ACTIVIST VC BLOG
Surprisingly, I quite often hear local Nordic industry experts claiming that all good startups always get funding – that they will get international funding even if there is no local money available. And from this, they infer that the availability of local funding is not really a bottleneck for growth companies.
I believe this is a wrong conclusion and here’s why.
It is true that superstar companies tend to get funded; and by superstars, I mean the absolute best of the best with a stellar team and a compellingly presented billion-dollar exit story etc. But that is not your typical real life example. In our experience, the majority of potential high return investments have most of the elements for success in place but have still same major flaws turning big global money away.
Below are some examples of Nexit’s investments where the availability of smart local VC funding made a major difference:
- Wrong Focus – too remote business idea
In the year 2000, Mobileway, a French-US SMS aggregator, was too too crazy idea for US VC’s. Unlike in Europe, text messaging was still far from being mainstream in the US. Nexit became the first VC for the company. This “reject” was sold just a few years later to a public US technology company Sybase for nearly half a billion dollars.
- Bad timing – a downturn can hit hard the VC activity
Both in 2000 and 2008, the international VC funding disappeared from Nordics for several years, while Nexit made many successful investments. Aava Mobile is a prime example: late in 2008 Flextronics decided to close down its highly specialized smartphone and tablet design lab in Oulu, Finland – including a team responsible for design of smartphones sold over 100 million copies. With Nexit support, the management team shaped a great success story out of this unique skill pool. There were no competing sources of funding around…
- Lack of Management – typically a big turn off for VC
The lack of right people is an issue a local Activist VC can sometimes digest and help to solve. One example of this was our Danish portfolio company Octoshape. The investment was made despite the clearly seen need of a major management upgrade – an upgrade needed for the next phase in company growth and execution. The new CEO, Michal Milland, was brought in after our investment. Under his leadership the company build a much stronger team, scaled fast and was soon sold to Akamai returning by itself half of the Nexit fund.
- Wrong use of funds – funds used to buy out other shareholders
VC’s are fast to reject deals where funds are used to buy out other shareholders instead of growing the company. In the case of Hybrid Graphics, our investment was used to buy out old investors. Nexit helped the company to make a fast pivot to mobile graphics and soon after Hybrid was sold to Nvidia returning 10x profit for Nexit. The same use of funds problem was true for the Octoshape investment mentioned earlier: a significant portion of the Nexit funding was used to buy shares from the original founders.
In short: Nexit has made several very successful investments while international VC funding was not available.
It is our firm belief that local VC money is vital for growth companies. It is equally important that the money is smart and professional to recognize real growth opportunities and related problems – problems that a local Activist VC can digest and help to solve. And quite often, an active local syndicate partner is instrumental for an international VC to come over and invest in a promising but far-away company here in the Nordics.