How do you get investors to trust you?

For any investor to invest in a startup, they need to have a lot of trust given the scary statistics on how many startups fail.

You can even divide this trust into two things the investor must believe in: trust in the business opportunity (that the problem you are trying to solve is real, that the market is big enough etc.), and trust in your team (that you have what it takes to deliver on the opportunity).

But there is a big difference between early- and late-stage startups when it comes to how trust is generated. 

If you’re a late stage startup, you have a product, users, paying customers and revenue, and a team that have delivered the above. What this means is you have a lot of historic data, that is both quantitative and qualitative, to support your claims. You are able to provide credible answers to tough questions like: What is the cost of getting a customer? How much are they willing to pay? and How big is the market? Real data beats every scenario analysis there is. If you have customers paying, that is proof – and proof generates trust. Of course, they still have to have trust in you and the team, but it’s relatively easy to convince investors about the business because you have real data.

But what about an early-stage startup? You might have a beta version of the product, maybe you have some users, but you probably don’t have paying customers yet. You’ve hopefully convinced a few people to join you, but it’s likely to be an incomplete team. You have very little performance data; it’s all about the future. You’re saying, ‘I think there’s a big market; I think my customer would pay for this cool product if I made it.’

Early-stage startups should of course explain the business and market opportunity, but it’s really 80 per cent about you and 20 per cent about the business.

If it’s all about trust, how do you get early-stage investors to trust you?

There are two different types of investors: those you already know, and the rest. Perhaps you have an acquaintance, or friends and family, who know you and have the means to invest in you. Great, they know you and therefore trust you (and, if they don’t trust you, perhaps you should look in the mirror). Most startups will have to go beyond their personal network and approach investors they  don’t know at some point. When they do, they will need to build trust. The key point here is that trust is built over time. You’re unlikely to trust a person you have met for half an hour. This explains why you can’t expect to get the money on the same day
you meet a potential investor – there’s no personal trust. Even if they think you’re cool, feel you have what it takes, and you have a great business, the chance you’ll get money the same day or the day after you meet is tiny.

Entrepreneur turned venture capitalist, Mark Suster, from Both Sides of The Table, said, I don’tinvest in a dot, I invest in a line.

Imagine yourself as a dot on a graph with performance on the y versus time on the x. Even if your performance at a given time is good, investors want to see a line so
they can see you at different points in time. Investors look at entrepreneurs they heard about six months ago who had great plans for the future, and when they meet
six months later they may see they’re still not quite there yet but the line is going in the right direction.

As Lars Andersen, General Partner in SEED Capital, explains: The most common mistake startups make in relation to contacting VCs is that they make contact too late. Seriously, it’s about sticking your neck out there. Your product doesn’t have to be perfect. Build a minimum viable product, use it to learn about your customers, and start contacting VCs. We might say that it’s still too early, but that doesn’t mean never. The now successful wine scanner app, Vivino, had a first productthat was absolute crap, but they gave us something to work from.

This creates a paradox for many startups. You should not count on VC money too early since in reality they invest rather late in the process, but you need to begin building relationships with them early on. They need time to get to know you before they invest their money – just make sure you don’t waste too much time
on coffee with VC partners!

 

What does this mean to startups? You have to build relationships with potential investors before you need the money – you shouldn’t wait until you have everything in place. Create relationships now.

How do I get a public grant for my startup?

Learn how to convince the government to support your startup with a  grant and how Sepior got 2 million Euro in support from the EU

Governments provide grants to startups based on the assumption there is a market failure with funding for a specific activity and there are externalities, so it’s good for the government to make grants available even though it’s at a cost. They do get something back. The difference is that they believe these activities wouldn’t have happened without the grant. In other words, the key for success to getting public grants comes down to two things:

  1. The business idea helps the government achieve their goal
  2. The government is convinced you couldn’t have continued otherwise

The first point is that governments do not give money out to all startups, but only to those that can help the government meet a specific societal or socio-economic goal. In order to get a grant, the startup needs to know what they can help the government achieve. They need to find out what kind of support programmes have been created to achieve specific government goals (for example, improving jobs in certain industries, getting university research grants or advancing clean environment projects). Then comes the very important second point which many startups miss when applying for public grants: the government only gives grants to startups when they believe the startup would not be able to continue otherwise! If that isn’t the case, the money could have been better spent elsewhere, since the goal of the government is not to support your company but to achieve its own goals (by having more startups working on them). In other words, you will have to convince the funding body not only that your startup can help them achieve their goals but also that you cannot proceed without the grant!

