Nick is the Founder of Cognitive Logic Inc which is building unique technology to allow collaboration on corporate data between companies without data needing to be shared or transmitted.
Nick discusses some of the things that he has learned at DataSift he is applying to his new startup, from deciding when to take money, the good and bad of relying on large partners, dealing with organisational change in a high growth business and coping with the everyday stresses and strains of running a business in hyper-growth mode as a first time founder with a young family.
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- LEARN TO TELL A STORY…. it’s important for everything: selling well, raising money, hiring good employees
- Gaming industry only recruit graduates because they are malleable, raw.
- Angel Investors 101 = People with Money + Smart People + People who don’t interfere
- The problem is… that combination of people don’t exist!
- There was a stuttered launch and couldn’t afford a PR agency. Nick stalked Robert Scoble to try and connect with him. When they connected, Robert Scoble tweeted about Tweetmeme, which really launched the company.
- 0-1 million in 1 month
- 0-20 million in 8 months
- “Press Releases are ridiculous”
- Journalists want their lives to be easy. Do 90% of the work for them by handcrafting emails and you increase your likelihood of getting press.
- Guy Kawasaki – Bumped into him at a hotel and gave him ~1% of the company to be an advisor
- Battle of the Buttons
- Tweetmeme invented the retweet button.
- Went from 0 to 4 billion impressions in a year.
- 500,000 websites had it installed, including Yahoo.
- This eventually became Datasift
- Buttons Sold to Twitter
- Initially, Twitter offered 0
- 3-4 mo negotiation
- Got free, perpetual access access to the firehose
- 2 years ago, Twitter stabbed Datasift and cancelled access
- “I was too naive back then to know what I should have been negotiating for”
- Making more money within a year selling analytics from the advertising
- This may be because Nick knows more about the value of data than positioning advertising
- Tweetmeme invented the retweet button.
- Licensing platform for getting access to social network data, primarily to monitoring and marketing platforms.
- 10 TB of data every hour
- Raising Venture Capital = People with lots of money + Smart People + People You Know
- VC firms are startups too
- “Just because you hit your budget, it doesn’t mean you are successful” #sales not always the best metric”
- CEO > CTO
- Nick took on a USA CEO and moved to a CTO role, and really regretted it.
- Raising Capital – Things to Avoid
- Ratchet clauses are evil.
- Learning Dilution
- The number of confounders most impacts the dilution and how much you exit with
- Top Ups. A nudgenudge winkwink for additional funding and expand the option pool = “We will give you x% so YOU don’t get diluted, but EVERYONE ELSE on your staff gets diluted. It’s a false economy in the end because you are only getting options, not actual voting control, which you lose.”
- I changed EVERYTHING in the second company
- Going the Extra Mile
- Always hire the smartest employees!!
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Nick Halstead: Thanks! Great! Good bunch this morning.
So I wanted there is a number of different stories that I wanted to interweave today. I will probably mess it up, but there are some key points I want to get across about the experience of being free.
And just some background on myself first is I’ve been a programmer since age 9 and most of what I had to do for 9 years of the first company was pretty unnatural for programmers I’ve actually done a few talks at Websummit and other places on persuading more technical people to go into COO roles, because I think more can do a better job than they actually think.
Because I was once – I remember at school when I think I was about 10 we had an artist come in and did these fantastic airbrush paintings and they were exquisite and one thing he said was that he was never good at art in school and he just taught himself to be good at it. And that just reminded me that you know, whatever we currently do, we can always learn to adapt.
So the story of Datasift
This is a quote from my wife that actually started it all off. Which was that I literally I got to the point in my career where I was writing some – I went from programming for many years in the gaming industry because I’m a bit of a control freak as we got into larger games I wanted to run more of it, not just the coding of it. I wanted to control the direction of it, the production so I went through a whole number of different job titles. And then out the other end, the games industry went into a number of different areas, all still software and development. But I did get to that point where literary I argued with everyone and she got sick of me coming home and saying how unhappy I was that no one listened to what I was saying that the only way to do it was to actually do it yourself. So I actually had one of these odd ones where I don’t count myself as an entrepreneur as I think natural entrepreneurs as people that go on and always look for opportunities and my story is more with being forced to go and do something. And as a programmer figuring out how to do it rather than anything else. I hope – and this is another thing, it seems odd from someone on the stage saying don’t listen to anything I say but the thing that I realised for the past 9 years was that I learned a lot more by example than by listening to any of my investors or advisers. Because if they’re involved in a business, everyone has a particular viewpoint that is tainted by a bias, what money they put in, what they try to achieve themselves. So I try to pick people who know and watch what they’re doing. I just wanted today to tell some of the story of how the business came about and you can pick and choose which things you think I got right and which I got wrong.
