Microcosm - 2nd Seedrs crowd-funding round

Who is Soon? Or is it a place?

Still no update...

Any chance you can update us here?

I see it's still "Waiting for review".

In essence it said that the last quarter was two extremes at once:

• A lot of good stuff (import of LFGSS, 200+ sites registered, 80+ sites customised, 43k registered users).
  
• A lot of bad stuff (growth below our projections/target, revenue below our projections/target).
  
  

We have this great foundation, and we've learned a lot about what our strengths are (mobile, and the potential of datatypes like events). But our current path isn't sustainable and doesn't lead to success: as 2 of us can't push this forward, whilst growing it.

So we find ourselves at a "Go big, or go home" phase, we either get enough investment to go further... we hire sales and some devs to build the native mobile versions in pursuit of growth... or we acknowledge that we don't have that and to continue would be to throw good money after bad. In which case we face really hard decisions about what that looks like for shareholders and customers.

The next 2 weeks, are being spent pursuing the "Go big" scenario, looking to our network and having meetings to secure a round of £400k+, but if we get to the end of this month and we haven't secured that, then we're going to have to examine what "Go home" looks like.

In some ways all rounds are like this, you either convince people you've got the right product and market and you are the right team to win that market, or you don't. It's the business version of "It doesn't get easier, you just go faster.". With the addition that the mountains you ride over get bigger too.

Good luck with going big, I'm sure you'll pull it off.

Good luck. And keep us posted. If it doesn't come off, at least you gave it a bloody good try. Nobody can ever be criticised for that.

Attempted murderers.

A while ago there were some angels expressing interest, have you approached them re investment?

What are the implications for lfgss and other fora using microcosm?

what are the implications for lfgss and other fora using microcosm?

These are questions I'm not attempting to answer in the next fortnight, as my focus should be fully on the other outcome.

But, as a rough outline were we not to raise a round sufficient for the "Go big" scenario then the kind of questions that arise:

1. Do we keep the company going, or shut it down? The latter being better for SEIS investors as it would trigger the return of the majority of the investment via that scheme.
   
2. If we kept the company going, do we do so on a profitable basis (by letting go of employees and having the immediate revenue cover pure costs) or by taking smaller investments to tick it over with employees (more of a zombie company, propped up only by new investment)?
   
3. If the company is shuttered, do we invest the last of our resources on an export tool, or do we open-source the backend software? Either scenario grants customers some way forward, I would prefer not to be one of those companies that shuts leaving customers out to dry.
   
   

I haven't fully investigated any of those, but I have thought about it enough to know those are the kind of questions that arise.

Additionally, if we don't raise the round we will have to act very quickly. If we choose to shutter the company, then the moment we make that decision we are prohibited from paying salary or any other costs. That triggers a very quick decline, and Matt would have to leave pretty much the same day to go and earn a salary to survive. I've just enough space left on a credit card to survive 6 weeks beyond the end of the company, so even I would have to wind things up extremely quickly. Given that... if we did have to face that scenario (not raising a round, and not choosing to run the company in a hibernation mode but shuttering it instead)... then the quickest thing to do that could deliver a path for existing customers would be to open-source it and write up some basic documentation. An export tool would take too long to deliver.

The above is just thinking aloud and does not reflect any plans made or being made.

Speaking so honestly and openly has the potential to harm our chances for future investment. I hope you realise that the above are all relatively obvious scenarios, and not ones specifically being worked towards.

Our goal right now is very clear: Raise a round of £400k so that we can push the company to the next level and achieve the growth we need.

Everything else is just acting responsibly for any number of possible outcomes.

Go and make a strong case to potential investors! We have faith in you and your vision, hopefully others will concur.

What DJ said...

Re: Option 2. Do you have any employees, apart from the two directors?

We have 1 director (myself), 1 employee (Matt) and 1 contractor that we can reach out to (Jim).

We aren't yet looking seriously at either of the worst-case scenario options as we have some meetings lined up this week and next which are still able to define the landscape for us (i.e. could represent large investments).

We are looking at the open-sourcing option though, but we've been looking at that on and off since the inception of the company as it's always been a balance between getting developer/community support that helps adoption and growth, versus the help and time we would need to support it and natural fears about adopting an open-source business model that it's irreversible and would make it harder to make the core revenue. Investors don't seem afraid of it though, and the promise of additional growth (in part by removing lock-in fear amongst the non-technical, and in part by encouraging other technical people to help give us more resource than we have) is attractive to all (gaining wider market traction is the goal of investors, not maximising the revenue from a small market that isn't growing). That it also helps support one of the disaster options eases my own mind a little too (given that LFGSS is actually a large customer of Microcosm).

Isn't LFGSS owned by Microcosm now?

No.

Microcosm provides the platform for LFGSS, and LFGSS pays for this by agreeing to allow Microcosm to take the first 5% of any digital transactions that occur as a consequence of Microcosm providing the platform.

