Posts tagged ‘Venture capital’

June 16, 2014

Investing in people and teams

Marc Andreessen

Marc Andreessen (Photo credit: jdlasica)

I have been meeting a lot of people about my new project, the feedback has been extremely positive. What is key in this new project is the fact that we are going to invest in People and Teams with potential. I have written a lot about this. I believe very strongly that investing in people with courage and genius works and it is not new. Marc Andreessen with a16z constantly writes about it. I just finished reading a blog post by Trent Griffin titled “A Dozen things that I’ve learnt from Marc Andreessen“, here is the quote from that post

5/ Venture capitalists “spend a lot of time talking about markets and technology…. and we have lots of opinions. …but the decision should be around people…. about 90% of the decision [is people].”… “We are looking for a magic combination of courage and genius .… Courage [“not giving up in the face of adversity”] is the one people can learn.” When you have a team of strong people in a startup, their ability to adapt and innovate gives the company and the investors optionality. Weak teams which can’t adapt to changing environments usually fail. Identifying the right people is all about pattern recognition.

I could not put it any better. We do this constantly as a community, however when you meet Venture Investor especially in markets where venture investing has not evolved you see the investors talking a lot about their knowledge of markets, technology and what they know, what baloney! No-one knows, the best strategy is always to invest in strong teams, be their resource and help them win. I draw an analogy to being a Coach to a Basketball team. The fund we are putting together will play the role of a coach, be there in every practise session, see what the team is unable to see, tell the star player that he needs to straighten her shoulder and elbow before shooting, watching winning games and adopting best practices in building the team and be in every game on the sidelines but the team takes the shot and makes the plays. The fund team is a resource for the team on the floor. I believe this model works. I believe very strongly that VC business is a “Service” Business. Here is a quote from that post

11/ “You spend most of your time actually dealing with your companies who are struggling and trying to help them. Because it’s the companies that are struggling or failing that actually need the most help. The companies that are succeeding are generally doing just fine without you. The companies that are failing are really the ones that need help and support. And so a lot of what you end up doing at the job is supporting struggling entrepreneurs. It’s kind of continuously humbling. You are a trouble shooter. There’s always something going wrong. Psychologically–we talk about this with our partners–you have to be psychologically prepared for the opposite. It seems like it’s going to be a life of glamor and excitement. It’s more of a life of struggle and misery. And if you are okay with that–because it’s part of the package–then the overall deal is pretty good.” Bill Gurley likes to say that venture capital “is a service business”.  Venture capital isn’t sitting in expensive chairs “picking winners” and speaking at conferences, but rather day in and day out work in the trenches helping entrepreneurs succeed. An effective VC spends time on things like trying to recruit engineers for portfolio companies.  This is not glamorous work for a venture capitalist, but it is essential work.

The above two more or less outlines the strategy for the venture fund that I am putting together. I think it works, I have enough data points to show that I have walked the path to see this through. The trick in this is to be humble and be open minded about what you don’t know. So if you have the courage, genius and doing something with Software on top of networks please email me. I would love to meet and learn.

June 14, 2014

Sustaining vs Disruptive Innovation

Cover of "The Innovator's Solution: Creat...

Cover via Amazon

I have been listening to Clay Christensen and Michael E. Raynor‘s book “The Innovator’s Solution: Creating and Sustaining Successful Growth“. Really impressed with the systematic approach to innovation and why innovation can be categorized and built within existing companies or even in Startups. I believe this book is one of those classics that outlines how anyone from Venture Capitalist to Startup Founders to Managers of Businesses or CEO’s can bring a culture of innovation into any organization. This is clearly important given the changes that we are starting to see. I believe this way of thinking can really help entrepreneurs as well, there are some theoretical and empirical frameworks that suggest that Sustaining innovation is rarely the realm of startups and Disruptive Innovation is rarely the realm of incumbent businesses. One of the first question that I ask a startup founder or entrepreneur is if his idea or business is disruptive, if it is not then I suggest they do hypothesis testings to make it disruptive otherwise it is a fools errand trying to beat an existing business with a 10% or 15% improvement in the startup’s offering. For a startup to really disruptive it needs to be good enough but has dramatically different pricing, convenience or value being delivered to the customer.

The internet itself is a sustaining innovation, whereas Cloud Computing is a disruptive innovation. I believe what Elon Musk has done with Electric Car technology is also very disruptive. I think it will be not long before Electric cars become a main fixture of our culture.

I highly recommend the book and I think VCs, Entrepreneurs and Angel investors who are serious about investing should really read the book and try to understand the solution for the Innovator’s dilemma presented in this book. It has opened my eyes to transformational views of startups and investing in startups.