Well it started with this product which I doubt even Mark remembers. This is back in the day where is was trendy to have .it domains and that’s a lesson that every new extension will be trendy for only so long, because who would buy an .it domain these days? Funnily enough I looked it up when I was trying to find this screenshot someone else is starting another news company on top of it. So what this actually was, my original idea and I’m sure you’ve all read many founder stories that I can’t think of any business that started with the idea that ended up being what was the success and it certainly wasn’t. I had this wacky idea that news reading back in 2008 needed to be changed, if you’re around and involved in this arena back then, blogging was pretty big already and there were millions of blog feeds and they call came through our technology to read them, how many think about RSS? It’s pretty dead but at the time it was the technology but the problem was you had to know which feeds to read, you had to learn from other people and search around.
There was a great product from Google but it was very focused on individual feeds and the idea that was a theme then went through the whole business which was that you could subscribe to ideas and subject areas rather than the actual feeds themselves and it was called favourite because the idea was that you would favour items and this was before anyone done anything else with favour buttons and all the rest of it but the yellow star there, you favorited articles and the algorithm worked out what subjects you were interested in. We built a lot of technology at the time to understand which area each item was in because back then nothing was categorised by the publishers, you had to read the text, build algorithms to work out what they were all about. That was built in probably about a year and during that time, I think one of the most important areas of how I started the business and this always shocked people a bit and the first thing I forced myself to do, which was unnatural for me, was to network [laughter].
I’m not a natural networker, Mark knows I rather hang around with friends than any of these things and do my very best to not speak to any of these strange human things. But I really did and I forced myself into this process and for 2 years – the original company was based out in Redding so every night I had to take a train into London, go across, find and go to the event and get back home again. It wasn’t enough money to stay in hotels or anything like that and my wife probably thought I was having an affair because of the amount of time I spent in London. But it was – back then you literally could go to 2-3 events every single night and through – there’s a number of stories here I will talk later about, experiences with venture capital and other things with angels. But all of it came about purely because of just legwork. It wasn’t anything special, just me meeting thousands of people, I actually have a box, I was very diligent back in the day about collecting business cards and I’ve literally got a box with 10000 business cards in it. Unless you collected that number, you haven’t networked properly. That is how during that 2-year period, all of the money I’ve raised and connections I’ve made to get the business going were made through those evenings and a bit of drinking, not much.
I hadn’t told Mark I was gonna tell this story during this event, but I went to a number of Mark’s events and – I don’t know if I ever told you this, Mark – it was this event in west London and I turned up and it wasn’t clear where I was supposed to go. I went in the bar and seeing people with lanyards I must be in the right place, there’s many people with it – grabbed a free drink from the bar which is nice, got to chatting with people. I was there for half an hour, hadn’t done the proper thing of checking people’s lanyards and what’s on them and after chatting to a few people, the theme seemed to come together that every single person I was talking to was a journalist. Turns out I walked into another event which was a yearly event of a Bigsby correspondence from all around the world. And I must admit I then stayed another 30 minutes cause it was interesting. So if I was late that evening, Mark, it was because I was here. But that was a bit of a luck because it was fascinating.
So the other thing during those first 2 years, while I was building the very first product it was how much you’re gonna get it out there? Because it was literally just generating a product wasn’t enough and there was a lot of excitement on products and there wasn’t any social media and no way to create a viral, even YouTube was in the very early days. And so one of the key things was to get in front of crowds of people, promote what you’re doing, get feedback and this is a really bad photo but the best one I could find.
This is a bar in East London near old street roundabout where the whole London tech scene supposedly started. And it was a monthly event called mini bar and now mini bar was interesting in that it was on a Friday evening and generally by the time people got up to present, they had 4-5 demos a night for new startups to go promote what they were doing and it was well visited by investors, journalists and the rest of it and it was a good place to go and present that.
Now the problem was by the time you got out of the stage, everyone will have had 2-3 drinks cause it was end of the month, Friday night so it was a pretty rowdy crowd and it was the first time I ever stood up on stage in front of anyone. I literally was not someone that would dare – I’m quite typically a shy person and definitely an introvert so that was I think after I did that and I actually did get people’s attention that night, everything was relatively easy even I’ve stood up in Websummit in front of 10000 people and actually it becomes easier, if anyone ever wants to do more of this in their career, it becomes less scary because it’s a bit more anonymous with a huge crowd. Here it’s nice cause it’s a bit more personal.