That effectively means Microcosm gets the affiliate fees, and LFGSS gets a platform to run on.

Microcosm doesn't take ownership of sites like Islington CC, Espruino, or LFGSS and the many other sites on the platform. We provide the hosting service to those 3rd parties in return for the agreement that a share of transactions (up to 5%) is paid to Microcosm.

This is fairly important as it creates the value for Microcosm, without Microcosm becoming responsible for the content itself.

The legal docs are stored here: https://github.com/microcosm-cc/legal

And you can see the agreement between a forum owner and Microcosm in this document: https://github.com/microcosm-cc/legal/blob/master/terms_and_conditions.md

Of the linked document above, section 12 makes it explicitly clear... we provide the service, and a forum owner who chooses to use Microcosm grants us the right to do so.

The documents linked in the footer are between the users of a site and the forum owner.

Choosing to host on the service, and to pay via a share of transactional value (majority of affiliate fees, share of other fees if appropriate) or via a subscription agreement, doesn't transfer ownership of the underlying entity. That would be equivalent to saying that if a company hosted all of it's email, communication, documents, etc on Google Docs and Gmail, that Google now own the company. It couldn't be true even if everyone agreed.

Good luck with the meetings, David. It does seem a bit early to be talking about shuttering the business: you've achieved a lot with very little resource so far, but you were always going to need more money to take it to the next level.

Yeah, it's a tough place to be. We've not obviously failed, but yet we've not obviously succeeded. It's the latter that is making it really hard to raise money and the former that would make quitting so tough.

I've seen almost half of the early-stage VCs in London, and so far we have definite interest from 1 (for about £50k), and more tenuous interest from an angel (for around £20k).

The angel really just saw us as a source of very cheap highly skilled labour, that he could use to build more revenue for his own businesses (that operate on the basis of buying traffic and selling it to advertisers... if he could capture some of the traffic in forums, he'd reduce his costs and increase his revenue per user). Bluntly... this is not what we hope to do, and we're unlikely to take his money.

Which means we've only really identified ~10% of the figure we need to grow the team, continue pushing the product, and work on sales and marketing to build the awareness.

We know we can raise some money... but if it's not enough to grow and push things... then basically it's to continue as we are. That's not really viable as our costs are going up (after two years earning a salary just over £8k per annum, personal debt means we have to start drawing more realistic salaries), and with two few heads everything happens at a frustratingly glacial pace (we're supporting customers, developing and refining the product, and still bringing new people onboard and running the business - we're way over-stretched).

So to raise anything below £200k is pretty much only going to give us 1 year of runway and little ability to substantially change our position.

We really need to raise £400k+, ideally £500k. And that is increasingly looking unlikely, but there's still a few avenues left to chase.

And if we don't achieve that... then is £200k throwing good money after bad? The answer to that is whether, in the next year or so, we could transform our position such that trying to raise next year would be successful at £500k+. But VCs take a very dim view on a lack of momentum and anything below a 10% month-on-month growth. So the answer is that a round that merely "kept us in the game" is only going to lengthen our odds for next year... make it even less likely of a return for you guys.

Hence you see us grappling with the question: If we can't raise the round we need, what next?

Personally, I think whatever you do, don't destroy the lfgss forum. Your biggest fans, supporters and friends come from here. I think there's magic still here.

I remember hearing a statement when I was younger that entrepreneurs normally would start 3 businesses before being successful. But I don't think throwing this away is the right move.

I'm not sure that is on the cards. I assume that endgame would involve minimal development (or open-sourcing) Microcosm as a platform, but it should still work for whatever uses it currently (assuming they can cover their own costs, which LFGSS should be able to)

Personally, I think whatever you do, don't destroy the lfgss forum.

Would not happen at all.

I want the company to thrive, grow, bring great benefits to people here, myself, etc... but if that isn't in the future it's not going to kill LFGSS.

I was pondering on the ownership of LFGSS recently, that I've declined two offers to sell it, and that I've sunk the last 2 years into Microcosm as well.

I think I'm quite likely to move LFGSS under the ownership of LFGSS CIC... the community interest company. Effectively to donate it to the cycle club and community itself.

If I ever manage to get that MBE I'll do that... it would be a nice way to say thank you.

Would crowd funding another round be realistic?

Microcosm has been hugely fast moving on seedrs the last two times it's gone up. I know that I couldn't deepen my position again, but both times there have been people that would have liked to have got in that didn't. £400k is a big ask for crowd funding, it would put you right up there among the leaders of it, but I think it would be worth thinking over. If you were successful, you would have made a huge name for yourselves too...

Update received from SEEDRS.

Is the problem not getting the momentum kick-started outside of the cycling forum community? Have Microcosm approached any of the other large forums? Cars etc??

