Open for business

Uncertain times all around these days, for good reasons. I’m well settled in my new office which is in my bedroom at home, and all of my colleagues are working from similar setups.

Even though our office looks like a ghost town these days, we have not stopped working. Rather the opposite. Our mission, to support entrepreneurs with ambitions to build important tech companies out of Norway, is if anything more relevant than ever. The best thing those of us without a directly contributing job can do in this situation is to keep the wheels moving to the best extent possible - fight uncertainty with certainty.

While we for natural reasons can’t provide an awesome workspace these days, we continue to actively look for entrepreneurs to partner with and invest in. I have no doubt that some of the most important companies of this coming decade will be founded in this period, something this tweet from a few days ago put perfectly.

If you or someone you know see an opportunity to build an important company in this situation and need funding to get going, please reach out to me on kjetil at startuplab dot no. I’d love to talk.

Corona

No topic feels of similar importance as the Covid-19 virus this week. I could have written about it, but I choose the Jurgen Klopp-approach and instead let the professionals tell us what to do.

Thus, this week’s post will be really brief. Rather, I’d spend my time planning for some weeks of uncertainty and working from home - which for me means establishing a few new routines - which might very well be next week’s blog post. For now, stay calm and healthy, wash your hands and follow the guidelines given by those in charge.

Meta (or, why I write)

I’ve gotten a few questions lately around why and how I write stuff here, so I wanted to spend a few lines explaining it.

There are two main reasons why: First and foremost, writing is a skill I want to improve. I’m believe in learning in public, so putting my words out there makes it easier to get feedback and get better. Having good writing skills is an important part of my job - it helps me think, ask better questions and in general communicate effectively with the people I work with.

Further, if I repeat myself in a meeting more than 4 times, I benefit from writing down whatever it is I repeat. I can’t remember where I read this first, but it’s a really good rule - for two reasons. First, I force myself to articulate what I’m saying in a very crip and concise way, meaning I have a better chance of getting my point across next time I’m talking about it. And second, many times I can just share a link instead of spending time repeating something. Win-win.

Previously, the answer to “how I write” was “whenever I feel the urge”. I since realized that the urge appears too infrequently in a busy schedule, so I have since changed what the answer is. These days I write at least once every week (excluding holidays) - usually on Wednesday. No big deal if I’m a day late though, like this one. I don’t really care about the lenght of the post or what the topic is - 1.01^x is a big number if x is a big number so the main KPI is just production for now. Some posts are better, and when I have something I belive is worthwhile reading for more people I try to distribute them more broadly (most are just tweeted out once immediately after posting).

Lastly; all posts are written in English. This is a principled thing for me; a lot of the founders I want to connect with now and in the future will live in Norway but will not understand Norwegian. It is important to not exclude immigrants from the conversation, and the best way to ensure that is to use a language that is more broadly understood.

/fin

I don't know

I love when people say “I don’t know” confidently.

Unfortunately, this happens all too infrequent. Usually when someone asks a question, they don’t know what the right answer is (which is why they’re asking, duh). What this means is that regardless of whether you answer correct or not, your answer will usually be accepted by the other person.

We tend to reward people who give us answers, regardless of whether or not the answers are any good. Say you don’t know, feel stupid and you get a follow-up question. Or give your best guess with enough confidence and move on (most of the time, because the other person can’t tell you’re “bluffing”).

What I’m trying to say, I understand why people try give answers even when they really “don’t know”. What I wish is that more people understood that saying “I don’t know” is better for all parties.

If you have an answer to every question, people will gradually start to discount everything you say because they don’t know what’s inside and what’s outside your circle of competence. If on average you’re right half of the time, your answers will be valued at 0.5 - both your good and bad answers. Choosing to say I don’t know when that is actually the case, means your other answers has a higher value.

There are few ways to add more trust than to admit that you don’t have all the answers. Say you don’t know, and say it confidently. And people will trust everything else you say more.

(IPO) pops and drops

The most recent edition of my newsletter went out this Sunday, and I got a comment on this section:

Consumer finance company Hudya Group listed on Nasdaq First North. The share price has fallen since then, and while the story talks about this as a clear negative it could be argued otherwise too (the opposite would be leaving money on the table). Too early to say what’s correct in this specific case though. Link

The comment was that I was surprisingly mild towards the company, Hudya, as they appeared to have had a very unsuccessful listing. There are a few aspects here that I wanted to comment on.

First, I want to clarify that my comment was not directed at the company. I have never met Hudya, and have no opinion whatsoever on the quality nor the real value of the company. Generally, I try not to pass judgment on any of the startups mentioned in my newsletter - that’s the job of journalists. My job as an investor is to support companies, and I’m not contributing positively by publicly pointing out flaws from afar.

