Good VCs Don't Charge Their Companies For Flying First

Recently I was alerted to a post by Dan Shapiro titled "How to handle a VC who flies First" through a post on Hacker News. Good article, and you should go read it.

We faced a similar situation when OpenGamma expanded in its Series B to have a multi-national presence, and multi-national board of directors. Prior to the Series B, we had three board members, all based primarily in the London area. Adding an investment from FirstMark Capital, and taking Lawrence Lenihan onto the board meant that we now had three board members in London, and one in New York City.

That meant two things:

1. We were going to start having board meetings in both London and New York City; and as a result
2. Board members were going to start to travel for these board meetings.

To make matters worse, we had two different travel policies for our two venture capital investors:

• Accel Partners, as a policy, doesn't charge travel expenses back to their portfolio companies.
• FirstMark Capital does.

The Interesting FirstMark Approach

Accel has actually been thinking about starting to charge, as many of their peer firms already do. And that's a reasonable position to take. But if and when they do, I expect that they'll follow the lead that FirstMark does in the way that they do it.

Essentially, it's in the interest of a venture capital firm to ensure that any travel that they do is necessary and in the best interests of the company. You don't want to have your partners flying all over the world all the time, or else they'll never get anything done. But at the same time, you don't want to penalize the firm for the travel that is essential to the firm.

The FirstMark approach is simple:

• Their partners don't like to fly economy (and as someone who's done 10 transatlantic round-trips this year thus far in coach, I can't blame them);
• Their partners have preferred hotels that tend to be on the pricey side;
• This is not the concern of the portfolio company.
• The partner will make his or her own travel arrangements at times and in standards of travel that are suitable for the partner;
• The firm will reimburse them an amount based on the partner travelling just for the board meeting, and in the standard flight fares (in our case, full-discount economy) and accomodation (in our case, nice, but not luxurious) for the portfolio company.

The VC wants to fly first class London to New York and stay at the Mandarin Oriental? Great, and I'm happy that he's doing well enough to afford it. But that's not what employees fly, and not where employees stay, so anything beyond what we'd consider a reasonable expense report is on him.

If the firm is doing well enough to expand their standard of travel for employees? Then they should expect to compensate their board member VC partners more as well and consider that when they decide what the standard travel policy should be.

I think this policy is fair to all concerned: business travel can be a significant cost in a business and a drain on those travelling, so it's worthy of minimization in general; but the needs of the firm have to come first over and above the luxury of the traveller.

To me, if a VC wants to charge you more than what you'd pay to fly an employee, their incentives aren't aligned with yours.

Monty's Almost Certainly Looking For Investment

Remember how I predicted that Monty was attempting to create such an untenable situation for Oracle that they had to dispose of the MySQL IP and put it into his hands? Remember how all of Monty's protestations were based on the fact that he doesn't have the money to buy it? Remember how I said that he might not have it now, but could probably raise it?

Yeah. He's trying.

From Reuters, Florian Mueller is touring Wall Street:

EU strategist who is former MySQL shareholder and adviser announces Silicon Valley press conference (26 October) and New York City analyst briefing (27 October) -- Florian Mueller wants to "explain positions of critics of proposed transaction in the lion's den" -- New York event due to "strong Wall Street interest in the matter."

There haven't been any protestations from Wall Street that I've seen that they're unhappy with Oracle acquiring MySQL. Rather, this has been a European affair as Monty tries to get the EU to interfere in industrial policy for his own personal benefit. So why in the world would you send your sockpuppet to Wall Street to explain any positions? What interest would Wall Street have in the matter other than to provide funding?

You might argue that he's going there to talk about the position they're taking with the EU competition commission because there are lots of people who own Oracle and/or Sun stock, and might be interested in the matter. But I think a much simpler story is at least as likely: Florian is attempting to drum up a capital raise to acquire the MySQL IP to make the problem go away for Oracle, and to convince Oracle and Sun shareholders that Monty and Florian will do whatever it takes to block the acquisition so that they'll tell Larry to let go.

Add to the Look at the Balls on that Guy category: Florian Mueller.

Monty, Stallman, MySQL, Oracle, and Sun: Open Letter Wars

I've tried to confine my ranting about the current state of the Sun/Oracle/MySQL debates to my Twitter feed, but I think I need to do more than the 140 character limit allows.

