vc

There are not that many blogs that any Nordic VCs would write. Can't think of any actually (at least not any good ones have hit my radar..). Until now of course:

http://vcperspectives.com/wordpress/

VC Perspectives is a newish (been around about as long as this blog) VC blog written by Daniel, Fredrik and Stefan of Creandum (the VC behind such companies as Spotify and Videoplaza for example).

The blog describes itself as:

"This is a blog for everyone interested in entrepreneurs, start-ups and venture capital, primarily with a Nordic focus. The idea is to provide insights, comments, and discussions about the Nordic entrepreneurial scene from a venture capital perspective."

I recently had a chat with Daniel Blomquist about the blog and what they are trying to achieve. It is brave and ambitious to bring more transparency to the VC process and "the VC world". Things sometimes seem to be pretty "hush-hush" and quite secretive for no apparent reason. The blog's writers seem to agree with the point of view that more transparency and honest information in how the whole scene works and operates is something that only adds to value for everyone and increases the chances of success.

As an example: I have seen a total of zero news over the years regarding VCs and entrepreneurs jointly telling a success story; for example a successful exit. Many times people think of the Entrepreneurs and the VCs as two separate camps that are somehow opponents to each other. While there might be a little truth in that if you are talking about stuff like negotiating deal terms etc - even at a situation like that it is more about finding some common guidelines and terms that work for and motivate both parties so that they can achieve success together..

Many VCs are former (or current) entrepreneurs (not nearly all of them, but many of the best ones, most successful ones, are), and they are really there in the marketplace to achieve the same end result as entrepreneurs; to build great companies and produce great success stories.

Therefor would it really be that far fetched to see even one single press release made jointly by the entrepreneur team and the VCs announcing a successful exit from a really great company they have built together and sharing the story and insight behind that? I haven't seen any of those kinds of stories around, and would certainly be interested in hearing them.

The VC perspectives blog is almost alone in the Nordic region taking on the challenge of talking more about these topics and showing the world from their point of view. That alone is worth my support and I would love to see them reach the same kind of quality and insight as many US and UK -based VC blogs have at the moment. I listed some of those blogs in my old blog post here.

Some particularly good picks are:

http://lsvp.wordpress.com/
http://www.avc.com/
http://www.localglo.be/
http://www.theequitykicker.com/
http://www.ventureblog.com/
http://sapventures.typepad.com/
http://www.feld.com/wp/
http://brotman.blogs.com/vcball/

So!, Go read VC Perspectives and post some comments there, be active and tell them what you would like to hear about the VC world. I think they would greatly appreciate that.

Since this summer I have been actively developing www.runtoshop.com from scratch. Run is aiming to create a central mashup like hub for recommendation activity to boost sales of online stores. The idea is simple: interesting enthusiastic people expressing their strong opinions and recommendations about the stuff that they love leads to increased sales. Run is making this simple idea a reality through the existing social networks and services - acting like a mashed-up hub of social enthusiastic (and sometimes opinionated) recommendation activity that you can search, browse and use to discover cool new stuff.

We were building up speed during the summer, and started testing a service in the finnish language public beta here locally during the fall.

The company has just today signed and closed its most significant financing round yet. The round is lead by Veraventure. Additionally the company is being funded by a group of 8 prominent business angels.

WIth the active public beta test version the company has managed to sign about 410 (or so) online stores onboard as partners. They include big ones like Apple, iTunes, Amazon, Amex, Nike and such, as well as smaller local players: travel agencies, energy companies, online stores for cosmetics, sports, clothing and lifestyle products, etc.

With everything summed up this is my 10th round of financing that I'm involved in. Feels great to reach a milestone like this one!

Getting this round closed has been a lot of work, for the whole team here. And quite possibly the current economical climate isn't making it any easier for any of us. Closing this round is also partially the reason why I have blogged a bit less than say a month ago; getting the final details right and heading for full closure requires some energy and attention from the CEO.

With this round the company can plan all of next year and have a serious enough backing to go after the international markets - with a new and improved product version naturally.

And BTW: RunToShop as of today is currently very actively hiring. If you know competent programmers and web/concept designers, please tell them to be in touch ;-)

Now it's one milestone behind us - and many more to come. I guess this is precisely the time for the "get real or go home" part, right?

www.xihalife.com a finnish fast-growing startup with a bit of an unusual background has announced that they have closed a significant financing round with a chinese investor.

I am involved in Xiha as an advisor and a small owner.

Xiha is a multilingual social network that's available in over 40 languages and has more than 800 thousand (close to 1M) uniques a month from over 200 countries in the world. The company and the site is founded by finnish-chinese couple with an impressive background in the gaming industry.

With the investment Xiha is capable of hiring a few new entire teams to work on the service, and to open up offices in Zürich, the US and in China.

