This is a guest post by Chris Padfield, Investment Manager with London Business Angels and London Seed Capital. In it he reacts to our latest post from LondonVC, our VC columnist, who argues against startups attending pay-to-pitch events, which are often run by Angel networks.

There has been a lot of discussion on the web over the last week regarding the business angel network business model and in particular “pay to pitch”. While there are certainly elements of truth in some of these complaints, there is also a lot of misinformation and confusion over our actual role and business model.

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At an event I went to recently I asked the panel what book summed up the best way to startup. One of the panelists sung the praises of a new book aimed at startups: “Getting to Plan B”. I tweeted this out and, as if by magic, I was contacted by the authors offering a guest post. John Mullins is an Associate Professor of Management Practice and holds the David and Elaine Potter Foundation Term Chair in Marketing and Entrepreneurship at London Business School. Randy Komisar is a Partner at Kleiner Perkins Caufield & Byers in California. Their new book, “Getting to Plan B: Breaking Through to a Better Business Model,” was recently published by Harvard Business Press. It strikes me that their iterative model is better suited to the way tech startups operate.

If the founders of Google or PayPal had stuck to their original business plans, we’d likely never have heard of them. Instead, they made radical changes to their initial models, became household names, and delivered huge returns for their investors. How did they get from their Plan A to a business model that worked? Why did they succeed when most new technology ventures crash and burn?

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This is a guest post by Sam Collins, one of the team members of Loc8 Solutions, a finalist in Seedcamp London 2009. Sam founded TechMeetup (@Techmeetup) in Edinburgh which has brought together the largest community of Scottish tech enthusiasts and is now running in Glasgow and soon Aberdeen. He graduated from the University of Edinburgh in June 2009 with a MEng in Civil Engineering and was awarded UK Graduate of the Year 2009 by the Institute of Fire Engineering. Sam joined Loc8 Solutions in April this year as Commercial Director, but left this year. He explains why below.

We went to Seedcamp, and spent three grueling days analysing our product. On the Thursday of the week we didn’t pitch for investment, and in fact, we completely sacked the product. That sounds bad – but this was a great achievement. If you don’t understand why, read on.

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This is a guest post by Paul Fisher a Venture Capital investor with Advent Ventures in Europe Portfolio companies include Zong.com, Qype, Adeptra and DailyMotion. Paul blogs at The Coffee Shops of Mayfair and Twitters at @paulfish.

I have watched with interest as the Apple backlash intensifies* (see below). It seems the App Store has broken the camel’s back. There is massive resonance here for both entrepreneurs and VCs.

This quote from Chris Messina is my favorite . He thinks that the Apple App Store is a “flash in the pan” because it is a proprietary platform and, hey, wait a minute, proprietary platforms are counter to consumers’ interests. That’s why Microsoft accrued haters. And why folks are starting to feel the same about Apple?

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Hack Days are becoming increasingly popular, fostering innovation in technology and helping companies reach out to and engage with users. In this guest post, Dave Haynes (@Haynes_Dave), head of SoundCloud in the UK and founder of Music Hackday, argues that hack days also show a way forward for the wider music industry.

Inside the Radialsystem V in Berlin, one of the city’s “new spaces for the arts”, the second Music Hackday has begun. There’s a real buzz of excitement within this diverse collection of people, some traveling from as far away as Boston, Stockholm, London and Amsterdam, who have just 24 hours to conceptualize, build and present the best possible ‘music hack’. Read More

This is a guest post by Jon Silk. Silk was a technology journalist for eight years before moving into to PR in 2005. Now Creative Director at Lewis PR, he advises companies large and small on traditional and digital PR strategies. He blogs at Prgeek.net and Themediablog.co.uk and Twitters.

As a technology startup you will, at some point, decide you need some PR. You might not know what that really means, or how much it might cost, or even who could be able to do it, but you’ll want it.

Public Relations is one of those rare business services with no value aside from the amount people assign to it. Essentially, you’re paying for the relationship that someone you’ve never met has with someone else you’ve never met. That’s a tough thing to cost up.

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This is a guest post by Tom Allason, founder & CEO of stealth startup Shutl. In 2003, Tom founded eCourier.co.uk – the online courier company with the purple vans and served as eCourier’s CEO from 2004 until 2008, overseeing the company’s growth to £7.5m turnover and 250+ staff (including couriers) and raising £8m in equity funding from angels and a VC. With a professional management team in place, Tom left eCourier in 2008 to found Shutl. Tom serves on the advisory boards of YumShare and BookingBug. Outside of business, Tom is a founding trustee of FoundationStone, a charitable trust that invests in start-up charities.

For my first startup eCourier.co.uk (founded in 2004), getting top senior talent was a long & painful process punctuated by expensive ads and extortionate recruitment consultants. Hiring a CFO cost us around £25k. Hiring a CEO (when I was moving on) cost at least twice that. And even after making the investment, results were far from assured.

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This is a guest post on TechCrunch Europe by Barry Vitou and Danvers Baillieu, lawyers at London firm Winston & Strawn. Vitou and Baillieu run Bootlaw (@bootlaw), a free monthly meet-up for start ups covering the legal issues they face.