Anyway, the key thing behind this, and this will carry on through a theme, everything I’ve done to create the level of success for the company has been about telling a story. And I repeat this, whenever I’m going to mentor people, especially CEO’s, I say to them unless you can be the person that can tell the story of your business, you can’t be the CEO. I don’t care what your background is. You can learn it but if you’re not prepared to learn it, hire someone else in the company that can do it. Because there’s 3 key areas, you need to be able to tell a story to be able to hire people. Hiring is literally everything about a business and both businesses.
I will talk after about what it changed for the new company for this shift I hired some incredible people in the early years and hopefully lots of incredible people over the 8 years and the key was if you are starting out early, you have very little money and equity but in the UK you’ve got to really persuade people to believe that that equity is gonna be worth something. And so if you can’t tell them a story of why they should come and work for you, because if it’s someone who you’re gonna literally find through an agency and just looking for a job, they are probably not the right person. My mind was always – I need to find someone that is already so good that they’re somewhere else or they don’t need an agency to find another job because people will know them and will always be saying to them I want you to work for me.
So I always balanced it between – I hired graduates straight from university cause I didn’t want people to have any previous experience, I just wanted raw intelligence and prepare to be moulded. And by the way, I learned that from the games industry, it only takes graduates straight from university. Alongside that, people who have got incredible experience but you need to be able to tell them a story of what is gonna come in the business that they are and want to be a part of it and the culture of the business.
When you go to raise money – everything about it is telling a story, very very late stage, the numbers are massively important but any VC will tell you you can increase or decrease your evaluation probably by about 30-40% both ways based upon how well you tell the story of those numbers. I actually raised our series A without any revenue whatsoever. Purely on the back and I hadn’t actually finished the product and we’ll come to the product stuff later, but at the time it was purely telling them and I hope the power of telling that story.
And lastly, selling the product, it’s telling a story. If you can’t, don’t ever expect the marketing team or your CMO or whatever to be able to just go and do that for you. Unless there’s someone at the top who can relay that passion and story to that person, they are never gonna do a great job of actually retelling it. I always say some part of the business is not going well, it’s not their fault, it’s my fault for not being able to do a good enough job of telling them what actually is needed. It’s great to have people who are fully autonomous but again, if you want it to be perfect, then you’ve got to be able to tell them. So stories, stories, everything I always talk about and say anyone can do it, because I am definitely not a natural storyteller but I do know what’s in my technology and I know how to explain it and people in the end believe a lot in I think, people who are telling it from the reality rather than just the marketing point of view.
So I have a kind of a love-hate relationship with angel investing. I actually get asked a lot now to angel invest which I won’t ever do because I wouldn’t want to put – a number reasons but 1; I don’t want to get distracted with what I’m doing but 2; getting involved, being how obsessive I am, if I did get involved I would want to take control which is not a good thing. And that behaviour then tells you what to look for in your angel investors.
So the first is obviously finding people with money.
Now it’s a funny one because actually just cause they tell you they’re an angel investor doesn’t mean they have any money. And I’ve heard horror stories with things let’s going wrong let’s say so they got to be trusted to a degree.
How do you find the people?
Two, this is actually to me the most important and you are obviously out there, because it is such a difficult and frustrating process when I started thinking about raising money, the – it was how do I actually go and find these people? Because going back 9 years, there were a number of kind of angel clubs, London didn’t really have the same scene like now. Now it’s a wash with angel investors but back then it was how am I gonna find these people? There were a lot of these pay to play scenarios and I could immediately tell they were sharks in they were there just to take some of your money and a percentage of the outcome if you actually found someone for you. So I always believe that anyone looking for money upfront it’s probably a very, very bad deal.
And so I through all this networking I did manage to find one guy – two guys at the time, who were prepared to invest. But the key I found that going through them was how do you find someone who when they get on to your board – and this is the number one mistake I made – isn’t going to act like me?
So this is my 3rd most important point
Because if you are starting a business, you don’t want people interfering in the business in the end. You might want advice but in the end you’ve got to try and make your own mistakes. That’s the key and angel investors should learn is if you try and actually get the founders to do what you’re telling them, they will never learn anything and even if you steer them in one direction you think it’s right, it may turn out to be the wrong thing to do [laughter]. That combination doesn’t exist.
