Just another day as a VC


Vesa and Juho after swim

We were swimming in ice together with the team of one of our portfolio companies, Laturi. Here’s Vesa and Juho after the swim.

One of the most interesting aspects of working in a VC company is the variety of things one get to see, learn and experience. During the first operational year we’ve looked through about 300 companies, including their business plans, flew around the world, prepared patent papers, crafted viral metrics, simulated business models, recruited and negotiated deals for our portfolio companies and met literally thousands of people. Yes, it’s about doing, it’s about learning, it’s about learning fast. Pretty much the same stuff our portfolio companies do – though from a different perspective.

Anyways, here’s an example of a day (today) with some stranger end of things we had a chance to experience; first some email, meetings, the normal stuff. Then an interview with Kauppalehti + swimming in the ice with the team of one of our portfolio companies, Laturi. They’re preparing for Polar Bear Pitching you see… and this sort of strange things happen pretty often.

Bill Reichert in Oulu


Two day startup workshop just about to begin. Ville Heikkinen discussing with Bill Reichert (Garage Technology Ventures)

Business Oulu organized a two day workshop 22.-23.3. together with Takomo and Upswing. We had a pleasure to work along with such people as Bill Reichert (Garage Technology Ventures), Tero Ojanperä (Vision+), Joakim Achrén (My Next Games Company), Juuso Nissilä (Valkee), Harry Santamäki (KoppiCatch) and several others.

The first day went through with presentations, there were also a panel and finally a FIBAN event. During the second day one of our partners Juho Risku and Bill Reichert from Garage Technology Ventures coached startups in pitching. It was great to see such long term startup professional in work, truly great insight. However, even better was the fact that the quality of pitches has improved, not just by my opinion but also according to Bill.

Startup weekend in Astana, Kazakhstan


Startup Weekend 17.-19.5. at Astana, Kazakhstan. One of the things we liked there, is the pretty concrete approach into a customer development. On Friday there were just ideas, on Sunday some were actually already selling something for real money, i.e. testing their product as well as channels. Here’s the future fast food chain in the making, one of the first sales of their.

Astana Innovations arranged a Startup Weekend event 17.-19.5. One of our partners, Juho Risku were coaching there along with a great local coaching team and such international startup professionals as Maxim Shekhovtsov (Genezis Capital), Nikolay Savin (GrowthUP) and Karl Johannesson (Widsith Consulting).

In addition to fast food case mention above there were web and mobile startups as well as some around such ideas as waste handling and green energy. During the weekend almost 100 ideas were condensed into roughly 20 startup teams. The teams carried out customer surveys, did sales call trials, built prototypes and prepared their pitch presentations. For instance there were several launch ready web sites developed. It was great to see such amount of young people working towards new startups in such a concrete way.

Startup selection, agility, performance and trust

There has been plenty of discussion about the startup performance. One stream of such discussion relates to the selection of good startups and methods used for such selection. In my opinion there is a need for a combination of several different tools, including the heuristic analysis of the startup and its market potential, action driven cash flow models as well as portfolio risk analysis models.

Heuristic analysis should be useful because the traditional economic forecasting models cannot accurately predict the performance of a single startup due to many unknown factors in play. Action driven cash flow models help to understand the business model and market dynamics, and to identify the key metrics, customer conversion funnel as well as pin point the conversion problem areas once invested early on. From the portfolio point of view it is important to maximize the exposure to non-capped upside, i.e. positive black swans (Taleb, 2010), but limit the downside risk, both in terms of single failure, as well as interdependent systemic failure point of view. This should be great area for mathematical portfolio risk analysis models, such as the value at risk or shortfall (Goldberg, Menchero, Hayes, Mitra, 2010).

I believe that from the perspective of startup performance, however, what happens after the investment is much more important than before the investment, especially in the early stages of the startup life-cycle. In my opinion, the ‘trust’ between the venture financier and start up founders is vital. I made my thesis on the topic a few years back and formulated the ‘trust’ model in it (Risku, 2010). The model suggests that the ‘trust’ could explain the effectiveness of the relationship between venture financiers and start up founders and that the ‘trust’ could be the essential catalyst for startup performance. Behind this thinking is the premise that the ‘trust’ promotes agility. Interestingly, the recent ‘lean startup’ ideology proposed for example by Steve Blank (2007) and Eric Ries (2011) and ‘trust’ both point towards the ‘agility’.