The humble termsheet has been the subject of a fair amount of debate and comment over the past few weeks. VC Chris Dixon got the ball rolling with his post on the ideal termsheet, then Fred Wilson weighed in and finally the mighty Michael Arrington, no less, on TechCrunch, following up the story that TheFunded.com had released a standard termsheet for use in series A rounds. As Arrington said, the aim of the TheFunded.com’s “plain” termsheet is to reduce legal fees on a VC round “which average $50,000 or more per venture round”. In the interests of full and frank disclosure, we’re lawyers – and here’s our take.

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This is a guest post by Nigel Eccles, co-founder and CEO of Hubdub Ltd, the company behind Hubdub, the news prediction game, and Fanduel, the daily draft fantasy sports game. Over his last three start-ups he admits he has made every mistake outlined below. Throughout the summer TechCrunch Europe is running guest posts written by people on the tech scene in Europe. If you’d like to contribute get in touch.

You know the story. A group of friends come up with an amazing product idea, lock themselves away, code like demons, eat pizza, drink coffee and several months later come out with a prototype. The prototype is good enough to convince some investors, they raise money, build the full product, launch it, users love it, product gets traction, acquirers circle and then founders exit to a large pay-off. They then give media interviews which gets summarised into something that sounds like the above story.

What is wrong with this picture? Well, for a start it is not an accurate summary of any of the start-ups I’ve either been part of or observed over the past 10 years. The main problem is that it puts success down to the quality of the original idea and completely glosses over the most important factor: achieving a product that customers want enough to pay for. And even though most entrepreneurs know from bitter experience that the above story happens only very rarely (if at all), it retains a grip on how we think about growing our businesses.

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This is a guest post by Nicolas Holzapfel of stealth mode startup Yoomoot. Throughout the summer we’re running guest posts we like – exclusive to TechCrunch Europe – written by people on the tech scene in Europe. If you’d like to contribute get in touch.

Widget developer JS-Kit recently proclaimed the “death of comments”. How so? By way of its innovative comment management system Echo, that’s how. This would-be executioner pulls together disparate comments across the Web about a particular article and places them amid the conventional comments below the article. If it takes off, popular sites like TechCrunch could end up with hundreds if not thousands of additional comments. And therein lies the problem. How many of us can be bothered to read through more than the first few dozen or so comments on an article?

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This is a guest post by Andrew Scott, a serial entrepreneur in London, CEO Rummble, Non-exec UnLtdWorld.com, Founding board m.Love & and “lover of all things mobile”.

In 1901 a Swedish immigrant to America called Johan Nordstrom founded the Nordstrom department store. In 1975, by now a national chain, a Nordstrom customer walked into one of their stores to return a set of tyres he’d bought. The salesperson gladly took back the set of car tyres and gave the customer a refund. Nothing weird about that, right? Except Nordstrom has never sold tyres.

Many of you may have heard this story before; it’s one of many legendary tales of great customer service from Nordstrom and best of all it’s true.

According to a chap called Efraim Turban “Customer service is a series of activities designed to enhance the level of customer satisfaction – that is, the feeling that a product or service has met the customer expectation.”

Like us all I have copious tales of despair dealing with corporate giants. I’d say the worst offenders used to be banks, but in today’s world of mobile everything, the mobile network operators have definitely claimed that crown. They whine about infrastructure costs while continuing to fleece consumers with roaming and data charges; and all while delivering a deeply inconsistent customer service experience which can drive grown men of good demeanour to the edge of sanity. I’m one of those grown men.

This got me thinking. As the internet envelopes our world, one of the biggest challenges facing online brands will be to avoid becoming the customer service dogs of the next decade.

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This is a guest post by Jasper Westaway of OneDrum. Throughout the summer we’re running guest posts we like – exclusive to TC Europe – written by people on the tech scene in Europe. If you’d like to contribute get in touch. More info here.

I can’t find my phone. What are my options for locating it?

1. Look for it
2. Ask others if they’ve seen it
3. Phone it

I would probably apply those strategies in that order as each fails. Of course, what I really want is for my phone to magically appear in my hand whenever I need it. That would be nice.

Search on the internet today is somewhere between a technology-driven stage 1 (Google, and minor variations like Wolfram Alpha and Bing) and a people-driven stage 2 (Digg, StumbleUpon, Twitter, Amazon recommendations). One might stretch the metaphor to argue that RSS, Google Alerts and the like are forms of stage 3; I’m not sure I would agree.

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This is a guest post by Inma Martinez of Stradbroke Advisors (and blog), a consultancy which works with VC firms and startups in Europe and the US. Throughout the summer we’re running guest posts we like – preferably exclusive to TC Europe – written by people on the tech scene in Europe. If you’d like to contribute get in touch.

I spent the whole afternoon and evening yesterday evaluating a list of about 50 UK startups that will compete for the title of “European Tech Media Company of the Year” in a high-profile October event in London. Not that I haven’t been involved in similar processes before but the point that I want to highlight hereby is the absolute mental maze that we, the evaluators, got ourselves in for at least a good five hours. Amongst us were some of the highest profile investors, lawyers and execs in the entrepreneurial world.

