If you’re interesting in getting some data points on European and US venture capital for 2009, it could be a good idea to attend FutureMoney in Helsinki on February 18. The event will be chaired by Mikko Suonenlahti from Growth Management Ltd.
VCs usually use various forms of preference shares when investing. As an entrepreneur, it is important to know what this means since it will affect things such as how proceeds from an exit will be distributed.
Through Fred Wilson, I found this good link to a description of how VC terms affect the proceed distribution in various cases. Here it is.
Larry Cheng at Volition Capital keeps a VC blog registry sorted by popularity. Good source for adding new blogs to follow.
Ramine Darabiha asked a very good question in his comment to the post Being a VC in the Nordics:
Could you please comment as to why you think Sweden and Norway are leading both in terms of investments and exits, in comparison with Finland for example?
The background to the question is one of the takeaways from the exit study, namely that Sweden and Norway have produced the vast majority of exit value among the Nordic countries.
This is a tough question to answer, but I’ll try to give some possible explanations:
First of all, the data is by no means perfect and probably slightly skewed to Sweden’s benefit since I think we have more and better data from Sweden than from the other countries. Also, some sectors are excluded from the study, e.g. life science where Denmark is pretty strong and energy where Norway is very strong. But still, there’s enough data to see some sort of a bigger picture.
As for Norway, there are a few things that stand out. Firstly, Norway has had a much better IPO-market than the other Nordic countries, also after 2001. Solar company REC was one of the biggest IPO’s ever and there have also been a number of other smaller ones e.g. Trolltech, Funcom, Mamut, NextGenTel, Opera, Powel, Telio. Norway also has some very strong technology clusters in e.g. materials (REC) and internet technology & search (e.g. Fast, Opera); areas that have accumulated lots of value during the last years.
As for Sweden, it is first of all a bigger market. More people, more entrepreneurs, more investments and also more exits. Sweden has a longer track record of international & export companies in general. This has resulted in ex-industrialists and consumer folks turning into entrepreneurs or business angels, managers that have been internationally trained before turning entrepreneurs, and a mindset which is pretty focused on making it outside the Nordics.
Compared to Finland specifically, I also feel that Sweden is a few years ahead in terms of startup experience in various technology trends. The Swedish internet boom in the late nineties generated more than a few failures but also provided a breeding ground for web entrepreneurs leading to some accumulated experience. There were for example several community initiatives that people could learn from in terms of user-contribution, viral user-uptake and how to monetize social media. The same was true for the software industry in the nineties, many of the larger software companies were founded almost a decade earlier.
In Finland, I meet a lot of young web entrepreneurs but the experienced entrepreneurs are mostly from enterprise software or industry. I think it will be very interesting to follow the development in Finland when the experience from Sulake, Jaiku and others start spreading.
I am also very positive to actions that unite entrepreneurs from across the Nordic and Baltic countries, I think there is so much value to be added from joining forces and experiences. Arctic Startup is doing a great job promoting events around the whole area and startups such as Bambuser have founders from several countries in the region.
Finally, I think this is a very interesting topic for further discussion and I would love to hear your opinions on it.
At the end of the day, for a VC it is all about exits. We are in the business of building companies and then selling our shares at a (hopefully much) higher value than we originally purchased them for.
As a VC in the Nordic region, we wanted to understand if the market in which we operate is attractive enough in terms of if it is producing enough exit value. We also wanted to improve our knowledge of:
As a result, we have over the last few years collected information about more than 250 Nordic technology exits relating to the areas in which we invest. The focus has been on VC & angel investments plus companies that Nordic VCs or angels had the opportunity to invest in.
I have included a presentation of some of our findings which you are most welcome to make conclusions from. In general, it is not easy to make conclusions on what works and what doesn’t, but it is usually very beneficial to have discussions around some of the pieces of data that we have collected.
Here are some of the conclusions we drew:
There are many reasons why US has been more successful than Europe in producing fast-growing startups and good returns for investors. And although Europe has caught up the last years, it still falls behind the US in terms of having a well-functioning ecosystem of investors.
