If there was a recurring theme throughout the keynotes and talks delivered during Aarhus Investor Summit 2019 it was collaboration – between public and private money, investors and entrepreneurs, and business angels and vc’s.
In his keynote on the state of the nation, Chief Investment Officer at VækstfondenRolf Kjærgaard talked about the growing business angel community in Denmark.
He pointed out, that of all the VC-funded companies coming out of the Danish ecosystem more than half receive funding from business angels in advance. This is important.
- We want to have more VC’s out there and international VC’s coming into the market. But for them to have investable companies someone’s got to do the hard work of finding those companies very early on, pitching in the 100-200 K or whatever it takes to build that bridge across the valley of death toward raising the initial VC-round. That’s why we love working with business angels, he said.
Iterate until it sticks
International investors ARE increasingly funding Nordic companies, and one of them is London and San Francisco-based Index Ventures.
Ari Helgason from their investment team joined forces with Christian Jantzen from Copenhagen-based early stage-fund Futuristic.vc for a chat on investor collaborations and the Nordics.
From a venture perspective, angel investors can prepare startups for venture capital by helping them:
> Be very systematic about identifying product/market fit > Implement best practices for good governance and corporate structure > Bring the founding team together with complementary key executive hires
The two investors also discussed some classic mistakes by early investors:
> Founders being overly diluted early on. Many of the success stories coming out of the Nordics were founder driven for a long time. > Putting too many non-standard terms into companies like overly onerous liquidation preferences for an example.
Index Ventures is very sensitive to everything being done in a best practice way, Ari Helgason pointed out. They want to keep everything very simple and easily digestible for the founders.
- It is also a self-protection thing because once you start putting in aggressive terms, that sets a precedence for the next round.
Christian Jantzen also warned against a too traditional focus on milestones and revenue goals when investing in tech companies. Iterating until you find something that really sticks is key.
- What really matters in the early days is building something people actually want to use.
It’s your reputation on the line 78% of Danish business angels participate in syndicated investments, and it is a rising trend. There are many good reasons for this; knowledge pooling, risk-sharing and workload distribution among others.
However, there must be a lead investor. This was the subject of a panel discussion with business angels Kim Väisänen, Thomas Black-Petersen and Søren Louis Pedersen.
Many new investors are afraid to take on the role as lead investor. But if no one steps up, potential investments may collapse.
- The reason why people do not want to be lead investor is reputation. ‘What If I fail?’ ‘What if I miss something in due diligence?’ So, you have to be brave and the co-investors should also understand, that it is not your fault that you were lead in something that failed. And most of these startups do not succeed, said Thomas Black-Petersen from DanBan.
As a lead investor you are the project manager of the investment. Your tasks include deal terms, due diligence and communication with the startup. But first, you must secure harmony within the syndicate and find the right people. This can sometimes be a challenge.
- We once had a syndicate with 16 big egos. It’s like a minefield, said entrepreneur and investor in Framery Kim Väisänen.
He also shared some of his personal investment guidelines, which include never investing in bridge. There should be an absolute minimum of 12 months runway, otherwise the company is focused on raising money instead of finding customers.
Here are some of the advice they gave to first time lead investors.
> Make sure you are not alone with due diligence. Form a group within the syndicate and share the tasks. > When you have aligned your group, find out who is committed to put in time and effort, and engage them. There are always people who will only contribute capital. > Consider if you want compensation. However, this is not that common and must be addressed in the beginning.
Other takeaways from Aarhus Investor Summit
1. Startup valuations are going up all over the western world, but Europe still haven't reached the extreme levels in the US. Therefore, Silicon Valley investors are spending more and more time in Europe.
2. According to Vækstfonden, sustainability will be an overarching investment theme looking ahead. Within the Danish ecosystem, robotics, edtech, foodtech, lifescience/biotech, govtech and cleantech are strongpoints.
3. The competition for the best Nordic cases is getting harder. This is also visible in the seed-phase. For the top ten percent of seed deals you are increasingly competing with international funds.
4. In Silicon Valley, the entrepreneurs are the stars, not the investors. This is also happening in Denmark, which is great news for Danish Entrepreneurship.