The mind-boggling issue was to be presented with a list consisting of a mixture of early stage startups alongside companies trading for a large number of years as well as companies turning over about £100m per annum. To everyone’s amusement, a good number of companies dated back to 2000 – yes, almost ten years ago – and still no one in the room had a clue as to what was going on with their businesses because sales figures had not shown up in their applications, so they still looked to all appearances like pre-revenue or bootstrapped up to their eyebrows. So are we to still call them “startups” because they are either still unfunded, or showing very little footprint in their market? Which leads me to ask:

When is a startup no longer a startup?

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How can e-commerce continue to grow? This guest post by Jamie Murray Wells, founder and Executive Chairman of Glasses Direct, looks at the next wave coming round the corner.

Latest figures show UK ecommerce sales continue to buck the financial doom-and-gloom. There was an overall 14% increase in the year to April 2009. E-commerce certainly looks like the Noah’s Ark of retail during the recession: those companies that have a strong online consumer proposition get a ticket to ride out the storm, and those that don’t, may drown.

There is a lot of he growth in the clothing, footwear and accessories category in particular. According to Forrester, in those categories online sales represented 2-4% in 2003, and now represent over 10% and in some cases, over 15% of the total category.

Where the sale of more ‘generic’ products such as books, DVDs and travel can be seen as something of a first wave of ecommerce, understanding how consumers want to buy high-touch, cosmetic products online such as expensive jewellery, fitted garments and for us, eyewear, could represent something of a second wave of e-commerce.

For companies involved in this second wave of ecommerce, it is not as simple as relying on the old cornerstones of price, range, convenience to attract customers. Our peer group face significant consumer purchase barriers to do with try-on, fit, and product education, that one-by-one, need to be identified and addressed, through continued technological innovation and great customer service, in order to pursued customers to make purchase decisions in our favour over the high street.

A number of interesting businesses ride this new wave of e-commerce innovation shotgun with us:

Blue Nile, is an online jeweller that offers a completely new level of service online, changing diamond shoppers’ habits. They offer enormous amounts of information on the diamonds that they sell, specialist experts on-call, and a massive focus on education to teach you about what you should think about when buying a diamond – far more than you could get in a high street store. The technology on their site allows you to see what different carat diamonds would look like on your finger. This matched with the traditional advantages of shopping online – a massive selection, reasonable pricing and convenience, has meant their business has been a runaway success.

Everyone knows ASOS, which has developed some really strong online celebrity and brand engagement. Suggestions for product ranges and tips from other consumers’ purchases, beautifully shot imagery and the ability to zoom in to inspect every detail complete the picture for the ASOS shopper of high-touch products.

At Glasses Direct [interest declared] we help our customers find their ideal glasses with our Virtual Mirror, which allows people to virtually try on glasses while they’re browsing. We want people to use the resulting images to get other people’s opinions on their looks. ‘Do I look good in this’ becomes a question you can ask your community, not just one shopping companion or the store assistant. Retailers like us are looking at ground-breaking ways to visualise products online, especially when the products face higher than average barriers to sale.

And then there’s Zappos, who use customer service to create a ‘personal emotional connection’ with their customers – something that helps it overcome barriers to buying shoes online, drives loyalty and therefore repeat purchase, and helps them sell over a $1b of shoes every year online.

The second wave of ecommerce isn’t about necessarily unique or high technologies, but how we, as retailers of the fitted or fashion product, can fashion practical online solutions to each of our own consumer bases’ needs. I believe that in years to come it is likely that every retailer will be able to offer price, range and convenience like Amazon, and so the real competition will be around the customer experience and the customer service. We’re just ahead of the curve by prioritising these now. This is why, as I said in a blog post after a visit to the company, Zappos, who calls itself ‘a service company that happens to sell shoes’, it will probably in time, replace Amazon as the e-commerce ‘gold standard’.

Now that the first group of second wave companies has proved that the public, investors and the city all buy in to the prospects of companies dealing thin the high-touch, entrepreneurs should be scrutinising the high street for possibilities. Most of the obvious e-commerce first wave opportunities may well have been seized, but there are many second wave opportunities still out there. Look around and anything that says ‘tailor made’ on, is not sacred to the high street anymore.

Robin Klein’s open letter to the UK government about how to stimulate startups got a lot of response from TechCrunch Europe readers. We’ve decided to run two responses to his letter, making their own case for how government intervention should take place. The below is by Simon Cast, (@Simoncast) a freelance Product Strategy/Product Management analyst. The other response is here.

TechCrunch Europe posted an open letter by Robin Klein of The Accelerator Group to the Chancellor of the Exchequer Alistair Darling and Lord Dryson Minster for Science and Innovation about what to do with purported stimulus funds. BVCA wants the money to go to large VC funds whereas Robin Klein wants to see the money channelled to supporting very early stage companies (amounts less than £100k).

Robin’s logic and reasoning is sound and I agree with them. But it is not a good use of the money for two reasons.