Background On Recent Moves

In case you haven't been following the state of play, we've got two recent open letters sent to the EU competition commissioner:

• RMS, Knowledge Ecology International, and the Open Rights Group came out as strongly opposed to allowing the Sun/Oracle acquisition to proceed as long as MySQL was part of the acquisition.
• Monty suggested that Oracle be forced to sell MySQL as part of the Sun acquisition.

If you've been following either of my posts on the subject, you'll know I'm not a dispassionate observer in this matter, particularly where Mr. Widenius is involved.

Competition and Acquisition

First of all, let's directly address the core matter at hand, which is that Monty, RMS, and the various others appear to believe that the Database market is hopelessly consolidated and were Oracle to get its hands on the copyright to the MySQL source code that would be bad for competition.

This, to be honest, completely and utterly disregards the actual history of the database market, which has always been one of consolidation and benefits to the consumer:

• Illustra, a Berkeley spin-out, was bought by Informix
• Informix was bought by IBM
• RedBrick was bought by IBM
• RDB was bought by Oracle

While this consolidation has reduced the number of vendors in the market, as of 2007 there was still pretty hefty competition with Oracle even then only with a 44.1% share of the paid database market. As someone who has had to work professionally with Oracle, DB/2, Sybase, and Microsoft SQL/Server, I can say this is almost certainly because it's the best overall product.

Furthermore, those numbers in terms of the database revenue are completely suspect (with the exception of Microsoft's). There's a huge amount of revenue for IBM and Oracle which are tied to services and software sitting on top of the database (such as Oracle applications and IBM services), and realistically the CFOs of each company can tune the percentage of the deal that goes to the underlying database based on what numbers they want to report. The overall deal may be $1MM, but the sales person has a lot of discretion on how they price the database component.

Is there so little competition in the market that it's hurting consumers? Hardly. The recent squabble over Oracle's TPC-C pseudo-announcements indicates that the vendors actively compete with each other. Furthermore, the rate of feature expansion has been truly dramatic. Finally, the ability of firms like Vertica to rapidly jump into the market indicates that this isn't a market that requires significant levels of competitive concern on the part of regulators.

The technology industry is based on larger firms buying smaller ones. Competition authorities should rightfully be concerned only if it harms consumers in general, not whether it harms a particular subset of users.

But MySQL Is Special

With all due respect, no it isn't.

Let's consider the pseudo-market for Open Source databases. We've got:

• MySQL and its various derivatives (like Drizzle)
• PostgreSQL and its various commercial/supported versions
• Ingres
• Firebird
• LucidDB

And that's just considering the relational ones. When you consider the NoSQL movement as potential competitors (which I, for example, most certainly do), MySQL just isn't that special anymore.

While it is possible that an Oracle acquisition might be bad for MySQL consumers, it doesn't follow that MySQL is so special and perfect and pure that it harms any general category of consumers. While databases aren't perfectly replaceable, if someone found that Oracle's stewardship of MySQL was so onerous that they wanted to move off of it, it wouldn't be impossible to move to another database, either commercial or Open Source.

What that means is that you're in a classic case where the acquisition of a particular company might be harmful to consumers of that company's products, but it doesn't generically affect the market in a negative way. IBM and Microsoft will continue to compete in the commercial space, and PostgreSQL, Ingres, and LucidDB will continue to compete in the Open Source space. There's no net harm to consumers as a whole from an acquisition, even if the result of the acquisition was the complete shutdown of all commercial support for MySQL.

Oracle Is A Bad Acquirer

First of all, let's get the obvious out of the way: Oracle bought BerkeleyDB, and continued to enhance it; Oracle bought InnoDB, and continued to enhance it. At no point did they crush them to drive Oracle database revenues, or change the licenses, or stop forward momentum. So when you look at the actual track record of the company, they're in the clear.

But they might do, because they're an evil, scary corporation that MySQL turned down once before (from the Stallman piece):

Oracle made an earlier effort to buy MySQL in 2006, but the management rejected Oracle's offer, in part because Oracle would not disclose its plan for MySQL, and some members of the MySQL management team were concerned that Oracle was only acquiring MySQL to curb its advances in the marketplace.