Instead, I was addressing a general issue: the prevalent view that an “IPO-pop”, that the share price appreciates immediately after listing, is the only desired outcome for a company going public.

An IPO-pop basically means that a company left money on the table. It issued shares at a price lower than what the market was willing to pay, at the expense of current shareholders who take on extra dilution. Slack and Spotify both avoided this dynamic when they recently went public, as they did what is called a direct listing - and I’m not the only one believing this will evolve into the new standard going forward.

It was this perception, that an IPO-pop is not necessarily the best outcome, I was trying to address with my newsletter comment.

Another interesting question is what an unsuccessful listing is? Because the answer depends on how long you hold the stock acquired. If you invested in Facebook when they listed, you would have earned almost 6x your investment today. But if you sold after 115 days, you would’ve lost about half of your investment. Amazon would’ve given you a return of 1250x if you held on to the share until today, but only 3.5 if you held onto the shares for 4.5 years. You get my point: unless you have sold your shares it’s hard to conclude on the quality of any investment.

That said, every company considering to go public should feel a degree of responsibility towards investors, employees as well as other founders. It is said that good companies open (IPO) windows, while bad companies close them. If the share price of your company drops and continues to struggle after you list, it can have broad implications.

All else equal, poor share performance makes investors less likely to invest in the next company wanting to go public. It can also affect the psychology of your own company. Employees who’ve been told they’re part of an exciting journey can suddenly monitor the market’s take on this journey, and when things are going south and their stock options go out of the money, the mood tend to shift negatively.

Better make sure your company is quite robust before exposing your company to the scrutiny of public markets.

Problems

Work is about problems and solving them. That’s how it should be.

Previously, I’ve been working to “solve all the problems”, clearing out all todos and reaching some kind of end-state where all is done. Obviously, this is an impossibility, something something I’ve realized gradually.

What I’ve found is that instead of trying to get rid of all problems, it’s better to strive for more sophisticated problems. Since it’s neither realistic nor wanted to reach a state where all problems are gone, a better sign of progress is if the problems I’m solving are gradually becoming more sophisticated, or more advanced if you will.

Cyclist Greg Lemond phrased this eloquently, saying that: “It never gets easier, you just go faster”. My alternate version is that you always work towards more sophisticated problems.

Everything is a test

I retweeted the above earlier this week. Mostly because it’s funny, but there is some truth in it as well.

When trying to decide on whether or not to back a founder, I and others doing the same have to make a decision with very limited data. We meet a few times, can do reference checks (which is not always a good thing either), and can look into what they’ve done before. Even if you do this very thoroughly, you’re left with very little data to base a decision upon. Which leads me the title of this post: everything is a test.

  • If you show up at a lot of irrelevant events, investors might think you lack focus
  • If your deck is poorly designed, investors might think your product gets the same TLC
  • If you spend most of a meeting talking about a minor detail and that means you don’t have time to get through your presentation, investors might think you’re easily distracted
  • If you show “vanity metrics” instead of real stuff in your presentation, investors might think your real numbers suck

None of these “assumptions” might be true. You could be at the event to meet a friend, your deck could look like shit because you have your designer focused on your actual product, that minor detail might be very relevant for understanding your opportunity, and you could’ve gotten a flawed advice to always show your best numbers not your must telling numbers. Meaning; failing one such “test” should not be enough to lose investor interest, but if you repeatedly show “negative signals” through a process it might be enough to make a borderline decision tilt the wrong direction. Everything is a test.

Frequently used quotes

I find myself quoting other people’s wisdom all the time. For obvious reasons: why try to rephrase something which has already been expressed very eloquently. Similar to my “frequently shared links” post, I wanted to put together a collection of the quotes I use the most. I’ll update this as I find more good ones - here are five to start with:

“Either hold a rock concert, or a ballet; but don’t hold a rock concert and advertise it as a ballet”
Warren Buffet

“To a man with a hammer every problem looks like a nail”
Also known as the law of the instrument. Mark Twain, Buddha and probably many more.

“You can do anything you want but not everything you want”
Ray Dalio

“Addition by subtraction”
Andy Weissman

“Things are completed in the time allocated to complete them”
aka Parkinson’s Law, by Cyril Parkinson

Seven predictions for 2020

If you’re sick of prediction posts already, stop reading now. This is the second time I’m putting forward my predictions for the coming year, last year I got 4.57 right. I find writing predictions to be a good way to force myself to think about what’s ahead. So here we go; my predictions for the next year, mostly focused on Norwegian tech and startups:

Tech is not what it used to be: Following the public “dissection” of companies like Uber, Wework and Caspar, I expect we’ll see a decreased number of “tech” companies emerge also in Norway. Tech investing will gradually look more and more like regular investing, meaning it’ll be required that companies have planned out how to get a proper defensible position (not “economiese of scale magic”). I expect to see relatively more companies with clear IP strategies, be it unique technology, brands or something else.