March 30, 2014

Getting to Yes

PersistenceI was reminded yesterday of a blog post that I wrote a while back about True Grit, the persistent, relentless push forward quality that I see everyday in Entrepreneurs who get it. I have been talking to some of the institutional investors who have been interested in participating in the “Alternative Asset Class” that is the name used by Banks, Pension Funds and other financial institutions if you did not know. Almost all of them ask me what is criteria for me to invest in companies, I cannot emphasize enough about the quality of Grit, someone how has the Chutzpah, the gump, the courage to boldly continue on when all the natural things begs you to stop. I really got inspired reading the latest article by Mark SusterOne of My Most Frequent Pieces of Advice: Be Politely Persistent“. I am sure there were some Entrepreneur who was being pissed off or arrogant about not getting to an yes with Mark. That happens a lot. Nice thing about Iceland is that there are not that many venture investors that you get only a few Nos :), the important thing is obviously to continue on your journey. But as Mark says in his post don’t be bitter about it or arrogant or be an a#$h%&! about it. The best way to get to a yes, is always hard work, focus on what matters and your circle of influence and move your circle of concern away from what needs to get done.

The above advice by Mark is a classic and comes at the right time, Jason Mendelson one of the Managing Directors at Foundry Group and who attended Startup Iceland last year (Have you bought your tickets yet! we are going to have a sold out event, do don’t wait till the last minute get your early bird tickets) was interviewed by xconomy.com about “18 ways to kill as startup: Bad Teams and Ideas, arrogance…“, do you notice the pattern? Arrogance is one of those attributes that an Entrepreneur needs to let go, you cannot be arrogant in a sphere riddled with high uncertainty and low data. You need to be positive and continue on your journey. I also like the post Brad wrote a while back about an “Entrepreneurs Math:(.9)^10=1 “, you need to be in the deterministic world and not the probabilistic one if you are an entrepreneur. If you do the odds, it will tell you how small of a chance you have for success, but that should not define how you go about doing things. You need to believe that you will succeed despite everyone showing the odds of success at your face. That is how you get to Yes! quiet, polite, persistent, relentless focus on the next step… May the force be with you!

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March 28, 2014

Best of times to be an Entrepreneur and Venture Investor

marc_andreseenI cannot emphasize enough the exciting opportunities that are in front of us. In case you have not noticed, Andreessen Horowitz announced the closing of a $1.5 Billion Andreessen Horowitz Fund IV. Yes, that is a Billion. In addition to that True Ventures closed a fund for $350 Million. The announcement by a16z is what inspired me to write this blog post. Here is an excerpt from that announcement:

We believe this is an incredibly exciting time to be a technology investor. The ultimate market size that this current generation of tech companies can go after dwarfs that of previous ones.

The obvious reason for this is mobile internet penetration: We’ve gone from an internet population of 55 million users to nearly three billion, and smartphone users are expected to grow from 1.5 billion today to five billion in the coming years. The winners in tech today can become massively larger than those of previous decades because the markets they can sell into are enormous, and growing.

I believe these kinds of funds create tremendous opportunities all over the world it is not concentrated in Silicon Valley, although the bulk of the money goes into the Valley. According to the post the total amount of venture money raised by the industry is $16-$18 Billion a year, I wonder how much the investors in Iceland invest in this asset class? My educated guess would be about $20 Million in a year, yes you heard me right $20 Million that is about 0.11% of the amount invested in the US.

I believe that there is a huge opportunity to find strategic fits around the theory that a16z looks at, the broad theme is the Software is Eating the world and more recently the Full Stack development. These themes allow smaller startups to find a unique niche, create a market for that value proposition and typically get positioned to be acquired by those larger startups who are looking at the Full Stack to accelerate their development. I believe there is merit in this investment strategy and I believe Iceland can create, build and export those smaller startups. These startups do not require a lot of capital and with the current state of software and infrastructure it is easier to get to market and create value. Here is another excerpt which validates that thinking:

Yet as these markets have grown, the technology costs required to support them have fallen dramatically due to developer productivity tools and cloud-based computing. For enterprise in particular, the advent of SaaS and BYOD has expanded the market opportunity. Why? In previous tech generations, selling to an enterprise required both the support of the end-users of the application and the IT organization. The limiting factor on application deployment for enterprises was the finite capacity of the IT organization, since they would ultimately have to install, support, and manage the applications internally. With SaaS-based applications, however, individual departments within a large enterprise can find and adopt new technologies freed from the constraints of the IT organization’s support capacity.