So the – my story of the first year of the company was this transition from favourite to what then happened with this company. The same company called Tweetmeme and what it was is about a year into the business, I recognised that Twitter was gonna become something much bigger. And this literally was in its first year – year and a half. And I looked at it and thought well can Twitter be a feed of news stories rather than these blogs? And use the data from the firehose of Twitter. And firehose didn’t exist at the time. And if I could count every time people were sharing things on Twitter, I could rank them and then create what – it’s not a very good picture of it, but literally this. Tweet me for anyone that doesn’t remember it, was a news curation so it used all the technology for favourite auto-categorising each link based upon the content of the page, the title, etc. and then it ranked them based upon the number of retweets and there were some clever algorithms behind the scenes, based on the speed on which they were retweeted.
The interesting thing why I relate this back to the angel investors was because when I made this pivot – and back then I was having monthly board meetings and the idea of having them makes me want to stab myself in the head now [laughter] but when they found out that I’d made this decision, we literally started having – by then I raised more seed money from finance and a matching fund from the government. So I had 3 other people on the board plus me so it was me against them as the investors. Luckily at the time, I still owned 90% of the company and so every month, we would have a board meeting which was talk about the progress, and they – it literally happened for a whole year where we discussed the progress and they would say so when are you gonna switch back to blogs? Cause we think Twitter is gonna go nowhere, it’s the thing that people just sit on the toilet and write things and it’s never gonan have anything to do with business so why the hell are you doing it? Literally it happened every single month, the same conversation and they would actually vote on it at the board.
Some – for anyone having board meetings I’m sure you know actually having a vote means the company is a disaster because if you can’t get agreement on a board level, it’s gonna go sideways at some point. So throughout my whole 6 years of venture capital, we never had a board vote, not once. So this was not a good sign but we’d have the vote and you put that to the minutes that you voted I’m ignoring you because I have 90% of the business and would you believe none of those bastards have ever rang me up and said thank you for ignoring me cause I was a fucking idiot? [clapping+laughter]. Because clearly it was the right thing and they just didn’t know at the time. Very lucky for them that they all exited with lots of money.
So the next thing is really to do with I will do the slides. So what do these have in common? Tech Crunch, Robert Scoble – I didn’t want to put the one with him in the shower, thankfully – Guy Kawasaki and Hermann Hauser? I will tell you, they have all been people and places that I’ve met and created the success that was Tweetmeme. I’d be very lucky that through the history of – especially from Tweetmeme onwards – to have surrounded myself by some very smart people. But it comes back to work ethic again.
Robert, I knew back then in the blogging scene, he was always the person that’s been at the cutting edge of moving on to the next platform that he thinks is gonna be successful which is normally pretty accurate. He got it wrong with Friend Feed but he knows, has a good weather vein of where the industry is going. No one follows him, he’s just moved to a VR company.
Anyway, I’ve been based in the UK but wanted to get attention in the Silicon Valley, I couldn’t afford a PR agency, how was I gonna get some kind of traction for Favourite and then Tweetmeme? So I started tracking Robert Scoble of where he was and I found out that he was gonna come to London and he was gonna be going to a private event with some other bloggers, etc. and I meant to find out who was running the event, rang one of them up, got myself invited along and I talked to him and that night in this really murky top floor of the pub, literally it was an annex, I did a video recording of Favourite back then. It was quite a bizarre scenario to be at 10 o’clock at night doing a video interview with Robert Scoble. Anyway, he posted that the next day that he has obviously hundreds of thousands of followers and that created literally our first wave of start-ups, before that I’d been blogging, emailing journalists and nothing was sticking. It was that moment of making the effort to find that one person that would give me some level of airtime and I’ve stayed very good friends with him ever since – he’s done lots and lots of videos about my products since then.
That helped with the second one which is Tech Crunch, everyone knows it – back in the day with Mike at its helm, it really was the Valley coverage that people expected because all the big stories were broken by it. And I got to know Mike Butcher who some of you I’m sure you know but based in London. Mike always tells the story that I was the one person to persuade him to come out of London and in Redding and it felt like he was going to Iceland, all the way out to the darkest Redding to come to the office and actually look at the product. And they – if you do a search on Tech Crunch we got over the course of a couple years – we got 50 or so articles on Tech Crunch the headline of that was written by Arrington, Tweetmeme is becoming awesome! Because you can’t quite see the bar there but it literally went from 0 to a million users in the first month, it went from 0 to 20 million users in about 8 months. And that really was down to purely to – no one else other than Tech Crunch and Robert. They were my 2 key pieces, but that again came down to the hard work of getting to know those people.
