It’s incredible – even to me – but the fundraising round we at GRID disclosed last week is the 10th time I raise capital for one of my ventures. Admittedly this one was in many ways unique, and also the largest one. Yet.
Despite this, I’m still learning. For one thing, the world has changed since we raised our first round at Lon&Don back in 1997 (Icelandic only)! For another, 10 times is still hardly a statistically relevant sample so it’s natural to still be discovering a few things.
Here are the three main lessons I took away from this latest experience:
Local is dying: I heard this from startups and investors ranging from Seattle to Silicon Valley and Berlin to London: Investors are – less than ever – focused on investing in companies based on geography. Some of them are actively betting on that the Next Big Thing™ may come out of areas you’d least expect. Also, from the startups’ perspective, they’re no longer necessarily going to local investors first. In some cases I heard investment funds complain that they didn’t even see some of the best deal flow in their area because those entrepreneurs didn’t come to them. They went straight to investors they thought would add more value or they thought were a better fit – even halfway across the globe.
The best investors hunt: Success in investing – especially early stage – doesn’t come from waiting for deals to come to you. It comes from networking, plugging yourself into the ecosystem, keeping your ear to the ground and then jumping with conviction on the best opportunities because you spot them before anyone else does. Being one of the few brand-name investment funds in the world may counter that a little bit, as you will be getting good inbound opportunities. But an aggressive hunt will always outwit, outplay and outlast them. A complacent investor is probably not a successful investor.
Thesis and stage match: I paid more attention to the characteristics of each fund this time around than I’ve ever done before. As an entrepreneur you should seek out funds that have an investment thesis that matches what you’re doing. I felt this strongly in this latest raise. Talking to investors who already had theories around modern productivity tools and/or the spreadsheet market was so much more productive and so much more valuable to us than talking to ones where we had to explain our background, research and theories from the ground up. Also, make sure you understand the size of the fund, the typical size of their investments (jargon tip: their “ticket size”) and the funding stage they’re most comfortable with. Convincing a typical Series A or Series B investor to invest in your Seed round will not only be harder, it may come back and haunt you later if they for any reason don’t lead your next investment round. You’ve more or less put yourself on a single track, while working with a typical Seed investor keeps all the doors open for next steps.
Again. Despite having been around this block a few times now, my experiences are still anecdotal, so take them with a grain of salt, but I hope this may be of help to some of you fellow fundraisers out there.
The author is founder and CEO of GRID. He previously founded (and exited) DataMarket.
The Rising North fund has given out over €400 000 in the first application round 2018. This is the largest amount of funding given out so far. The most dominant trend amongst the 10 pan-Nordic projects was the interest towards building a strong impact investment community in the Nordics.
A growing number of people value companies that are working for the greater good. Now, the money is following. Venture capitalists are moving their focus towards companies aiming to change the world for the better. According to The Nordic Web, 2017 was a record year for the number of investments and amount of capital poured into startups with roots in impact. There are already several Nordic startups addressing pressing challenges, such as loneliness (NoIsolation), bringing electricity to the world’s largest refugee camps (M-PAYG), or turning waste into high-value carbon products (Carbo Culture). Only to name a few.
Since 2014 there has been 163 social impact investments in the Nordics, totalling $452.7 million. This means 8 % of the total tech investments in the Nordics are made into impact startups. Norway is currently in the lead, with 14.7% being impact investments of the total amount of investments in the country. (Source: The Nordic Web)
“Impact investing is on the rise! We believe that the Nordics can play an important role in fostering the growing impact ecosystem. We see a new mindset growing among investors, startups and millennials that value intention over pure shareholder maximization. By gathering the rising impact stars at Katapult Future Fest this May and connecting impact investors across the Nordics, we aim to help grow this movement” says Kaja Kirstine Lilleng, from Nordic Impact and Katapult Future Fest the leading gathering for Impact investing, exponential technologies and our future society, in Nordics.
You may want to speed up your planning — there might not be a third application round in 2018
2018 is the last year Rising North is funding pan-Nordic projects that help the Nordic startups internationalize. If there is another round like this in Q2 this year (deadline May 21st), there might not be a third application deadline. So, you might want to speed up your schedule and apply on May 21st!
