Live Report - Nordic Seed Capital Summit - Nordic Innovation Centre

This post was blogged live from the Nordic Seed Capital Summit 2011.

Among the themes and speakers:

Insights on how to build global companies  international VC-firm DFJ Esprit

Advice from international growth fund Highland Capital Partners

Experiences from Nordic startup QlikTech, NASDAQ success exit

Ivar H Kristensen, Managing Director Nordic Innovation Centre, and Will Cardwell, Head of Aalto Centre for Entrepreneurship, Aalto University, host for the event.

The Summit is a part of the Nordic Seed Capital Initiative aimed at developing a well functioning and internationally competitive Nordic seed capital market.

What we were excited about at the event:

Hearing about active lobbying efforts to make Nordics more attractive to investors

Pan-Nordic activity geared towards unification of seed and VC investments

Optimism from key players in regards to attractiveness of Nordic market for investments

Concrete plans for new investment models, superfunds, seeds and tech startups due to collaboration with universities

Desire to take the best from the US without copying it blindly

A friendly, creative atmosphere of collaboration and open discussion.

We would like to thank the organizers and will be following up with questions to some of the participants in the near future.

On to the presentations and events for the day:

Ivar - describing Scandinavian countries:

Iceland - the comeback kid, Norway - richest, Denmark- happiest, Sweden- strongest brand, Finland - most innovative. Pointed out the problem of too little funding to too many companies,  Scandinavia is the world's 10th largest economy. Not enough investment from seedfunds into startups and sustainable development.

Peter Strömbäck, CEO Innovationsbron

Innovationsbron have 7 offices all over Sweden and they offer skills and capital for development and commercialisation of knowledge+intensive business concepts with great market potential.

3100 Ideas were evaluated, of which 221 were accepted for development. 448 incubation business objects. 145 alumni projects and companies. 145 portfolio companies. 25 incubator projects, 6m sek.

2011 Is showing more interest from the government, it is time to utilize the critical mass of the Scandinavian members plus the catalytic function of the Nordic Innovation Centre.

Graham Cope - European Investment Fund - Technology Transfer

IF very itnerested in Scandinavian region, test bed for seed investment.  Clear funding gap exists. Brussels recognizes the key aspect of innovation building in Europe.

Weaknesses of the Nordic market - fund managers withdrawing, talent loss, difficult market conditions to attract private invsestors, global conpetition for investment flows, missed opportunities.

Working on involving governments, nordic innovation fund. 250 m euro. EIF contrib 33-50 percent. Aim - catalyze corporate interest, co-investment facility, technology transfer. Trying to get a proposal for the whole nordic region in collaboration with Nordic Innovation Centre. Debates ongoing about bills supporting innovation, the food chain has to work better. Looking to launch investment programme in 2012.

Return on investment - sometimes made in the itnerest of the wider objective. Appropriate returns and policy objectives, a wider view has to be taken.  We are not focusing on technology, but creating a toolbox for the people that are providing the stakeholds. Policy discussion is paramount.

Scandinavian startups: - Does the Nordic region suffer from risk aversion? Startups continuously leave, for example for London, is this a question of capital, culture or lack of support networks? Your solution?

Graham: I would avoid concentrating on geography. There is a huge potential in the Nordic market that has a lot of promise and proven track record.  The IF has a working model tried in Latvia for seed funnding that we would love to implement in the Nordic region.  The too  small, too many VC investments picture and thinking small from the get-go are some of the problems that come to mind.  Collaboration and timing will be key to meeting the challenge.

Lassi Noponen - Cleantech Invest - Providing the tools for growth within cleantech

Investors compete for early stage startups in the US, in the Nordic region it is the opposite, sometimes all a startup needs is to grow out of the Nordic market.

Consumption patterns worldwide are raising, clean technology represents one of the fastest growing segments in investment, but the demographic shifts and rising quality of life present huge opportunities.

Only by combining talented entrepreneurs with the right investors can the demand begin to be tapped.

Energy is not scarce, biomass and arable land are scarce. Increasing food production is becoming more and more acute and will be more acute than energy.