Ultimately, we’re all in one way or another striving for the same thing - building great companies. To support this, it is important to have a well-functioning ecosystem of investors ranging from angel to late-stage investors.
The system must have money AND liquidity in all phases. That’s why I really dig the initiative of ArcticStartup to include angel investors in their ArcticIndex database. Angels are often the best resource for startups in the very early stages. In pretty much all of our investments, we have either invested together with angels or provided follow-on investment for companies that already have angel investors.
So, I hope that angels and entrepreneurs can meet more easily through ArcticIndex!
Guy Kawasaki (ex-evangelist at Apple, venture capitalist, entrepreneur, blogger etc) is one of my favorite reads. Some time ago I read his book Reality Check which is basically a do’s and don’ts plus helpful tips and insights to building successful startups. One of the entertaining parts is his lists of top lies that VCs, entrepreneurs, lawyers and partners et al tell.
I have now worked as a VC for a bit more than 2 years so I figured it would be fun to look back and give some of my thoughts on the top-10 VC lies that Guy mentions in his book.
1. I liked your company, but my partners didn’t
Guy argues that if the VC really believes in your company, he/she will make sure to get the investment through.
I don’t really agree with this. We have had several cases where one partner really believed in the investment but we still decided not to invest (all investments need to pass a vote of the whole team). However, I fully agree that this should not be used as feedback to the company because it doesn’t help the entrepreneur in any way. It is much better to give the reasons why ultimately not everyone in the firm believed in the company.
2. If you get a lead, we will follow
Yepp, this is a cop-out. We think your company is interesting but we’re not fully convinced. However, if a big-name VC is willing to invest, so are we.
For a Nordic VC, one of the biggest challenges is to figure out if a local company really has the potential of making it globally. So if a VC outside of the Nordics decides that they think so, it naturally makes us more convinced as well. The drawback is that if a local company manages to attract e.g. a US VC, it may be too late for the local VC to get in anyway. Ironic, isn’t it…
This one shouldn’t not be mixed up with point 4 below.
3. Show us some traction, and we’ll invest
The lie here is that even though you have traction, we may not invest. But traction is often fundamental for a VC. Firstly, faced with the option of a company with traction vs a company without traction, the answer is pretty obvious. Secondly, especially for consumer-facing products & services, it is close to impossible to “know” what millions of people will like and how they will behave so traction in the form of user growth or conversion becomes essential for making qualified investments rather than throwing darts.
4. We love to co-invest with other venture capitalists
Guy argues that if a VC really likes a deal, no way someone else would be let in. I don’t agree. Especially during the last 12-18 months it has been very clear that most companies need more money than expected and that it is really hard to raise money even for great companies. At Creandum, we prefer to syndicate and it shouldn’t be mixed up with point 2 above. This genuinely means that we like the company, would like to invest but think it is better for the company and for us to co-invest with someone else. It gives additional financial capability and also more resources to allocate to the company (see further point 6 below).
5. We’re investing in your team
Yes, we invest in teams. But it doesn’t mean that the team will have our support forever. Most successful startups change some or all of the original team members along the road. A hard-earned experience is that once we think it is time to change key people at the companies, usually it should already have been done.
6. I have lots of bandwidth to dedicate to your company
Many VCs say that they are active investors. And most are compared to many other type of investors. But I think that VCs tend to exaggerate the time they actually spend on an individual company. A VC cannot really sit on the board of more than 3-5 early-stage companies and still be heavily involved. If you are looking for a VC that really can allocate time and pull up the sleeves, my advice would be to a) check how many companies they are involved in and b) take references from companies that they are or have been working with.
7. Do you mind if one of our associates accompanies me to your board meetings?
Guy argues that although this isn’t a lie per se, it doesn’t necessarily mean that you’ll get lots of extra support. As an entrepreneur, I wouldn’t be too worried about this request. Usually it means that someone young, ambitious and usually smart person will help out with various tasks and sometimes this person actually have much more time to allocate than the senior partner at the VC-firm. But of course, if you decided upon a certain VC due to that senior partner and an associate is what you get, you might feel a but cheated.