So how do you ensure your startup gets the public grant out of the many that apply? You can improve your chances by having the following points in mind:

1. If you’re not a grant application expert, hire one!

To be fair to everyone, the government requires you to fill out plenty of paperwork to apply for grants. You need to include information about what you want to achieve and how you can help them achieve their goals.

There is of course huge competition for such public grants. The infographic below shows statistics for one of the largest public grants in Europe, the Horizon 2020 SME Instruments managed by the EU, where Phase 1 is the small grants (up to €50,000) and Phase 2 (the large grants of up to €2.5 million). For Phase 1 applications, eight per cent got funding and for Phase 2, fewer than six per cent were successful. They base their decision on the paperwork you submit. This is unlike approaching a VC fund or business angel where the personal relationship is key and you need an introduction. Wining and dining matters much less to get this type of funding; what you write down matters much more. You can get a conventional venture capitalist to invest in your startup if you’re a fantastic
person with charisma and a strong network and you’ve done it all before. But that’s no use if you apply for a public grant and write a poor application. You won’t get the grant even if your idea is great and you have a strong team to back it.

 

2. You need co-financing!

The time it takes to produce a good quality application, and the bureaucracy involved in evaluating the application, means it normally takes at least three to six months from application to grant. On top of this, most grants are paid as cost-reimbursement. The grant is paid after the cost has been incurred, leading to further need for short-term liquidity even if you get the grant. But you also need co-financing for the grant itself. Normally the grants don’t cover a hundred per cent of the cost. For most public grants, the percentage of cost covered by the grant is between 50 and 75 per cent. In the above-mentioned example, EU SME Instruments, the grant covers up to 70 per cent of the total cost. The startup must then fund the remaining 30 per cent or find other external funding. But if the public really want to achieve its goals, why don’t they pay a hundred per cent of the costs? Saving money is one reason, but another is that they want to ensure incentive on
behalf of the entrepreneur. Imagine if they paid a hundred per cent of the costs for a project. This would lead to a ton of applications from startups just to get their salaries paid. These would most likely be projects with a lower chance of success since the startups’ motivations are flawed. The government is looking to strike a balance with its grants: they want to invest in things that help the public achieve its goals and where there is incentive for doing so, but this can’t be done if the entrepreneur must cover a hundred per cent of the costs. Even with a government grant you need co-financing. It is however much easier to attract private investors (for example business angels) if you can go to them and say 75 per cent of the cost is already covered with a public grant!

Case study: Sepior receives €2 million from EU

Sepior is a Danish cyber security company that was founded in 2013 when it received €500,000 in funding from both a local seed fund and business angels.
In 2015 the initial product (encryption software to protect cloud data from hacking) was finalised and tested by a number of potential customers. Sepior, together with some partners, applied for EU funding of approximately €2,300,000 to be used for further R&D and further market development. The money was provided by the EU support programme SME Instruments Phase 2, which provides public grants up to €2,500,000 to cover up to 70 per cent of project costs. Why was Sepior (of which the author of this blog is co-founder) successful in their grant application?

 

1. Sepior found a public grant topic that fitted them very well.

The specific SME instrument topic was: “The Open and Disruptive Innovation (ODI) scheme aims to foster the development of fast-growing, innovative SMEs with promising, close-to market ideas bearing high disruptive potential in terms of products, services, models, and markets”. Here was a grant allocation clearly aimed at SMEs like Sepior, who were close to market (the core product was already developed) and had disruptive potential. Sepior had developed a ground-breaking technology that had the potential to disrupt the way we protect cloud data; all in all, a very good fit between grant topic and the project.