It is feasible for a portion of the round... but £400-500k is a huge ask for crowdfunding and would totally consume us for the remainder of the runway. That then rules out all other options (which are all more preferable) and leads to a messy end (no time/money contingency for a soft landing for existing customers and investors).

The way this round was planned was to start with the angel and VC funds, and finish on Seedrs with 70%+ already achieved. We'd get the headline of a large round on Seedrs whilst actually most of it came from a pre-Seedrs syndicate at the same value. So that £150k was via Seedrs and £250-350k was via angels and a single early-stage fund.

It's important not just to make a round, but to have a path to the next round: milestones, team, investors all knowing where we're aimed at and how to get there. Every round is a multiple on the prior, and to have a path to a Series A round after a decent seed really means having a good early-stage fund, and some key (disproportionally influential) angels. If we raised the target without having key partners on-board who would be able to make significant follow-on investments, then we'll be heading down a route of constantly having to be fundraising rather than building the product.

All this is an aside though. The key thing I'm taking away from investor meetings is that we are selling a high-growth product/company but we can't yet demonstrate high-growth convincingly. Yes we have the user numbers (via LFGSS), but we don't have the month-on-month 10%+ growth expected of a SaaS/PaaS company and LFGSS was already in the bag and doesn't demonstrate the growth.

And if we're really not a high-growth company, then the investors are right... they're never going to get the return on their investment they need to make. In which case we've created a small (but growing slowly) lifestyle business.

The realities of the two is that one means building a team, earning a decent salary and providing great value to shareholders and customers. The other means it might keep us employed at a low (unsustainable) wage, but it's not going to grow significantly enough to offer any returns to shareholders and both Matt and I would have to consider moving on to earn enough to live our lives to the full, the company would be a hobby... which isn't a great thing for you guys as your investments will be forever locked-up.

We always knew, go big or go home.

If we don't raise the round at the levels we need to go big, we go home.

If that is likely, then we do it sooner rather than later. We shouldn't burn the last of the cash, we should attempt to return what is left ASAP, and to wind the company up to trigger the SEIS benefits so that the majority of your investment returns to you. And we should look at open-sourcing the code so that existing customers carry on.

We've got until the end of November, but realistically if we haven't got the angels sorted by the end of this month, with strong leads on the early-stage (negotiations underway and meetings done)... then we need to face that reality and say we haven't made it.

The focus remains on getting the round, but I am increasingly thinking of what not making the round looks like.

How I wish I could just go to Silicon Valley for a month and hustle like mad.

Is the problem not getting the momentum kick-started outside of the cycling forum community? Have Microcosm approached any of the other large forums? Cars etc??

Until a month ago, we could only approach new forums. We had no import tool.

That changed with LFGSS, we built the export tool for vBulletin and we built the import tool to bring the exported data onto the platform.

We also know from our sales process with smaller groups, that the sales process is a long one. No-one looks at the product and thinks "I'll move today.". Communities tend to be organised with almost committee-like structures and require broad agreement to do something, so even with something that we know well like a local cycling club, it can take a few months to make that decision.

With larger forums it is worse, they tend to have more fear that moving to any other tech is a risk, and the greatest thing we have to now help mitigate that risk is the demonstration that LFGSS has moved over successfully.

But... the few large forums I've spoken to have the same concerns about not yet having sitemaps (a valid concern as LFGSS has been severely hit by a drop in traffic due to Google freaking out), not yet supporting the kind of customisations they have (mostly around galleries, blogs, and review sections), and not quite having the design they want (mostly to do with site headers, and creating the same tone that their users expect).

Car forums are the hardest market of the big forums, almost all of them are owned. Either by US or Canadian media companies. It was one of those companies that offered to acquire LFGSS recently... so to get one of these forums we would similarly need to be in the game of paying $200k to acquire the forum, rather than just to build a partnership and split ad revenue and host the tech.

Big forums are media assets that are bought and sold.

Our plan there was just to play a waiting game... focus on the mid-sized forums, offer compelling product and service over the years, and when they have grown into large forums we'd already have them. Most big forums expire over time, schisms in views, a userbase that ages, temporality of the shared interest, moderators screwing things up... so just offer the place for the new forums to grow and take the time.

This is why we always focused on mid-sized groups: 250-500 members. This is the perfect seed for the big forums that would emerge in a couple of years, and are easier and cheaper to acquire as customers.

What they aren't though, are quick moving and decisive. They are also far more risk adverse, and tend to not want to move. We're doing OK on conversions here, but this is precisely why the round is important, a dedicated sales and marketing team would make a huge difference here.

Anyhow... too much time writing on here, too little doing the job I should be doing.

We always knew, go big or go home.

Thanks for the update; keep at it, remember what got you here.

Revenue is coming in from eBay, Affiliate Window and Web Gains, and equates to £xxx earnings per month for the average number of signed-in users per day.

Will it help raise more revenue if we all click on more ebay and other links, or do we have to actually buy stuff?