One of Rising North’s requirements is that each project need to have at least three organizers, from three different Nordic countries. This is a challenge, but also a great opportunity to reach new levels. Therefore, the Rising North team is working close with the applicants around their ideas and also making sure they hand in a kickass application. To make the process easy for the applicants, they can send in their ideas for feedback here: http://www.risingnorth.org/get-feedback .
All of our applicants have been hugely thankful for the opportunity to bounce their idea with us before sending it in. This both saves the applicant time and we get more quality applications! says Eva Fogdell, Marketing Manager at Rising North
Check out who received funding in our latest application round. All of the projects will be carried out during 2018:
Game Plan Asia — a delegation trip showcasing Nordic Gaming companies in Asia. The Nordic initiative connects game companies with East Asian stakeholders, widen their network in the region, and learn more about market practices and other business acumen. The projects is organized by Spelplan-association Swedish Game Developers, Neogames Finland and Nordic Game Institute.
The #NordicMade Capital Market — a report that presents the Nordic VC industry as a powerful whole. This project aims to be the first initiative on a quest of finding a united industry-level voice for region’s private capital investors, that all focus on the very same thing: providing financing and active support for founders to accelerate the growth of the region’s startups.The report done in collaboration with Finnish Venture Capital Association, Swedish Private Equity Venture Capital Association and Danish Venture Capital and Private Equity Association.
Nordic Startups conquering Global Meetings —the project aims to make it easier for Nordic entrepreneurs to tackle the chaos of the biggest global tech conferences. A lot of resources are spent on producing content and for entrepreneurs it takes a lot of time to understand how to make an impact. The project will build a both tangible and intangible toolbox for Nordic founders for how to increase the impact for entrepreneurs at global events and at the same time build the value of the Nordic brand. The project is organized by Business Sweden, Oslo Business Region and TechSavvy Media.
CANUTE Startup Program — the CANUTE Startup program aim is to provide Nordic startups entering the UK with a network it would take them five months to build themselves. When starting in a new market, having the right network is the key. The Canute program will provide the Nordic startups with with valuable contacts on their mission to scale in the UK. The program is organized by The Danish Trade Council of UK and Ireland, Innovation Norway and Business Sweden.
NIIN — Nordic Impact Investing Network — NIIN’s goal is to collaborate with and engage in the ongoing initiatives in the space of impact investing and impact tech. To further facilitate and grow the network, the network will co-host meetings and events for investors and startups in the Nordics. NIIN is initiated by the investor collective at Nordic Impact and events such as Impact
for Breakfast and Katapult Future Fest. The project is organized by Nordic Impact, Wave Ventures and The Shared Value Company.
Nordicmade Impact Investment — Facilitated workshops and pitching competition connecting the Nordic impact investment ecosystem with the international audience. Nordicmade Impact Investment will be used to show and develop solutions for Impact Investing ecosystem especially led by startups while also connecting them with networks not just from Nordics but also globally. The project is organized by The Nordic Frugal Innovation Society, Intersection Point Social Business Association and Sjalfsbjorg landssamb fatladra.
State of Impact in the Nordics — The State of Impact in the Nordics showcases the region as an impact investing and impact tech hub to the world through a physical booklet and online platform. Highlighting the mental shift in the investing space towards for-profit and positive impact investment. The overview showcases Nordic impact startups, investors and initiatives in a globally distributed report and online site including a Nordic impact investing network map. The report is done by Katapult Future Fest , The Upright project and The Nordic Web.
Talk the Talk — is an initiative to make the Nordic startup founders 10x better pitchers and public speakers. The project develops the performing abilities of the Nordic startup/scaleup founders. Firstly, by facilitating coaching for the founders in the Nordic capitals and, secondly, by hosting an annual training program. The organizers include Slush, Mesh Oslo and The Park.
Nordic Roadshows — helps Nordic companies raise funding, develop their businesses and get international investor coaching. The roadshows are organised three times a year in cooperation with the entrepreneurship societies around the whole Nordics. They gather the most promising startups and leading investors both from the Nordics as well as international. The aim is to make fundraising as easy and fast as possible. The organizers include Aalto Entrepreneurship Society, Excitera and Stardust-DTU.
Secretsauce — is an international invite-only forum that gathers 250+ of the leaders within the Creative Industry in the Nordics under one umbrella, to facilitate knowledge-sharing and strengthen the cooperation across borders and across industries. Secretsauce unifies the Creative Industries in the Nordic Region as a global Creative Cluster. The organizers include Tame, 657 Oslo and Malmö Ground.