Taleb N (2010) “The Black Swan, The Impact of the Highly Improbable”

Goldberg L, Menchero J, Hayes M, Mitra I (2010) “Extreme Risk Analysis”

Risku J (2010) “Trust Ecosystem: The Foundation of Startup Performance”

Blank S (2007) “The Four Steps to the Epiphany: Successful Strategies for Products that Win”

Ries E (2011) “The Lean Startup: How Today’s Entrepreneurs Use Continuous Innovation to Create Radically Successful Businesses”

Socializing Friday at Business Kitchen


Juho Risku 22.3. talking at Socializing Friday event at Business Kitchen. The other two in yellow shirts are: Janne Salmi one of the Socializing Friday team members in middle and lean entrepreneur Ola Sundell on right.

Juho took part at interesting opening discussion at Socializing Friday. Ola said that he’s is still looking for the barber shop offering coffee while getting his hair cut and we were asked if Butterfly would finance in barber shop offering coffee also. Antti told other participants to look at us and guess if we would be interested in such business (we are almost bold and Juho is known to shave his own head). Juho said that we could consider investing in a new service business opportunity for somebody to serve coffee to all customers of any barber shop. So if not money from us, then at least new ideas. 🙂 But more seriously we again had some very interesting conversations with potential tech investment targets. Thanks for the Socializing Friday team for the opportunity to be there. Oulu rocks!

Building bridges


Silicon Valley with Mikkel Svane

Juho Risku discussing with Mikkel Svane the CEO of Zendesk in Silicon Valley. Zendesk had just closed $60 million round.

One of our key ideas is to actively build such bridge ends that will ease up the market entry of our portfolio companies. Our trip to Silicon Valley was very productive. In addition to number of VC funds and accelerators we met entrepreneurs, such as Mikkel Svane from Zendesk. Zendesk btw. is an excellent example of a modern startup which has built their business around the customer centric idea of creating a great product above anything else.

Why early stage in Oulu right now?

It’s been frequently said that on going deacade is the decade of early stage venture financing. For instance according to Mark Suster the upcommign decade is “one of the best and most rational investment periods”. While there’s several factors contributing to this view, probably the most important reasons is the technological rupture that has made initial stages of startups cheaper and therefore investing into early stages more attractive.

Oulu is one of the leading technological hubs, especially when it comes to innovation. For instance, in 2011 the Foundation for Finnish Inventions received >1.2 submissions / 1000 people from Oulu region. That is about twice the ratio of Helsinki region. Overall Finland has a higher rate of annually granted patents to population than the US for instance, and Oulu, in terms of density, spots out like a Silicon Valley there. Indeed Fortune Magazine selected Oulu as one of the 7 best new global cities for startups. Still venture investments in the province of Oulu are <10 € per capita. This is significantly less than in Helsinki (>20 €) or primary competitors (Sweden >12 €, Great Britain >20 €, US >70 €), let alone in Israel (>150 €) or Silicon Valley (>1000 €)*. The same type of trend can be seen in the GDP venture investment ratio. In practice this means that startups in Oulu are somewhat underfunded and one gets to select better startups with reasonable valuations there.

At the same time there has been huge transformation in the employment markets of Oulu, which has improved the startups’ ability to recruit the best. Nokia and its subcontractors have released significant amount of talent and they don’t recruit full cohorts from university as they used to. A career as a founder of a startup is a very viable option right now. As Oulu is eligible for EU regional aid, for instance TEKES NIY funding maximum is 1.25M€ instead of normal 1M€. In addition Oulu has invested heavily into services and infrastructure required by the startups.

All these factors make the Oulu region a very attractive option for an early stage venture capital fund like ours right now.

* Finland figures from FVCA, Sweden and UK from EVCA, US, Israel and Silicon Valey from several other sources. Figures aren’t conclusive, but give a direction of where each area stands.

Disruptive ideas supercharged

Welcome to our new blog. I’ll start this blog by explaining how we look at the world;

We have to think differently to conquer the globe. We have to build technologies that rock. And customers need to feel the rock’n roll. And still the old army slogan is one we need to understand; a chain is only as strong as its weakest link. That’s the reason why we need to team up with entrepreneurs with great ideas and technical and business skills.

We are seasoned professionals in international technology business. We’ve been there and done that. And still we are learning more and we don’t expect our ways to be perfect. But together we expect to create and expand technology businesses that change the way we live and do business. Such businesses are often IPR intensive. That is the way to get financing or to do better deals with partners. Or it may be the way to dramatically increase the exit valuation. Our job is to help tech-savvy entrepreneurs to create solid businesses with ultimate goal of doing an exit making the entrepreneurs very wealthy.

We have to be innovative, yet realistic and creating a whole package that rocks bringing disruptive technologies to the global marketplace.

This is not just business, it’s an adventure!