Growth drivers

Increasing cost of energy and natural resources.  Oil should be used for materials rather than energy. Energy security and geopolitics. Climate policy and environmental regulation. Water scarcity and pollution. Decreasing cost of new tech.

Where is the growth opportunity? Truly innovative tech has to be separated from the greenwash. 80 percent of Finnish exports is "cleantech".  Simple labeling. The real innovation is in

-new clean resources

-displacement of unsustainable traditional ones

-material and energy efficiency

Population growth not sustainable in relation to resources... Energy and resource scarcity to be greater growth driver than climate change. Prices will separate from the production cost.

Nordic region cleantech sweetspots

Large disproportionate number of innovations coming out of the region, but investments happen elsewhere.  A growth company has two options- work in scandinavia or go there where investments are happening. Innovation happens best where investments happen. Some of the areas where nordic companies have a lot of opportunities is

-Energy efficient buildings

-Energy efficiency in industry

-Electrification of transport

-Forestry : new materials vs energy

-Offshore / Ocean : energy and biomass

How do we get nordic companies to be solutions providers in the growing market?

Be a market leader, idea engineering, production of new product and process innovations. Students increasingly want to be entrepreneurs. Economic and governmental policy sometimes affects industry growth but it should not be the key deciding factor. Incentives should be neutral, for example emission control, not tech choice by government.

Lack of financing is crucial. Good government finance or 100 percent guarantees to loans in promising pilot cases is worth the risk.

Looked at 200 companies and invested in six. Savo-Solar, Netcycler, Enersize, MetGen, BT Wood, Ultranat

Jonas Nachmanson, CTO, Qlik Tech

Qlik Tech - enterprise software company. 900 employees. 19000 customers in 100 countries. Founded in Sweden in 1993 based in USA. All the big international banks, search company in Mountainview, very interesting customers. Qlik Tech take data and transform it into something that can be used. How could a small Swedish company grow so fast in a market so oversaturated? The process of extracting data has not changed much. Data sources were pre-determined by IT. Read all the data into memory, consolidate multiple data sources, associative handling of data in memory. Present data in a day, a change in minutes or hours.

Disruptive technology. The founders started in TetraPak. Founders wanted to do their own time, "something in multimedia?" Did a bit of consulting, something you do when you quit a big company -you go back as a consultant.  Got an idea - "If i could have all the information on my screen and I could click on it and have it .... " Sitting in a Sience Park, bumping into people, met a programmer. Developed a dataminer, first client did not buy, buy a clinical trial database was sold. Started off as a toy, 5000 rows. But they made a critical bet - RAM will be cheap and processing will be cheap enough to actually make instant answer to questions from a database.

Missed the dotcom boom. Founder driven startup, looking for customers, seriously out of money. Needed venture investment in the end, even though founders wanted to keep it all. Re-started the company. Closed a lot of holes, got secound round of financing. Instead of an engineering company it was sales, marketing, positioning.  No focus, everything for everyone... Decided to focus on sales analysis for only manufacturing companies, mid-sized.  Very quickly became the standard for BI for these companies. Focused space is important.

Near-death experiences.

Key staff were very close from walking out because they felt like they are not getting anything. It was important to understand that you have to share with the key people.

Decided to become international. Met a lot of Swedish VC and International VC. Enormous interest. To the board's suprise. Managind director managed to change the board twice.  International board of directors. Technology trends with 64 bit and multicore suddenly Qlik Tech was beating the big guys in scalability.

Still cannot do super-big customers, for example walmart. July 16 2010 Nasdaq. 30 percent growth, 2010 - $226 million.  What made the difference? Product, brand, people and values.  - A truly great piece of tech with product focus. It trends prediction. Consumers are getting educated in tech. The it factor.  Heavy branding from when they were a three million dollar company. Established a sense of pride for people working with the product. People - hiring people smarter than yourself. QlickAcademy - every single employee, one week in Lund. Annual summits.

Values - challenge the conventional, follow your own path

 -move fast, keep it simple, make mistakes

-take responcibility

-teamwork for  results.

