At Spintop, we believe in a patient and long-term approach to technology investment to have rapid and long-term sustainable impact.
The technology venture investment industry has been hugely successful over the last few years. Massive amounts of capital have been allocated to technology ventures. New hugely successful companies have emerged and scaled rapidly re-defining markets and industries. Value has been built and, at least partly, been realized and distributed back to investors.
Crisis or correction
There has been an increasing focus on very rapid scaling to create “unicorns”, fueled by an abundance of capital used to execute “market land grabs” while technology foundations have sometimes been weak and business models not fully proven. But we are now in a very different situation with dramatic valuation corrections in public and private markets for some of the previously most admired companies.
However, our view is that we are not in a crisis, at least not yet. The last few years have been anything but normal, it has been overheated mainly driven by macro factors. Currently, we are back at a more normal state.
Sunshine entrepreneurs and sunshine VCs
But, there are still challenges. Many new entrepreneurs and VC firms that have come into the market during the last 4-5 years have only experienced the heated market dynamics described above. “Sunshine entrepreneurs” and “sunshine investors” have only been in a market where decent performance has been sufficient to raise new rounds of financing at attractive valuation increases from a new set of investors for each financing round.
Value has been created, at least on paper, growth has been sustained with more investments, the entrepreneurs and investors have all been happy. Now, when the music has stopped, investors will be required to take more responsibility for sustaining growth and development at their portfolio companies, as the requirements to close the new rounds of financing from new investors have become much tougher.
Investors with a front-loaded investment model will face difficult priorities among well performing portfolio companies when they do not have sufficient dry powder to support them all. And entrepreneurs may find that their investor syndicates are not as solid as they had expected.
Spintop’s patient and long-term approach
At Spintop, the team has been around for 15+ years as VC investors and entrepreneurs. We have experienced many sunny days as well as many rainy ones. That is why we have a patient and long-term approach. We believe that approach in the end delivers both more rapid and more long-term sustainable value.
When we invest, we always have the long-term perspective. What type of company are we supporting the entrepreneurs we invest in to build? How does the company apply the transformational power of technology to bring true and meaningful change? How will the business be long-term sustainable and thus create lasting value?
Our long-term approach comes with an active engagement. Not for a year or two expecting to hand over the torch to someone else, but for a longer journey together with the teams we invest in. The long-term engagement goes along with how we invest. We allocate 30% of the capital in our funds to entry investments and the remaining 70% to follow-on investments in the well performing companies. We do our entry investments in seed and late seed, but we can participate in A-, B- and sometimes C-rounds when there is an attractive case for the follow-on investment. This approach provides companies with stability, the room to do the right things and build solid foundations for long-term sustainable success.
No blank checks
But, the long-term and patient approach does not mean we write blank checks or are soft on ambitions, objectives and deliveries. Early stage technology investments are inherently high risk. Companies can fail for many different reasons – execution shortcomings of various kinds, market dynamics, external factors and many others. Some of our companies fail completely, others never raise an A-round and become something very different that is not a case for more venture investments.
However, we also know that ALL of the very best companies we have been involved in – the >10x returns, the unicorns, the companies that have built services that are today part of our daily life, have had at least one “near death experience” along the way. It is much easier to say afterwards that it was the right decision to continue to invest, than in the middle of the storm.
We argue that high ambitions, tough targets, speedy execution against milestones and a performance culture are integral parts of the long-term and patient approach. Delivering on the foundations of long-term sustainable success in the end results in more rapid impact that lasts.
If you want to share your reflections or want to discuss this please reach out to our co-founder and partner Finn Persson on LinkedIn.
DNB NXT 2022 : Patient Capital and Sustainable Value Creation
Want to hear more? Don’t miss this panel from DNB NXT 2022 with Spintop’s Finn Persson, Kristin Aamodt from Arctern Ventures and Geir Førre, Managing Partner i Firda.