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March 24, 2014

Two key deficits of the founder CEO…

source: GigaOm

source: GigaOm

… when compared with a professional CEO”. I had to complete the sentence because some of the founder CEO’s go on to become great CEOs but they don’t always start that way. I finished reading the book “The Hard Things about Hard Things” over the weekend and the last chapter captured the essence of where Startup Founder need help and how Andreessen Horowitz Venture firm was created to solve that. According to Ben Horowitz the two key deficits are:

  1. The CEO skill set – Managing executives, organizational design, running sales organizations and the like were all important skills that technical founders lacked.
  2. The CEO network – Professional CEOs knew lots of executives, potential customers and partners, people in the press, investors, and other important business connections. Technical founders on the other hand, knew some good engineers and how to program.

I think this is spot on in terms of the technical founders that I have worked with in the past. In addition to the above, I have seen investors who put money on technical founders with absolutely no idea of how to resolve the above two deficits and they expect magic to happen with the startup. I cannot imagine investing in a company and not knowing how I was going to help the startup founder in some tangible way to bridge the above two deficits. Ben goes on to explain the question that he and Marc Andreeseen tired to answer through their new venture Andreeseen Horowitz Ventures,

How might a venture capital firm help founder CEOs close those gaps?

http://a16z.com there is a story behind the URL as well. Go get the book, it is a must have for startup founders and investors alike.

Coming back to our small island north of the atlantic, what is lacking in Iceland is a venture firm that has the core mission of trying to solve the challenges entrepreneurs and startup founders have here in Iceland. I have written about this a while back when I had been working with the Team at CLARA.

What if a venture firm in addition to investing capital at all stages of the company development also provided the kind of mentorship that would accelerate the learning process for the founders? Also, what if the venture firm also systematize and professionalize the network and made the connections and helped build bridges from Iceland? That is exactly what Andreeseen Horowitz Ventures has done. This is not very different from what Brad Feld, Jason Mendelson, Ryan McIntyre and Seth Levin have done in Foundry Group… here is an excerpt from Foundry Group’s website:

What We Do

As true early-stage investors, we are comfortable making small seed investments (as little as $250,000 – $500,000) to help promising entrepreneurs get their ideas off the ground. We are equally comfortable participating in larger, more traditional Series A venture financing rounds. Regardless of the size of our initial investment, the size of our fund allows us to continue to support our portfolio companies through their entire financing lifecycles.

In addition to providing the necessary venture capital to get a company up and running, we are committed to leveraging our experience in starting and growing companies, our expertise in the technology industry, and our network of relationships to help great entrepreneurs turn great ideas into great companies.

How We Do It

We believe that success comes from building a collaborative and supportive relationship between Foundry Group and the entrepreneurs and executives in whom we invest. Having walked the proverbial mile in the entrepreneur’s shoes, we understand where we can add value—such as helping build out a management team, thinking through strategic business development and growth opportunities, or providing advice on exit strategies—and we aren’t afraid to roll up our sleeves and get our hands dirty.

Rest assured, however, that we also know the difference between being value-added investors and being micro-managing investors. As venture capitalists, we believe our role is to identify, help build and support the team that will make our companies successful, not to run those companies ourselves.

We also believe that, in early-stage investing, it is critical we maintain a direct relationship between our entrepreneurs and our managing directors, rather than using junior professionals to manage the work load. Foundry Group’s team structure, fund size, and investment process have been intentionally created to ensure this philosophy guides our interactions with all of our investments.

In most cases, Foundry Group will be the first institutional investor in the companies that we back. Because of our active engagement with our companies, we typically will take a correspondingly substantial ownership position in our investments and will join as a member of the company’s board of directors.

We recognize that sometimes the best ideas aren’t ones that generate broad investor consensus. Though we are happy to co-invest with other venture firms as part of a syndicate, we look to our own evaluation and interpretation of an entrepreneur, a market opportunity and a company’s prospects to guide our investment decisions. As a result, we view ourselves as “syndication agnostic” and are entirely comfortable investing in an early-stage company as its sole investor rather than seeking the validation of co-investors.

Would it not be great if we could combine the Andreeseen Horowitz and Foundry Group’s “How we do it” philosophy and have that firm based in Iceland to invest in Icelandic Startups? If you have read this far then it is not difficult for you to connect the dots… :) keep watching this space for more news on this.