I know a number of people involved with MySQL when it was an independent organization. While there were people who worried about that fact, senior management wasn't. More importantly, Monty was willing to sell MySQL to Oracle in 2006 for the right price. The use of the words "in part" there are telling, because the primary consideration that MySQL's senior management had wasn't some happy-clappy love for the Libre Software Movement, it was money.

I'm sorry, but I fail to see what's changed in between 2006 and 2009 except that Monty is a whole heck of a lot richer. Why in 2005 and 2006 were offers ultimately rejected from Oracle based primarily on money, but now Oracle is an evil corporation that can't be trusted with MySQL? Larry's the same guy he was then, Oracle has bought BEA but they don't compete in any way with MySQL, it's the same company. Why would Monty trust Oracle back in 2006 but not now?

Force Oracle to Sell MySQL

This is Monty's solution. And it's cunning. It's particularly cunning that he says repeatedly that the obvious Monty-connected acquirer, Monty Program AB, lacks the funds to do such a purchase. Again, a half-truth.

MySQL was worth $1Bn in early 2008. Since then markets globally have tanked, but MySQL has had some good commercial strength recently within the Sun organization. So let's conservatively say that it's still worth $1Bn. Let's then say that Oracle values the acquisition of Sun highly enough to let MySQL go for less, and do a 20% haircut to $800MM. Who's got that kind of money to acquire?

• Microsoft. You think Stallman and Monty would be happy with that? No.
• IBM. #2 in the database market. Erm, raises same issues that Oracle would.
• Sybase has the market cap (super-recently) but not the cash.
• Red Hat has the market cap, but not the cash.
• Novell lacks the market cap and the cash.
• Computer Associates has the market cap and the cash, but is the place technology goes to die. They also have Ingres to work with.
• VMWare has the market cap and the cash and an acquisitive streak, but would MySQL really fit into their product strategy? I can see Spring driving people to vCloud, but can't even fathom the same kind of strategic benefit for MySQL.
• Symantec has the market cap and the cash, but their storage work has been pretty solidly focused on backup and low-level storage these days.

It doesn't look to me like there are that many companies out there that could really buy MySQL in cash and make Stallman and Monty happy.

But you don't actually need to have the cash yourself: you can use private equity money. It's happened before: BEA was funded by private equity originally to consolidate the Tuxedo market. That's why Monty's protestations ring hollow: his statement is explicitly "we don't have the money." But I think he could probably come up with it, and if he doesn't, then he needs to work with better financiers.

Finally, let's assume that Oracle really wants the rest of Sun, and considers carefully Monty's open statement that Sun is hemorrhaging $100MM of cash per month. Wouldn't it make sense for Oracle to actually just donate MySQL to pretty much anybody to make the EU issue go away? Oh, and lo and behold, Monty has two of those ready to go: Monty Program AB, and the Open Database Alliance.

To me, the current situation amounts to blackmail: we'll keep blocking your acquisition of Sun until you do what we want.

Consider The Sources

So let's look at the motivations of the major current players.

Stallman is irrelevant to any commercial discussion. His press release essentially says "I don't like the GPLv2 anymore, even though I wrote it, and it would be better if MySQL was under the GPLv3." Tough. Furthermore, RMS has no commercial experience of any kind. I fail to see how someone who has never even worked for a profitable commercial enterprise could be considered knowledgeable about how an acquisition would affect the marketplace in an anti-competitive way that harms consumers.

Furthermore, RMS' press release completely belies his previous positions regarding the possibilities for commercialization of GPL projects. He's stated in the past that offering dual licensing is only one of many ways that you can make money with the GPL being the dominant licensing model. Why all of a sudden does he believe that this is the only possibility for MySQL? Why is he so adamant that without that ability, there's no ability to derive commercial revenue from MySQL?

Monty has been slinging FUD about this acquisition for months. He was such a disruptive element inside Sun that they released him from his Non-Compete just to make him go away. Given that he's an extremely rich, disgruntled ex-employee and project founder, he has personal reasons and financial ones (under the Monty Program AB umbrella) to cause as much disruption to this deal as possible.

I've said it before and I'll say it again: Monty has been playing a long game here, and I think he'll be obstructive to any potential move that Oracle would make with MySQL until the IP is under his control.