And the other thing I would just note on PR, cause I hate agencies with a vengeance and I’ve never really used them and apologies if any of you run agencies – I’m so obsessive about the – just in general, yes. I’m so obsessive about the story and how news dissemination works and a lot of agencies back then and it changed now, didn’t understand how social media worked and that included how to get stories into the likes of Tech Crunch and sending a press release is ridiculous, even today it’s the same. I literally used to hand craft emails to every journalists with a piece of background about myself and every one would be hand crafted and I would write them in the evenings because during the day I would be coding. I would be writing articles to them, because what most journalists want is their life to be easy and that’s obvious and a good story to be told. So if you do 90% of the work for them without them realising it, you’ve got a much higher chance of success getting published. I would do most of the research and link to associated articles and research to give them a chance to build a story around it. And that’s how Tweetmeme because a success, hopefully because it’s a good product as well.
So the other two, Guy Kawasaki, I’m sure you know he was instrumental back in the day with Apple, he’s an incredible speaker and I was very lucky to bump into him – I think if I remember it was at the Rosewood Hotel on Santhill Lane which is where all the VCs are. I knew what he looked like, most people do in this industry. And I sat down with him, told him the story and then I made him an advisor, gave him a load of shares and that was also instrumental, finding someone of his calibre that can represent you and he used to literally spam all his social media feeds with what Tweetmeme was doing and we were doing. And that was at the cost of me giving him 1% of the company. Sorry guy if you’re watching this later and it wasn’t that much.
Investors & Advisors
And I will tell you a story of power of getting the right investors and advisors. I was going to meet, I was actually trying to raise my series A and I was in Palto Alto in California and if anyone has been there, there’s a big Apple store there and there’s also a number of the main VC’s in the actual town centre and I was going to visit I think it was Excel at the time, I can’t remember exactly. I turned up 30 min before the meeting and my laptop stopped working. It was a Mac and it seemed to be booting, I could hear everything going on but the screen wasn’t working at all. I tried everything. Guy was actually with me at the time and I said to Guy, what are we gonna do? I only have the software on here, I hope they have the deck on here, I can’t transfer it off, what do I do? He said let’s go to the Apple store. And literally we walked into the Apple store and obviously he is quite well known in there and one of their service guys came down, grabbed it, rushed upstairs, bolted on a new screen, brought it back down again, tested it, all worked. Managed to make the meeting and present to him. That was the power of Guy Kawasaki and those moments when things come together and people can help out.
And then lastly, Herman Hauser is – he’s the grandfather of European venture capital, if you don’t know him, look him up on Wikipedia, he’s a part of everything in Europe. He founded most of the IT’s research and there’s a huge hub in Cambridge that he paid for and it has his name. He’s part of his own venture capital, but when I met – I can’t remember how I first got introduced to him, but just through my random networking, I got to meet his firm who turned down the investment because they’re quite – back then were quite an old straw firm and what we were doing was a bit too cutting edge [laughter]. I’m being nice now, Hermann thankfully loved what I was doing and he has ever since been able to network with pretty much all of the main players in government sector and the venture capital scene and again, purely all down to the fact that I made the effort to get to – I knew everything about Hermann when I met him, I spent days researching the papers that he’d written, where he went to school, in what areas he’s interested in. every bit of research so I knew I could impress him so he ends up individually investing which is way more important than having a whole fund invest. He’s been instrumental. Pressed the wrong button, panic! There you go! [laughter].
So the battle of the buttons
Tweetmeme became famous because of the retweet button and everyone says I invented it, the reality is one of my artists came up with the design, I might have come up with the counting bit, but a good friend of mine and my first employee called Daniel came up with the original design of the button. This is actually what it looked like and it was before anyone else tried to make any kind of counter for counting what was happening on social and it literally went from 0 to about 4 billion page impressions a day in the space of the year, it was Yahoo putting all the 150 of their properties at the time it spread in about 500000 websites had it installed and it was the basis of how we built the business back then. This is the actual growth curve and I don’t know if any of you know this story, but it’s really what then created the next company because what happened is it got to a certain size and Twitter realised at the time that really they should own this thing, that we must be delivering them – I can’t remember the exact stat, but for every single button press that was generating new users, because if you press there and you weren’t a Twitter user at the time, it would send you to Twitter and invite you to signup. So I don’t know how many users we helped to sign up or attracted at the time because I could have extracted a better deal out of them.