8. This is a vanilla term sheet
Guilty. It is true that most VCs have quite similar terms and that some terms almost have become industry standards. However, a standard term sheet is more of a set of items that a VC would like to have in place. Most individual items makes sense but the total may not be applicable for your company. And usually there is room for negotiation at least if your company is attractive enough.
9. We can open up doors for you at our client companies
Guy argues that since a VC cannot get a customer to commit to your product, it’s just a slick pitch. Well, I agree to that VCs can’t really make anyone buy your stuff but VCs definitely can and do open doors and make introductions and I think this actually can have great value to entrepreneurs.
10. We like early-stage investing
Usually VCs don’t want to limit themselves so why say you don’t like early-stage investing. Best way to check this is to see what investments the VCs have done. If a VC hasn’t done an early-stage investment in several years, it is usually a sign that you’re not getting any investment either. Sometimes, it can still make sense to get to know a VC at an early stage, VCs like to follow the development of companies even before they are ready to invest.
Finally, I would like to add one lie that I think is quite common. One of the main reasons why a startup gets a no is because the VC doesn’t think the team is strong enough or that we don’t get a good feeling of the entrepreneur(s). Now, I think this is sometimes a pretty difficult thing to say so I have a tendency to rather communicate other reasons.
As much as a VC meeting is a chance to convince the VC to invest in your company, it can also provide an opportunity to get some perspectives on your business. VCs work with lots of companies and meet even more, and although we ask stupid questions at times, we hopefully also ask questions that can provide food for thought and maybe even push you to better define what your business is about or what actually is important.
On this note, I found a pretty amusing post on TechCrunch by Redfin CEO Glenn Kelman who lists the best questions they received when fundraising. Not all may be applicable to your business but I think most of them are pretty fundamental for any startup.
Last week we gathered our portfolio companies for a network day. This is something we do every year with the aim to connect our portfolio companies with each other. It’s a chance for our portfolio companies to get to know each other, and exchange experiences or views on topics and challenges that they are faced with as entrepreneurs. It’s also a chance to come together and discuss matters outside the daily routines and hopefully get some new perspectives or insights to bring home to the organization.
This year we had two very impressive speakers to add to the mix. One speaker was Måns Hultman who is the Chairman of the Board and previous CEO of QlikTech - the fast growing Swedish business intelligence software company that is one of the very few European software companies that have managed to grow revenues to more than €100M revenue / year.
Måns told an engaging and inspiring story of how QlikTech at several occasions was close to going down the drain but came back stronger every time. What I found particularly interesting were the company’s strong attention to details and very heavy sales focus. They have developed a strong sales process and every employee is taking part in sales training. QlikTech works hard with building the sales pipeline and then knows exactly how to work the process to get as many customers at the end as possible and they know in detail how many percentage of potential customers leave at given phases in the sales process.
The other speaker was Gurra Krantz who’s one of the most well-known Swedish sailing skippers. He’s been competing in 2 America’s cup and 4 around-the-world races. Gurra was speaking about what it takes to win, the determination that goes into being out at sea competing for 9 months, and how to create a winning team that is ready to be focused on the matter at hand for such a long time. A lot of it comes to really knowing why we are doing things and then relate most matters to this. As an example, since the sailing boat won’t go faster just because you have clean underwear, then it is not really a question for discussion wether or not to bring extra underwear for the race. Because it’s all about how fast the boat can go. This sounds extreme of course, but Gurra’s determination, focus and ability to get everyone on board for a common purpose is probably something which relates him to many successful entrepreneurs. Unfortunately, I don’t have the presentations available for upload but I did find a short excerpt from Gurra talking about team performance which I hope you will enjoy.
According to a recent comScore report, social networking sites now account for more than 21.2 percent of all US online display advertisements. And out of that chunk, Facebook and MySpace account for more than 80%. On one hand it positively underlines that where people spend time, money will eventually follow. On the other hand, it also underlines the very high dominance of a few successful sites/services/communities grabbing an extraordinary high portion of the total revenue.