Personal Opinions Should Not Drive Competition Policy

Ultimately, you can sum up the entire argument against the Oracle/Sun acqusition due to the MySQL situation as:

• We don't like Oracle owning the MySQL IP
• Therefore, don't let Oracle own the MySQL IP

Unfortunately, saying that you personally dislike something doesn't provide a valid reason to block an acquisition on competition grounds. Saying that you don't trust Oracle doesn't alter the marketplace in a way that disadvantages customers as a whole. Saying that nobody else could make money by selling commercial licenses for MySQL doesn't mean someone else must be allowed to.

The moment the MySQL founders, who have been handsomely rewarded, took VC money they turned MySQL from being a hobby project/company, and into a major technology company and an asset. The change happened years ago, it's just that they're only starting to wise up now.

But it's happened. It's done. It's no longer anybody's pet project; it's an asset that can and should be used by whomever is willing to pay the most for the IP. As a customer, under the GPLv2, you still have rights, including the right to fork. But don't go whining that a company that made massive amounts of money for its shareholders by commercializing a technology is no longer under your control.

How Many Times Can Monty Sell MySQL?

UPDATE 2009-05-27: Monty's spoken to Matt Aslett, and I've responded.

COMMENTARY UPDATE 2009-05-27: If you're just reading this for the first time, after posting this it became clear (through back-channel to me) that Sun did have Monty under an Non-Compete, and chose to allow Monty to get out of it. I've commented about that in the comments [which you should really read] and in the Proggit thread. I still think Monty's actions are pretty bad looking even given that, but you should understand that there was a Non-Compete, and Monty was let out of it by Sun, before you read the original article below.

I've been thinking this since it was announced, but Monty's current attempt to monetize MySQL by hamstringing the eventual owner of his original attempt is really quite, ahem, ballsy. For a much less ranty analysis with quotes from M-Dawg himself, see Stephen O'Grady of RedMonk's writeup.

Let me give the Kirk "worked for 3 database companies and founded one expressly to compete with MySQL" Wylie synopsis:

• Monty writes MySQL way back in the day, largely so that he has a database system which doesn't have any of the complex features of an RDBMS that make it work well (you know, referential integrity, transactions, views, proper metadata support).
• People start using it, largely because it's Free-as-in-Beer (this was back in the days of minimum $100K Oracle buys just to run a simple web site), but also because it's easy to setup and administer (which Oracle/Sybase/SQLServer/DB2 were not).
• Monty wants to get rich.
• In an effort to get rich, he takes a boat load of VC funding to push MySQL from being a small open source collective to a Real Company.
• VC funding requires a business model that has real revenue behind it.
• Company adopts a split licensing model (which pissed off a lot of people at the time), and starts being effective in attracting revenue and very, very smart people as executives.
• Monty's dreams of success are realized when Sun pays a king's ransom for MySQL.
• Monty wants to have his cake [1] and eat it too, and gets all pissy and storms off in a strop and founds an attempt to get rich a second time on the same project.
• Oracle buying Sun means people take this attempt even more seriously and he attracts people who never liked the post-VC-funding MySQL business model in the first place to the cause.

So here's the question that everybody should have on their minds: How many times will Monty attempt to get rich off the same project? [2]

Now I wasn't privy to any of the contractual arrangements around MySQL's incorporation, or his common stock stake, or the Sun buyout, or any of his employment agreements [3]. I will, however, postulate that if Monty doesn't have Fuck You money at this point given a $1Bn buyout of the firm he founded, he did something Seriously Wrong, and you probably shouldn't trust his business instincts.

So one of two things is going on here:

• f(Cake + Eating) == Cake
• He fundamentally doesn't agree with a split licensing model and thinks it's doomed to failure. I really hope this isn't the case, because if it is, he was acting disingenuously at best when working for the Original Monty MySQL-Based Get Rich Scheme, by supporting a model that he didn't believe in.