This is a guest post from Eva Fogdell, the Marketing Manager of Rising North. Rising North is a fund that aims to help Nordic startups by financing unique projects and initiatives organised by Nordic organisations.
One of the greatest challenges for the 100% fish utilization movement is financing. I have felt that investors. financiers and bankers which have some focus on seafood have little or no knowledge about the new seafood industry; nutraceutical or functional food from fish protein or new technology for extending shelf life, extracting proteins, securing trazeability etc. Seafood bankers and financiers know all about fisheries and fish processing but the new seafood is a black box to them.
It is understandable as the traditional and new seafood industry are very different. We should not necessarily try to change the traditional bankers. They have an important role to play in their field. I believe instead we need to better inform investors who have been involved with high tech, pharmaceutical markets, health and beauty about these new opportunities. Get them excited about new seafood startups. But how?
First we have to showcase new startups which are becoming proof of concept; small profitable companies developing products from seafood proteins etc.
Second, the Ocean Cluster Network can be the vehicle which effectively develops and validates a scalable business model from the ideas which emerge from the network.
Third, we have to invest in relationships with these investors. This means we need to get close to them. The Fish 2.0 project in the US is a good example. Our sister clusters in New England (Maine and Massachusetts) are a part of our strategy to connect seafood startups from all over with the global investment community. The coastal areas in New England have a global investment community next door.
Now its our turn to show investors the startup world in seafood which they rarely know exists!
Iceland is surrounded by some of the richest and most prolific fishing grounds in the North Atlantic Ocean and fisheries have long been the mainstay of the Icelandic economy. Healthier oceans and environment is therefore a matter of fundamental importance for the country.
I am very pleased to see how companies and startups in the Ocean Cluster in Iceland are emphasising more and more on saving the environment by introducing better and greener technology:
New bottom trawls that do not touch the seabed. These are controllable doors that float above the seabed, saving the seabed and drastically reduce energy consumption. (Like Polar Doors)
IT companies that are focusing on solutions that can increase efficiency, traceability, saving energy and reducing pollution. (Like Controlant and Seafood IQ)
With new fish processing technology comes more yield and higher seafood quality – hopefully we can do more with less in the fishing industry with these technologies. (Like Héðinn, Marel, Skaginn3x, and Valka)
Engineering firms in the field of naval design are introducing energy saving ships; electrical boats with no CO2 emissions. (Like Navis)
New cooling technology onboard ships does not need ice. They save energy and increase quality. (Like Skaginn3x and Frost)
Electric winches on board ships yield the same results as traditional hydraulic winches but use much less energy.
Cleaning and disinfecting technology for fish processing plants use only environmentally safe material. (Like Naustmarine)
All fishery nations have learned that they need to be responsible when using their resources. Environmentally friendly technology can improve our lives in coastal communities, increase efficiency and reduce waste and is therefore good business.
The following drawing is inspired by the “The Incredible Bread Machine”, a text written by R.W Grant in 1966. The book had an accompanying poem entitled “Tom Smith and His Incredible Bread Machine.” The Tom Smith poem is about a man who invents a machine for producing bread very cheaply, and thus the world is fed.
“The Incredible Fish Value Machine” displays how Icelanders have produced “an industry fishing machine” which takes pride in the fact that no other whitefish nation is utilising more of each fish than Icelanders. While in typical North Atlantic fisheries the head, gut and bones of every cod are discarded, in Icelandic fisheries we have become used to making money out of many of these by-products. Analysis done by the Iceland Ocean Cluster indicates that Icelanders utilise 80%+ of each cod while many neighbouring countries make full use of only around 50%. The study indicates over 500 thousand tonnes of cod are discarded into the sea or as waste in the Barents Sea region and across the North Atlantic from Newfoundland to Norway.