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February 7, 2014

Investing in Startups

Warren BuffetI had no idea what to do when I first decided that I wanted to invest in Entrepreneurship and Startups. It all looked so crazy and uncertain to me, however I had a background in Software Engineering and Management Consulting thanks to my 7 year education in Ernst & Young and Capgemini. I searched all over the internet and read all the books that I could get my hands on to learn about Venture Investing, I have written about what Fred Wilson wrote to me when I asked him what advice he would give to a new Venture Investor… it was quite simple, he said “Hold onto your money, it always takes longer and more money!” I took that advice to heart. It is rather futile to go into Venture Investing if one does not take the time to learn the sequence, apply strategies, tinker/pivot and skill required to be an venture investor. As an Entrepreneur it is also very important to take the time to understand the total capital need to build a sustainable business. I meet so many entrepreneurs who don’t take the time to really understand the actual capital need to build businesses. Even worse are those investors who are doing this for the first time but are totally unaware of the total capital need. They jump in with some money and then decide we will figure it out along the way, not a good idea. I have noticed experienced investors know how long it takes a startup in the B2C or B2B or any other service sector to get to scale. Me and my partners got lucky with CLARA, but we knew the business we were investing in. I cannot say the same to a number of other investors. I wrote a blog post titled “Organic Growth vs Get Big Fast” on a talk that Joel Spolsky did on Y Combinator Startup School. Knowing the total capital need and the strategy to acquire it is paramount. Not knowing will push you to the poor house very quickly. There is a difference between knowing the path and walking the path… it is the difference between knowledge and wisdom.

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January 27, 2014

Are we the horse?

Albert Wenger

Albert Wenger (Photo credit: Joi)

This is a talk given by Albert Wenger one of the partners in Union Square Ventures and Fred Wilson shared this. I highly recommend this talk as it goes into the Context of the changes that we are starting to see in the world today. Future is not something that is going to happen, it is what is happening now in a context that changes how we do things in the future. I think there is only one way to not be a horse… learn to be an Entrepreneur, everyone can be an Entrepreneur. There are numerous problems that need to be solved. Learn tools, process and technologies that prepares you to take ownership of your life and professional careers. I advice all the students that I meet to start looking for ways to solve problem with teams and create jobs rather than search for a job.  

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November 19, 2013

Focus

0.-What-you-will-ultimately-become-Bruce-Lee-Picture-Quote-1While you transition your company from being a idea to a startup to a small company to a big company there are many things you focus on. Building a company is a complex task. I have written before about how your Focus Determines your Reality, successful people have created a habit of being focused on things that matter to them. It is difficult to do when have so many distractions and it is also easy to be distracted sound and look busy and get nothing accomplished. While you are trying to figure out what problem to solve at the early stage of your startup it is good to experiment, try many things and distraction is actually a good thing, fires those synapses that have not been used, however once you have find that one idea that solves the product to market fit it is imperative to kick yourself into the mode of execution. Execution cannot be done without focus. We need to organize and execute around priorities and what determines your priorities?… yes, you guessed it right! Focus. Put first things first and organize your activities around that. It cannot be simpler than that.bruce-lee-quotes-The-successful-warrior-is-the-average-man-with-laser-like-FOCUS

November 12, 2013

QuizUp

QuizUpIcelandic Startup Plain Vanilla Games launched their new game Quiz Up and it has been getting a lot of attention and has been in the top 3 in the Apple App Store. I played the game and it was a lot of fun. I wrote about Plain Vanilla Games here and Thorsteinn their Co-founder and CEO has been a speaker in Startup Iceland Conference. I promise there is a point to my writing about this and not just a plug for Plain Vanilla Games or QuizUp. I remember Thorsteinn pitching in a Seed Forum Event 2 years back and I remember him talking about how he got a Venture Investor in the US to invest in the company and the rest is history. I find that very strange and interesting, how come the minute a VC investor putting money in a company an Entrepreneur turns out a big hit? Is there some magic that these US VCs seem to carry with them and their investments? Well, as much as I want to say there is a secret sauce and magic, there is none. It is all hard work to develop a product or service and a lot of partnering, hustling, marketing and selling. It takes time and effort to bring a product to market. I am really please to see Icelandic companies break the mould and are starting to venture out and be global. I hope with the success and role models created by these entrepreneurs we will have more investors wanting to participate in this journey in Iceland. Angel and Venture investing is a lot of hard work and value creation tied with investing unlike buying a stock or bond in the market where the part of the returns are driven by speculation and market dynamics. I have created an Angel Syndicate to motivate more people to co-invest with me in building the startup ecosystem in Iceland. I always put my money where my mouth is. I know there is value in Iceland. I can go all day about why I believe we can create global companies out of here, there needs to be a conscious vision, strategy and execution to make that a reality. Doing that right is the key, and investing in creating an environment that is conducive to that is a must have. We cannot guarantee success but we can reduce the odds of failure. I think with each success like Clara, Plain Vanilla Games, Betware (Betware was acquired by Novomatic, that news item is for another blog post) etc we are reducing the odds of failure in Iceland. With the syndicate that I have created, we will be doing $1m worth of early stage investing every year, in my humble opinion if we are able to get this going it will transform the Icelandic startup ecosystem.

