Harmonypark | API

East London Tech City, we hardly knew ye

Along with many other locals, we were cautiously optimistic about David Cameron and Boris Johnson's East London Tech City announcement on 4 November. Not only was the Shoreditch tech scene getting recognition and a boost from No. 10 and the Mayor, but £200 million of equity finance was announced, intended to catapult Silicon Roundabout and the East End into serious competition with Silicon Valley and help realise the government's ambition to make the UK "the most attractive country in the developed world for early stage and venture capital investment." Right on!

So when the word went out that TechHub were to host David Willets, the Minister of State for Universities and Science on Monday evening, naturally we (and our friend James from Carbon Voyage) were keen to hear more details straight from the source. Unfortunately, but perhaps not surprisingly, the details were... underwhelming.

Accordingly to Willets, the £200 million is not a new initiative but rather a "topping-up" of the venerable Enterprise Capital Funds programme whereby private venture capital firms invest in companies with both private and public money.

A show of hands amongst the dozens of entrepreneurs at the event made clear that the relevance of these sorts of funds to Silicon Roundabout and the putative Tech City is limited: only a few had even heard of their existence. Simply put, tech start-ups don't need VC millions from the outset, they need seed or angel funding in the tens of thousands to get off the ground. It's never been less capital-intensive to start a company but of course that doesn't remove the need for funding altogether – if just 5% of the £200 million was earmarked for distribution as seed funding 100- 200 new businesses could be launched, many of whom would then feed into the VC deal flow in good time.

Conversely, rising rents & business rates, tightening visa restrictions, ineligibility for other programmes such as National Insurance relief for new employees, and the inevitable brain-drain into the Olympic park campuses of the Silicon Valley giants post-2012 will act to curb tech start-up growth in and around Shoreditch. Nothing we heard on Monday night suggested otherwise.

To his credit the Minister did promise to come back to TechHub in the new year with those running the ECF in tow, to explain the programme and let us know "how the government's backing for venture capital is working." Someone needs to explain to him however that supporting London's start-ups is not the same thing as supporting London's venture capital industry, and that a gated community of VCs, Google, Cisco and McKinsey & Co. does not a Tech City make.

It's an exciting time for online travel services: Google, ITA and Travelstormer

Yesterday,  we were really excited to see Travelstormer launch - it is co-owned by Harmonypark, and developed by us (mostly by Ebony), and we're pretty excited to see it go live. I really think Travelstormer sums up what we do best as a company, and also as an industry as a whole - taking tangible, real life problems like organising a holiday with friends, and using technology to make them easier.

From what I can see, this attitude is one shared by Google (ignoring Wave for the sake of argument). Their acquisition of ITA, as announced today, seems like a pretty exciting turn of events for those of us with an interest in online applications related to travel. Obviously, it's pretty vindicating to see the most successful technology company in the world take an interest in the same sector we're betting on with our little app. However, I'd also bet that in the future, there might also be some fairly solid positive externalities to come out of this for those of us involved in the online travel sector.

Google's mission statement - "to organize the world's information and make it universally accessible and useful" is exactly what's at play here - as Marissa Mayer, VP Search and User Experience says on their blog:

While online flight search is rapidly evolving, we think there is room for more competition and greater innovation. Google has already come up with new ways to organize hard-to-find information like images, newspaper archives, scholarly papers, books and geographic data. Once we’ve completed our acquisition of ITA, we’ll work on creating new flight search tools that will make it easier for you to search for flights, compare flight options and prices and get you quickly to a site where you can buy your ticket.

This is really exciting stuff for anyone who uses air travel at all, but I also think it's going to be great for technologists and entrepreneurs working in the same space. To see why, it's worth looking at Google's history of acquisitions, and seeing how they have been informed by this broad strategy of facilitating universal access to information.

I think the list of companies acquired by Google can be split up into a few distinct categories. There's the companies (mostly startups) who have a going concern in a field in which Google does not currently have a presence who are bought up, and essentially carry on providing that same service, sometimes under a Google logo, sometimes not. Here, I'm thinking of sites such as Youtube, Blogger, as well as things like Google Docs and Google Analytics (originally Writely and Urchin stats, respectively). These acquisitions tend to diversify Google's interests - giving them a stake in a market in which they didn't previously have an interest.

Secondly, there's the acquisitions of competitors, or companies that have technology or IP that is of use to a current active business interest of Google's. This includes most of their purchases of search and advertising companies, and serves to entrench their positions within these markets.

However, there's a third category that I think spans these two, which I think the ITA purchase fits into quite nicely - This consists of those companies with a large base of information and knowledge which would constitute a massive public good if only the public had access to it. Ultimately this strengthens Google's core business - Search - as well as benefiting the public through all the externalities that unfettered (and easy, thanks to Google's existing search technology) access to this information brings. It's a win-win for Google and us as consumers (modulo the obvious privacy issues with some types of data), with only those with an interest in restricting access to that information losing out. The best example of this to my mind is Google maps (along with Earth and Streetview), which has revolutionised the way we access geographical information.

This revolution happened in two ways - The fact that Google made the physical world as searchable as the online world with their own maps application (which even shared the familiar interface of their web search tool) is undoubtedly a massively important feat. However, beyond this, Google maps created value from that sort of information by providing APIs for other people to build upon the service it offers, allowing developers and businesses to build a geographical component into their own applications. As a result we've seen massive growth in location-based web services, and a surge in interest in GPS and related technologies, as evinced by Wired UK's excitement over services such as Foursquare and Gowalla last month.