There is no single explanation for this huge difference in utilisation. Partly it may be explained by the fact that unlike the year-round long fishery in Iceland, many fishing nations have short fishing seasons with massive amounts landed over a few months, making it difficult to process such raw material efficiently. Secondly, the integration between fishing and processing in Iceland through common ownership is not usually the case among other seafood nations. Finally, and maybe most importantly, the seafood industry is often located in marginalized places and is not in touch with R&D, investors, accelerators etc. Steve Case writes in The Third Wave: “Over the next two decades we will see cities that were once marginalized become entrepreneurial powerhouses.” Case points out that “there is appeal to putting down roots where industry ecosystems already exist”. But even in areas where R&D, Universities and investors are close to the seafood eco system we still see all the dots connecting. This lack of ties is probably the most important reason why so much seafood protein is used for landfill in many countries. The key to creating the “incredible fish value machine” is to build the bridge between these important parts of the seafood cluster.
I am confident that it is only a matter of time when fisheries will stop discarding out value and more people join the 100% movement. As more companies join the by-product market and the market develops further, the prices will continue to increase and the incentives for fisheries to get value from their by-products are also set to increases.
Icelanders have long taken pride in their efficient fisheries. There is no one explanation for why Icelandic fisheries have for the most part been more efficient than others. I believe there is, as is often the case, a very pragmatic explanation: Icelanders have never had the luxury of treating their fisheries lightly. As the core industry in Iceland it cannot be government subsidised. The entire cluster of seafood businesses in Iceland has, for a long time, been at the heart of the income tax base for government and not the other way around. The same applies to a great extent when examining Icelandic fish by-products; if there is value to be found in by-products, effective fisheries used to focusing on value will find opportunities to use them.
The Incredible Fish Value Machine is not hypothetical. It is very real. The Icelandic model has proved reliable and this model can be duplicated in seafood industries all around; creating new opportunities in coastal areas.
In 1973, Mark Granovetter came up with an idea in sociology which would later have a huge influence on the study of relationships in networks. The idea was fairly simple: weak relationship ties can act as important bridges in a network building, and for that purpose, they are sometimes more important than strong relationship ties (family and friends). Granovetter’s research showed that when people think about who might help them in a job search, they tend to make a short list of very close friends and family – the strong ties. However, Granovetter’s research showed that your closest friends are not really your best bet when searching for a job. Why not? The answer is that their network is very much like your own. So, to get to a larger group of people in your job search you are better off tying up with people with whom you have weak ties (you barely know) than by those with whom you have strong ties.
This idea inspired me to study relationship networks in my Ph.D. and later to establish the ocean cluster network.
My first real-world test in Granovetter’s spirit was to bring together seafood technology entrepreneurs from different parts of the seafood value chain in Iceland. Most of them didn’t know each other! It still amazes me to see entrepreneurs and startups meet together in various settings and witness how, despite living in small coastal communities and working in ocean-related industries, these individuals have rarely – or even never – met before. Clearly, an abundance of unused weak ties exist here.
After our initial networking events in Iceland, where I the witnessed seafood tech entrepreneurs introducing themselves to each other for the very first time, I interviewed the entrepreneurs and asked why they had not met before, given that they could learn a great deal from each other and collaborate on projects important to each of them? Most of them responded by saying they didn’t have time for “socializing.” I always remember one entrepreneur who had doubts about my interpretation. He stated: “I have very strong business links with great customers in the fisheries and I nurture them. With others, such as these tech colleagues, I knew about their existence and if I needed to contact them I would just do so. We are so few on this island, we know everybody!”
These entrepreneurs regarded their networks with an island mentality, in which you think you know everybody and can connect to them whenever needed. The problem with this view is that those connections that could so easily be used in reality seldom if ever occur. For an entrepreneur, it is crucial to be good at extending both your domestic and global network in order to develop a sustainable business, and connecting with people outside of your local market is crucial, particularly if that market is very small. Many of the entrepreneurs I spoke with did not nurture their weak ties and were instead happily focusing on the few strong ties that upheld the status quo and allowed their business to merely survive. The cluster’s mission is to extend the network of entrepreneurs and inspire them to actively use this network to grow their business.
I later discovered that the same lack of connectivity was true for most coastal seafood areas, such as in the United States. The seafood industries in these regions, despite their relative proximity to large and dynamic centers of finance and research, were in essence islands as well: fairly isolated from each other, academia, investors, metropolitan startup hubs, and other various resources.
I know we can change this, and we do that by challenging the startup community and the media to get excited about new companies and opportunities in the ocean industry.
