Fake pitches and real startups…

I had a nice coffee today with an old friend from my schooldays who sold his decent-sized company not so long ago: it didn’t take long for the conversation to turn to business angels and pitch meetings, something which we both have had a lot of exposure to (though largely on opposite sides of the same wonky-legged table).

On the one hand, in order for startups to get past angel gatekeepers to pitch, they have to kid both themselves and others that in 3-5 years’ time they will multiply an given investor’s stake by at least 10x: this is the modern pitch template, the model that startups are required to replicate in order to be considered “credible” (But of course nobody has that kind of control over the future, however smart you are).

Yet on the other hand, my experience of rapidly growing companies is that they are structured in an open way to allow external serendipity to play a very significant (if not actually a near-majority) part. In fact, I suspect the real growth of such companies would best be charted in a bar graph with “Years” along the bottom and “Lucky Breaks” up the side. (Note that I don’t believe anyone has ever put such a graph up in front of potential investors, except perhaps with some kind of satirical point in mind.)

What struck me most forcefully was the sharp contrast between these two startup “models” – between the PowerPointy pretence of control and the (actual) near-total absence of control. The whole startup discourse has become a slave to the MBA-ified cult of the jut-jawed CEO hero making dramatic bets against the market’s groupthink, all the while the realpolitik of business has grown more diffuse and collaborative, where opportunities more often arrive as partnership outcomes than as snatched moments of solo market brio.

I don’t know: as I’m typing this, I’m feeling the hopelessness of the whole situation – as though angel investors and their groups have, by steering the ‘model’ to such foolish extremes, become 10x more of a hindrance than a genuine help to the whole sector. Add in the triple-whammy cargo cults of the ‘killer deck’, ‘elevator pitch’, and ‘executive summary’, and you have a pervasively dysfunctional setup to deal with.

Right now, I have this huge urge to stand in front of a room of business angels and just, I don’t know, tell them the goddamn truth. You know, that business is hard, arbitrary, strange, but collaborative; that what genuinely differentiates proper startups from, say, window cleaners is they take a certain combination of ambition, drive and scalability and aim it all at a fat (but wobbly) market; and that if I could tell the future as well as angels apparently need me to, I’d be betting on Lucky Boy in the 2.30 at Haydock Park, not standing in front of them.

But most importantly I want to tell them that it is their shared model that is killing startups: that if they had the guts to invest in startups without having them go through that stupid ritual of pretending to have sufficient omniscience, omnipotence, and precognition to guarantee insanely good ROI, then maybe they’d get the kind of returns on their investment they wanted.

Really, do I honestly think there’s even a 1% chance many will stop punting their miserable pin-money stakes into social me2dia shutdowns (i.e. the opposite of startups) anytime soon? No, of course not, not a hope. But that’s the view I get from here, make of it all what you will.

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Amazon, ebooks and VAT… for personal use only!

I recently wrote (and indeed published on Amazon) a nicely interactive chess ebook (Chess Superminiatures, based around more than a hundred real-life chess games all under ten moves long). As a result, my exposure to all things ebook-related and ebook-business-model-related has spiked sharply in the last month or so.

But when it comes to VAT and ebooks, even I didn’t see this one coming.

It’s like this. The basic business model for ebook publishing is as an Agency arrangement, so if you buy a Dorling Kindersley ebook on Amazon, you’re not buying it from Amazon, you’re actually buying it from Dorling Kindersley with Amazon ‘merely’ acting as an Agent. (Yes, even though Amazon does the hosting, selling, customer transaction, billing and money collection, and then gets to sit on the money for 60 or so days before passing it on to DK.)

All the same, at this point any underlying business model differences are merely semantic as far as a customer is concerned: if you’re buying an ebook, you don’t particularly care whether it was Amazon or DK that sold it to you. You know that it ultimately came from DK, the rest is just meh.

…except if you want a VAT invoice for your purchase. Because unlike normal books, the price of ebooks (potentially) contains a VAT component (i.e. if the seller is VAT registered). Did you know that? But… how would you get a VAT invoice for an ebook?

This is the point where it gets fuzzy and legalistic.

Because it is acting as an Agency, Amazon itself doesn’t charge VAT on the sale, because the transaction is between the customer and the ultimate publisher. So whether or not there is VAT on the transaction depends on whether the ultimate publisher is VAT registered, and that is not actually made clear on the Kindle product screen.

But all the same, you would have thought that an Amazon-mediated transaction between a customer and a VAT-registered publisher would necessarily generate a dated VAT invoice of some sort, as just about every other VAT-rated transaction in the EU is required to do, right?

Wrong! Amazon sidesteps this entire issue by sneakily insisting in its Terms & Conditions that Kindle content is only ever for “personal use”. With this single stroke, they (seem to) remove the need for VAT invoices, because someone buying a book for “personal use” would not have any explicit need for a VAT invoice, because they would – as an individual – be unable to claim back VAT.

So that’s the end of that… or is it? Frankly, if I was an EU commissioner tasked with dealing with Amazon, I would be spluttering with fury into my latte every time this topic came up, because Amazon plainly sells a whole host of business-oriented content for Kindle readers, and the wave of ebook titles swells ever higher each year.

This “for personal use only” in the T’s and C’s is without any doubt nothing more than a gigantic hack: as I wrote elsewhere a few days ago, the person who first devised this trick is probably still chortling into their hand years later. In fact, it’s such an epic business model hack that I think it genuinely deserves its own Wikipedia page – give credit where credit’s due!

So, to be truthful, the line should say something like “possibly includes VAT if the ebook publisher is VAT registered (irrespective of Amazon’s own VAT accounting), not that you can claim it back because only personal use of Kindle content is allowed within Amazon’s current T&Cs”.