Tech (web) Focused
The idea is far too technology (read web) focused. There are lots of opportunities throughout the UK for entrepreneurs to create businesses; many, indeed most, outside the world of the web. Why shouldn’t someone starting a lawn-mowing business have access to early stage funding as a technology developer? Both create value. We in the technology sector tend to be myopic about start-ups, small businesses and entrepreneurs. Richard Branson can hardly be accused of creating a technology business and yet he is by most measures the UK’s most successful entrepreneur.

Yes, technology creates long term value and wealth, but the vast majority of wealth is created by companies outside of the technology sector using technology and not developing it. It is created by a lawn-moving business using twitter to alert their customers that their lawn is done and having a website where clients can go and book a visit using something like BookingBug to provide the functionality. The lawn-mowing business is creating value through better customer service and consequently generates wealth. Would a business angle or early seed stage fund invest in such a company? What about if it is located in the hinterlands of Wales?

Relying on Judgement
The mechanism for distributing funding relies on someone making a judgement call as to what is potentially a good opportunity. The act of making a judgement takes time and as many commentators pointed out in response to the open letter, time is very precious at the early stages of a business. Waiting more than a month for a response is a massive drag on very early stage businesses. Small business need responses fast.

More problematic is that a person can only make the judgement based on their experience and expertise. Many great opportunities will be bypassed as the judges’ focus on what they know. Now however is a time to fund companies that are moving into new areas and new ways. It is a time to let 1000 flowers bloom. In the end the only real judgement that matters is that of the market. It would be better to create a situation where those companies can be judged by the market rather than a limited individual. The market is crowd-sourced investment decisions.

Proposal
In place of co-investing or creating lots of seed funds, I propose that the UK government create a scheme of income-contingent loans. Under the scheme an entrepreneur can take out a loan that covers his previous salary up to a maximum of £50k to £60k. The loan is paid monthly like salary and is re-paid by the individual (not the company) through the tax system (similar to student loans). Other characteristics of the scheme are:

* The scheme would provide loans for up to 3 people per business in the first year, followed by another 2 new employees in the second year
* The loans are tied to the individual and are re-paid by the individual based on the individuals income
* An individual can only take out a loan under this scheme once every 5 years

An income-contingent loan scheme provides funding irrespective of industry or goods and services. It addresses the funding gap that is a barrier to entry for all entrepreneurs and has a lower administrative burden. The loan scheme can be administrated through the existing Government banks and through an online loan application system which are widely geographically diverse, scalable and most importantly can return a fast decision.

One big objection is the potential for fraud. Nothing involving money is without the potential for fraud and venture funding is not immune (witness Tiger Telematics). By putting the liability to re-pay the loan onto the individual reduces the avenues for fraud using this scheme. The other limitations are also designed to reduce the attractiveness of fraudulent behaviour.

Conclusion
Granted, the loan scheme is unlikely to produce the next Google but I would rather see the loan scheme generate 100,000 businesses all employing an average of 10 people. That would be far more valuable to the UK economy as a whole than 1 Google.

Ideally, you would run both an income-contingent loan scheme and co-invest in early stage investments. However, given the realities the loan scheme is more valuable. The co-investment scheme should follow. By the time the co-investment scheme is up and running many of the first lot of companies that have benefitted from the loan scheme will be ready for their first round of funding.

Robin Klein’s open letter to the UK government about how to stimulate startups got a lot of response from TechCrunch Europe readers. We’ve decided to run two responses to his letter, making their own case for how government intervention should take place. The below is by Jens Lapinski (@jenslapinski), the CEO and Co-Founder of aiHit, a London-based business information company with VC backing. He was previously VP Analysis & Consulting at Library House, where he advised organizations on innovation programs and investment policy. The other response is here.

What the UK needs is a large and sustainable investment ecosystem that covers seed, early, and expansion stage. For the last 50 years, various UK governments have experimented with a mixture of programs and initiatives. I suggest we build future initiatives based on the past’s success, not by repeating the many mistakes that have been made.

1) Seed Phase – Seed new companies by bringing back a modified SMART Award
By far the most successful program that the UK has ever run in terms of giving early stage money was the £45k SMART Award program. The program required founders to invest £15k in their company and, if qualifying conditions were met, they received a £45k grant. This program invested in both startups and product ideas of established companies. The former worked well, the latter not. Later on, the program’s responsibility was given over to the regions and the brand was abolished.

I would suggest revitalizing the SMART program with the following criteria: £15k own investment, £45 grant by government, provided following criteria are met:

- Company younger than 18 months
- Company less than five employees
- This is grant money, not equity investment, not a loan

The grant should be centrally administered. There should be no regional focus. All government loan or equity investment programs at this stage that I am aware of don’t work well. I would therefore make this a grant. This program’s aim is to help early stage companies get off the ground that then grow to employ many people. I would rate a success any company receiving money that lasts for longer than three years and that employs more than ten people at this stage.

