New funds

So, yesterday we announced something we’ve been working on for a longer period of time:

Obviously, we believe this is very good news. Our mission is to help early-stage founders build great tech companies out of Norway, and capital is a very important part of this work.

It is both humbling and motivating that so many experienced company builders trust us with their capital, name and time. The search for the next 50 companies we’ll fund has already started, and if you believe you might be the founder of one of these companies I encourage you to check out our upcoming accelerator program - application deadline February 1st.

You can also check out the story in Shifter/E24 here.

Deadlines

Deadlines are very effective. They force me to do stuff I otherwise would have postponed.

At the same time, they sometime blind me, causing me to shift focus from “not urgent but important” tasks to “urgent but not important” tasks. A trap worth keeping an eye out for.

That is not the case today. Tomorrow we’re announcing a bunch of stuff at StartupLab, and I’m busy finalizing a lot of work in relation to this. Meaning I don’t have time to put out something very thoughtful today.

Still posting this as part of my routine to post something every Wednesday. If nothing else, writing these few lines help establish this much wanted routine.

Now - back to work. Check out my twitter feed tomorrow where I’ll be sharing the news we announce.

See you next Wednesday (if not before)!

Alternative cost

As a founder planning to raise first money, your plan should be to build the most compelling story around your company and the opportunity it represents. Common knowledge and logic says the market you’re going after should have an appealing size, and your job is to communicate this properly to your potential investors.

Next step is explaining how you plan to take a significant part of said market, usually referred to as the go-to-market strategy. This is where it sometimes gets tricky. The difficult thing is being able to take your big market, break it down, and explain how you will attack it. The wrong answer to this question is “we’ll tackle the whole market at once”.

Your market consist of different segments; firm sizes, geographies and so on. While your long-term plan might be to conquer all these segments, it’s usually not a good idea to attack them in parallel. You might think they all want your product - and that could even be true. But in the early stage*, there will always be one market segment with the highest yield, or bang for the buck if you prefer that term. You might not know which one it is, and it might change - but it’s there.

I believe it’s totally fine to say “we don’t know which market segment is the best yet”, as long as that implies that you’ll test your alternatives and then commit to one segment next**.

On the contrary, I don’t believe it’s a good idea to deliberately pursue multiple segments in parallel. Assuming you have one segment with superior yield, your plan should be to allocate all resources to this segment. All funds and hours you throw after other segments have an obvious alternative cost - it could be put to better use.

If you’re pitching a plan to attack multiple segments at once, you’re basically communicating that you won’t spend the capital you’re looking to raise in the most efficient way. And that’s not something you want your potential investors to think.

*As your company scales, obviously it makes sense to go after multiple segments simultaneously.

**See my post on Hesitation cost.

Frequently shared links

I’ve probably read thousands of startup-related articles over the years: many bad, many good, and some excellent enough that I continously share them with founders whenever they need help on a certain topic (no need reinventing the wheel and so on).

I’ve saved all these articles in a google doc, but I figured it’s of more use if it’s publicly available - and updated as I find new gems worthy of being added. So here it is, my startup content database:

General advise before fundraising

Notes on raising seed financing from C. Dixon of A16Z

Paul Graham on almost everything you need to know about early-stage fundraising

Mark Susters super extensive guide to fundraising

VC Signaling, by me

Process and leverage in fundraising, by Aaron Harris of YC

The intro and pitch deck

How to write emails to early-stage investors by Michael Seibel, YC

How a pitch deck should be, 10 slides from Bessemer Partners

How a pitch deck should be, 10 slides from Sequoia

How to ask for introductions via email, by Mark Suster of Upfront Ventures

The two basic concepts of introductions, by me

Templates

SaaS Financial Plan, by Christopher Janz of P9 Capital

SaaS dashboard, by Christopher Janz of P9 Capital

Product market fit

How SuperHuman Built an Engine to Find Product Market Fit, by First Round Capital

WTF is PMF?, by Christopher Janz of P9 Capital

Sales

Sales advice for technical founders, by YC

Hiring

Talent playbook by RRE ventures

Reference calls done right, by Cowboy ventures

Startup compensation, by Homebrew ventures

How to interview an executive, by Keith Rabois

Organization

How to make OKR work at your organization, by Fist Roundt Capital

Will continue to update this post. Last updated January 9th.

