on Facebook, you'd have to call it a viral flop.

It's obvious that MSN UK is using Kirill to drive downloads of Silverlight, in its ongoing battle with competing Web multimedia platform Adobe AIR, as the 'RIA wars' continue. 

The commercial value of Web flicks remains unproven while quality productions like Kirill and Beyond the Rave don't come cheap.  Endemol's budget for The Gap Year, a reality Web show for social network Bebo reportedly had a budget of £1m.  In all, it is estimated that some 50 digital shows have been commissioned in the past two years for the Web.  The BBC is also in on the act, and expects to launch several long-form shows this year. 

The leading big-name producer for this medium is probably Endemol UK, but the majority of new Web shows are being developed by independent producers like Conker Media and Pure Grass Films, who co-produced Kirill.

But in order to succeed Web cinema will have to do more than pay lip service to the interactive potential of the Web.  Productions need to integrate virality and interactivity and find ways to exploit the distribution potential of social networks, blogs and bookmarking.  For this reason, expect edgy independent firms run by Generation X'ers to lead the genre for some time.

Let's hope that real film investors will follow the marketing bucks spent by MSN to finance quality productions for their own sake.  They'll have to be patient while this model finds its feet and becomes commercially interesting.  Certainly we will see a significant step-up in the quality of productions at this year's Digital Emmys and Bafta Interactive awards.

Stay tuned for more on viral video, and its direct marketing applications, next week.

Fun with words

Thanks to Michael Ross, I've discovered a neat web tool: Wordle.  What commercial application it might have is beyond me, but it's fun...  Here's a wordle of this blog:

Here's a wordle of today's Salon.com:

Here's a wordle of The Onion:

OK, nuff time spent... you get the picture ;-)

Listen up Gordon

Fred Wilson had a great post last week responding to a suggestion (by Tom Friedman of the New York Times) that the government put its stimulus money into venture capital rather than the auto industry.  The sentiment is a good one, but the idea is bad, as I highlighted last year.

Gordon Brown and the propeller-heads at NESTA would do well to digest Fred's post carefully, as they are already ahead of the US in making this bad idea a reality.  As in the US, there is no shortage of capital for good ventures in the UK.  Any money from the government is likely to flow to bad business ideas or bad investors, depress returns for good investors, and crowd out smart money.

Don Dodge suggests some alternative ideas for $1bn to promote entrepreneurship here.  I hope Gordon reads blogs as well as policy papers.