2) Early Phase – Seed new VC Firms by creating seed funds in cooperation with established VC firms
The key problem in Europe’s investment ecosystem is the slow birth of new VC fund management companies. Looking around, I largely see fund managers that have been around since before 2000. These fund managers have progressively raised larger and larger funds, moving later and later stage. What any healthy investment ecosystem needs is a continuous supply of new VC companies ‘bubbling up’ from the bottom. These new VC fund managers naturally start out with smaller funds, investing smaller amounts of money per company. Eventually, they will mature, raise larger funds, and move later stage themselves. In order to get VCs to invest early stage, you need young VC firms. So I suggest we create a system that results in a continuous ‘supply’ of new, small VC firms, which invest early stage.

I would suggest expanding and making permanent a program to ’seed’ Seed VC Funds in cooperation with established VC management companies.

Specifically, I suggest doing the following:

- Offer a seed fund to all VC fund management companies that have closed a VC fund larger than £75 within the last year (maybe two years initially) and do this continually.
- The seed fund should have a size of £10-20m
- These funds should be equity investment vehicles, not loan or grants.
- They should have no co-investment limitations
- The funds should be fixed term funds of 12 years
- Ask the VC firm to invest half of the money (at least say £5m), the remainder should be from government
- Ask the VC firm to have the fund managed/run by somebody who is NOT a General Partners at the VC firm’s main fund. This should be somebody from the middle management of the VC firm.

The principle is to establish a program that enables the next generation of managers at VC firms to run ‘their’ own shop. Over time, I estimate that some 30%-50% of these emerging seed fund managers to be successful. This means they will start raising the next fund, eventually separating from the ‘mother ship’, setting up their own VC firm, and thus growing the ecosystem of VC fund managers. The reason why I would establish these funds in collaboration with established VC funds are manifold. In short they are: By sharing the cost of people, offices, etc, the seed fund can work with a smaller amount of money than would be necessary, if it operated on its own. The operations would share deal flow. The seed fund managers could ’soak up’ lessons learned from the more established fund. By aligning the vintage date of the main, larger funds, with the smaller seed fund, the seed fund can have the larger funds invest in follow-on rounds. This means that the seed fund invests in early companies, not so much in small companies. By only offering the seed funds to VC firms with recently closed funds, the government can choose fund managers easily, as closing a new fund means that the VC firm is good at what they do. I would rate as a success that the seed fund returns a positive return over the fund’s life time, and the spin-off the of the seed fund into a new VC firm.

3) Expansion Phase – Ensure that the government remains an active LP/ fund of funds investor
In a time when many LPs have problem honoring the capital calls of their GPs, I strongly suggest the government not waiver. In addition, I would suggest that the government aggressively support European institutions as an LP investor. All of this is already happening, don’t take the foot of the gas pedal!

Summary
Grants at Seed Phase. Collaborative equity investment at Early Phase. Cash as a fund of funds investor at Expansion Phase.

Investing £100,000 in 10,000 start-ups sounds good, but investing it via equity is hard. By making it a grant program, you remove many of the problems associated with the cost of making an investment work at this size. I further suggest investing larger sums of money intelligently in collaboration with existing VCs, and to continue investing even larger sums as an LP at expansion stage.

All of the above has been shown to work. There is real data and real evidence for this. SMART Awards worked in the UK. The support of new VC funds worked all over Europe and specifically in Israel. The European Investment Fund is a heavy LP investor in many VC funds, some of which have done extremely well.

I suggest we do what works first. We can improve from there.

This is a Guest Post by Robin Klein, Partner in The Accelerator Group (TAG), an early stage seed funder of tech startups in the UK and across the rest of Europe. If there is anyone who knows about early stage tech startup funding in Europe, it’s Klein. It chimes in with my post last year that the UK government should make sure any stimulus funds are channeled to into many more startups than proposed, instead of into a lucky few.

Alistair Darling, Lord Drayson – an Open Letter

Dear Lord Drayson,

Put £100,000 into 10,000 startups – not £10m into 100!

There has been a lot of chatter about the Government’s apparent initiative to make £1bn available for innovative early-stage companies.

Apparently, Lord Drayson, the Minister of Science and Innovation in the Department for Universities and Skills is driving this. The BVCA is keen to promote the idea through its influential contacts that this money should be channeled via the large established VC funds.

From where we sit, putting lots more money into the large funds achieves the exact opposite of what I understand the desired the objectives to be.

What is urgently needed in the UK – in order to promote entrepreneurship and encourage innovation – is funding at the very earliest stages.

One of the major drivers for Silicon Valley’s success has been the readily available, quickly raised seed capital. Its not uncommon, even in today’s funding climate to find start-ups funded with $500K in a matter of weeks by angel syndicates led by an agile tech VC.

There is more than enough capital available once companies have proven their technologies, validated the market need and have real momentum. This capital is NOT venture, it is development or growth capital.

The so-called funding gap has never been adequately filled and the growth in size of the leading funds has forced them to move up the food chain and to back relatively fewer pure start-ups.

We have all been wringing our hands at this gap for many years and in the current environment the gap is noticeably widening.

Seed funds are extremely difficult to make work effectively on the classic 2/20 model since it is important that seed funds invest in a large and diverse portfolio (in order to find the winners) while at the same time need to provide a lot of hand-holding to these companies (implying a larger organisation – more partners).