Seven predictions for Norwegian tech 2019

Feeling inspired by lots of others posting their predictions for the year to come, I wanted to stick my neck out with a few predictions about what we’ll see in Norwegian tech/startups in the coming year. Obviously, these are just predictions, and I look forward to revisiting this post in a year to check my accuracy. Here you go:

High profile startups will die: At least two startups having raised +$10M will have to close the shop or sell at unfavorable terms. I don’t have any specific companies in mind, but it seems unlikely (from a statistical perspective) that all companies will be able to continue growing successfully. “Rockstar” companies will die, and this will be both surprising and disciplining for the local ecosystem.

Few foreign investments: Exceptions will apply, but not many companies will raise big $ from abroad. Not because local founders aren’t investment-worthy, rather because there’s still a communication gap - founders still need to learn how and who to approach when with what. International investors will continue to visit more frequently though, as the opportunity is obvious - same demography as rest of Nordics but much less crowded.

More corporate venture: 2018 was a year where Norwegian corporates really started to invest in startups, and I expect this growth to continue through 2019. One could argue more money is good, or that money with potentially conflicting interests is not good. Or both. It’s probably somewhere in between. And it’ll be more of it in 2019.

Still out of sync: The correction we’re seeing in the US tech sector will not affect Norwegian startups - investments will continue to grow (both # and total amount), both because of new domestic funds launched in 2018, and because Norwegian tech will continue to be partly out of sync/lag relative to rest of world.

Climate change: Following the launch of Nysnø, an increasing desire to move away from the oil economy (especially in big cities, where most startup investments are made), and an growing awareness around this issue globally - 2019 will be the year where Norway seriously becomes a place for climate positive startups. There’s just to many skilled engineers with energy-related competency for this not to happen.

Norway as an attractive market: Amazon will launch this year (I believe), and we’ll see more international players go after the Norwegian markets within (micro) mobility, banking (Revolut’s already here), marketplaces and more. Consumers will win, local startups (and corporates) will struggle - some will win, some will die, some will be consolidated.

No new option rules: Everyone will continue to ask for more fair laws regarding employee stock options, but nothing significant will happen this year either. It’s the most obvious change politicians can make (one that will benefit everyone). Still, they haven’t figured it out yet - despite appeals from just about everyone within the industry - so I don’t think they’ll figure it out this year either.

Bring it on - 2019! :) If you want to follow the action live through the year, make sure you “subscribe to my biweekly newsletter.” Also, I’d love to hear your comments on Twitter

Decisions

I’m reading “Thinking in bets” these days. Halfway through it it’s a great read.

The best expression I’ve taken from the book is “Resulting”, as in focusing on the results not the decision that lead to the result.

An example to explain: You know there’s 90% probability of rain, so you bring an umbrella. It doesn’t start to rain, and you feel bad about your decision. The decision was correct, but you’re resulting.

These things are all around. Another version of this is survivor bias - excellently illustrated in this xckd (my favorite one actually - I’ve had this printed above my desk for the past few years). Tom Tunguz also writes brilliantly about this.

We all suffer from this to different degrees. But I believe we’ll all make better decisions just by being aware of it. So go read the book.

Repeatability

I’m a big fan of Steve Blank’s definition of what a startup is;

…an organization formed to search for a repeatable and scalable business model.

One thing I find myself talking a lot about lately is the “repeatable” part of the definition, and how important it is. While most founders understand that it’s important to get customers, fewer fully understand the value of multiple customers.

Having multiple customers show that you have figured out how to repeat your sales process. One time is chance, two is coincidence, third time is some proof of repeatability. And it’s proof that you understand what you are doing, and that you can do it again.

Thus, I would much rather invest in a company with 10 customers, each paying $1k, than 1 customer paying $20k (everything else equal). The former is a company that’s learned to repeat something, the latter has not.

This is also why it’s not always a good idea to start up by selling to large corporates (unless you have done such sales successfully before). The sales cycle is longer, meaning you are less likely to prove repeatability before you run out of cash.

Distribution

One thing I discuss with all startups is distribution. I use the term distribution to describe sales and marketing activities – everything related to getting customers. Unfortunately, most companies both suck at it and underestimate how important it is.

Many seem to think that “build it and they will come” is true. Others seem to think it’s a small detail that can be attended to in no time once the product is finished.

Truth is, distribution is really really hard. And it takes a long time to get right. I find that most respect that building (aka tech) is a craft/skill. The same can’t be said for distribution aka sales, even though it’s equally hard if not harder.

You can fix most product problems on your own just by spending enough time. But distribution requires external parties’ consent. It takes practice and time to get it right. 

If you don’t start doing it early chances are you don’t have enough time to get it right. And then your company dies instead. 