2. Sepior had a very strong team with external support:
Sepior is lucky to have a world-class technical team and one of its co-founders is one of the most cited researchers in the world within cryptography. This was a very important part of the successful grant application. In addition, Sepior asked outside opinion leaders in IT security to write letters of support which they included in the application. These letters gave even more credibility to the team.
3. Sepior showed credible co-financing:
When a relatively small startup asks for a €2 million grant, that pays up to 70 per cent of the costs, you don’t need a maths degree to figure out they also need significant co-financing. To improve the credibility of our application, and in order to convince the grant body we could secure such co-financing, we asked both existing and potential investors to demonstrate their interest in co-financing via letters of intent we included in the application. Together with extensive calculations on how we would cover the financing needs, that documentation was essential for us getting a positive review of our application.

4. Sepior spent a lot of time and used external experts:
The team behind Sepior was lucky that some of them had extensive experience in writing other EU grant applications while others had extensive experience in writing business plans and investor material. Compared to the average startup, we had the skills needed to write the application, and we literally spent hundreds of hours on it. The first time we submitted the application it didn’t get over the threshold. This highlights both the tough competition and how hard it is to write an application if you haven’t applied for the specific grant before and don’t know exactly what the evaluators are looking for. After the first attempt, we were close to the goal and decided to ask an outside expert to review our application and propose changes. The input from that expert, and the further hundreds of hours spent on revising the application, were essential for getting the grant the second time we applied.

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If you are interesting in knowing more about startup funding, then consider participating in one of Nicolaj Højer’s hands-on master classes. Next is to be held in Copehagen on May 3rd: Sign up here.

How to contact investors – do I need to write a business plan?

A common mistake is for entrepreneurs to send their 50-page business plan to multiple investors and then sit back waiting for them to call and invite them to pitch. But before you send out any material, you need to get the trust of a potential investor. They get hundreds, if not thousands, of contact requests a year. Every entrepreneur thinks they have the best idea or they wouldn’t be doing it. But why should a busy, time-strapped investor speak to you? What’s in it for them? In this blog post you will learn how to approach potential investors, and why you shouldn’t send them a business plan.

Rule number 1 – Don’t write a business plan!

Many entrepreneurs believe they should write a long and well-articulated business plan, setting out in detail all their future plans, and that the business plan is key to funding. Wrong. If you send a long business plan to a professional investor I can guarantee they won’t read it – and for three reasons:
1 It’s too long
2 It’s full of irrelevant details
3 It’s out of date

1. Too long

Investors won’t allocate time to read a 50-page business plan, especially not early in the process when they’re mainly looking to weed out unsuitable opportunities. They get so many opportunities that they must be able to evaluate yours in three or four pages. If you send them a long business plan, they might read the first five pages to see if it has an executive summary and they won’t read the rest. Danish venture capitalist Nikolaj Nyholm works as a partner in Sunstone Capital. I once asked him what he does when an unsolicited, long business plan is emailed to him. He said, ‘It will most likely rot to death in my inbox.’

2. Irrelevant details

A business plan is often full of irrelevant information. When you write it, you’re caught up in explaining a lot of details about the future – many of these are of limited interest and value to a potential investor. When you try to estimate your rental costs in three years, or whether in five years you’ll go into other territories like Germany before Spain, you will lose them. They know the plan will change many times before then. What investors are looking for are specific elements of the business model: the problem you’re solving, how you’re solving it, who your customers are, the team, etc. They don’t want to play the needle in the haystack game, trying to locate those five or 10 useful pages among dozens.

3. Outdated

The problem with a lengthy and detailed plan, with graphs of your cost of business and your market penetration guesstimates for year five, is that it’s outdated as soon as you press the print button. Perhaps you assume that your customers will pay €10 and they’ll be in Europe, and then you launch and find out that the  customers won’t pay €10 and they come Just ask the founders of some of the most successful startups what their initial business idea was, and you’ll find it was very different from the business they are running now. Investors know that and therefore won’t spend hours reading your lengthy plan.

