Following up on “Go West…”

Following my initial post Go West young man or woman! there’s been some discussion here and at Should you bother raising Danish / Nordic VC money?.

Here is my consolidated comments to in particular the comments by Nikolaj Nyholm:

Just as easy it may be to do bashing, it is to dismiss justified critics as bashing 🙂

My original post Go West young man or woman! in this thread was meant to express the frustration when advising quite a large number of Danish start-ups for the last decade or so as these were either funded or had funding rejected by Danish VCs.

In the same period I had observed that almost every single Danish start-up or partly Danish start-up (to the extent that defining a start-up with some kind of nationality makes any sense) that had achieved international fame had in fact gone from start-up to success without (or almost without) any Danish VC-money being part of the equation.

This led to my obvious conclusion in the initial blog post that an important advice to Danish start-ups would be, if they were in any way in a position to do so, to circumvent Danish VC-money and go directly to international or more well-connected and knowledgeable funds for money.

I do not think that we here are experiencing a particular “Danish” situation. Numerous studies have shown that expertise in the start-up world, in particular with respect to the funding ecosystem, favours clustering. Therefore, it is difficult for a relatively small country like Denmark, such as it is with almost all other small countries, maybe with the exception of Israel, to obtain a critical mass of expertise within advisors, funding and all the relevant aspect of start-ups.

This being said, it is far more interesting to discuss what can be done about it. How can Danish or regional start-ups get access to “smarter money” regardless of whether this is provided by Danish investors or not.

In my opinion, local VCs such as VCs in Denmark should seriously consider to redefine their role in the the local or regional funding ecosystems. There is no silver bullet here that can be fired. But there are a couple of important ways that the situation can improve to the benefit of Danish or Øresund regional start-ups and for the societies from which they draw their human resources can benefit.

First it is vital that the people with the money do not only bring the money but that they also have the necessary skills to understand, teach and challenge the young entrepreneurs not just with respect to bookkeeping and auditing, but in particular with respect to their technologies, business models and markets. The best way to secure such skills would be for the local VCs to hire and partner up with people who has entrepreneurial records themselves. That is people who has succeeded or fail in the post dotcom market and who has a truly international perspective and network.

Not just people who have been managing other people’s money for all of their lives, in-middle or higher level managers in smaller or larger companies started by others and not just people who have been entrepreneurs 20 years’ ago and in a total different market than the current and future. And maybe most importantly, people whose network reaches far beyond the government circles from where many local VCs gets a large chunk of the money for their funds.

Luckily there are plenty of successful entrepreneurs who already have the experience to substantially add value to the Danish VC environment. More people like Nikolaj Nyholm should fully join or informally partner with for instance Danish VCs.

Secondly I think that many VCs should rethink their position in the funding value chain of a start-up. As I mentioned in my previous post, it is problematic that Danish VCs often add another round of financing to a startup’s capital structure when that was perhaps not necessary in the first place. (I completely acknowledge that not many Danish start-ups would merit financing from one of the successful international VCs. My thoughts here are only meant to deal with those who actually merit this.) For such start-ups with high potential it would be much better from the outset to be focused on getting international finance.

So instead of providing a large amount of first round of VC funding for Danish start-ups, this money should preferably be split into a much smaller portion and go to a larger pool of start-up talent. This would probably amount to seed or angel financing. But again, such financing would have little value unless being accompanied by the skills described above and a high value network.

Thus, my suggestion would be for Danish VC-money more to concentrate on pre-seed or seed financing of a larger amount of Danish start-up talent thereby nurturing a huge field of potential investments targets for international investors. The Danish VCs should build up a large portefolio of such minor investments with relatively few transaction costs, and focus more on being able to present the “best from the sandbox” to their network of international investors and then have the sufficient funds to co-invest with the international investors in those start-ups that made it all the way.

I do not know if this will happen to the extent that a lot of Danish VC funds derive from public money or semi-public money such as indirectly publicly supported pension funds decisions are not always made from a purely profit-maximising perspective. But I hope so.

  1. Richard Blackham avatar

    As a recent victim of 8 weeks of time-wasting (aka Due diligence) at the hands of a so called Danish VC (one of those who lives on government handouts), I will happily concur with the sentiment put forth by Martin.
    I have yet to see the spirit of ‘Venture’ be exercised in the Danish market. many claimants to the title of VC but no-one willing to speculate beyond their own known world. I met many comments in the past months about how valuable it is to start in Denmark with funding. Why? I can make just as much noise outside Denmark and get rewarded in gold for it. And that is exactly what I intend to do.
    Those who have been funders of projects that have crossed the chasm so to speak and re-located to communities where they are more fully nurtured in their aspirations are now gone. The old guard is drawing in their horns. The Boomers are behaving like the old folk…you know the ones…they resemble our parents. It must be a generational thing. VCs lose their ‘Venture’ gene when they hit an undisclosed amount on their bank accounts.
    The new guard are too busy protecting their jobs to be outlandish as I have just discovered. Like the educational establishments whose portals they stand around like crows waiting for easy pickings, there should be a demand on them to earn their titles as ‘Venture’ capitalists….otherwise they should lavish in their status of risk adversity and align themselves with banks as people you really don’t want to talk to.

  2. […] in a series of posts on Danish VC. After some initial bashing of the Danish VC-scene, Martin did a follow up post with a more balanced approach, simply pointing out that there is no way we’re going to build […]

  3. michael avatar
    michael

    Richard – if you want a quick second opinion from a European VC, let me know

    michael at mangrove-vc dot com

    No guarantees, but we actually gain a Venture Gene when we have enough on our bank accounts to not worry about failures or careers

  4. Joseph Dung avatar
    Joseph Dung

    Just curious, how similar or different is the Danish vc model from the swedish one? A lot of reference has been made to the type and quality of startups from Sweden (more consumer focused) while the smaller Danish market tends more towards b2b types. Could this also be a factor when attracting international attention and vc as well?

  5. Anibal Damião avatar

    The initial clash between in/outside funding started in the StartupBootcamp blog, which is floating in the pre-seed world of entrepreneurship.

    My follow-on thoughts go into that phase: early stage money is hard to get and it can get even harder for bootstrapped companies. Being funded is expensive for these companies, due to time and focus drained out of the team: I believe that “the west” option may be improved by facilitating further the way funding can be obtained, introducing a leaner and more liquid process.

    Any thoughts or experiences on how bootstrapped/money constrained companies have been getting funding within this topic? Is, is it possible at all to make a grassroot/cheap effort while targeting foreign VC’s?

Leave a Reply

Your email address will not be published. Required fields are marked *