I USA lever gründerne på venner, familie, “bønner og ris” – i mangel av offentlige finansieringsordnigner, skriver Jennifer Vessels i Nextstep.
While Silicon Valley and Oslo share a strong passion for technological innovation with a growing desire for Norwegian entrepreneurs to achieve the dream of international success, the path to funding success is quite different in Silicon Valley.
First, the good news…with the currently strong economic growth in the valley, there IS capital available and deserving startups and mature (founded 2010-2013) companies are receiving VC, institutional and angel investments. However the key word is ‘deserving’. While there are examples of ‘hot companies’ that receive funding by simply being in the right place at the right time, generally US investors make funding decisions based on a company’s demonstrated market position, customer traction and positive financial results.
Initial Funding
One of the greatest differences between Oslo and Silicon Valley is the lack of strong public funding options in CA and the US in general. Without access to or support of ‘federal or local’ organization (such as Innovation Norway), the Silicon Valley entrepreneur must depend on either his own funding or that of ‘friends, family and fools’ ie his network and supporters for initial capital.
Many budding innovators live on a diet of ‘beans and rice’ while investing their savings, taking a second mortgage on their home or working at their ‘day job’ to pay the bills for the first years of the company.
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When the entrepreneur has a prototype, beta customers and evangelists that can speak to the value the solution brings to the market, the entrepreneur is ready to begin to approach initial investors.
Outside Investors Look for Customers
Today, the term ‘investors’ can refer to traditional venture capital firms which invest long term for a management fee, board seat and high ownership stakes or ‘angels’ who would general provide less capital but offer mentorship and less aggressive terms. There is also strong growth in boutique venture firms that represent best of both worlds.
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One of the first questions, however, that the entrepreneur can expect from any investor is ‘who are your customers’ and ‘what is your current and planned revenue’. While revenue creation has always been important, after the Great Recession, the need to show a clear path to profitability through customer adoption is critical. Even if initial customers have purchased on discounted basis, the fact that they have seen value worthy of a purchase is required validation for most investment.
Customer Funding
Therefore, in Silicon Valley, Customer Funding is often considered in conjunction with Angel Funding and prior to Institutional or Venture Funding.
For the Norwegian entrepreneur dreaming of Silicon Valley, Next Step’s team would recommend leverage of any available public funding in Norway to provide initial investment to develop the prototype, gain market feedback and initial customers. Then, through Customer Funding achieve traction and validation before approaching angels or VCs for the investment needed to scale the business.
Successful Silicon Valley Funding
Gaining funding and presence internationally can be a great opportunity for a Norwegian entrepreneur. US investors generally have greater resources and levels of capital to invest; however the requirements for gaining funding are also higher and include:
- Committed paying customers
- Revenue stream and credible forecast demonstrating a 25-50% growth rate
- Plan for profitability within two to three years of funding
- Team strength including experience building a profitable business.
To maximize success, the Norwegian entrepreneur needs a strong plan for and demonstrated success in commercializing the product with paying customers and revenue traction.
Om Jennifer Vessels
Jennifer Vessels er CEO i Next Step, et globalt konsulentfirma basert i Silicon Valley med kontorer i Oslo. Selskapet har i dag 40 ansatte og har siden 1997 hjulpet selskaper med å øke inntektene i forkant av investeringsrunder.
Vessels vil i tiden fremover gi 3in.nos lesere innblikk i forskjellene mellom det amerikanske og norske gründermiljøet.
Hi Jennifer:
Great article and agree very much with your advice and recommendations. Strong focus on revenue generation and customers, including Customer Funding, is key to success over here.
I just had a visit by a Nordic “Edupreneur” who was here for an interview with the Imagine K12 Education accelerator in Palo Alto. This and similar accelerators are an interesting option that some Nordic entrepreneurs might also consider, as a short stint–4 months in the case of Imagine K12 (which comes with access to $100,000 in seed funding)–may be a good way to find possible paths to customers and investors. This is especially true for edupreneurs, since this accelerator is known for great connections to both potential customers (teachers and school districts) and excellent (mentoring) services. I have been very impressed by the companies pitching at Demo Day at Imagine K12.
I recently also attended an event at what is now called GSVLabs–which you no doubt know well, as it is located near you, in Redwood City–and to my amazement they said they have 50 education and learning companies in their Education Accelerator. And Michael Moe, the key guy there, is known for having strong investor connections.
Finally, one emerging trend in many accelerators, is their growing collaboration with large enterprises, as these are increasingly embracing “open innovation” and try to innovate by “getting close” to startups with great ideas. These kinds of connections can be very helpful in co-developing products and services, and can result in great reference customers
Eilif you bring up a great point regarding enterprises needing and gaining significant value from collaboration / relationships with entrepreneurs and their ideas / companies. This is an area in which Next Step has helped many Nordic (and other including US) SMEs to grow.