• it created a market for itself (first player move)
• it controls the production, distribution and retail chains (consumer monopoly)
• consumers are price insensitive: you paid £100 for a coffee machine that you knew could only take coffee from Nespresso, do you really care if a pod costs £0.3 or £0.33? (BTW, see how I just increased your revenues by 10%?

Since Nespresso launched its coffee products, many customers have been trying to find ways to reduce the Nespresso tax. There are ‘reasonably successful’ attempts at refilling used Nespresso pods by using tin foil to replace the cap.

More recently however, two companies have produced “Nespresso refill systems”: NexPod and NeCap. I purchased both systems to see whether they could really replace Nespresso’s own products. Let’s just say we’ll have a closer look at the NeCap system

The NeCap system is very cheap:  paid £8 for 100 empty pods. The pods are empty because – and I speculate – that Nespresso might have some patents on the pods with coffee in them in such a manner that empty pods do not fall under the said patent (if anyone knows where to check this, let me know).

The NeCap pods come in two parts: a plastic container and some round tin foil ‘bits’. The idea is that you put coffee in the container, remove the top tape and stick the round foil on it and you’re all set . I tested it, you get pretty good and consistent results and once you have done a few, it does not take a long time to create the pods.

Does it make a good investment?

Let’s start with the money. By searching around the web, you find that NeCap is producing its pods in Spain. I believe the main reason for this is driven by low volumes. I contacted some manufacturers in China and all of them told me that they are not interested in producing anything below 10,000 units (this was the bear minimum i.e. they would do this amount as a favour). So anyway, the pods are produced in Spain, which means higher production costs. If we assume a 50% gross margin, this would give total costs of £4/100 units. Postage to/from Spain is about £3 leaving a unit cost of £0.01, which seems reasonable.

So for 10,000 units (or 100 sales), you would have a gross margin of £400. In the month I placed my order, the NeCap eBay user was getting well over 100 orders a month and given how long it took to deliver, I believe NeCap was well oversold. I believe their orders were about 500 per month giving £2,000/month or £24,000/year.

The initial investment for a business like that is likely to be in the order of £10-15,000 giving an excellent return.

Thinking longer term, there two scenarios: NeCap becomes big and starts to annoy Nespresso, which proceeds to sue them for patent infringement (or something similar). The second scenario is that Nespresso doesn’t really have a patent and/or it is abusing a dominant position and lets other producers make pods. Both cases do not fare well for NeCap in the long run, unless it starts filing its pods with coffee.

Let’s face it, convenience/money is a key driver for pod use. If producers start putting coffee in pods and sell them for a cheaper price: convenience goes up, price goes down, ratio of the two explodes

As a summary, I would say that NeCap is a great investment but only for the short term… unless you bank on it being purchased by someone bigger but let’s face it: how hard is it to create a design for Nespresso coffee pods

• because banks are failing and the economy is in recession, the government decided to pump ‘liquidity’ to kick start the economy
• the extra liquidity means that is there is more ‘cash’ in the economy than the latter actually produces (imagine if everybody in the UK received a 30% pay rise for the same amount of work produced)
• in turn, the increase in cash, decreases the value of the money and prices increase.. here you go: inflation!

Because of this quantitative easing (QE), there is no doubt that there WILL be inflation (some is kinda good) the question is HOW MUCH and WHEN. Well, that, in turns, depends on (1) how quickly the banks (principal recipient of QE) release the cash in the economy and (2) how quickly the UK economy grows to absorb that extra cash. A way round this is, of course, if the extra cash leaves the country

Now, the latest quarterly figures of the economy show an increase in trade deficit, which, on its own, means nothing. A trade deficit means that the country is importing more than it is exporting… i.e. not a great way to kick start the economy… imagine that instead of producing more ‘stuff’, we just buy it from someone else… all the while more and more cash is being poured in the economy, see a problem there?

So, what can we do? well, have a look at the presentation

Is Inflation Going To Be A Problem ?