Should you ever make plan for internal use?

Should you write a business plan just for internal use? Most serial entrepreneurs acknowledge that there’s real value in planning and thinking about the future, in thinking about what they really want to achieve and how they want to solve a problem. Winston Churchill famously said, ‘Plans are of little importance, but planning is essential.’ The value for me and most serial entrepreneurs is not the business plan as a document, but rather the process of making it. You and your co-founder(s) will learn a lot from discussing the really important subjects about the business; the where, what, how, who, why, and when. What you find will have important implications both for your business and for your funding strategy. Planning and strategizing is essential for determining and aligning you and your team to
where you want to go. The question is: what is the best process for you internally to get that alignment? Is that a business plan or is it a different kind of process? My opinion (which is echoed by many investors and serial entrepreneurs) is that you need a more agile process and documentation than the classic business plan approach offers.

What material do I need instead of the business plan

In short you need:

  1. A one-pager – called the executive summary
  2. A presentation – a PPT/PDF presentation with approximately 15 slides  describing your business in more detail
  3. A budget –       financial calculations supporting the conclusions in the presentation

 

How to make the one-pager (executive summary) will be the topic of my next blog post

Executive summary for startups raising capital

I find the executive summary to be the single most important piece for investor-material for startups.

That’s because most investors  (business angels, VCs etc.) receive several hounded investment-proposals from startups per year, but on average invest in less than 1 % of the startups. The ability to say no  to startups- very fast –  therefore becomes a core competence of early-stage investors.

This no/maybe decision will be taken within a few minutes, and no-one reads an entire business plan or even a 15-page investor-deck. The startup needs to be able to explain why it has potential much faster. This is where the executive summary comes in, since it explains the whole story on a single page.

You can find my notes on how to write an effective Executive Summary in my presentation: Executive summary for startups seeking funding

 

 

How to get funding for your startup

Presentation on how to get funding for your startup

In September 2017 I gave a presentation at Loftet Studentincubator (student-run incubator) in Oslo, Norway on how to get funding for your startup.

My advice to the students can be summarized in the 10 step method to finding investors for your startup:

  1. Always start with bootstrapping and team-creation!
  2. Investors invest in different phases – in which are you?
  3. Which risk/reward are you offering?
  4. Do you really have a VC case?
  5. Prioritize your investor search (know you/know industry)
  6. Get introduced by mutual contacts
  7. Understand what is the investor searching for
  8. Don’t write a long business plan!
  9. Find investors that are not famous!
  10. (The secret 10th step)

You can download my presentation from the event via the following link: How to find investors for your startup.

Sharing is caring 🙂

Nicolaj Højer Nielsen

 

Introduction to crowdfunding for startups

One of the most hyped areas of startup funding is crowdfunding. The various forms of crowdfunding provide new ways to fund your startup, from the earliest days until very late in the development of the company. But it’s much harder – and more expensive – than most startups think to run a successful crowdfunding campaign. This post introduces you to crowdfunding for startups, and helps you consider which type of crowdfunding (if any) is suitable for your startup. You’ll also learn when such a funding method is beneficial for your company and when it has the best chance of success.

Types of crowdfunding relevant for startups

Because of its different forms and many different applications, crowdfunding causes a lot of confusion among founders. Of the four main types of crowdfunding, only three are relevant for startups:

The donation-based model of crowdfunding is a means to raise funding for charities or social and/or charitable projects, and is therefore not that relevant to for-profit ventures. This leaves three other types of crowdfunding which are of interest to startup companies:

At what stage does crowdfunding work?

Crowdfunding can be a lifeline for startups because it bridges the early stage funding gap of the company, when the project is considered too risky for professional investors and banks. Because of the investor profile and the smaller investments per backer (lower risk), many startups now turn to crowdfunding at a stage when other investor types would not be prepared to invest. However, because of the differences between the different crowdfunding types, each is more likely to be successful at a different stage in your startup. This is illustrated below.