If it's the latter, why did he start down the path of taking VC money in the first place? Seriously, did he honestly believe that he could take a boat-load of risk capital, and not have to provide returns to the limited partners at the core of any risk capital facility? Did he lose some type of boardroom squabble over the direction of MySQL and has been nursing a grudge ever since? [4]

Here's something any founders of Open Source projects need to realize: VC money comes with strings attached; do not take that money if you don't want to take the strings. The strings are entirely financial: VC/risk capital requires a very hefty payout in a relatively short (5-10 years max) timeframe to the limited partners who provided the VC firm with its capital to invest. In order to ramp up revenues in a reasonable timeframe, you will need to have some facility to generate reproducible, cheap-to-deliver revenue in that timeframe. Open Core is one approach, Split Licensing is another, all manner of Services are a third, there are a whole host. But you have to come up with one. Otherwise there's no point in raising risk capital, which must have a hefty payout.

If you just want to have a lifestyle business (and many lifestyle businesses can, over time, still provide you with Fuck You money if you structure them properly), while constantly maintaining an environment where you can do what you want technically in a purely-Libre environment, don't take risk capital. Grow your business organically, and enjoy the life that you've created for yourself.

But the moment you accept that term sheet, you've crossed the barrier beyond a pure hacker coding for fun, and a company executive who must deliver returns to his investors (and that may require doing things that the hacker side of you finds distasteful). If you're not willing to sign up to the transition between pure Open Source techie and Business Executive, don't accept the term sheet. And for the love of the FSM's noodly appendage, don't accept the term sheet thinking that you're going to screw your investors in the long term by going back to your roots once you've got your payout. [5] Doing so screws it for the rest of us.

Here's the #1 problem Monty's move has caused for anyone attempting to make Fuck You money off Open Source: it should make VCs very nervous indeed about Open Source investments. Let's examine what I would consider to be a logical thought process:

• If we invest in an Open Source company, the most likely outcome is an acquisition by another firm.
• If founders of projects make it a habit of storming off to fork their invention because they don't like the monetization model they helped establish, other firms are very unlikely indeed to buy Open Source companies.
• If other companies are unlikely to buy Open Source companies, our return on investment in them will be much lower.
• Therefore, there's no point in looking at them.

None of this impacts Monty: he presumably already has his Fuck You money.

But if I were a VC looking to invest in an Open Source company, I would insist on an enforceable non-compete if I could [6], and I would make sure that my exits prevented the founders from being able to fork. Otherwise, my assets are really only there to make the founders enough money that they can pursue their dream of working on pure Open Source code with enough money that they no longer have to try to get rich. Which is great for them, but not for the rest of us who aren't rich but wish we were.

Remember: going for the brass ring and taking VC money requires that you compromise something. If you don't like it, don't take the money. But once you have, realize that you may need to walk away from your baby once you've got the money for the sake of everybody else.

Just as an aside, bear in mind that nothing should stop you from doing Open Source work, including starting an entirely new project on the same basic idea, once you have your payoff. It happens all the time in other industries (how many networking hardware companies have been founded by the exact same executives?). But resist the urge to fork your original project. It's unseemly at best, and flat-out unethical at worst. If Monty had started MariaDB from scratch, that would be one thing. But he didn't. And that's the thing that makes this all seem, well, just a little bit wrong to me.

Footnotes

[1]: By cake, I mean chedda/dead presidents/papa. Cash money, yo.
[2]: Clearly more than once.
[3]: Hence I am totally unqualified to comment here. I'm doing so anyway, because if you keep reading, this turns less Monty-directed and more general-parable.
[4]: There's a reason nobody ever saw the code for my Compete-with-MySQL Open Source Database startup.
[5]: I'm not actually accusing Monty of this, and nor do I believe it to be the case (believe it or not). I think there's something else going on here. But I could see that some people might think that unethically, and you really shouldn't.
[6]: Yes, there are ways to structure this, usually during the M&A stage, by having deferred payments to the founders which don't trigger if they fork for some period of time, that even comply with California and UK restraint-of-trade law.

Google Launches VC Arm

This has been all over teh interwebs. It's not actually that unusual for a large, cash-rich technology firm to have its own VC arm: Intel and Cisco are notable players in the Corporate VC space already, and Microsoft used to be.

