“Lately it seems as if Seth Godin is starting to writing good stuff again.If you only show up when you want something, we’ll catch on.
If you only learn the minimum amount necessary to get over the next hurdle, you’ll fall behind.
If these short term choices leave you focused on the urgent, you’ll almost never get around to doing the important.
”
Seed and early stage fundraising on the fringes
So I was interviewed by a newspaper the other day (waiting for the article to see how misquoted I get) on seed and early stage fundraising in the Nordics, but it might as well have been “anywhere except for the US”.
There’s a misconception that fundraising is a simple binary issue, in the sense that either you get funded or you don’t. And that in markets (such as the Nordics) where there is little access to capital, the consequence is that many great ideas don’t get any money.
However, the challenge in the Nordics and similar markets isn’t that you don’t get funded (you’re any good you will, eventually) but that it takes way longer, making it hard to execute at the speed required to compete in certain product categories or customer segments, where competition has quicker access to capital (for instance, by being based in downtown Palo Alto).
This is sometimes interpreted that investors in these markets lack vision, are too risk averse or plain ignorant. Not true, at least if Nordic investors are anything to go by. All things equal, they’re just smart (or in some cases, not smart) as their US counter parts.
What they lack isn’t brains or balls, but competition. In a hyper competitive market as NYC or SV you have to act fast to get the deal. Whereas in the Nordics, where an ambitious startup only has a handful of firms to choose from (and angel investing is pretty much non-existing), you can take your time.
Anyone that has raised money will tell you that competition for the deal is what makes deals happen. And when there is none, pretty much nothing happens (unless you run out of money and are forced to accept a shitty deal haha).
Again, this is perfectly rational behavior. If you’re an investor, looking at a company that is 10 months old, stalling the investment by a couple of months gives you double digit increases in data that allows you to reduce risk.
So while it’s tempting to whine on the few players that actually do invest in these markets, what we should do is to figure out how we can get more players to join the game.
Mike Maples does a brilliant, crystal clear presentation on startups, pivots, customer development and business models.
(Source: vimeo.com)
“Boatload is a subjective term. So is traction. So is product market fit. And so is successful. So let me try to define them in the way that I think about them. A boatload of cash is more than $20mm of invested capital. A boatload of cash is monthly burn rates of tens of millions of dollars. Traction and product market fit are customers or users buying or using your product in droves. It is the realization that you’ve found the sweet spot of the market you were going for. And successful is an investment that pays out multiples of the dollars we invested in it. Getting our money back is not successful in my book. Getting three times our money back is good. More than that is great.”Fred Wilson sorts things out, in a great blog post in reply to Ben Horowitz’s fat startup post. They both seem to have another definition of what is considered “lean” than we do here in Sweden ;) Lean in our terms, would be considered starving by their standards.
Presenting Burt at Plugg in Brussels
Besides the odd keynote, Burt’s been pretty quiet since the Techcrunch50 presentation, specially considering the time since Techcrunch50 has actually been quite astounding in terms of sales and product development. We’ve also tweaked the concept and product portofolio based on feedback from our advisory board, consisting of some of the world’s greatest advertising entrepreneurs and creatives.
So we know our pitch makes sense for the ad people, but what about the techies? Well, today Burt is presenting another beauty contest for startups so in a couple of hours I guess we’ll know ;)
This time it’s Plugg in Brussels, spearheaded by the extremely friendly Robin Wauters of TechCrunch. So far, the impression is that Plugg is more relaxed and cozy, but it might just be that I’m a tad more comfortable on this side of the pond ;)
Plugg is pretty scary, they give you a 2 minute slot, and 3 companies (of 20 total) are invited to present another 10 minutes the afternoon. It’ll be interesting to see how the pitch for Burt lands. Our business relies on the assumption that techies and ad men have a communication problem so talking about the Internet from the perspective of an ad man at a tech conference obviously poses a challenge.
I’ll put up my slides after the pitch. Wish me luck!
No one ever got fired for backing Niclas Zennström
So Techcrunch has this guest post on serial entrepreneurship. Very interesting reading, for both entrepreneurs and investors. I think this quote sums up the article pretty good:
While second-timers’ experience may lower the likelihood of failure, from 82% to 70% according to one study, no one has noticed that it also seems to limit the magnitude of success. Every Silicon Valley colossus — Amazon, Apple, Dell, Ebay, Google, Microsoft, Oracle and Yahoo! — was started by a first-timer 30 or under. Facebook was founded by teenagers.
The implicit meaning of this quote is, of course, that second-timers are more likely to succeed, but first-timers are more likely to make it big. The reason given in the post is somewhere along the lines of “first-timers are more hungry, experimental, naive and daring” and “second-timers are more confident (=less experimentation) and less motivated”.
In theory, it’s a simple risk and reward-equation, and it’s the job of VCs to source interesting projects and balance these two things against one another. But most VCs I’ve met aren’t actually so much concerned on these critical things as they are by reputation (not making fools out of themselves) and scalability (not work too much or hire too many). And it’s not that they’re bad people, it’s simply inherent in their business model.
The VC-business model usually look something like this: they raise a fund with money from other people/companies, which they promise that they’ll invest for a compounded yearly return on 15-20%. In return for doing this, they take a “management fee” of 2-3% of the funds total size, each year. Also, they have some sort of scheme that is based on performance measure, for example 20% of returns above the target rate of return.
But most funds that VCs run actually loose money; I read that there’s some Pareto 80/20-principle going on there… meaning that the VC-industry makes 15-20% yearly return, but it’s the top 20% that actually make up for all the cash that the rest burns through, which conveniently is almost the same ratio as for entrepreneurs. And very much like there are serial entrepreneurs there are also investors that raise multiple funds (“serial investors”? haha), and a majority has raised funds before, very often from the same people you did the last time.
Game theory 101 at work: we have a situation where you as a VC is likely to fail in the long term, but your short term compensation is a function of how many people you have splitting on the management fee. Less people in the organization, means more money for everyone. To make your life easy you choose to go with people with previous experience, since they tend to be a lot less maintenance than young, shoot-from-the-hip experimentalists. Also, you go with “proven” markets, that tend to lower your intellectual / visionary overheads even further ;)
The other dimension of choosing second-timers and “proven” markets is that if you fail, who would blame you? Certainly not your fund investors… but “These guys did it before” actually improves your odds of success by a meagre 15 percent, which is probably cancelled out by the decreased rate of return… However, oversimplification, dogma and the almighty “no one ever got fired for buying IBM” principle is at work in the VC-business as much as the next industry. Anyone surprised?