Reward-based crowdfunding for startups:

Reward-based crowdfunding is possible from the very early days of the startup. The limiting factor is that you need something to show your ‘backers’, to get them excited about your new product, as they are very unlikely to support you based on just an idea. Typically, successfully crowdfunded companies have a strong team (demonstrated industry expertise) and at least a semi-functional prototype to show. Some platforms (owing to some frauds in previous campaigns) now even require startups to showcase real pictures of their products/prototypes instead of computer-animated visualisations, thereby reducing the risk to backers by forcing startups to wait until it’s more likely they can successfully develop the intended product before starting their campaign.

Equity-based crowdfunding for startups:

To be successful, it’s normally more realistic to start equity crowdfunding later in the process than a reward-based campaign. Most of the startups that fund via these channels have developed their first product and in many cases have both users/customers and revenue to show. The reason for this is that the backers’ motivation for funding is not only the love of the product, but also the hope of making a good financial investment. They also tend to ‘invest’ a bit more money compared to reward-based backers (€1,000 vs €50) and therefore expect to see more proof as they are taking a higher personal risk.

Lending-based crowdfunding for startups:

Crowdlenders fund even later in the process, typically only after the company has shown significant revenue or even when the company has managed to remain ‘cash-flow positive’ (spending less money than is coming in from revenue) for months or years. This ‘traction’ is needed because the money is provided as a loan, similar to one from a bank, so the funders have no financial upside besides interest. To offset the missing upside they want a low risk of bankruptcy and to know that the company has managed to develop and sell the product. However, whereas banks will normally offer a loan only after the company has shown profits for several years, private crowdlenders tend to go in earlier and are okay with a shorter track record. As an example, the platform Funding Circle requires that companies who want to crowdlend via their platform have 2+ years of filed accounts and an annual turnover of at least £50,000.

In the following sections we’ll go into detail about the opportunities and risks inherent in each type of crowdfunding.

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Read the full chapter on crowdfunding for startups in the Startup Funding Book – which can be purchased in hard-copy or as ebook at www.startupfundingbook.com

 

Public funding for startups

Who will fund your company when other investors want to see more development and want you to be closer to the market than you are before they invest? Could the government or the EU help fund your startup? Public funding is an often overlooked source of financing for startups (although it isn’t applicable to all startups).

I recently held a workshop on public funding for startups, and how public funding can be used to avoid the all to common valley of death for startups.  You can download my slides from the public funding workshop here.

My main points from the workshop were:

1.Public funding is a great source of capital for many startups

2.Do your homework – and research what is relevant for you!

3.Three major forms of public funding relevant for startups: Grants, Equity, Loans

4.Often a lot of competition to get the funding

5.Public funding rarely support “ideas” – you need to bootstrap before

6.It takes a lot of work to be successful in your applications – but the payoff is worth it!

…and some specific points regarding public grants for startups:

1.Formal (often bureaucratic) application process

2.You will have to prove that you will help the Government realize their goals

3.The goals are different from grant to grant (also administrated by different public bodies)

4.You will have to co-invest – so prove that YOU also want to do it. They normally never fund 100% of  projects/activities.

 

Startup funding in Norway: LAVO app

Case Study: LAVO app – Know your customers and get the right people on board.

LAVO is a mobile app in the social media domain. Users set, follow and respond to video ‘challenges’, where they capture exciting moments and add music to bring their footage alive. Founded in 2015, the Norwegian company bootstrapped until the first angel investment round in 2016.

Founder and CEO Tom Roger Sokki explains:

“I had an idea around live streaming for a younger target group, where the consumer behaviour was constantly changing and the content needed to be cool. The product evolved into a challenge app, where publishers and the audience can interact, share, stay up to date and have fun together.

We bootstrapped initially, and the first investors came from the Bergen Angel Network in September 2016. The network consists of 40-50 early investors and five of them wanted to join the team, investing a total of NOK 2 million in that round. Since then things have moved fast.