Now, take a corporation like Heartwood Wealth Management. The company (as its name suggests) is a wealth management company whose purpose is to manage investment portfolios for high net worth individuals (HNWI). Of all the HNWI I have met, one common denominator to them is: they are picky, especially with what they do with their money. This is quite understandable: they worked very hard (or not) to get their wealth and they want to make sure they don’t (excuse my expression) “piss it down the sink”. They would therefore seek out a company like Heartwood who has a demonstrated reputation for excellence and portfolio management. Of course, if I were to give my family wealth to a company, I would probably dig a little deeper and that’s where the cracks on that shiny armor appear: spelling mistakes. If my wealth manager cannot spell simple words, how can you be sure that the orders it will pass on your behalf are correct or that your portfolio has grown by 10% and not 1.0% in that quarterly report…

So into the heart of the subject now, here are the spelling mistakes I have come across on the Heartwood website:

- soltuions

- targetting

You can find many more on this website and other websites such as Newton‘s (look for Feburary) and even larger corporations such as Barclays (search: compatability).

In conclusion, there is no excuse for these spelling mistakes, they look cheap and are very easy to spot and cheap to mend (there are many tools that will scan your whole website for them), so get cracking, and correct them all !!

The teams that formed around ideas/problems/needs are just amazing!! They didn’t know each other on Friday evening when they arrived and they are now working together till 5am, having breakfast, debating on business plans…

The only downside to the event has been the lack of sponsorship from lots of early stage Venture Capital firms. We have and thank Sun, Orange, Mappy, Orkos, Altaïde, Metaboli, Planet-Work and La Cantine but all the venture capital firms that we contacted were not interested. I am failing to understand why, since hunting for new businesses and investing in them is their job – if I am mistaken, please correct me.

I can only find two explanations for this phenomenon: either the guys working in these VC firms are not passionate about VC to spend the weekend with entrepreneurs, in which case perhaps you should give me your job; or, the firms don’t have any money to invest, which is a poor argument sincewe asked for €500 upwards AND a lot of our sponsors and members of the jury paid for the entry ticket themselves – so back to point 1.

Despite this lack of enthusiasm from the financial world, the companies and ideas generated there are amazing and I invite you all to check out the live company presentation feed on Sunday evening (I will post the URL here and on twitter/facebook).

‘Because we don’t like to see Rabbits die’ or because we are slightly crazy, Franck and I decided to rescue the company by placing a bid for it. Unfortunately, none of us had or have the adequate funds so we decided to crowfund the bid.

The story thus started with the launch of savenabaztag.com. Due to legal ramifications, we decided not to collect any money but to collect pledges. These pledges would entitle you to a share of the new business with the corresponding voting rights. The idea was to have a democratically ran business where X number of people would vote for Y representatives that would then elect the board. The advantage of this type of corporate structure is that the managers are totally accountable to owners (Warren Buffet would have been proud).

The website received a lot of publicity and visits (more than 1M hits and close to 30 000 unique visitors!!). The site collected a total of €166k in pledges. Unfortunately, the administrator was not that forthcoming and we never managed to access the dossier. We thus estimated how much it would cost to purchase the company and restructure it but we knew that these numbers were estimates.

We were contacted by several journalists and private investors who were keen to chip in if we went ahead. However, none but one were keen to get the dossier for us to carry out a proper due diligence. Unfortunately, the demand was late in the process (48H before deadline) and was rejected.

As it turns out 3 companies placed bids for the company and all 3 were rejected. The average bid was about €300k proving that we were not that far off target and had we had the dossier, we would have managed to collect at least that much from private investors. Currently, the decision as to who will take over Violet is still up in the air but only one company (the creator of the Adibou educational series) is in the loop and has until the 20th to place a reasonable bid.

All is not lost though. We do not know what Adibou’s parent has in mind and perhaps there will be an opportunity to create an Association and purchase the servers, the code to keep the Rabbits alive.

Business and Finance and Crowdfunding

From a pure investment point of view, the experience showed the limits of the current financing and investment models. Crowdfunding (i.e. calling onto public funding) is actually illegal if you ask more than 100 people. In this day and age when the human population getting cleverer and smarter, why should a startup not be allowed to ask the general public from some money. It would obviously need to be within a regulated framework with a limit on each individual’s contribution and some kind of light financial reporting. We think that this is a major lever for future innovation and funding.

As a simple example, take a company X part of a large conglomerate. Imagine X is profitable but not as much a the rest of the group. The group might well decide to liquidate and/or simply close the company. Why would, in these cases, the general public not be allowed to bid for it by offering, €10, €20, €100 euros? Politicians have to acknowledge this new source of funding and financial regulators need to create the appropriate framework. The ball is in your court…