“Introduction to startup investments”
Magnus Naustdal Eirik Feedt Esben Anneberg Poulsen Senior Associate Senior Associate Head of Arkwright X Education: INDØK – NTNU Education: NHH/ St Gallen • • Education: CBS • Arkwright Consulting Arkwright Consulting • • Arkwright X • Experience as advisor on Experience as advisor on • • Experience as advisor on • change management, growth digitalization, restructuring, growth strategy, pricing strategy, VDD/CDD and growth strategy, VDD/CDD strategy, organizational corporate finance and corporate finance design and M&A projects and pricing
Arkwright X is 100% owned by Arkwright Consulting Arkwright Consulting covers Strategy and Disruptive Operations & organisation corporate finance consulting technology incubation Corporate advisory firm, North European network – Founded in 1987 – Stockholm, Oslo and Hamburg, total ~90 employees – Owned by senior staff Working only with private companies – Sole focus on value creation – Continuous relationships Broad industry expertise – Oil & Gas/ Energy, Construction, Process Industries – Private Equity, Financial Services – Retail/ FMCG, IT & Telecom, Media 04 September 2018 | 3
Introduction to Arkwright X A startup incubator Focus on B2B investing in 4-7 new software companies startups each year Primarily pre-seed Startups will reside and seed phase in Arkwright offices startups in 12-18 months 04 September 2018 | 4
Our investments so far Current companies in incubator: Simulation Finance Vilect is automating Automated real- Creates an Removing the pain Spacemaker is is SaaS for low-skilled hiring, time monitoring intelligent digital of physical keys disrupting urban Corporate starting with the and analysis of twin of building sites and the need for planning with the Financial Planning & retail sector news and social which allows for access planning use of AI Risk Management media for banking monitoring of field and finance progress in real- time ‘Graduated’ from AX Other Arkwright investments: 3-D printing to Enables public and Helps businesses Rethinking FJONG makes it Wireless break provide private become more insurance by easy to rent and technology for in-port parts on organizations to successful by making ‘tribes’ of share clothes from Mobility, Sports and demand for the easily process, enabling them to friends that a digital and Kids Safety maritime and preserve, and access utilize their greatest together can bring intelligent closet offshore industries their most valuable asset to the full down your documents insurance costs significantly Pre-seed Seed & venture
Agenda Increased startup activity and the drivers behind it How the big corporates adjust to the new reality How to pick the right investments Startup valuation at a glance 04 September 2018 | 6
Agenda Increased startup activity and the drivers behind it How the big corporates adjust to the new reality How to pick the right investments Startup valuation at a glance 04 September 2018 | 7
Introduction to the startup funding options Public/government grants Equity funding Debt / convertible debt funding Public financing should be maximized Borrowing cash you will have to pay Money you receive in exchange for to the extent possible back. Examples: Small business loans, issues share of your stock accounts receivable (AR) line, venture debt. Several types of equity investors exist: Convertible debt is essentially a mash- up of debt and equity (see deep dive on convertible notes) EU finansiering Dagpenger Oversikt over støtteordninger (Pre-) seed funding Bootstrapping The 3 Fs Crowdfunding Angel investors Venture Capital firms Pull yourself up Friends, family Raising financing Smaller professional Incubators, Typically invest in without the help of and fools from a large number operations – often 1 accelerators, seed companies past seed others (this is not of people person offering funds (‘ såkornfond ’) stage – invest larger actually “fundraising” equity and – investing in pre- amounts and demand as such) mentorship seed (and seed) phase more control Less formal than receiving funds from Use personal savings, Investing in pre-seed professionals get home equity/ and seed phase Make sure you personal loan (or use Arkwright X has a formalize the credit cards) network with several process and are Avoids dilution and capable angels / transparent with outside interference, industry experts regards to but increases your investment risk own risk (by using Limited value own savings) and can contribution besides slow down financing development 04 September 2018 | 8