But we got to a certain point and Twitter came to us and says we invented our own technology for doing this, we don’t want your tech but we want you to hand over the buttons to us and we were like what do we get out of it? The initial offer was nothing, just a thanks. That doesn’t sound to inviting and we had a pretty acrimonious 3-4 months of negotiations and I don’t often tell this story, but we ended up getting a key part of the contract was a most favourite nation clause on the access to the Twitter firehose when it came to be sold. And that was the basis of Datasift and what we were looking for was – as Tweetmeme was growing, one thing that came clear to me, one was a consumer business that was news was gonna have success, we haven’t had a lot of advertising on the side but it was never gonna make us incredibly rich, we were actually making more money within a year from selling analytics behind the data than we were from the advertising we had on the site. That may be cause my natural bias and understanding is understanding the value of the data rather than knowing how to sell adverts. But that was the truth and we started making more money than the adverts on the data itself so it became a pretty obvious transition to say to ourselves well, what should we try and get out of Twitter? And that was to get free perpetual access to the data. Now, when is ay perpetual, if anyone else has read any of my story Twitter stabbed us in the back 2 years ago and cancelled the contract that was meant to be perpetual and I was thinking at the time can I have my buttons back? Because we gave you all this growth to get you to 300 million users and we – my fault at the time it should have been a non-cancellable contract because they still have what we gave them and we don’t have the firehose anymore so lesson learned. Things always have a consequence down the line and I was too naïve at the time to realise what I should be negotiating for. But there was a happy ending out of it, but it was definitely a learning curve.
Then it came really to what Datasift and it’s going back again the as I said earlier, we raised money for Datasift before it was actually complete. For those who don’t know what it is, purely a data platform for the licensing of social media data. It now owns that whole market, there is no other players in the market that do this – it doesn’t have Twitter because it has a monopoly on their own data, but for other social networks out there, Datasift is the conduit including Facebook for their data to most of the big monitoring firms that get this data, they are doing via Datasift.
And that really was a story of software over marketing in that back at the time, there were a number of competitors in the marketplace and we’re quite slow to go to market, we were not the first to go to market with this premise, but a year later when we did go to market, as you can see from this crazy diagram, which is by the way the programming diagram for the platform and every single one of these boxes is a service in itself within our platform and the reason it’s so crazy is because the vast amount of data goes through. Facebook has 1.6 billion users that generate about 10TB of data every hour and all of that goes through our platform or versions of them, depending on which social networks are involved in it. And so we actually are defence and why we won in the end was the technology, nothing more. Because no one else could compete on the abilities of the platform and the cost to try and recreate it. I always said Datasift was one of those companies that broke the mould and there was no viable product because to build something this cost $30 million for all the technology behind it because it took 5 years to get to this point and we’ve raised a lot of money to get to that point but once we had and try to get someplace else to enter that market was incredibly difficult.
So this are my circles for venture capital, people with lots of money. Now this is a really – they never teach you this one. You might think that venture capitalists all have lots of money, the interesting fact is it’s not their money first of all. Venture capitalists have LP’s behind them, they are limited partners and they could be pension funds and all kind of investment vehicles and put money in the venture capitalist. That actually means that venture capitalists are startups themselves. They actually have to every 2-3 years go out and do like we do and raise cash. So they have to go tell a story of why they’re fund and the companies they’ve got in their fund are gonna do so fantastic. That’s a crucial thing to know, is to know where they are with the fundraiser themselves and how they plan on dispersing it because it has a huge impact on you later down the line.
Your first goal might be to go and raise something to build the software, but what if then you need to go and raise more? Without knowing whether they will be able to give you further funding down the line really changes the dynamics on how your business can raise capital later because the primary dynamic is if they’re near the end of their fund, they generally only are using the remainder of that fund to put money back into late stage firms or money they’ve already allocated to some of their very earliest firms. So if you come along and their fund is 80% spent, they won’t put money into a new business at that point unless you’re late stage. So it’s learning this detail about how their operation works.