The BVCA’s position is interesting in that it looks at the whole issue from the ‘industry’s perspective’ – you can’t blame them for that – its their job. It’s certainly not being looked at from the entrepreneurs perspective!

We at TAG have had terrific support from some of the large tech VCs but their ability to do many seed fundings is very limited. We need healthy and growing seed capital partners to join us in our quest to find and nurture the next world beaters.

One of the most important and effective vehicles for promoting entrepreneurship in the tech arena in recent years has been Seedcamp [Interest declared: TAG has been an investor in companies promoted by Seedcamp - Editor] – the flood of applicants and the rising quality of these applicants attest to the strength of innovation emanating from Europe.

They are deserving of far greater financial backing.

Robin Klein

Partner, The Accelerator Group (TAG)

PS: TAG is an early stage technology investor with 43 investments currently in its portfolio. We invest actively mainly in the UK but also across Europe and in the US.

[Photo credit]

This is a guest post by Nick Halstead, CEO and founder of fav.or.it

As I am in the midst of raising another round of funding for fav.or.it I wanted to cover some of my thoughts on the government’s recent announcement of further funding for business that is meant to help SME’s survive through the credit crunch. The question is: is there real substance to any of this, or is it just a lot of hot air?

ENTERPRISE FINANCE GUARANTEE SCHEME

This is just a fancy new name for what you probably know as the SFLG (Small Firm Loan Guarantee) – this is a scheme in which the government guarantees 75% of a loan with the rest covered by the banks.

A year ago this allowed loans of up to £100,000 – which was then increased to £250,000. It was something you fell back on if the bank turned you down for a normal loan (in fact it was a requirement that you first applied for a normal loan). I have previously raised a SFLG (over 2 years ago) and found the process reasonably painless except for the fact they take a debenture against your Intellectual Property.

The problem though is that since the beginning of the credit crunch the Banks have not been lending. I inquired to a friendly senior figure in HBOS about 4 months ago and was told not to even bother. I also contacted a few other people in the know within SEEDA and the answer was the same, no lending.

So when I heard about the new initiatives I was curious to find why anything would have changed. Well the statement from the UK GOV declares ‘This scheme will support up to £1.3bn of new lending by banks.’ However, there is one BIG problem, the banks still do not want to lend. I heard today from someone who was at a senior meeting of the “Big Four” banks (that we as tax payers now own) that they declared that in no way was there any going be any lending via SFLG.

My Advice: Ask your bank manager, but when he laughs at you don’t be surprised.

CAPITAL FOR ENTERPRISE FUND

This used to be a fund created by the government that was bid for by various private venture funds who would then invest it. The scheme was originally setup to fill ‘the equity gap’ that being investment between £250,000 and £2million – an area that traditionally is not covered by Angels or VC’s. The fund is re-invested by companies such as Seraphim Captial and Oxford Technology. Both of these in general only deal only with companies that are already generating good revenue.

The confusing part is that the new announcement seems to have converted this equity based funding model into a ‘debt to equity fund’ this may be due to the fact that not enough of the fund has been spent, and or they see it better used to convert bad debt.

My Advice: If you are already generating cash then talk to them, but if you are in that position then the VC’s (such as Balderton) are already in the prowl for good deals.

REGIONAL DEVELOPMENT AGENCIES

The last minor announcement was that a further £25m was going to be invested through the RDA’s. This in theory is the best news for startups as RDA’s such as SEEDA are slightly better at distributing money out via other agencies. One which I have dealt with at length is Finance South East – they have a range of funding models from equity based matching funds (up to £250,000), debt based accelerators (up to £100,000) and also a few other small funds for very early stage ventures.

My Advice: For startups at pre-revenue stage there are a number of good options, but be prepared for a 4-5 month process + a lot of paperwork.

NESTA

Lastly let me just make a scathing attack on NESTA who in theory cover ‘Science, Technology and the Arts’ but in fact would rather not touch Technology with a 9 foot investment stick. I was clearly told that “We do not invest in anything web 2.0 at the moment.” – So feel free to go waste time talking to them, but I would warn against it.

My Advice: Tell them to stick it where the sun don’t shine.

Other Resources

• Region Development Agencies – What They Do
• Assess your eligibility for government guaranteed lending schemes
• Enterprise Capital Funds

If anyone wants contacts into SEEDA, FSE or advice on other government schemes then get in touch via Twitter.

This is a guest post by Ed Freyfogle, co-founder of property search engine Nestoria.

OpenStreetMap started four years ago in the UK as a project to create a free and editable world map. What began as a few geogeeks wandering the streets with their GPS’s has turned into a global movement with over 75,000 registered contributors. The database has improved rapidly in quality and comprehensiveness, as have the tools and services around it. OSM is becoming a viable datasource for complex projects.

The project’s stats are another demonstration of the awesome power of a motivated online mob. The passion of some of the volunteers is shocking; there’s even a student attempting to go his entire time at uni using only OSM maps. The result is that the OSM now compares favourably versus some professionally gathered geodata. Most impressive has been the takeup in Germany: 300 volunteers mapped 99.8% of Hamburg (German), and there is now a German-language OpenStreetMap book.