Hesitation cost

Test3

This is one of my favorite xckd-comics. Mainly because it relates to a topic I discuss with a lot of the companies we work with.

Most companies end up in situations where they have alternative paths forward, and incomplete data concerning what to do. The natural path forward from there is to explore all alternatives in parallel until you have enough data.

This is not an ideal situation to be in. Obviously, you’re spending time on an alternative you will choose not to pursue sometime in the future. But even worse, most spend too much time “analyzing whether alternative A or B is more efficient”.

Because of this, I argue you should reduce time spent in this situation. The best way to do this is to commit to a decision earlier – when you have less data. Jeff Bezos talks about at making decisions with 70% information, rather than waiting until you have 90% – because getting to 90% takes too much time.

It’s not an easy advice to give, because you are more likely to do mistakes by following it. But the alternative is not moving fast enough to make mistakes at all. Then I’d rather make mistakes and have time to course-correct.

VC signaling

We’re talking about VC signaling in early-stage these days, and I’ve been reading to understand more about how founders should relate to this. Figured I’d share a condensed version of what I’ve found out so far.

First: VC signaling is what happens when you take money from a VC, and they choose not to follow up their investment in later rounds. If they have inside information and choose not to invest more, why should someone on the outside take a bet on you?

If you’re a founder who just raised capital, you’ll be in one of three categories next time you raise money (more in Mark Suster’s brilliant post on this):

  1. Everything sucks. You have failed with your plan, missed all targets. Nobody will invest more in your business, including you. You gave it a shot and it didn’t work out. Nothing matters (including VC signaling).
  2. You’re like Facebook. You’re crushing all milestones; everyone wants to work for you, buy your product, buy your stock. You might have concerns, but not regarding VC signaling.
  3. You’re almost there. You’re doing okay, but not great. With more resources, you’re convinced you will pull it off. This is where most companies are, and where you potentially should be concerned about VC signaling.

Since you should hope for the best but plan for the worst, you should consider VC signaling before deciding who to pitch.

First, consider what the investor’s preferred entry point is? (discussed more by Brad Feld). Some investors do the thorough assessment right away, as they view the seed investment as either the only or the first round of several. If this is the only investment they do (like us), ensure they are consistent with this approach. One exception and every other portfolio company get a bad signal. 

If this is the first of several financing rounds they plan to do, explore whether they need an outside lead in the next round, or if they will take it? If they plan to lead, what milestones do you need to reach in order for this to happen? If they need an outside lead, how do they decide whether or not to follow/take pro-rata?  

Other investors consider seed deals to be options; a foot in the door to get more information – and postpone the real assessment until next time the company fundraises. You should be especially alert when approaching this group, as the risk of signaling is higher. Chris Dixon elaborates; 

“_when you take any money at all from a big VC in a seed round, you are effectively giving them an option on the next round, even though that option isn’t contractual…Even in the good scenario when the VC does wants to follow on, you are likely to get a lower valuation than you would have had you taken money from other sources of funding_“.

This is because new investors expect existing investors to follow. Jason Lemkin explains; ”_The bigger the brand of the fund, the more important it will be [that they follow]_”. By already being shareholders, brand name VCs have leverage in the following round. You could say that the more tempting is to bring an investor onboard early, the more harmful if said investor doesn’t follow. Which is somewhat counter-intuitive, but true. There’s examples of VCs offering to sell back shares if they don’t follow, but my impression is that’s not the norm.

To mitigate this risk, make sure you discuss potential investors’ seed strategy before taking their money. But further, don’t overthink it too much. Signals exist everywhere, regardless of how you go about fundraising. Going back to Mark Suster’s post, that has a few examples of other signals:

You’re on your second company. A prominent VC funded your first company but isn’t currently investing in this company. Think that’s not a signal? Think again.

Or you’ve never done a startup but your last boss from Google, Facebook or Yahoo! is now a VC. Many are. They didn’t invest in your company? Signal, signal, signal.

OK, so your boss didn’t become a VC. You were a VP at a startup company that sold for $100–200 million making the founder very wealthy. You’re startup raised angel money and is now looking for VC. That founder wasn’t one of your angels. Think that the VCs looking at your deal won’t wonder why? Think they won’t call him? Signal.

In conclusion, signals exist and you should be wary of them when you fundraise. Discuss this with potential investors, and you know what to expect. Then go back to focusing on what you can control, which is the performance our your own company. Do everything you can to become a type 2 company, and you don’t have to worry about signaling whatsoever 🙂