The big growth opportunity lies in multilingual people that are pretty much all over the map globally; in the US alone there's about 37 million people who are immigrants and know at least a second language. Many people are pretty fed up being forced to have their social networks in one language only. I personally have this problem in Facebook; mixing together english-only friends with my finnish-only friends doesn't quite work all that well, and Xiha hits the mark in this particular usecase with laser precision. In this blog post I talked about my first company Taika, and back in 2000 we solved a social networking presence/microblogging problem that the Facebooks of today have still not really solved; we came up with a simple usable and fast way to send different status messages and microblog entries to different contact groups simultaneously. Xiha totally solves this from the language point of view. Get in there, register and try it out for yourself.

CC Attribution: Vanessa Pike-Russel@Flickr

What's really impressive is that Xiha's rate of unique user growth is over 20% a month; with kind of unusual markets like Turkey, China, Brazil, and France. Xiha is expected to reach over 1M uniques by the end of the year, and keep on growing strong after that. The company was founded only last year - so it's gone from zero to 100 pretty quick.

Here's Xiha's founder on Xihalife.com. And this would be me in there as well.

I see Xiha as being fresh, unique and really in a speed-train-like growth towards possibly becoming a really well known success case. Xiha's primary revenue model is digital content; like casual games, etc. There's more than a 1000 PC and MAC games available.

Want to learn something about making successful social networks? Register to Xiha and go for the "gold member challenge", found here:
http://en.xihalife.com/gold/ -that's something that sort of reveals the gaming background of the founder. It's a challenge that motivates the user to go through a series of fun tasks (or "quests" as a World of Warcraft player would call them, right?) and the end reward is a gold member status. Works like a charm - go try it out and take notes.

I'm at SIME here in Stockholm. Day 1 over and done with. One of the best takeaways from the first day was seeing Morten Lund speak about angel investing, serial entrepreneurship and startups.

Pic: SIME poster in the movie theatre wall, taken with my iPhone.
Lovin' the title "Archangel Investor" there ;-)

You can probably get the presentation from someplace in the web later. However here's some of the stuff that he said:

- "I mostly f*ckup all the time"
- "you have to be prepared to f*ckup"
- "nobody wanted to invest in me" (said in an interview afterwards)
- You can't do this if you plan to do money, you do it because you have to do it, your nature drives you to do it. (can't remember the exact quote here")
- "5 guys can set up a global business nowdays"
- "It's crazy that you don't even have to be smart; you just have to DARE and that's enough to succeed"
- he has 10.000 readers in his blog (no idea about the timespan here?)
- he has invested in about 90 companies, founded many of them
- he just lost 40 million EUR (or something like it) in a media venture gone bad, about 2 months ago. Quote: "I was crying, self-pity"
- One of the key messages: "We don't have a f*cking clue" (repeated several times on where all of these ideas are coming from etc)
- Most important thing in succeeding as an entrepreneur: "gut feeling"
- Top 3 bullshit list: "it's all bullshit"
- and from about a year ago: What's really important? : "I think sex is really important".

Here's an interview of him, good stuff:

Morten Lund from SIME on Vimeo.

Now there's a whole lot in there that the VCs could learn from. How can a really successful investor talk 30+ minutes about investing without ever mentioning any of the same things that the VCs mention? It looked pretty easy - it's like Morten Lund is living in another world when compared to the VCs. I would argue that he IS doing just that, and succeeding because of it.

Altgate recently had an excellent post on why Venture Capital is broken, go check it out and think about it in comparison to what Morten is saying there:

http://www.altgate.com/blog/2008/11/venture-capital-is-broken.html

What else is going on in SIME then? Well this for example:

PIc: SIME poster about Fruugo in the movie theatre wall, taken with my iPhone.

Fruugo is going to be there on stage tomorrow. Perhaps not "telling all" but certainly telling more than they have up until now. I'll be there to cheer and clap them on!

CC Attribution: DavidDMuir@Flickr

A lot of startups think they are ready to receive venture capital, risk capital, or some sort of "real" financing. I recently had to count; how many rounds of financing have I "done?" (not solo, they are always teamwork) It took some plain old organic memory search, and if I have it right that would be a total of 9 rounds so far. (just as a remark: IRC-Galleria had zero rounds.)

Based on that experience; When are you ready? Here's my take on that:

1. You have the right attitude. You and your startup need to be very good at what you are doing. You need to have your act together. Know your stuff. Know your competition. Already have plenty of things done instead of "just planned". You need to be there to succeed and as part of that attitude you need to be humble enough, yet know that you are a "catch" for them to have; and that you are the client shopping for financing services for the price of equity.

CC Attribution: JustUptown@Flickr

2. Your materials are in good condition. Yesterday a highly competent venture capitalist (managing partner, none the less) said to me: "the good VCs know that the excellent companies probably don't have time to prepare a 50+ page business plan and perfect materials". Agreed. I think you do not and should not need a very long business plan and a beautiful polished power point. Many of the 9 rounds I have done have been done without the one of the other, sometimes without either.

What do you need then? You will need a very good executive summary. You will need to be ready to talk about your stuff at a "championship level". Solid financials are needed. And a good representation of your overall plans and goals. Specific roadmaps and such should not be so important - because they will change anyways, and the good VCs know this extremely well.

