For venture backed startups an often illusive part is ‘the exit’ (the point in time when a startup either gets acquired by a larger company or lists on the stock market). Waze founder Noam Bardin’s story of how Google acquired Waze is a good read with six lessons of practical and useful tips for founders and investors.
Month: June 2023
Nordic capitals all strong startup ecosystems
Startup Genome has released its The Global Startup Ecosystem Report 2023. It ranks the top startup ecosystems using a formula based on performance, funding, connectedness, market reach, knowledge and talent+experience. Best ecosystem in the world? Still Silicon Valley, ahead of New York and London.
From a Nordic perspective Stockholm ranks 22 and Helsinki 39. In Emerging ecosystems Copenhagen ranks 1 and Oslo 17.
Among European ecosystems Stockholm reaches 5th place, behind London, Berlin, Amsterdam and Paris.
I don’t think the report fully does justice to how strong the Nordic ecosystems are as a whole (but it doesn’t set out to do that). Together the four Nordic ecosystems are easily competing with the top 10 global ecosystems.
But we need to continue to found and invest in great startups to keep or advance our place in the rankings. Especially Swedes, who in the most un-Jante way, keep repeating the phrase “Stockholm has the most unicorns per capita after Silicon Valley“, even if that is likely no longer true.
That is not to say it cannot be again, as a city like Tel Aviv (ranking 5th globally) is a great example that a small ecosystem can place significantly higher in the global rankings than 22.
Global Startup Ecosystem Ranking 2023 (Top 30 + Runners up)
When partnerships fail
When a partnership fails both parties are usual cordial. And that was the official comments when Spotify and Harry & Meghan canceled their podcast partnership (“Spotify and Archewell Audio have mutually agreed to part ways and are proud of the series we made together“).
However, Bill Simmons was way more direct on his podcast: “Bill Simmons, the Ringer founder and head of podcast innovation and monetization at Spotify, recently ridiculed Prince Harry and Meghan Markle on his podcast, labeling the couple as “fucking grifters” Simmons’ comment follows the Duke and Duchess of Sussex’s Thursday announcement that their production company, Archewell, had severed ties with the audio company. The pair inked a $20 million deal with Spotify in 2020.”
Acquired interviews Dara Khosrowshahi (CEO Uber)
Acquired interviews Dara Khosrowshahi, CEO of Uber, on his career and Uber.
Also on Spotify.
From almost one investment per day to one per week
Venture capital and especially later-stage venture capital is pro-cyclical. When times are good there are a lot of investments made at high valuations, and when times are bad there are not many investments made and valuations are lower.
To see the actual numbers from some of the best firms in the business is eye-opening. But also what an extreme tempo in new investments Tiger and Insight had during the 2021 and 2022 boom.
Venture capital is the worst form of funding, except all the others
Edward Norton is one of my favorite actors, but his comments at Brilliant Minds, as shared by Lise and Caroline, about the old VC model of spray and pray and high growth not working for meaningful companies has lingered in my mind since reading it earlier today.
For cash-poor founders Silicon Valley-style venture capital is the worst form of funding, except all the others. It is a funding type that fits a specific type of companies (that can be meaningful), but for that type of companies it is 10x better for founders.
Venture capital sometimes is held up as an example of something that isn’t working. That critique is sometimes fair, not least as venture capital is not a fit for many companies (three reasons being perceived as a small company, growing slowly and being very capital intensive). However, something that is small and is growing slowly is unfortunately unlikely to make a significant positive impact on the world.
Sometimes the critique is given by someone who is selling a new style of investment to investors and is using the weaknesses of traditional venture capital as examples of the status quo that needs to be changed.
However, one should remember that venture capital has an amazing track record of funding companies that have made a significant positive impact on the world at scale. And doing so in a way that has made money for founders, employees and fund investors like pension funds, foundations and endowments. And I think it will continue to do so.
When 5 years is short term (making money when angel or venture investing)
Investing in startups is one of the most meaningful types of investments. The impact on new products, job creation and a better future is clear. But there is one big drawback, it usually takes a long time to get one’s invested money back.
European venture capital is back to normal, early-stage holding up in 2023 vs 2022 and 2021
Atomico has released the latest update of State of European Tech.
Venture investments are down from 2021 and 2022, but the data indicate that 2023 is likely going to be the year with the third highest amount of capital invested, at several billion dollars more than 2020 and 2019.
One cyclical effect of boom times like 2021 and the beginning of 2022 are mega rounds. Those seem to have gone away in 2023, except for AI companies. Looking at early-stage investments (rounds smaller than $15 million), the year-over-year drop is much lower (maybe 10-15 % from $19 billion to $16 billion for the full year).
One interesting datapoint from a Swedish and Nordic perspective is that startups in each country haven’t attracted a lot of capital (e.g. less than Swiss and Dutch startups), but as a group the Nordics seem to get into fourth place behind the UK, France and Germany.
My guess is that the lead of the UK and France in particular will get increase in 2023 as they are stronger when it comes to AI with the heritage of DeepMind in the UK and Meta’s AI operations in France.
Seed rounds of different sizes
My friend and former Spotify colleague Sriram Krishnan (now a partner and co-founder at Kearny Jackson) has written a good (and short) post called Funding Landscape.
It is about the nuances of raising pre-seed and seed capital, with a U.S. perspective. Despite the U.S. perspective it still is very relevant for the Nordic situation.
The two most common types of rounds are practically identical between the U.S. and the Nordics:
- a pre-seed of $0.5-1.5 million raised at a $4-10 million valuation
- a seed round of $2-4 million raised at $10-20 million valuation.
Sriram also gives two good pieces of advice to founders when it comes to fundraising:
- Understanding your funding needs and managing the expectations associated with capital raised is important.
- Take the time to research and identify the investors who typically participate in each seed round.
A founder needs founder-market fit
Charles Hudson (Precursor Ventures) on due diligence questions at pre-seed. His blog post covers questions about founders and key people, equity ownership, corporate structure, finances and expenses. Good questions.
Charles mentions that former colleagues, at reference checks, are rarely great at identifying if someone will be a great founder or entrepreneur.
I agree with that. One reason is that a founder to be “a great founder” needs founder-market fit. I.e. being a great founder is most often tied to building a company in a specific market and not a general professional skill. And former colleagues are unlikely to catch that.