Investment selection - tips from a VC

We had Jan-Erik Hareid from Alliance Venture to share his experiences in the session "How to pick a winner" at Angel Challenge. Here are some key takeaways.

Background information: Jan-Erik Hareid is the CEO of Alliance Venture. Alliance Venture is a Norwegian venture capital firm investing in early stage technology companies. Total capital under management is 850 MNOk. 

What do you first look for in the companies you evaluate? 
We look for great "People, Potential and Product" combinations. It means we look for unique ideas, with a product - market fit in combination with a passionate, energetic and competent team. It doesn't matter how good the idea is if you don't have the right team. 

Why did you invest in Xeneta? 
It's a huge market opportunity. What they do that is pretty unique in that they have managed to crowdsource online prices for the container shipping industry, building a huge database offering price transparency in an opaque market. The product is disruptive and it has the potential to become a marketplace. A big market with a team that has industry experience is a great combination. 

Why did you invest in 
The product is improving productivity in product design and development, based on experience that the founders had in their own business. It is not that unique, but the market have not seen anything like this before, and they have received good traction with leading tech companies in Silicon Valley in a short period of time. 

The two T's - Traction and Timing  
After People, Potential and Product - we look at Traction and Timing. Does the startup have traction? Does it know it's metrics? Is it the right timing in the market? In my experience, to invest in the right product at the wrong time is a bad investment.

What else do you look at? 
With founders we also ask the following questions;
Do you know your market? 
Do you have a clear go-to-market plan? 
Can you sell? 
Are you coachable? 
Are you able to focus and keep things simple? There's so many things that you can do and so many opportunities, so being able to focus is key
Are you transparent? 

How do you like to invest? 
We like to get to know the entrepreneur for a period before we invest (typically 6 months or more), and it's even better if we know the entrepreneur from the past.

How is the state of funding in Norway? 
It's a good amount of early stage funding in Norway, the hard part is the next phase - what we call the "Series A Crunch". This is the first major round of venture funding, typically between 3-10 MUSD. There are very few VCs in the Nordic market, and the bar to obtain funding from VCs has been steadily increasing in terms of revenues and business metrics.

Some ending advice on company evaluations?
Founders should not give away too much to investors in the very first rounds, but at the same time it´s important that the valuation is not too high to secure gradually higher valuations in the next funding rounds. If the valuation during pre-seed investments is too low or too high it´s challenging to get follow-up investments. One reason is that the founders have to have enough ownership in the company at the time of our investment, so that they have the right incentives to continue building value in the company. The founders need to have sufficient ownership at the time of the exit so that it's worth the time and hard effort required over a many years. 

Written by Maja Adriaensen, co-founder of Angel Challenge and CEO in Startup Norway. 

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