OSM has spawned numerous related projects, the most prominent of which is OpenCycleMap which takes the base OSM data and renders it slightly differently, giving emphasis to features relevant to cyclists. OCM was recently commended by the British Cartographic Society and is an example of the technical innovation that free access to the underlying geographic data allows. Similarly several groups are working on using OSM for open source routing applications.

As the biggest commercial geodata providers Tele Atlas and NAVTEQ have been acquired, the intensity of their competition in (and focus on) major markets has increased. As a result in many parts of the developing world OSM is now the most comprehensive online mapping available, for example see this comparison of online maps of Baghdad or compare for yourself: Mashad in Iran (OSM, Google) or Kinshasa in the Dem. Rep. of Congo (OSM, Google). This summer’s annual State of the Map Conference had representatives from most major European countries and five continents.

Tellingly, while most of the audience at the conference was the usual hard core of geo-enthusiasts, many businesses were represented (including Google and Ordnance Survey) and there were a few VCs in attendance. Which brings us to the next phase in the OSM’s growth: commercial utilization. Companies have been using OSM data in proof of concept implementations for some time. Recently though the examples have become more prolific and more public: see flickr’s use of OSM. Some businesses are starting to rely on OSM for parts of their product offering, for example Wikitravel uses OSM derived maps in their printed travel guides.

New start-ups like CloudeMade in the UK and Geofabrik in Germany are being founded and funded around the business model of providing services around OSM (see TechCrunch coverage of CloudMade funding). The exact revenues of these companies is unclear (and likely still negligible) but the general concept of providing consulting and value-added services around a free (and complex) asset is well entrenched. This year’s acquisition of MySQL by Sun is only the most recent successful (and European) example. One certainty is that the recent explosion of interest in online cartography has lead to the development of an increasingly sophisticated “open source geo stack” that will pressure traditional GIS software companies.

The big players are increasingly trying to use crowd sourcing methods to improve their proprietary databases – see Tele Atlas’s use of Tomtom data or Google’s MapMaker, while savvy (and smaller) businesses are realising that there is much to be gained by working together with the OSM community. Smaller digital mapping services like Autopoietic Systems, Tann Limited (ASTL) and Holland’s Automotive Navigation Data (AND) have donated significant amounts of data OSM.

OpenStreetMap and the tools around it still have a very geeky feel, making it
easy to be dismissive. Nevertheless, there is no disputing the rapid growth,
improvement, and emergence of a surrounding ecosystem of ventures make this a
project likely to a have global impact for both internet users and businesses.

Full disclosure: the author is a member of the OpenStreetMap Foundation.

The following is a guest post by Nigel Eccles, co-founder and CEO of Hubdub, the prediction trading game.

If Silicon Valley checked into hospital, it would be diagnosed with severe bi-polar disorder. In mid-September, with the bad economic evidence mounting and the markets in freefall, its mood swung from vaunted optimism to extreme despair. Sequoia summed up the change in mood, titling their recent presentation “RIP Good Times”.

So, as we officially head into Bad Times, the first question is, will we see a period of mass extinction similar to the one that occurred after the dotcom bubble? Unlikely. Firstly, the dotcom bubble gave rise to thousands of companies with heroic growth assumptions and high cost bases, serving markets that didn’t yet exist. In contrast, while many web 2.0 companies are still propositions looking for a business model, they often run at less than 10% of the cost of an equivalent dotcom business. Secondly, in retrospect we see the market peak in early 2000 and then the gradual slide as if it were inevitable. However, right up until 9/11 there was a feeling that the market might pick up again and the good times return. This resulted in many companies failing to adjust quickly enough to the new reality which caused many to enter, what Sequoia described as, a ‘death spiral’. Given the speed at which start-ups have cut costs this time around it looks like that mistake is not being repeated.

In fact, Bad Times can be very good for start-ups. In the last tech downturn we saw the birth of Last.fm (founded in 2002), Skype (2003) and MySpace (2004), along with a plethora of other successful web 2.0 start-ups. Tighter times mean less competition, not only for staff but also for users. This is highly significant as pay-roll and cost of user acquisition are the two biggest costs for any start-up. More importantly, a tougher environment forces start-ups to ruthlessly focus on only those opportunities where they can bring value.

On entering a downturn it is often hard to see if the economy will ever recover. I remember in 2002 wondering if there was any future in the web economy (and at least one of my developer friends retrained as a cocktail waiter!). However while expectations of growth got wildly inflated by 2000, the underlying trends continued. People continued to migrate to the internet and also massively increased the amount of time they spent on it. In a downturn, the allure of the web as both cheap entertainment and as a utility gets stronger. And while it may be hard today to picture the wider economy coming out of recession, the most likely scenario is that it will, and indeed within the next two or possibly three years. What will the world look like for start-ups when it does?