Large tech firms do this for a number of reasons:

• To find a use for the mountains of cash they accumulate and never distribute back to shareholders
• To fund firms that employees want to leave to start, to keep them in the corporate fold (and potentially compensate the founders better than they could as employees)
• To fund technologies they want outside the stultifying corporate culture that stops true innovation (Cisco is famous for this)
• To ensure that there are new firms using their technology and thus growing their revenue base

I'd say probably that the biggest common factor in those is a recognition that once you reach a certain size and scale you've reached the innovator's dilemma (in that you can't work on things that would cannibalize your existing revenue base), but also that big firms are terrible at doing pure innovation (more management, more rules, less innovation). In that, it's a sign that you're no longer a young, hip, cool company, but a big one. If I were a Google employee or investor, I'd take that as the main message here: Google accepting that they're a Big Company, with all that entails.

From The Economist Entrepreneurship Special Report

In the March 14 2009 Economist Special Report on Entrepreneurship, one choice snippet to cut out (emphasis added by yours truly):

The European venture-capital industry, too, is less developed than the American one (significantly, in many countries it is called "risk" capital rather than "venture" capital). In 2005, for example, European venture capitalists invested EUR12.7 billion in Europe whereas American venture capitalists invested EUR17.4 billion in America. America has at least 50 times as many "angel" investors as Europe, thanks to the taxman's greater forbearance.

Yet for all its structural and cultural problems, Europe has started to change, not least because America's venture capitalists have recently started to export their model. In the 1990s Silicon Valley's moneybags believed that they should invest "no further than 20 miles from their offices", but lately the Valley's finest have been establishing offices in Asia and Europe. This is partly because they recognise [sic.] that technological breakthroughs are being made in many more places, but partly also because they believe that applying American methods to new economies can start a torrent of entrepreneurial creativity.

I've been writing about this exact same thing, and I think it's becoming clear to the general VC community: investing money wisely leads to cultural changes that allows you more opportunities for investing in the future. Much as a Valley GP may invest in an untried entrepreneur, expecting that while this one may not pop the next one will, one can view an entire market the same way.

Otherwise excellent special report. You should read it; it will make you smarter.

Index Raises Another Round

TechCrunch reports: Index raises an EUR350MM round. TechCrunch UK continues, and is a better analysis from a European perspective.

As I've said before, perfect time to be investing Euros in London-based firms.

TechCrunch Reply: VCs Shouldn't Only Fly To Emerging Markets...

(Context: TechCrunch saying the US is played out in VC funding.)

First off, allow me to correct one thing, about the confusion between high growth and high tech. Yes, VC funding is about high growth. But more than that, it's about exponential growth triggered by a capital infusion, which is what technology investment is all about: pay money down to write software, and you can sell infinite numbers of copies for only the cost of sale, which is lower (hopefully) than the cost of writing it in the first place. Otherwise, you're in Private Equity land, which is completely different.

But let's take the analogy farther. Why do you think that investment is going into China, India, and Israel? China and India are growing middle classes and have indigenous growth markets, as well as a hinterland (SE Asia for China, Pakistan/Bangladesh for India). What about Israel? That's the one that teaches you something illustrative, because I don't think anybody would really assume that Israel is very well able to effectively do business with its local hinterlands (for a variety of reasons I don't think I need to spell out here).

Israel tells the whole story of why the others are there: lots of skilled engineers who can't/won't migrate to Silicon Valley, and a culture of entrepreneurship.

Hmmmmm.....that sounds familiar..... Oh, wait, now I remember why!

So taking the TechCrunch approach, here's why London is somewhere else you should consider:

• Growth Industries. Remember, London is able to service as a financial and technology centre all of the expanded EU. You think Romania isn't a potential target for growing in transport, consumer goods, all that?
• Immigration Issues. Again, London draws from all over the EU already, and we also can't make it to the US.
• Stable Regulatory/Legal Framework. Okay, so this is a little different than it used to be given regulatory chaos everywhere, but we have an excellent legal framework and strong property rights and laws that understand and can defend against violations of intellectual property.
  
• Bonus: You like London. Okay, let's face it. You're a rich VC. London's very very suited to taking money from super-rich people. Why do you think we have so many Arabs and Russians and other assorted billionaires here? Because we're good at providing avenues for you and your significant others to spend money on a regular basis. Bangalore? Not so much from what I hear. [1]
  

If you're looking at Israel, you should be looking at London.