It’s essential to work closely with the startup community and support its growth. This startup community is very strong in Iceland, and the Ocean Cluster is able to actively support startup events hosted by various industry associations, universities, and private entities. Our role has been to inspire more entrepreneurs to establish startups in ocean-related industries. As soon as these startups have gone through the initial startup process and competitions, we are ready to nurture them further – offering a close community, assistance with business planning and strategy, workspace, networking opportunities in our field, forming connections with investors in ocean businesses, and beyond. We have been quite successful in inspiring and supporting startups in our field: the business value of startups in the Ocean Cluster House in Iceland, which have been in our facilities for the last three years, is approximately USD 100 million.
I was very pleased to learn about the Fish2.0 startup initiative in the US and our vision is to work closely with them and provide the startups coming out of great initiatives like Fish 2.0, a network community to make sure they will not become islands!
Our experience with the early success of the New England Ocean Cluster has taught us that even though fish species are different from one region to the next, many industry characteristics remain the same, and clusters can learn from each other. The early success of the New England cluster is definitely a result of a strong local leadership which had focused on building relationship ties among seafood entrepreneurs and between entrepreneurs and academia – bridging these islands. We are confident in stating that we are continuously learning more but also realizing that all this work is firmly grounded in fairly simple ideas of human interactions.
Creating a successful product company is a straightforward three step process:
Create a product
Match product and customers
But while straightforward, each of those steps is more complicated than it may seem at first. What follows are a few observations from my four startups and life as a product and strategy person at largerorganizations.
1. Create a product
We tend to think of a product as “the thing” that we sell, whether that’s an electronic gadget, subscription service, a piece of software or a candybar. But a product is so much more. In fact you should think about “the product” as every interaction your customer has with “the thing”. From first learning about its existence to the time that they stop using it (or pass it on to the next generation if you’re a Swiss watchmaker).
Pricing and sales model, branding and marketing message, customer service, license and terms, usability and utility, aesthetics and social context are all a part of your product. Even the target audience you choose is a part of the product. And a change in any one of these is likely to impact other parts of the product too.
Getting all of these factors right will take a lot of thinking and experimentation:
How are your target customers going to notice your product?
How will you deliver the product to your customers?
How will you make sure you are creating value for your customers?
How is your product better than competing products or alternative solutions to the need?
How are you going to tap into that value in a way that both you and your customers will appreciate?
How will customers remember your product the next time they have the same need?
These questions – and others like them – are deeper and harder to answer than they might seem. Understanding and mapping your customers’ journey is a good way to tease them out, and come up with some theories. Observing their actual journey and improving based on what you learn directly is how you will really get to some answers.
2. Find customers
First of all: Sell to people that have money. Or more precisely: sell to people that are willing and able to pay for your product.
Private consumers are typically less likely to add a new subscription service than – even those same – people in a business setting. Adding a $20 monthly subscription is something most consumers will think twice about while a $250 purchase at work is something most office workers will do at a whim if they feel it will help them do their job. However, purchasing in a professional setting may require jumping through more hoops (reimbursement plans, purchase orders, approval processes, not having a corporate credit card, …)
On a similar note, large enterprises typically have a lot more money than small and midsized businesses (SMBs) ones, but they are also a lot slower in their decision making. Budget cycles and corporate politics, as well as deliberate and cultural resistance to change will slow things down beyond what a startup can usually fathom.
Keep in mind that it is very hard to sell to a type of buyer you don’t understand. If you’ve never worked for a large organization, selling an enterprise product is very hard. If you’re not a likely user of your product, you are not going to do a great job at convincing others to buy it. If you don’t speak the customer’s industry lingo or use unrealistic use cases that show lack of domain knowledge, you’re going to have a hard time. Show up at a power company with a healthcare example, and you will get nowhere. A creative person may be amazed at how little ability people can have for leaps of imagination. Don’t expect people to understand why they need your product. Spell it out for them. Learn what kept your champion awake last week, and tell them how your product will solve exactly that problem.
In the corporate world an incredible amount of time is spent on reverse engineering the buyer’s corporate structure, processes and hierarchies:
Who is the buyer/decision maker?
Who are his or her influencers?
What’s the value your product delivers to the buyer?
Is a budget already allocated to this purchase?
If so: What is it? Whose is it?
If not: What is the purchase and budget process? Can you influence it?
You will be surprised how many of these questions people are willing to answer if you simply muster the courage to ask.
