Building a company from scratch is generally a rough patch. As an investor, choosing which startups to bet on can be equally challenging. In fact, taking the best from both worlds might be the best way to build successful companies. Here is why I think co-founding is a superior model for shortening the time from startup to sweet spot.
Traditional venture firms have a “boxed” approach to investment scopes when they define the investment mandate of their funds. Early stage investors look to incubators, accelerators or angel networks for the next big thing, while venture capital firms look for revenue generating startups with promising growth rates.
Once the startups reach a certain level of revenue, a large number of growth funds and private equity players battle for the right to fund the emerging growth stars. However, getting access to the cap table of a promising scaleup when the initial risk has been reduced, is tricky; when the potential is evident, valuations skyrocket.
Our approach to value capturing is to pick up promising cases early and help them tick all the critical boxes faster than the competition.
Not your regular investment company
I work in an unconventional investment company called Norselab, where we pride ourselves in doing things differently. We are not venture capitalists. We cannot be called incubators either. We build startups from the ground up together with people who have either brilliant ideas or exceptional skills. Together with our co-founders we develop and execute a plan that both lowers risks and shortens the time to a successful scaling and radically increased valuation. Our approach to value capturing is to be there from the beginning and lead the startup from conception to sweet spot.
But going from nothing to a potential unicorn is - as you would expect - easier said than done. To maximize value, we need to work efficiently and focus on fighting the right battles at each stage of the startup’s growth path. So how do we know which battles to pick, and when to pick them?
We have drawn on the extensive knowledge in our experienced team of serial entrepreneurs and defined “The Norselab Way” to building companies. To sum it up:
Working with us means dealing with hyper active ownership.
We don’t believe in traditional investment scopes. We have a running funding dialogue with our companies and supply cash according to need, given by our shared growth plan with the co-founder. But more important than that: we always take the role as lead investor from the start. And when we do, we come bearing a robust strategic and operational toolbox to support and shorten the time from start-up to sweet spot.
Fill in the blanks
Being part of the early days of a start-up’s life means nothing really is in place. There might be an idea, a technology or a vision statement on a napkin, but the core business that is able to grow into the promising scale-up some years down the line needs to be defined and redefined – often many times, before its carved in stone. And carving it in stone in a Norselab context often means building the technology platform that eventually will support the core business.
Once our digital team starts coding, it’s like pouring cement on the scaling mechanism of your business.
Defining an MVP might be difficult enough. But foreseeing the potential requirements of the tech stack in the future, once the business evolves, is extremely challenging. And the foundation for that future solution is laid in the early days of the start-up. Once our digital team starts coding, it’s like pouring cement on the scaling mechanism of your business.
That’s why our operational team is keenly focused on getting the strategy right from the beginning. Although pivoting will happen later in the development path, achieving a scalable rig early on saves us valuable time and money in the long run.
Support the growth rig
As the product proves its value in the market our focus shift from defining a scalable core business to achieving a scalable operational machine. Acquiring a management team with the right mix of personal and professional competences is key. Building strong sales, delivery and customer success teams with clear priorities is another. Establishing governance structures to monitor and improve performance is key to prepare the company for continuing their growth path with new investors on board.
What does a sweet spot company look like?
After 3-4 years, a typical Norselab sweet spot company is an industrial B2B business model with proven market traction, latest generation cloud-based tech, a well-functioning sales machinery generating SaaS revenue streams with strong growth multiples. And most importantly: A great team.
A sweet spot company has ticked all critical boxes for a high probability of outperforming growth.Sticking with the company through the most critical phases of a startup’s life means we don’t have the privilege of opting out of making difficult decisions. It means we must be transparent about the challenges we meet and the potential consequences of the options in situations where the path splits.
I believe the responsibility we assume as lead investors across traditional investment phases makes it hard to cheat, which in turn leads to more robust companies.