My year as a millionaire

It wasn’t like this…

From August 2018 to August 2019, I was a millionaire.

You know how lottery winners always say that being a millionaire won’t change their lifestyles? Well, I can absolutely confirm that being a millionaire didn’t change mine.

It’s a funny thing becoming a startup millionaire because it doesn’t actually involve having any more money.

When the Rich List folk work out what people are worth, they tot up all their assets. Cash is only one asset. My house is a negative asset as I have a mortgage. But for my year as a millionaire, my personal stake in Snap was worth several million pounds. Hence I was a millionaire.

But, of course, it was complete bollocks, as there was absolutely no possibility of converting the paper millions into cash. Snap was only worth what it was worth because of the promise of future success: if I had tried to sell my shares, it would have indicated that the founder no longer had faith and the value would have collapsed.

The experience of becoming a millionaire has given me a lot more insight into the way these things are calculated. I used to think Elon Musk was just being… well, Elon Musk when he claimed that he was cash-poor despite being a billionaire. But he has got a point. He’s a billionaire because Tesla and Space-X are worth a lot of money. But until he sells those shares, it’s not really relevant. The values could collapse tomorrow.

But beyond a new suspicion of the meaningfulness of the Rich List, this experience has taught me another lesson as well.

That lesson is to be careful about what metrics are and are not telling you.

Our 2018 funding round increased the value of Snap to £15 million. As a result, it felt like things were going well. By far the success metric that people care about most in StartupLand is company valuation. Our valuation had gone from zero to £15m in two years. Even though it’s obviously not the most important metric, it’s hard not to notice it.

But it’s also easy to take the wrong message. The message I took from our valuation was that we were doing the right things.

In fact, 2018 was precisely the moment we should have changed course.

Let me explain.

When we started Snap, no coach operator had ever heard of us and the Snap model was completely new. It would have been impossible to persuade operators to operate on a commission basis (in the way Uber drivers do) when we were so new, and it would have been impossible for customers to commit to rides without some degree of commitment. As Snap, we needed to stand in the middle and create our market by taking the risk ourselves. We offered a flat rate to the operator and took the risk for coaches that ran empty. By late 2018, the coaches were typically well-loaded and the rides covered their costs.

But, actually, that was precisely the moment we needed to change course.

Investors had completely understood the logic of why we needed to take risk in the early years and were fully behind our strategy of doing so. But, equally, they weren’t going to be willing to cover the costs of an equivalent process every single time we launched in a new city.

Now we’d proved to operators that we could fill their coaches and proved to customers that coaches would run, it was time for us to step out of the way and become a commission-based marketplace. That was the business that the investment market wanted to back. That involved making substantial changes to our relationships with our operators and the way our payments worked.

Unfortunately, “the investment market” doesn’t always speak with clarity (I love VCs to bits, but with certain honourable exceptions, they don’t always give precise and actionable feedback in their turndowns) and this message was not as obvious at the time as it is with hindsight.

Instead, the message I took in autumn 2018 was that we’d just raised at our highest ever valuation and we’d just got the trips to cover their costs. After valuation, the number one success metric for startups is growth, so we prioritised growth - launching in new cities all round the country in 2018/19.

Unfortunately, with our commercial model, that meant that the launch costs in those cities sat with us and new investors didn’t like this.

As we went through our next funding round in 2019, it became clear that we’d misjudged the market. We changed our commercial model and raised the round (though later than we wanted to). But the valuation of the company suffered badly. I ceased to be a millionaire. (Ceasing to be a millionaire also didn’t much affect my lifestyle).

The whole experience has left me with a key lesson: be precise about what metrics are and aren’t telling you, and it’s not always easy. Our £15 million valuation was not telling us that “you’re doing the right things”, it was telling us “you’ve done the right things so far”.

That turned out to be an expensive misinterpretation.