This is something I knew nothing about to start with literally just by networking with a lot of VC’s and asking how their business works rather than just going to them and say please give me money. When I went to raise money, my two first investors were Mark’s sister, who some of you may have heard as some of the most prolific bloggers and he has the most amazing blog called both sides of the table, he was an entrepreneur, founded 2 businesses that he exited and he doesn’t know what the experience is like. So it’s definitely – and I also had Roger who was a data boutique fund and I pretty much chose both of those in that I liked every other story I told, I targeted them as to say these are the two people I want to raise money from.
I used to go to a lot of events that Mark went to. I would spend a lot of time just getting to know him and he always tells me these stories about people trying to do elevated pitches. Everybody talks about it and they’re just so terrible. He said in the 10 years he’s been a venture capitalist, not one of the people who stepped in and done an elevated pitch has ever raised any money from him. No one. He also never gave money to anyone that emailed him and his firm. It just doesn’t work like that, it’s all about people in the end and I hope I recognise that early and spend the time getting to know him and when I came to – Mark, by the way, you see what I’m doing and this is what I’m about to do. Would you put money behind it? The answer was a yes, just because he knew me.
BTW, my new company was also funded by Mark and I actually got a – I was in a very privileged position having built Datasift to a large enough business that when I start another one I had lots of people come to me and say do you want to raise money? I actually took a lower offer from Mark purely because it was someone I knew and it’s more important than anything that the people you work with are the best people to work with maximising your evaluation actually can be very counterproductive. So same as angels, there’s a whole load of breeds of venture capitalists out there that – a lot of you come from banking. Not so many come from building their own business because I think the general mentality of people who run the business is they just want to carry out doing that and start another one, rather than becoming a venture capitalist.
I’m lucky to have on the DateShift board 4 incredibly smart people, the only downside is they are also of let’s say passionate and smart and do like to argue so my only tip for anyone that goes into this is do what I do which is have a dinner the night before, not after cause then you can have the most of it out of their system the night before, over drinks that’s worked effectively for me cause they do like to argue about it. As I said, it’s crucial to have people on the board that you do know, I’ve heard too many horror stories of people who would go down the Valley, get and raise money and then end up with a board that is pretty negative towards the founder and I’m sure you know plenty of stories of people that have ended out of their own business down the line because they didn’t get on with that board so it’s crucial that you know and trust them.
That said, people often ask me during a short period of 18 months, I actually became CTO and took on a US CEO. Now if I went back now as me right now, I would never have allowed that to happen. In fact my investors would say they made a mistake when they suggested doing it. Now it was just a suggestion and I would never claim that they forced me to do it, and the rationale at the time was I refuse to move to the US 5 years ago it’s still culturally pretty strong and I still hear this sentiment that US backers want the founders to move to the US because they wanna keep an eye on them if they aren’t a fund and spend too much time in Europe, then they frankly don’t want to keep jumping on a plane to meet you. So I understood their rationale there.
The other was that we were starting a US office and we needed someone that had some clout in the US to hire senior staff and be respected out there. And that worked, I was never going to be out there enough and this was during a period where I was flying literally every 4 weeks to the US which is pretty crushing after a while. So the argument went that I could still be controlling the technology and most of the business other than the sales and marketing. That in retrospect was the main mistake because I ended up, when I then switched back again, inheriting a business that was built in the US in a way I had never would allowed it to be built. I’m a metrics freak, literally! I – every aspect of the business I want to reduce it to a very simple number then I can then test whether it’s a success or a failure. And we didn’t do that, we literally during the launch of Datasift, it was wildly successful but I used to say to the board we’re all say we’re hitting our budget numbers, but just cause you hit your budget doesn’t mean you’re being successful. How do you quantify what success could be? What is the upper end? And it was because – we weren’t – we were just relying on the sales figures as a quantifying success rather than understanding the things of how many people were signing up. All of that was forgotten, it was literally sales, sales, sales. My regret was we could have probably sold way more. Mark’s gesticulating at me so I will go faster.
A quick funny story about getting success that turned out not to be great which was when we launched historic access for tweets, some of the press were a bit up in arms. BBC did their usual balanced view of it and told both sides of the stories. This is not what you want – this was in the paper which we were stealing everyone’s secret data, even though it was public tweets we were selling. My favourite one was Joan Collins, she actually found me and the Tweetmeme account and started attacking Twitter saying why are you selling my tweets? Only my followers can see my tweets. Why? I was like no, I think you’re getting confused with another service. So I’ve claimed to fame is annoying Joan Collins.