Very. Well. Positioned. To understand why, consider Start-up Economics 101. Big companies struggle with innovation, even at the best of times. During the past 10 years in the technology and media industries the smart money has been on start-ups out-innovating more established companies. Whether it is Google besting AltaVista in search, Flickr out-performing Yahoo in Photos or YouTube whipping Google in Video, it was the start-up that came out top.

However in downturns, innovation in big companies is pretty much closed down as the focus moves to cutting costs and eliminating any product lines that arenít showing immediate profits. Last week we saw AOL shutter XDrive, AOL Pictures, MyMobile, BlueString and AOL Video Uploads. Innovation at AOL, like most big companies, isn’t seeing much love these days. However the media sector, like the technology and mobile sectors, is seeing deep structural changes. Consumers are moving rapidly from print and broadcast to digital media. And consumers are being swiftly followed by advertisers. Over the next 2-3 years innovation within the media sector will happen in start-ups, not big media companies. That means when the market returns, media companies will have to acquire if they wish to remain relevant and grow.

Of course many things will stay tough over the next couple of years, with finance in particular remaining tight. However start-ups that can work through that constraint and focus on opportunities where they can create value will be excellently positioned when the economy picks up again. Now is a great time to be an entrepreneur.

With over 20,000 reviews on under the company’s belt, Reevoo is a service that may be influencing what you buy, and what you don’t buy. Founded in 2005 (previous coverage here) the British based startup recently released an iPhone web app. A native application is yet to shows its face, so we’ll be taking a look at the iPhone web-app.

Search for a product you may be interested in and you’re given a list of related products. What I like about this is on the same screen you’re given a clearly displayed rating on every listed item. It’s convenient and saves time. If you’d like to go deeper when researching, or if you wish read those staple reviews the company is built upon. You simply select a result and you’re presented with a clear list of reviews, a guide price and a product image. The format is clean and the information is plentiful.

I spent this morning in my local town center drinking too many cups of coffee, and looking at various electronic indulgences. This is where the application shines. The ability to research the product whilst you’re in the store is an in-expendable tool. Another nifty feature of the app is the ability to purchase products though the merchants signed onto the site. More convenient, and you can now compare prices to find the best credit crunch beating deal.

For what it is Reevoo isn’t anything groundbreaking, even delivered through the iPhone. But the service is good, the app is useful and you will discover that Reevoo is a tool you want to use. Price comparison services are also about to become a great deal more important in the coming recession. Alas.

(By Grant Bell, TCUK’s current intern)

FineTuna is a rather nifty web app from Irish-based Spoilt Child Design that allows you to upload, comment and share images from around the web. Spoiltchild were also the creators of other web apps such as Toddle.com.

So how does FineTuna work? Well, remember that drunken picture of you and that person you don’t know? Upload that image file and FineTuna will present you with a unique URL. This is where the service comes into its own, as you are then presented with the ability to comment on parts of the images. Maybe not the most practical example of what you can do with the service, but the feature set is definitely there to help you along the way.

Not content? Well FineTuna offers up a very handy FireFox add-on. Install and right click on an image, or even an entire browser screenshot. Upload to FineTuna and get the same services as before.

Now there are as many image sharing services on the web as there are fish in the sea. But FinaTuna is one I could actually see myself using. It’s simple, intuitive and an absolute delight to use.

(By Grant Bell, TCUK’s current intern)

Every week, for the next few weeks, we’ll be giving an intern a chance to shine on Techcrunch UK. The below post is written by this week’s intern, Grant Bell, a young entrepreneur (see below).

The pointlessness of most Facebook applications knows no bounds but at least here’s one that appears to be the the first application that enables people to send each other alcohol.

GetThemIn is, currently a Facebook app which lets you send drinks vouchers to friends. Once installed you select your poison, the friend you wish to intoxicate and then pay. You can alert your chosen friend through a text messaging service provided. But there’s a simple way the makers have addressed the issue of teenagers sending eachother bottles of White Lightning. Your friend has to redeem the code through the app, get sent a coupon via snail mail, then take that coupon to a participating store, which is obviously going to check the age of the recipient. Over 1,500 participating stores in the UK, including Threshers, The Local, Wine Rack and Haddows. GetThemIn is the brainchild of Jay Feeney, entrepreneur with promotional experience in product and event management for bars and clubs in Scotland.

There are some issues however, apart from this being an app with less than instant gratification. I would have liked to have seen the inclusion of PayPal as a payment method. The app currently only supports Google Checkout. Although it does support almost all major credit and debits cards, GetThemIn is the type of app you would use at a whim and you don’t want to have to be signing up to a new online payment service like Checkout.

Virtual gifts have been popular on Facebook and are being lauded as a future business model, but at least this is a little more ‘real,’ however so take that at face value is to miss the power that virtual goods will have in the future. And I fail to see how this app is anything other than a marketing gimmick from the participating stores. There doesn’t seem to be any real advantage over buying from an online supermarket and just changing the delivery address, or are we missing something here?

GetThemIn aims to be an app for social sites in the US, Canada, Australia and Ireland and aims to expand to Bebo, Friendster, Hi5, MySpace, Orkut and LinkedIn, though I don’t quite see the how Bebo (largely teens) or LinkedIn (largely business) would let this app on their platform.