Footnotes:
[1] Yes, I know I'm incredibly oversimplifying. My point here is that London caters to literally hundreds of dollar billionaires on a daily basis; Bangalore, Tel Aviv and Guangzhou don't. They're getting better, but London's been a billionaire plaything (to a point that makes it impossible for those of us not in that level to live well) for at least a hundred years, and it shows. Trust me, you don't want to have those problems.

More on London vs. Valley

Just a quick follow up on this morning's epic rant about London and Funding.

Read this from the Futurist: "Why Government Is Set to Extinguish Silicon Valley."

Whether or not you agree with the argument, he makes four key points here:

• SOX compliance makes it difficult to justify an IPO. No worries about that here, and the London Stock Exchange's AIM still has some IPO activity.
• Immigration Torture. Again, not only do we have all of Europe here, the UK actively encourages anybody who has excellent skills to relocate here from wherever you are under the Highly Skilled Worker program (hint: if you can work in the Valley at all, you qualify).
• California Taxation. Yep, Cali is completely ungovernable and taxes are going to go up a lot. We don't have a split between federal and state taxes here.
  
• Federal Taxation. Yep, your taxes are going up. Ours are as well, but much less on current projections (if nothing else, no matter how broke UK.Gov is, our debt as a percentage of GDP is much less). We also don't have an AMT here to contend with.
  

Still think London isn't a desirable place to locate a startup?

Want a London Tech Sector? Invest In Startups

I've written previously about moves to set up a London TechHub, and I've spoken disparagingly (some might say "ranted") about it. Since then I've been made redundant and spent my time helping out an Open Source project and generally embedding myself in the local AMQP community. I'm a lot more optimistic than I once was.

Basically, I've been hanging out every day in Silicon Roundabout, and it's starting to feel pretty interesting. It's got some of the things that the rest of London lacks:

• Public third-spaces have free WiFi and power points all over the place. Contrast this with a standard central London Starbucks. [1] The only big difference between London and San Francisco is that in London the wired third-spaces are pubs; in Silicon Valley they're coffee shops.
• Lots of Class-Z office space. Nobody's trying to tear down everything they see and put in Marc Jacobs boutiques and Class-A office space. The fact that there's office space that's actually affordable is a big plus.
• Lots of startups. There are all kinds of small tech and media companies around seeding each other with ideas. People working here know each other and can meet up easily for beer after work and weekday meetings.
  
• Lots of Vietnamese restaurants. Maybe it's my personal experience, but grabbing the team and going to get Pho for lunch is part of the Valley experience to me. [2]
  
• People doing deals. Everywhere around there are people obviously getting Deals done. Funding deals, consulting deals, hiring deals, it's all happening. You can feel it.
  
• Non-traditional-appearance people. Artists, piercings, nobody wearing business attire, it's all there. Much more techie than the traditional City/Wharf culture.

And here's the thing: none of this has happened with any type of TechHub coming into being. It just happened organically.

Fund Firms To Build A Tech Cluster
You want to know what would make this really gel? More funded startups.

There's a general sense these days that any new tech startup requires like 2 guys, some Merb/Rails, a couple of MacBook Pros, EC2, and you'll have a million users overnight. Why take funding? Why invest? Why not wait for commercialization?

Because you take the long view. Because you realize that creating a culture of early stage startups requires a culture of entrepreneurship. And because you know that only funding companies leads to spreading that culture of entrepreneurship to new people. And, even more importantly, because there are a lot of ideas that actually do require more than 2 guys + laptops; they require some pretty substantial up-front investment to pop, but the pop is probably going to be bigger as a result.

But that takes ideas that require funding, and a willingness to invest in early stage companies. There aren't a lot of angels around at the moment (if nothing else, the financial implosion hits them first), and London's been so expensive that most techies of sufficient quality don't have enough savings to bootstrap for a year. So you need a bunch of people looking at interesting IdeaCos, and investing in them.

The Kirk Story
Perhaps the most important thing that happened to me to incubate my personal culture of entrepreneurship was taking a startup job straight out of University (Go Bears!). That changed my worldview so dramatically that when I then went on to work for WebLogic (just after BEA acquisition), I thought that 2000 person company was monstrous and bureaucratic. I couldn't wait to get back to a startup.  That's how you build a tech community: you infect people with the startup bug. [3]

When I moved to the UK from Silicon Valley for personal reasons, I wanted to continue that culture of startups, that constant entrepreneurship. But when I looked around, I realized that the only way to live with a reasonable standard of living was to dive into finance. [4] VCs I met with tried their hardest to get me on board with one of their portfolio companies, and even asked me whether I had an idea they could fund (which I didn't, and even if I did, I didn't have the local network at the time to put a deal together). I viewed working in finance as the best chance I had to build a life for myself in London working in software development. [5]

I think things have changed. I think London is the place, and now is the time.

