About a month ago, Max Niederhofer announced he was moving from his position as Vice President in Accel Partners' London office, to a Partner at Sunstone Capital's Copenhagen office. We caught up with him to talk more about his move, and about what entrepreneurs should know when negotiating with Venture Capitalists.
Can you tell us a little bit more about your decision to join Sunstone Capital and what has the experience been so far?
I have never worked with a nicer, more welcoming group of people. We are working through a lot of the backlog that I have seen and like in Europe. We have three to four active deals in the pipeline. Usually in the VC industry, you have one or two.
Got any companies on your radar already?
For sure. Can’t really give you names but what the Nordics are doing well is the gaming hub, primarly in Finland, but it's spilling over onto the other countries. Stockholm does consumer extremely well like Tictail. Surprisingly Copenhagen is turning out interesting vertical mobile applications like Vivino. Norway has a long history of tech and innovation in oil&gas and security software. Something like 33% of technology enterprise value is created in the Nordic and Baltic region and its 3% of the population.
You can talk about London and Berlin as a tech hub. Those things are tiny per capita. Per capita the Nordics are beating everything, probably also the valley.
So lets talk a little bit about Term Sheet Battle. What drew Sunstone to it?
First of all I think, its a more substantive event than a lot of the other shows out there.
You meet a lot of entrepreneurs and the interaction is relatively superficial. Everyone wants to talk to you and the interactions are realtively shallow.
What I like about the Term Sheet Battle is it is less about marketing yourself, less about the straight "pitch pitch pitch and go home." Its more about making entrepreneurs understand the venture process. It's more about education than it is about anything else.
The real issue that I faced as an entrepreneur, and one of the reasons I had a hard time raising institutional capital, is because you [and the VC] are not equals.
The entrepreneur needs the money. The venture investor, yes, needs to invest, but he sees a lot of opportunities. Secondly the level of knowledge of negotiation is vastly greater on the investor side.
It is a very unequal relationship that you are entering into. It is pretty much a marriage, and you are signing a prenuptial agreement, and it will dictate a lot of the terms - economic outcomes as well as being an entrepreneur.
It is really important that entrepreneurs get smarter about this. You only get smarter by doing it or watching it.
Do you have any preliminary advice for companies going through a funding round in regards to term sheet agreements?
My advice to entrepreneurs in Europe is always: if you do not need capital, don't take it. It is so difficult and such a lengthy process to raise institutional money in Europe that if you can get away with not raising anything and just pushing it out and raising later, do that.
The second piece of advice, if you do need the funding. Run a tight and very selective process where you essentially target a very small group of investors and schedule all the meetings at the same time. You allocate three months to fund raising and that’s it.
The third piece is when you negotiate about it, get good counsel. It needs to be someone experienced who does Venture Capital transactions. I see too many entrepreneurs running with a friend of their dad, or with someone who has been a good friend of them in the past. If they do not know what the standard terms are, they will have a hard time explaining the consequences of those terms to you. If you have someone who is experienced, they will be great.
One- they know how to negotiate the terms and two- they will explain to you exactly what that means to have, for example, founder vesting over four years with a one year cliff. I would always go for more experienced counsel.
Will entrepreneurs be able to reach out to you and tell you their ideas at the event?
Yeah, for sure. But its much easier to get in touch directly by e-mail beforehand: firstname.lastname@example.org
Max Niederhofer is coming to the Term Sheet Battle event in Oslo together with Frederik Cassel from Creandum. Jimmy Fussing Nielsen from Sunstone and Daniel Blomquist from Creandum will be at the Helsinki event. While Martin Hauge from Creandum and Christian Jepsen from Sunstone will be present at the Stockholm event.
Creandum recently raised a €135M fund, so this will be a great opportunity to not only learn a lot about the VC negotiation process but to also pitch your ideas to Creandum and Sunstone Capital.
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