Typical funding rounds Ranges can vary significantly from case to case and from country to country 150-400 Typical amounts of funding raised in the Nordics (MNOK) 60-120 Typical valuation 10-20 20-80 80-150 ranges (MNOK): 15-60 3-15 Time 0,5-3 Pre-funding Pre-seed (angel) Seed Series A Series B Bootstrapping, 3Fs, angels, (pre-) Angels, seed Early stage VCs VCs government grants seed funding firms firms/VCs, early stage VCs 04 September 2018 | 9 Source: Pitchbook and Arkwright research
We are seeing A LOT of new startups ~3 ~11,400 ~274,000 per second per hour per day Source: GEM global report 2016
Startup investing has been increasing in recent years… Investments in European startups Investment in startups in Europe (In Bn € ) 9 8 7,91 7 6,38 6 5 4,98 4 3,32 3 2,79 2 1,95 1,65 1,57 1,43 1,41 1 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 04 September 2018 | 11 Source: Startup hubs Europe
…also in the Nordics NORDICS 1 NORDICS 1 Number of startup tech investments Amount of capital invested +154% +338% # of investments mUSD invested 793 2,718 708 2,150 1,820 339 846 181 2014 2015 2016 2017 2014 2015 2016 2017 04 September 2018 | 12 Source: The Nordic Web 1. Norway, Sweden, Denmark, Iceland and Finland
The Nordics are leading in Europe 50% of Europe’s >1 BUSD unicorn businesses from the Nordics Nordics 8% Nordics 50% Europe 92% Europe 50% GDP Unicorns Source: GEM global report 2016, 2016 Norwegian Funding Analysis
Sweden is still far ahead of rest of Nordics 2015 2016 2017 # of investments per country Iceland Norway Denmark Finland Sweden # of investments 442 388 143 123 125 120 99 78 87 84 65 30 17 20 11 Amount of capital invested per country mUSD invested 1,674 1,318 1,007 446 405 350 274 233 194 196 172 198 85 51 22 04 September 2018 | 14 Source: The Nordic Web
Stockholm is a unicorn stable Stockholm produces the second-highest number of billion-dollar tech companies per capita, after Silicon Valley 04 September 2018 | 15 Source: OECD
More startups and more investments in startups More startup More startups investments 04 September 2018 | 16
The drivers behind the growth in number of startups Drivers Lower price of core technologies Increased connectivity Access to capital 04 September 2018 | 17
Reasons individuals invest in startups Potentially generating uncorrelated outsized returns and provides portfolio diversification Craving to be involved in driving positive change, bringing new solutions to life The desire to generate enhanced investment returns for their investment portfolio for retirement and beyond Looking super smart when you're winning startup picks become hot trending topics 04 September 2018 | 18
Reasons corporates invest in startups 04 September 2018 | 19
Effect of innovation is greater than ever 61 year life span 61 17 year 31 life span 23 17 1955 1975 1995 2015 Source: Innosight /Richard N. Foster/Standard & Poor’s
Effect of innovation is greater than ever 61 year 75% of the S&P 500 will be life span replaced by 2027 61 New businesses 17 year 75% 31 life span 23 17 Old businesses 25% 1955 1975 1995 2015 2027 Source: Innosight /Richard N. Foster/Standard & Poor’s
Investing in startups is also a way to mitigate risk CVC makes it possible to pursue several technologies and business models at a limited cost of capital and resources relative to in-house R&D efforts Enhances exposure to markets outside core and likelihood of discovering attractive new markets and offerings Increases knowledge of innovation trends in the market and thus reduces risk of falling behind competitors 04 September 2018 | 22 Source: Accenture College Graduate Employment Study
Talent is looking outside large corporates for jobs Only 1 in 7 students want to work for a large company when they graduate 20% 16% 15% 14% 2013 2014 2015 2016 04 September 2018 | 23 Source: Accenture College Graduate Employment Study
Agenda Increased startup activity and the drivers behind it How the big corporates adjust to the new reality How to pick the right investments Startup valuation at a glance 04 September 2018 | 24
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