If you want the attention of the media, you need the word "stock exchange" in the picture. Media coverage after IPO in the US has been enormous. But the coverage in Sweden was small. Very local uninterested reporters.

Mikko Suonenlahti, Venture Partner DFJ Esprit

Been on the board of  over 30 early stage companies. Invests in start-ups who want to change the world and become global leaders.

The good news about VC in Europe

Never been cheaper to start a company, the angel market has grown up in Europe. Minuses- lots of noice, a difficult market to understand.

Finnish public sector is doing a fantastic job in the a-round financing. No private funding. Public policy change is needed. Options are the driving force in the US VC market. In Finland, it is too costly. 

We need a european wide policy platform for options in VC backed companies.

Biggest fear- changes will not happen as fast as needed by VC. Lack of consensus building.

It is possible to make better returns in Europe than the US with over 100m exits. With less money you are able to grow companies into the exit. US VC invests five times more.

Difference between Nordic and US model startups.  Nordics - working prototype, looking for 1-3 million. US - no prototype, need 10 million, but a team that has been on the problem for 20 years.

Superior tech development in the Nordics combined with more capital could be a huge success.

Recommends The Path to Epiphahny: The Customer Development Model

Be driven by problem solving. MIT, Stanford business plans describe problem solving at start of business plan.

Fund decision making in Finland - all must be in. America - 4/3 votes, to really bring out the issues.

Nordics have a problem with the consensus building mentality. What is needed in the Nordics is a culture of cross-syndication.  A lot of small excellent exits but no great homeruns. The tech potential is ripe for hundreds more.

Flipping a company in Sweden is a tax event. A common policy issue, along with options.

Panel Presentation

Camilla Anderson - Fabian Invest, Martin Gemvik  Sting Capital, Ulrik Jorring Vaekstfonden, Mikko Suonenlahti DFJ Esprit

 Will: What is it you look for in an investment?  The person and team or the idea? What is the secret sauce.

Camilla: We work operationally in the company so we can do both. We look for the right team, they will make it anyway even if they change along the way. We invested in one company in 97 in mobile advertising, and I had to be the CEO, someone had to take over and build it for a while till someone could take over. We look for a great team and trends and market, something that will grow. We do everything actively in the company and we do not invest if we cannot come in with more than just money.  They have to be coachable.

Ulrik: We combine both. We only invest if the team provides competence. Often we help find the CEO. You want to have a team you see working together.

Mikko: The hands on model is the us model in the early stages. My experience in the Nordics is more hands off. I think more hands on is needed. One single area that makes a difference is market definition. I'm interested in a market less than a 100 million but growing fast.  A new market makes me very excited, an undefined market growing fast  is fantastic.

Martin: Technology since we have technology focus. A great technology. Interviewing actuall customers to find out what problem the customer has. When it comes to people, people are very important. But from time to time it's quite normal to change the team.  It is more common that you have to change the management. We always tell the founders that one and a half year from now you could be in the backseat.

When you talk about people and the management team I find it very important that some of the team have some experience in the sector.

Will: Stanford took 5 percent of google because they were impressed  with the absolute commitment of the team. Google has paid off more than 8000 other investments in  innovations over 30 years. They really believed in the two guys and their passion.

Comments from the panel: - you have to find the right business model, sales and marketing is 90 percent of the game, commercializing the tech or idea.

Will: failure is the new success. You have to be ready to fail.

Martin: There is always a risk that you tend to favor business models that are not so capital consuming. That could be a risk. Long-term it might be the wrong model.

Audience member: we are lacking market and culture here. We need more exits for VCs, market makers, whatever. And the culture of risk aversion.

Martin - the big difference between American and European vs is Americans look into opportunity and the Europeans look into threats.

Audience: Do you include the board on the "team"?

Mikko: Bring in independent directors or a chairman with 30 years experience.

Martin: There is no board. We create the board.

Camilla: Bring in a great board is what we recommend. Bring in external board members.

Ulrik: We don't have a formula.

