VC Perspectives

We have just announced our first investment in Norway. The company, Appear TV, is a Norwegian broadcast and IP television equipment provider with customers in more than 40 countries. It offers operators advanced equipment for delivering analog and digital broadcast services to their subscribers. Appear TV has experienced a tremendous development with revenue for 2008 growing to NOK 90 million in just 3 years and the company is foreseeing further strong revenue growth during 2009.

Often when comparing Nordic companies with for example US companies, the Nordic companies are very strong on technology but less so when it comes to sales & marketing. Therefore, it is really cool to see a company that manages to combine world-leading technology with extremely strong sales focus.

This means that we now really can claim to be a Nordic investor with portfolio companies in Sweden, Denmark, Finland, and Norway.

Read more in the press release

Say you have just closed your first venture capital investment round. Great! And amazingly enough, you receive a pretty good offer for selling the company after 6 months. What do you do?

In the best of worlds, all shareholders including founders and investors agree on that either it’s a good or a bad idea to sell the company at this point. But in many situations, founders and investors may have different views on whether it would be nice to cash in.

In these and many other situations it is extremely important that owners are aligned on what the agenda for the company should be. If not, it is hard for the board and the management team to know in what direction to steer the company.

A great, yet simple tool for this that we use at Creandum is something we call an ownership plan. Before or during the investment we sit down with founders and other owners and pin down how we see the development of the company. We try to identify the key value events and risks in each phase. As an example, it could be whether the company should aim for expanding market share on its local market versus entering a new market. The ownership plan should give an indication of when it’s time to raise new money or what needs to be achieved to reach an satisfactory exit as well as the size of the exit aimed for. And although things change on a frequent basis and plans must be revisited and rewritten, it really helps having a mutual over-arching idea of where the company should be going and to know when the various owners are willing/satisfied to sell their shares. Are we building a  ten million euro company or a hundred million euro company? Naturally, it will take more money and possibly more time to build a much more valuable company.

The format of the ownership plan can be different from one case to another. The important thing is to mutually identify and agree on major value creation events and on the owners’ agenda. Anyway, I have prepared a very simple fictious example for an enterprise software company just to make things a bit more concrete.

But remember, the onwership plan should be a “live” document which is revisited on a regular basis.

Every year SVCA puts together a report of VC & PE-related activities from which I have picked out a few interesting data points.

Although total amount invested from Swedish VC-offices (into all geographies) went down in 2008, the amount invested in startup companies was at its highest amount ever. The investments in startups have actually gone up pretty steadily since 2001 whereas expansion and seed investments are much more tightly connected to the economic situation (click for larger picture).

It could also be interesting to look at how much as been invested in Swedish companies independently of from where the money came. Here the development is quite unambiguous with investments increasing also in 2008 despite the financial crisis.

Finally, an interesting point is to look at what happens to the various investments, i.e. what is the hit rate for VC-backed companies.

To simplify, in 57% of the exists, the VCs made a relevant exit meaning that it sold its shares to an external party. This is actually a bit higher than I had expected; it will be interesting to look at the numbers for 2009.

The case of selling back to founders can be a relevant exit but often it is a sign of that it was not possible to sell the company to anyone else.

A nice thing with the summer break is that it provides time to read up on things. One of the books I read this summer was Free - The Future of a Radical Price by Chris Anderson.

Although most of the content is well known to people familiar with the web, open source, and social media, it is still a great read. In addition to giving some perspective on the development of free as a marketing tool, Chris provides an excellent overview of the various business models associated with a free offering. Even more importantly, he really invites the reader to think about free as an inevitable business model as marginal costs head towards zero. Basically anything digital delivered over the internet could be offered as free in one form or another. Thus it is important for any company to think about a) what should we do if someone adopts a free model and b) is there an interesting business around a free model that we could take advantage of ourselves.

The book is available for free at Spotify as an audiobook and for example at Chris’s Wired blog.

At first sight, the answer to the above question may seem obvious. Of course, entrepreneurship cannot be taught. It is all about personal motivation, ambition, drive and ability to execute on a vision, dream or identified opportunity. I completely agree with this - successful entrepreneurs are not created in business schools or at universities. But I would still argue that there is plenty to do for schools, universities and other public institutions when it comes to teaching and even more so promoting entrepreneurship.

I am a strong believer in role models. Not everyone is born an entrepreneur but with the right motivation or inspiration many can become one. As an example, I just read an interview with Niklas Zennström in Veckans Affärer and I have a hard time seeing anyone reading it and not wanting to become an entrepreneur.

When I went to university we did not meet a single entrepreneur, but we met lots of people from management consulting firms, financial institutions and large industries. And even though many didn’t feel that these companies provided exactly what we wanted from an employer, most ended up there anyway. But a few years later when the IT-boom was in full swing and companies were founded and funded right and left, it was a big eye opener for many of us and today many of my student friends have started their own companies.

There are also plenty of areas that could be very useful to learn about before starting a company. How does one actually start a company? What means of financing are available? How to protect an idea or test if it’s unique or not? How can I get going without having to invest heaps of money in hardware and software. This stuff can be taught just as well as how to cook (yupp, we actually have classes like this at least in Sweden) or write an essay.

So my 2 cents would be that entrepreneurship as in actually making the move to start something on your own cannot be taught. But a solid foundation about how to start a company and inspiration and motivation from entrepreneurs could certainly be provided to a much larger extent that currently.