Why London Now?
So if you're reading this far, and you have a few quid to invest, here's why I think this is exactly the time to push hard-core into technology companies that require up-front investment in London:

• People Are Available. The Credit Implosion has really started to hit financial IT. [6] This makes the calibre of people that you need to do startups available, and it's only going to get worse/better from here. Infect them with the bug, make it clear that they can do tech startups and be able to live in London and maybe have something pop, and you've got a culture going.
• Sterling Is Worthless. $1.366 as of Friday close, even worse in Euros. Nobody denominates VC funds in Sterling. Invest here while you can. Seriously, even alpha developers here are earning at market exchange rates monstrously less than they are in the Valley or New York.
• We Have The Basics. WiFi/Power Points, Vietnamese Restaurants, Cheap Offices, Public Piercings, it's all here. [7]
• We're Not USAia. We can draw on skills (language skills, cultural affinity) from throughout Europe [8], we understand European culture isn't the same as California, and we can better target consumers and businesses in Europe/Middle East/Africa. North America is roughly 350MM people, EMEA is circa 1000BN (maybe more).
  
• We Speak English. Even the Americans here (guilty!) speak some bastardized form of the Queen's Tongue. For global businesses, where you want some real language skills and native English, we can put it all together in one location.
• GMT Rocks. We have business hours overlapping with San Francisco, New York, Moscow, China, and (at a stretch) Japan. It's one reason why finance firms flocked here, and tech firms can leverage it too.
  

So if you're thinking that this might be a good time to invest, trust me, it is. If you're thinking of looking into firms here, do it. If you're thinking of opening the taps, you're thinking along the right lines. You don't even need to fund entrepreneurs here immediately, just getting your existing startups to open offices in London and giving the employees equal equity stakes their their Valley cohorts will go a long way towards equalizing the situation, and you'll still be able to take advantage of all the advantages above.

I fervently believe that if you infect enough Londoners with the startup bug, we won't get cured. We'll be just as driven as the Valley folk. You just have to infect us.

But don't think that you're best served in making a big PR splash, opening a fancy office, and then not investing. It's still embryonic here, and you're going to have to help entrepreneurs by funding people you feel have talent (but maybe not just yet...) just as you would in the Valley. Make a long term commitment, and take advantage of current troubles to make it a cleaner short-term bet. You'll find that you have a stable of entrepreneurs and experienced techies that can really make great things happen.

Footnotes:
[1] This sounds utterly trivial and stupid, but it's a real sense of the types of people you expect to be hanging around. If you've got free (not wireless-company-paid, not pay-per-day) wifi, and power points, you expect people to be hanging around and doing stuff. Stuff that involves the intertubes.
[2] My tips: Song Que in the Kingsland Road Vietnamese strip; Green Papaya if you're willing to voyage way out to Deepest, Darkest Hackney for fantastic food; Cay Tre if you want to stay close to the office.
[3] People from Radik have gone on to Yahoo!, Google, Intel, Duke University, VMWare, Nuova, TellMe Networks, Gunderson Dettmer, Intuit, MobSpin, LucidEra, Required Technologies, ..... A good startup has a fantastic alumni legacy.
[4] Yes, I've told this story before. Forgive me for becoming my mother.
[5] Have I mentioned I'm unemployed yet? Sorry, that mother thing again.
[6] Hey, still unemployed here!
[7] Just to point out, this is largely from my recent experiences in Silicon Roundabout/Hoxton. There are a lot of similarities with Bermondsey, which is where I'd personally put a firm I founded (mostly because Hoxton Square takes much longer to get to from where I live), and has a pretty similar vibe (if smaller). If only it had a reasonable Vietnamese restaurant...
[8] EU Free Movement of Labour doesn't just apply to Polish Plumbers, it's also applies to software engineers and business guys from everywhere in the EU.