Fergal Mullen -Highland Partners- Prerequisites for international growth Investments

Highland - US firm based out of Boston. $3 billion under managemnt and funds. 3 partners. Formed in 1988. Fergal is based out of Switzerland. Highland is both early and growth. Seeded about 60 companies in our own building in Boston or California. Seed is a local business.  Stress testing, talking to customers is the start.

Fergal requested that his presentation was confidential, but kindly  answered our questions.

Scandinavian Startups: Risk aversion culture and fragmented markets are some of the minuses of the nordics and europe. what would you define as the pluses?

Fergal : You're a bit too negative on yourself here. Be proud of your accomplishments. I suggest you do a relative yeild analysis on the amount of dollars invested over a good period of time and look over how many companies over 100 million, 500 million and buillion have emerged, you are as successful as the US.

the market is resetting in the US . We undercaptitalize in Europe. But we deliver the same results. The VC class in Europe in is 1/5 of the US, but the yeild is consistent.  Be a lot more positive, amazing enterpreneurs. We have everything we need here in Europe. It's back to that cultural ambition. We lack the ambition and the careferee attitude. Go big or home. We struggle to take that approach, but it is improving.

Jukka Jokinen, Director Technopolis - Visualizing the Nordic early stage ecosystem

Technopolis - value added operating services, a real estate-service hybrid. Provides business environments and services for knowledge-intensive companies and their partners. Operating in Finland, Russia, St Petersburg and Estonia. Organize strategic matchmaking, innovation services. Technopolis connects innovations and innovators with other companies, seed money and the right people.

The Technopolis idea is to increase foreign capital investments into Finland. We launcedh Technopolis online 2 years ago. The vision is to expand to the whole nordics. Tracks over 1000 companies, you get a one page view of the ecosystem. List companies looking for funding.  Analyst team of 5 people updating the websites, launching in the fall a wiki-based version that will be validated.

Startup presentations

Miska Visuri, CEO, VividWorks OY

900 000 Euro turnover.   26 employees.  Trying to grow the license model, have someone else do the work . in Finland and Denmark. VividWorks provides user friendly visual online sales solutions for global furniture market. Strong focus on the furniture industry. The furniture industry has a problem - selling. Differenciation by price is one way.  Other differenciations - that's where VividWorks comes in. Retailers need to personalize products for the customer. And the customer makes the purchase decision.

VividPlatform offers visually rich, easy to use sales tool that works over the web. Revenue -yearly fee for license, and delivery - solution activation etc. Try to get the marketing budget and investment budget. Median customer fee is 50 000 Euro.

Petter Bartz-Johannessen, Managing Director, Weyland

Sustainable fuel at competitive prices. BioEthanol. The age of cheap energy is over.  US - half of trade deficit due to import of energy. Cellulosic Ethanol reduces emissions 90 percent. Tech was developed at Bergen University College.  Private company established in 2001. Cellulose is the most widely avaialble biomass in the world. Makes fermentable sugar *and thus fuel* from non-edible cellulose. Sponsored by Innovation Norway, the Norwegian Research Council and Statoil, a pilot station was built in Bergen, Norway. The company is actively pursuing growth plans and VC.

Anders Lundström - Svenska Aerogel

Best insulation material in the world, developed in the 30s, used in the space industry. Just starting to catch on. SA reduced the price significantly. SA is the material company. They have good knowledge of how to work with it. Good focus.  Aerogel works for molecular filtration, 75 percent better than existing market materials.

Insulation - most interesting application. 3 centimeters of aerogel equals 30cm of glass wool in vacuum, without vacuum -3 times better properties. Works at high temperature, very popular in the construction industry.

Thomas Lund CEO, ADVALIGHT Yellow laser tech for medical applications

Focus on derrmatology application. Could be a serious competitor, looking for $3m investment. $3m in the company already. 7 employees.

Yellow crystal laser would be a market changer.  The writer of this article had a mole removed with the older laser model and can attest to the ineffectiveness and high cost of the green laser treatments.

Personally I think ADVALIGHT could be a game changer.

Once again, I want to thank the participants and organizers for the great event and will be following up with detailed interviews.