A similar strategy informed Google's forays into indexing public data in the US, and challenging the hegemony of Westlaw and Lexis Nexis by indexing legal decisions as part of its Scholar service. If I'm correct, and Google's acquisition of ITA is a reflection of the same strategy, that of profiting through encouraging access, I'm confident that we'll start seeing Google providing APIs to access flight and travel data, something that provides loads of exciting opportunities for those of us who are building travel-related online services.

Crowd funding your startup with Couch Tycoon

Firstly I thought Couch Tycoon was a joke*, then upon further inspection it seemed to be for real** after all. It struck me as the kind of silly idea that comes up between friends where it pops out, then you pause, then the cogs move a little faster in your respective brains and you share that look of "hey actually, that isn't such a crazy idea" (oh to have a dollar for every startup idea that was born from a sentence that began with the words "wouldn't it be cool/great/useful if...")

To apply a crowd funded model to high risk startup enterprises in much the same way that Zopa and Prosper have modelled P2B and P2P lending does have a lot of merit (as an idea at least).

With Couch Tycoon, things get a bit more hairy when you get to the fulfilment/ownership parts of the equation. The service is not accredited by the FSA/SEC/CESR to act as an investment advisor, so they have instead created a proxy casino-like system whereby you give them money, they issue you with game like credits (read chips) that you can invest with (read gamble) and then if you want out you can then swap your credits for real money again (read good luck) if it hasnt been assigned to a venture.

They aim to look after an investor's money up until the total amount needed is raised, at which point they will then give the money to the venture, take a 10% success fee (so if you need 100k for your venture, 110k will need to be raised with 10k remaining in CouchTycoon's pocket) and the ownership/equity of the venture will be help by Couch Tycoon's parent company who will apparently act as a trustee for your investment. In their own words:

"PIPELINE ventures GmbH or an affiliate purchases the real shares of the financed venture with the money collected through Asset Slip sales. This company holds all the real shares on a trust basis, the investors on CouchTycoon bought as fictional shares (Asset Slips).

So no user on CouchTycoon will be a real shareholder of a venture he buys Asset Slips from. As CouchTycoon investor you only buy fictional shares due to legal reasons. But you can deal them like real shares. Mr. Idle´s company will be the real owner of the real shares, but he acts as a trustee for you. So your fictional shares give you the same rights like you had with the real shares."

So in a sense they would make money twice. Firstly from the success fee, and secondly from the interest that is accrued on the money held in escrow whilst a venture is waiting for the full funding round to be completed (however long that may take).

To be honest it looks like a tough sell, especially when it isn't backed by any notable names from within the established financial/banking/VC arena; but it would seem that the financial industry as a whole is indeed in need of a rather fundamental shakeup which may well come from some unknowns from outside of the system.

It wasn't that long ago that Zopa was playing the role of outsider; they are now expanding quite quickly (Zopa now has 200,000+ customers) and have had an impressively low default rate. Prosper have also charted a course to success using the very same P2B/P2P model with in excess of 580,000 customers and $117,000,000 in currently active loans in operation. If crowd funding can disrupt the arguably slow moving and bureaucratic banking industry, why can't it work for VC too?.

(update: note that the Zopa default rate has recently risen, but only a little).

You could also argue that an individuals credibility for creating financial stability is only being as good as the last billion they did/didn't lose, and right now a lot of very credible names are proving to be pretty damn good at losing large amounts of money.

As an entrpreneuer the idea of crowd funding has a definite appeal over the well trodden and labour intensive 9 month show-pony process that has become the investment norm, so rather than dismissing it entirely, I'm gonna file Couch Tycoon under Wait and See.

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* I am still not entirely sure that CouchTycoon isn't just the world's most overly thorough Web Meme.

** The perception of being seen as "not serious" comes entirely from the manner in which the service owners have created a fictional 'character as owner' to illustrate their concept (and get around the legal right to play broker). This approach is playful and creative, but somewhat convoluted and perhaps even the biggest early risk they might face when getting people to buy into (in both the figurative and literal sense) what is essentially a good idea (crowd funded VC funding).

Investment readiness

We were recently invited to attend the g2i investment readiness programme, which has been setup by the London Development Agency to help startups both prepare for and seek equity investment.

On the whole it was time well spent. We met with a bunch of VC and Angel investors and got the chance to test out a few of our plans and ideas on them in a no harm no foul environment.

Up to this point, Harmonypark as a company have just been focusing on making really useful apps, but we are now at the point where meeting investors is actually something of mutual interest and it would be fair to say we are now in a much better position to navigate this next stage of our companies development.

The most important part of the process is working out what kind of investor and investment structure is right for you at this point in time, and down the line too; because it is not just about the money.

This post by Jason Fried really struck a chord with us, and as we progressed through the investment readiness programme the stronger the feeling towards taking on the right private investor over VC continued to resonate well. This is due partly because our model involves not one app but many over time (so VC equity is involved, but not into the mothership) and mostly because the idea of involving the right investor to help us grow things is actually quite appealing.

Anyway, back to the original topic, the g2i programme definitely offers startups an interesting segue into their investment phase and even goes some way towards matchmaking entrepreneurs and investors. As such we would definitely recommend other London-based startups get in touch with them for a chat.