October 10, 2013

Track Record, Trust and Leadership

Screen Shot 2013-10-10 at 5.14.07 AMI have more or less documented the journey since the day the Financial System in Iceland collapsed in 2008. There has been a lot written about October 8th, 2008, the day when the Prime Minister of Iceland addressed the nation stating the challenges in front of Iceland and the collapse and ending the speech with the most famous last words for a politician whose career was pretty much over… oh, yes the famous words were “God Bless Iceland”! there was total disbelief within the Icelandic community. I don’t want to go into the details of what happened after that I think many people have done that. What I do want to do is describe what I did, I decided right then and there that there was only one way to rebuild the business community in Iceland and that was through re-inventing what really creates value in Iceland. I was very impressed with the Design, Software and Infrastructure talent in Iceland and so I decided that I would invest my time, effort and money in building that sector. We invested in a team of Entrepreneurs and they won for Iceland. After I have been working with the Entrepreneurs, it was obvious to me that Startups and Entrepreneurs in Iceland needed more than just Angel Capital (it was non-existent then). I actually built a presentation on Why we would invest in Iceland and what Icelandic startups needed. Here is the first iteration of the Investment Thesis and Strategy that I created. What is important are the above 2 questions, in terms of What Icelandic Startups needed then and what they still need now are 3 things:

  1. More Seed and Angel Capital
  2. Mentoring and advising on developing, marketing and selling products/services to the Global market
  3. Bridge to a bigger market

the reasons why I felt we should invest in Icelandic Entrepreneurs was based on again a bunch of things:

  1. Young demographic
  2. Well educated and technology savvy population
  3. Excellent infrastructure
  4. Cost effective (hiring/training a software engineer in Iceland is much cheaper than say New York or London)
  5. Entrepreneurial culture
  6. There was lot of emphasis on Design, Innovation and Creative industry
  7. Small market is great for customer validation and to find the Product to Market fit and easy to pivot a product or service strategy

I naively thought that I could present this to the investor community and create a Venture Capital firm, I went to every pension fund and Asset Management company. Presented the idea, just to be laughed out of the office. It was rather humiliating, when they asked why I thought I could do this better than anyone else? it was a very valid question and I asked myself that question. At that time it was not something that I could quantify as we had just done a couple of investments and jury was out on those investments. Fast forward to 2013, we have the track record, all the investments that we have done are alive and kicking and are doing very well. CLARA was sold to Jive Software and I can say without exaggerating that every single person who invested in CLARA got their money’s worth. Buuteeq is growing leaps and bounds and I am pretty sure they are going places. The funny thing about these investments is that we went in with no expectation on when the companies will win or when we will get our money back, we wanted to help the Entrepreneurs and did some common sense thinking on the deals and made sure it was a Win-Win deal for us and the Entrepreneurs and we spent considerable amount of time helping the Entrepreneur. It is not for everyone… but we just love it. I love helping Entrepreneurs, I meet every single one of them and give them my time, my connection and whatever else I possibly can. Founding Startup Iceland the Conference was based on that philosophy of doing something to help the Entrepreneurial community in Iceland and to build a really vibrant community of Startups and Entrepreneurs in Iceland. That vision has not changed and I am pretty sure that we will get there, but we will not get there if the community does not invest.

I understand that investing in Startups is risky, the results are not guaranteed and it is a lot of work but nothing worthwhile is easy. I am willing to work my fingers to the bone to get this community built in Iceland. The Angel syndicate is platform to crowd source capital. Everyone keeps talking about how Pension Funds should be investing in Startups etc I think that is baloney… Pension Fund Managers do not have the time to work with Startups what they need to be doing is investing in Platforms and People who are investing in Startups. Unfortunately in Iceland, this community has not developed because there is no history to really creating a huge win in a Startup until the last couple of years. Through the syndicate, we can really harness more than what everyone thinks is possible. Raising capital is hard anywhere but it is extremely hard in Iceland if you are not part of the inner circle. I want to disrupt this, I want everyone in Iceland to have an opportunity to participate in this journey.

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