The second seed round was done with help from a small advisor team in Oslo, Eikeland & Ravnaas, who put us in contact with Tom Erik Kjeseth, an award-winning film producer. He wanted to join the company because he liked the way we were working with floating media, film effects and music. Kjeseth also invested NOK 2 million and is now very involved helping us build our creative strategy.

The last seed round was closed with top-notch investors – big real estate owners in Oslo. Brothers Øystein and Torstein Tvenge are among the most successful investors in Norway, investing mainly on the Oslo Stock Exchange but also investing in startups where they see a huge potential, as they do in Lavo.  They were so bullish in the first meeting, I thought they wanted to buy the whole company! However, we secured the cash needed, NOK 8 million (approximately $1 million).

I think a lot of our success comes down to understanding our customer. I talked with two important organisations who represent LAVO’s target group. We conducted workshops to learn about their behaviour, needs, trends, what´s cool, what topics are important, and other patterns and I learned a lot about the type of product LAVO could be. We also spoke with a Norwegian TV channel who wanted a product that gave their audience more interaction, which gave me more drive and motivation to fine-tune LAVO.

As the product evolved, I questioned just about everyone: producers, content creators, talent, and musicians, until LAVO had a perfect place in the middle of the matrix.  We challenge content producers to interact with their audience and at the same time the audience is more involved than ever before. We are adapting to changes in user behaviour, and the investors see this as the way forward.

I would say that the most important thing we’ve learned is to work with good and smart people who believe in you and what you are doing.  This also means getting the right investors.  Our investors have delivered both hard capital and intellectual capital, as we expected.  As a startup you are often good at the product or service the company provides, but growing the company constantly, raising funds, is beyond your full control. So getting on board investors that know that part of the game, and that can also participate in many rounds of early fundraising, is important.

In Norway, we have few environments that specialise in startup-funding. It’s too early for the investment banks and most of the venture funds so you rely on rich angel investors. Luckily, I managed to get advisors on board who knew many of them, and who liked Lavo. Now they have all been taken on one hell of a ride!”

Investor material for early-stage startups

Yesterday (May 10 2017) I held a workshop at the PODIM conference in Maribor, Slovenia. Topic of the workshop was which type of investor material do you need to attract investors for a early-stage startup.

My main points regarding investor material are:

  • Investing in early stage startups is all about personal trust. Your startup don’t have that many data to show, so investors are mainly betting on the team/you. This means that the most important thing to convey in the investor material is that your team is world-class!
  • The three most important things when reaching out to potential investors: 1. Get introduced by mutual contacts, 2. Do your research and contact the relevant investors and 3. Be specific when contacting them (don’t just ask for coffee).
  • Regarding the need for introductions: All well-connected early-stage investors are getting a lot of requests per year – up to +1000 a year, but invest maybe in less than 10. This honestly mean that it’s really hard to get their attending if you are just cold emailing them. To stand out you need to get introduced via mutual contacts. This increased the chance that the investors are taking you seriously a lot!
  • Who are the investors relevant for YOUR startup: 1. Investors that invest in the same risk/reward matrix your startup is current in, 2. Investors that are interested in your industry (and understands it) and 3. Investors that invest in startups that are in the stage your company is currently in.
  • Do you really need a business plan ? I (and many other seasoned investors) don’t like business plans, because they are too long and often outdated. But this is really culture-dependent: Investors in some countries/regions still prefer along business plan. Check out what’s the status in your country before wasting too much time writing one.
  • What you for sure need in your dialogue with potential investors are: 1. An intro email (as explained above), 2. An executive summary (the 1-2 page “teaser” describing your startup very briefly) 3. The pitch deck (the typically 15-slide PowerPoint presentation that replaces the long business plan) and 4. The budget.
  • And please, don’t ask the potential investor to sign a Non Disclosure Agreement (NDA) before even meeting them. You first need to get them interested in your case (by disclosing non-confidential information), and most professional investors (business angels and VCs) will not even sign NDAs later in the process.
  • Ps. do you really need money from investors to grow your startup? And if you do, do you need them now or can it wait until you have more traction? The first money you take from investors are very expensive (due to a low valuation of your company)!

