VC Perspectives

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.

Last week I was participating at an event called MoneyTalks in Helsinki which I found to be quite useful. Extremely well organized by Will Cardwell and his team at Technopolis with a great turnout of both Finnish startups and investors.

The keynote speaker was Petteri Koponen (founder of FirstHop and Jaiku and now working for Google and recently joining the board of Aito Technologies), who delivered a great presentation on the startup life-cycle. There were many hard-earned experiences shared but two things in particular got me thinking about my previous post on contacting VCs.

Basically Petteri meant that getting VC-funding is a numbers game so you better meet as many as possible. Also, the way to develop your pitch is to pitch, learn, pitch, learn, pitch, learn, pitch…

I think this is great advice but I also realize that it somewhat contradicts my advice on only contacting the right VCs so I wanted to nuance my advice based on Petteri’s input.

First of all, I still think that spending time learning about the VC is very important. Identifying the right person at the VC firm and make sure you’re addressing their investment focus is going to be critical. And avoiding VCs that are not likely to invest in your company will save you lots of time and frustration. But since VCs do have different opinions and preferences, it still make sense to try and meet quite a number of them as long as their focus reasonably well matches your startup. This is maybe even more the case in Silicon Valley where there are many more relevant VCs for startups.

The second is definitely extremely important. The only way to get better is by practicing and by learning from previous experiences. So don’t give your pitch for the first time to a VC, there are plenty of people on which you can practice your pitch on beforehand. Don’t visit your preferred VC at first, pick some other to practice on. And as no pitch is perfect from the beginning, make sure to update the pitch based on feedback and questions from the VCs.

A question that I often get is how startups should approach VCs. And similar to what Mark Davis suggests in an excellent post, my advice is: Don’t start with the question of how to approach a VC. Instead, start with the question of who to approach.

At Creandum, we screen several hundred companies per year and invest in 3-4 (having discussed this with other VCs, it seems like a hit rate of around 1-2% is pretty common at least in the Nordics). So to improve your odds at not only getting a meeting with the VC but actually walking away with some money, make sure you pick the right VCs to contact.

Contacting the right VC

Here are a few things to consider when evaluating the match between your startup and the VC:

• Portfolio - Check out our portfolio. What investments have we done (stage, technology, region etc)? Do we like to syndicate, i.e. invest with others?
• Focus - What are we looking for? As an example, at Creandum we’re looking for companies that have the potential of becoming successful international companies exiting at €100M or more. This means rapid growth and limited “me-to” opportunities.
• Individuals - usually VCs have short bios of the investment teams. Do we have people that are likely to understand your product and market? (this usually increase the odds but not always, sometimes it is easier to get excited when one doesn’t understand all issues…).
• Fund characteristics - the size and age of the fund plays a big role in how a VC invests. Usually VCs have funds of 10 years. During the first 4-5 years we invest in new companies, then we only make follow-on investments. And the fresher the fund, the more likely it is that the VC will make early-stage investments. Why? Because at the end of the investment period, there is not enough time for the younger companies to developed into large exits.

Contacting the VC

The process differs from VC to VC, but here’s how I would go about it (based on how I like to be approached):

1. Try and get a referral from entrepreneur, other VC, friend/advisor of the firm, portfolio company - Someone that can vouch for you and get them to introduce you to us.
2. Make yourself known to the VCs - PR works, we do read blogs & articles.
3. Create a really good presentation of what you do and send it to us - I prefer powerpoint/keynote of around 10-15 slides. Explaining what the presentation will look like probably merits a blog post on its own, so let’s come back to that later.

If you have selected a VC that invests in companies with your profile and you nail at least one of the above points, you’re more than likely to get the meeting.