Many VCs don't read plans. They only read summaries, 1 page or 2 pages. Even the legendary Sequoia Capital asks everyone to send a maximum of 15-20 slide summaries, as they say "all that's needed". What did Eran Davidson the CEO and Managing Partner of Hasso Plattner Ventures say on stage at SIME Helsinki? "I'm a VC and I don't read business plans". There you have it.

CC Attribution: *Your Guide@Flickr

3. DD preparation is done or underway. Check my earlier post about the DD. Make sure that's at least in progress and you can answer questions about IPR and such in a very competent level and detail.

4. You have an investor plan. You have mapped out multiple investors. Actually found out about their investment focus, criteria, space, latest deals, terms, etc. You have schedules for the whole thing to progress, your team has divided the responsibilities of preparing everything, and you have created the most important thing: a shortlist of investors most likely to realistically invest into your startup. Where to find VCs? Check my previous post for a few ideas.

CC Attribution: ToniVC@Flickr

5. You have time to raise capital. It takes a while. In this economic climate it takes a while and then some. You need to have that time, no hurry. Sizeable startup rounds (a few Big MOs) can go through in as little as 2 months, but that is an extraordinary accomplishment that does not happen often - there needs to be a real match between the startup and the investor for a deal to move so fast. Angel rounds can be faster. Typically it takes at least 6 months, and now quite possibly more than that. This old comic from the Dot-Com era sums it up nicely.

6. You have already engaged customers and partners. One thing that will greatly speed up your VC deal will be real commercial traction. Especially if you are in a space like "Web 2.0" that's sort of the requirement before you get any VC money. It helps significantly if you are already on a path towards growth and expansion, but would grow a lot faster with additional capital. One way to get there is to talk to your customers, partners, consumers etc as soon as possible, as much as possible. Hammer out your thing, what ever it is, in such a way that it is desired in the marketplace and has clear evidence of showing commercial traction. Score the deals. Close and sign them in. Then talk to VCs. Try to go for LOIs, non-binding contracts, MoUs, or even try to get upfront payments from the customers. Every name on the paper is tangible proof and will help you out. Try to get permissions to reference them and their interest when they sign.

7. You require money for growth. VCs don't really want to fund things like; proof of concept, product development, prototypes, "stage 1 development", "hiring a team", etc. The earlier in the game you are, the harder time you will have raising any VC money. They like to fund companies that need the financing for growth, not to build something risky that might quite likely fail. If you happen to be very early, then go for Angels or "Friends, Family and Fools".

8. Have a fallback plan. One indication of your readiness is your ability to come up with a fallback plan. If everything drags out and your startup is not picking up any interest (or just not enough of interest) from the VCs, then you need to have the famous plan B. And in this case I don't mean buying 5 years worth of green beans and a big gun.. You need to plan for extended periods without outside money, getting the company risk level and burn rate right etc. If its not VCs maybe its angels? or maybe its your own pockets? maybe its one good pilot customer? What ever it is, have the plan in place and expect having to go for it.

CC Attribution: mringlein@Flickr

9. Have your own term sheet ready. It speeds things up and ends up in your benefit if you make your own term sheet before the VC gives you one. it helps you to have a clear sense of the kind of stuff that goes into it. You might not end up actually using it for anything else than comparing, but there might be situations where you can offer to propose the first set of terms to the VC. This is probably way more common with Angels, since most VCs have their "standard" terms sheet (with nothing really being standard or fixed in them). Preparing your own set of terms mainly helps you to think and that comes in rather handy when you actually have to negotiate the stuff - you'll understand it better and have thought through the meaning of different terms. Actually the smart VCs prefer this as well: they would rather have an entrepreneur signing with them who knows exactly what he signed, instead of a one that has no clue at all.

VC terms can vary a lot. There's also a bit of a Gap between what the VCs say is "standard" and what they actually sign in the end. For example: many VCs claim liquidation preferences to be a standard term. Yet out of the 9 rounds of financing I have seen only two have actually had that term included. So in my book it's rather rare to be seen. Same goes for another classic "strict term": anti-dilution clause for the VC. Out of the 9 deals only one has had that. There's actually enough substance regarding this matter that I might write a separate blog entry on this alone..

CC Attribution: Márcio Cabral de Moura@Flickr

10. Finally: know what you are doing, and research the investors. Partially this is a repeat of number 4 above there, but I want to separately underline this one. It is vitally important for your "VC readiness" to research the investors, really find out about them, use your contacts, talks to people etc. Talk to other VCs, talk to startups that have done deals with the VC, talk to angels, to Tekes, to who ever. Find out all the classic and generic details: "sweet spot" for investments, typical deal size, typical exit, typical terms, the likes and dislikes (and the backgrounds) of their partners, etc. Finding out this stuff will mostly help you to figure out are they the right investor for your. And if they are the info will help you in the talks.

What to do if despite all of this you don't raise attention from the VCs? Then calm down. Leave it be for about 6 months. Get back in touch (with a revenge) and update them on all the fantastic progress you should have been making by then. Meanwhile go for the angels, or the FFF, or what ever keeps you focused on the Big Plan. Don't dwell too far into project services and selling the skin off your back, that may be a living, but its not going to be a venture backed startup any time soon. (sorry, it just rarely happens that way).