Feel free to download the presentation here.

Best regards,

Nicolaj Højer Nielsen

 

 

 

Premature scaling at Addwish

What happens when two inexperienced entrepreneurs get millions in Venture Capital funding? Sometimes it ends up with premature scaling and near-death experience, as in the case of Addwish.

Background: Addwish was initially a wish list solution for consumers and online stores that allowed users to manage the registration and purchase of gifts. The company was started by Brian Petersen and Kasper Refskou Jensen as a side project, which both worked on part-time. The two co-founders had managed to sign up a hundred web shops and had a total of 20,000 users who had tried their service. In early 2013 the company received a €1.5 million seed investment from venture capital fund Sunstone. Now the goal became to do an international rollout – very fast.

Kasper Refskou explains:

For the first year we had a goal of one million consumers on the wish list – a 50-fold increase! This meant a fast ramp-up from two part-time employees to 12 full-time employees during Christmas 2013. We also started to spend heavily on marketing, including some heavy Adwords campaigns for user acquisitions in the US. This led to a sharp increase in burn-rates, which rose to €100,000 a month. The initial strategy was to build a critical mass of consumers (who use the wish lists for free), and then monetize on the web-shops.
We just didn’t manage to reach those figures. For the first year we got 100,000 consumers – a huge growth, but only 10% of projections. So since the revenue stream from the web shops was still not in effect, this slower-than-anticipated growth was critical.

But the worst part was that we didn’t recognize until way too late we were heading in the wrong direction. We had lost our objectivity during the rush for the Christmas season peak. Despite so many clear signals of low traction in the consumer market and being unable to achieve the key performance, we didn’t realize we were dying until we were actually dead! We woke up way too late, when we had only just made the initial entry into selling and revenue generation, resulting in the company being on the brink of bankruptcy by January 2015.

I guess this is what happens when two inexperienced entrepreneurs receive too much unrestricted funding. With too little guidance and supervision, we entered into a-way-too-high burn rate resulting in only one option: go big or go bankrupt.

In perfect hindsight, it’s easy to see what went wrong: we started scaling before we had reached a product-market fit. A wish list did not have a viral loop that was fast enough to meet our goals. When you share something on Facebook it triggers the recipients to share it again straight away. But when you share a wish list, the recipient may like the product, but they don’t need to create their own birthday wish list at that exact moment, which is why the sharing and viral metrics take a lot longer. We were blind to this at that time. If we had noticed it in earlier, we could have changed strategy before it was too late.

Unlike most cases of premature scaling, this one ended well. Before going bankrupt, the venture capital fund sold its shares to a local business angel, Niels Henrik Rasmussen, who injected more capital into the company to keep it afloat. Admirably, the VC initiated and supported these changes in order to help the business survive.
With the new owner also came a new and improved turn-around strategy, now focused on building the B2B segment first. The company was able to become early-stage positive within seven months due to a rapidly growing customer base of 400+ e-commerce businesses.

Kasper Refskou elaborates:

Our turnaround made us focus on what we did really well: approaching the business segment (web shops), and making use of the technology that brings them higher conversion rates and larger basket size. If we were to do it all again, we would do it very much like we do today: “identify – test – adjust”.

Perhaps what you think is a goldmine, might not be. It’s essential to test out every initiative, being truly honest with yourself about the results. It may not be a bad idea, but perhaps the audience is not ready for it, the tech is not there yet or the adoption triggers are not present. But get the right people and make sure they see the vision as you do, and you will eventually find a way. Now that we are mainly focusing on the B2B segment, it’s quite funny to see that our wish list, two years after our big launch and missed KPIs, has gotten more air beneath its wings. This time, without any marketing-related initiatives, we can see that the 100,000 users have more than tripled, and that social sharing is slowly becoming our main acquisition channel for wish list users. Now we have also included the wish list data in our intelligent data analysis for even better personalization in our business offering. In some ways you can say that we have gone full circle – just the other way around.