So we talked about that. This is something that I hugely care about, it’s the IQ distribution and this is where I hire, the graph doesn’t even cover the 0.1%. I always – the key thing is always hire smarter than yourself and everything else will follow from that but I can tell you it was not very easy to find those people. My number one tip for anyone raising capital is ratchets. If no one has ever heard of it it’s one of the most evil things – I’ve had about it in my term sheet about angel investors which is if you don’t meet these criteria of success the amount of equity the angel investor gets goes up. It’s the most ridiculous things and if anyone proposes it to you, then run a mile! It is truly evil.
The other thing just to note I was telling the story last night and a lot of people don’t realise is about dilution, it’s quite an interesting fact of maths that the most important point about raising money is actually your dilution when raising money is not to do with devaluation but how many co-founders you have. If you raise $30 million over the course of 5 years and exist for let’s say $50 million which is a median number, because obviously you’ve got plenty of failures and a few unicorns, but the average is $50 million that company would sell for. Now that’s a great success for the venture capitalists, because by then they own a big chunk of the company. The sad fact is if there was 3 founders, they will walk away with less money than if they’d actually gone into executive jobs individually because if you divide 5 years by the lump sum you take home from that exit, it actually works out less. So it’s quite a demotivating thing to look at.
So my only motive to tell you that story is why I always wanted to fund by myself because it makes a huge difference in what your takeaway is because you can always have people that come later and act as co-founders but dilution is quite a scary thing. The other thing that no investors ever talk about is pop-ups and this is really important depending on how many co-founders you’ve got. There’s a little nudge-wink that goes on whenever you raise a funding round which is that when they come to you and say we want to put in another 5-10 million and we want to expand the option pool that you can give out to your staff but the founders as well. The game they play is this, based on the evaluation that dilutes the company, they will say we will give you 2% out of that option poll and don’t get diluted but everyone else in the business gets diluted. It’s kind of evil because you actually are diluting all your staff and you are being protected from it. In the new businesses, I wanted to change the dynamics of that because it feels nice that you are being protected and you keep your ownership but it’s a false economy in the end because they are actually only giving you options and they aren’t the same as your original shareholding, cause that’s about voting and control and options – so there’s a lot of things, if anyone is interested then go and read it, so many of these decisions have an impact later on and I changed everything on the second company and the company structure about control.
Going the extra mile
Lastly, a quick and nice story about going that extra mile. I was about 3 years ago trying to hire someone that could help us do analysis in Japanese, we were just moving to the Asian market and wanted to build an engine for the Japanese, nobody did it before so I was trying to find this data scientist and I found this guy that’s been doing a master’s on King’s College but it turns out that he was literally 1 month from being evicted from the country because he’d had a failed visa application because the college screwed up on their understanding on how we should be allowed in his country. But as you’re taking his passport away. It was like – I don’t know if any of you know what’s like to try and get visa’s for people outside the EU. It’s great that we can hire from within the EU but bares this country, if I want access to the talent all around the world – I was very lucky that I knew someone who put me in touch with the deputy director of the immigration service and I said to them look, I want to hire this guy and have you gone through the process of proving that you can’t hire this person. I don’t know if you know, but you have to show that you’ve advertised on jobseekers and it’s like how many people and Japanese data scientists do you find at the job centre normally? [laughter], they’re not like swimming around. I said this is ridiculous, this guy is unique in the country right now and I need to hire him and – but to cut this short, we had to go through this incredible process of we found out that there’s these daily clinics where they can go along and be seen and have a hearing on the day – there’s 7 centres around the UK and the government doesn’t advertise this fact, but you have to apply for them online, we managed to get the immigration service to bypass that, get us a slot in Liverpool, we did all the paperwork and lawyer stuff to prove that he should work for us that we’re giving him a long-term job at the company. Got him there, couldn’t get in the building because you don’t have a passport. So he was caught in Government red tape where they were taking his passport away and they were about to eject him out of the country but he couldn’t go in because he didn’t have a passport. We rang up the deputy director, she was in Liverpool at the time luckily and she intervened, got it all through and he still is there today and he’s been a fantastic success. That was a huge amount of effort just for one employee.
I wanted to finish saying that it’s always worth those level of efforts even for one individual to get the right people in your business. Just as a reminder, it’s all about the story and I’m around for the next 2 days, if anyone wants to hear about what I’m doing at Cognitive Logic it’s more about data. I’m more than happy to recount these stories again and give advice. So thank you very much [clapping].
Mark Littlewood: Thanks, Nick! What a great way to start!