High profile companies will die: take 2: I predicted this 12 months ago, claiming “it seems unlikely (from a statistical perspective) that all companies will be able to continue growing successfully”. I got this prediction wrong. I still believe this is very likely, and would like to put in the same prediction for the coming year.

Acquisitions from unusual suspects: There were a few acquisitions in 2019, including companies like Nabobil, Poio, Dragonbox and OncoImmunity. Judging by the announced valuations, none of the acquisitions we saw last year were what you’d call a “fund returner”. For 2020, I believe we’ll see a similar acquisitions activity - with few if any “fund returners”. Most of the large Norwegian corporates will continue to be absent from this scene due to their disconnected incentives, but international players plus the few local corporates with significant executive ownership will continue to see acquisitions as a viable path to growth.

ESG is the new standard: Every single investment fund announced in 2020 will have a clear and visible ESG strategy. It is no longer possible to ignore the massive challenges we are facing, and talent and capital is drawn towards the opportunities these problems bring.

The emergence of the reboot: There’s been quite a few investments in Norwegian startups the past 5 years. Naturally, many of these have folded, and a small minority has hit espace velocity. There’s also a number of startups that don’t fall within any of these two groups. Many have raised pre-seed funding followed by bridge, bridge extension and so on, and these rounds has impacted captables and with it the founders’ incentives. Most of these companies will fold or level out. Still, a number of these companies still have potential and motivated entrepreneurs, but for founders and new investors to bet on it it’s necessary to reboot the ownership. 2020 will be the year where doing a reboot is normalized. 2021 could be the year we see a firm specializing on this emerge.

Growth. Growth everywhere: A combination of a number of factors, including transition from oil, and increasingly tech-proficient talent pool and low interest rates, means we’ll see more money invested in more companies compared to the past two years. This in spite of reboots and high profile startups folding as predicted above.

Decelerating growth of aggregators: Google, Amazon, Facebook and the likes have continued to grow over the past years despite numerous attempts to challenge their positions. I believe they’ll continue to grow through 2020, but at a decelerating rate. Consumers and businesses are starting to realize the costs connected to “putting all your eggs in one distribution basket”, and will gradually shift towards products like Shopify, Substack etc. This is not a Norway-focused prediciton but if correct it’ll have broad implications.

Bonus: No new option rules: This is easy points, and also something I predicted last year (meaning I won’t include it in my 7 official predictions). Still, I find it very hard to believe the elected officials will suddenly grasp the massive benefits that comes with proper incentives in the new companies that are being built in Norway. Unfortunately…

These are my predictions for the coming 11.5 months. I look forward to revisiting this post then.

Review of 2019 predictions

Earlier today, I sent out a special edition of my newsletter called “2019 in review”. In brief, it’s an aggregate view of all the funding stories I’ve tracked the past year, and in it I also mention some of the predictions I put forward about a year ago.

I’ll post my predicitons for 2020 in a few days, but first I wanted to review my accuracy for the past year. Here we go:

High profile startups will die: Not true. No big, public failures as far as I have seen. There are probably a few companies that have plateaued (in a “normal trajectory” they should have raised more money this year but haven’t), but that’s it.

Few foreign investments: Somewhat true. According to my data, 31 companies had international investors participating in their fundraise, up from 25 the previous year - a slight increase. Seen as a percentage of all investment rounds, international investors participated in 27.68% of rounds compared to 28.74% in 2018. Looking at the 20 largest funding rounds, 62,5% had participation from an international investor. No massive increase overall, but going in the right direction.

More corporate venture: True. Corporates participated in 34 investment rounds, up from 30 the previous year. An increase yes, but more incremental than the previous year (from 10 to 30 investments).

Still out of sync: True. Not really sure how to prove this, but the absence of evidence of the contrary is probably sufficcent. I could probably point at the stock price of Kahoot as an example of continued optimism for Norwegian tech companies.

More climate change investments: True. In 2018, 100MNOK was invested in 2 companies working on climate crisis related problems. In 2019, we saw 11 companies receive more than 600MNOK in funding.

Norway as an attractive market: False. Amazon did not launch in Norway in 2019, and Revolut appears to be struggling.

No new option rules: True. No significant changes to option rules. This was an easy way to score points though.

Adding this up, I give myself 4.5 out of 7 possible points. Not too bad - especially as I work in an industry where you can win by being right 10% of the time.