Who the buyer is will heavily influence every aspect of your product – and of your organization. And the consumer-SMB-enterprise dimension is just one of several you will want to position yourself on. Targeting customers based on their industry, or functions within an organization are two other common dimensions. Often the answer is even a certain function within a certain industry in a company of a certain size. Consumer customers have other dimensions such as age and lifestyle groups, income categories, hobbies, etc.
A rule of thumb is that the more your target customers (including the buyers, influencers, processes, etc.) and the problem you’re solving for them are the same, the more likely you are to succeed in the next step and then scaling up from there.
3. Match product and customers
The customers you target will be the biggest factor in deciding on your sales model.
The table below is a grossly oversimplified representation of the characteristics of customer categories on the size scale above.
Difficulty to start
A consumer product will typically have a low price, require high sales volumes (and thereby broad targeting) and it is difficult to get the sales engine started. Luckily the process lends itself well to be automated, the sales cycles can be short and you can scale quickly and cost-effectively once the engine is running.
On the other end you have enterprise customers who have a lot of buying power and can be well defined as a target group with a sales engine that is relatively easy to start (every founder should be able to find at least a few buyers she can sell to herself). This customer type, however, requires face-to-face meetings (field sales), has long and complicated sales cycles and the cost of sales increases almost linearly with revenue.
The models that in reality drive large and well known companies are often surprising. Google’s revenue – for example – is not from customers putting in their credit card info for a few keyword ads to nearly the extent you would think. They have a massive army of account managers and field sales people that do business the “old fashioned way”: Wining, dining and building personal relationships. A large automaker is not going to buy tens of millions of dollars worth of ads from Google through self-service!
Whatever your model, the most important thing to understand is the funnel: The stages buyers go through from first discovering your product to becoming a paying customer; what compels them to move from one stage to the next and the ratios at which they do so.
Testing your business plan assumptions based on these stages and ratios can be a sobering exercise.
Let’s say you are going for a SaaS product aimed at consumers with a freemium model. Of the people that hear about you (ad, press, word-of-mouth, …) 2% will visit your website. Of those, 10% will register as freemium users. Of the freemium users another 10% will become paying customers. If your business plan assumes 100 new customers in a given month, this means that your message will need to reach 500,000 potential customers that month based on these conversion rates (and a very short conversion cycle). All the rates in this example are pretty high, by the way.
Similarly, if you are going for an enterprise model: Assume that 5% of the qualified contacts you have curated respond to your initial outreach and agree to an introductory call. And from those calls 10% show strong interest in your product. And of those, 25% eventually become paying customers. If your business plan assumes 1 new enterprise customer in a given month and a 6 month sales cycle, that means you had to come up with and reach out to 800 curated contacts 6 months ago. And do you have the bandwidth to make the 40 introductory calls per month, as well as engaging heavily with not only 4, but 10-15 buyers with serious intent at a time (as most of the 6 month cycle will be spent here)?
You better hone in on the likely buyers early on in that process and spend your time and energy on them. Qualifying leads at every stage becomes crucial and counter to your instincts you’re actually best of “firing” your unlikely leads or finding ways to put them on low-touch or automated “nurture” campaigns until they show signs of better qualification.
Startups need to understand how much emphasis is needed on the go-to-market side of the house from day one. It is common for tech startups to put a lot of their headcount, effort and energy into the engineering side of operations; there may be good thinking on the business model and target audience, but rarely do you meet a tech startup that truly gets it.
A couple of years ago – to drive this point home in a conversation with a founder friend – I surveyed LinkedIn for the percentage of employees in go-to-market roles at several, then prominent and successfully growing tech companies. The result: Between 24% and 37% with an average at just over 30%.
Hardly a scientific study given the small sample and probably a skewed population with LinkedIn profiles, but still tell-tale. I frequently see startup business plans where the ratio of go-to-market employees is 10% or lower. That is simply not going to cut it.
So, refining the three steps from the top of this post:
Create a Product experience
Find Customers that are willing and able to pay for that experience
Match Product and Customers utilizing the right model and enough people
…or simply revert to the plan of the gnomes from South Park:
Hjálmar Gíslason, Hjalli, is VP of Data at Qlik, Chairman of the Board at Kjarninn, and partner at Investa. You can find him on Twitter.