… is probably the most frequent question I get, when I explain who I am and what I do. This is not a hostile question or bullying tactic, but simply an indication of genuine curiosity and some confusion. I am a Partner at Alliance Venture, the leading early-stage venture capital firm in Norway. We work with the best entrepreneurs and startups in our home market to build global winners. Since 2014 I’ve called Silicon Valley home being ‘Investor in Residence’ at Nordic Innovation House in Palo Alto. The reason for both locals and Nordic visitors asking the “Why are you here?” question is simple: “If you invest mainly at home, why be far away from ‘your’ market? Investing is all about making investments, right?”
After considering for a few moments, most quick thinkers come up with a ‘reason’ for being in the Bay Area, here ranked by popularity:
- “I see. You are taking your portfolio companies to Sand Hill Road to raise some serious funding?” — this sounds like an attractive strategy, but also generally ineffective, as this blog post explains
- “Are you building a tech team here, where the best tech talent is?” — nope, talent arbitrage is actually a great competitive advantage
- “I bet the climate here is much better than in Norway…” — hard to dispute, but also irrelevant
None of these suggested reasons are primary drivers for being present and active in Silicon Valley.
Start with the desired outcome and work backward
“So, why then?” To be successful in venture capital you have to create and realize value — not just make investments; Implications are:
- The days when IPOs principally drove venture returns are gone; Good M&As are critical for returns.
- A simple and key insight is that there are very few big buyers of tech companies in the Nordics. The European market is picking up, according to global tech M&A reports, but is still highly inhomogeneous.
- US tech acquirers are most active overall and for cross-border deals, and the most important cluster of tech buyers can be found in Silicon Valley. Opening up the US front is key for a good exit game.
- No large tech company will acquire an unknown entity — typically they acquire partners, suppliers, challengers, etc.
- Company value is strongly linked to growth, revenue and size. Market expansion is critical for our home market startups to succeed.
- Thus, exit value is directly related to building a great business with great business relationships.
Our Silicon Valley approach may sound like a quick flip and sell tactic, but in fact, it is a long-term strategy focused on the fundamentals of building great companies and understanding the mechanics for driving value, serendipity, and outcomes. For many portfolio companies with core tech offerings, successful expansion into Silicon Valley is an important route to fulfilling the full company potential. As an active investor, we want to support and add value from initial investment to exit. We believe that helping facilitate the bridge to Silicon Valley is a very specific step, where we can help reduce risk and increase success rates, thus helping ourselves and our portfolio companies. This is may be the most important reason for being on the ground and active in California.
Global market dynamics
“So, it is not about making the right investments?” It is naturally that too. This is why we are home market focused (although not exclusive). Access to great and unique deal-flow is the key raw material for successful venture investing. As the leading early-stage venture firm in Norway — a big fish in a small pond — we are in a great position from this perspective. We work hard to be the preferred local investor and leverage our position and capabilities for maximum benefit. By being immersed in the Silicon Valley ecosystem we are able to benchmark our home deal flow relative to competitive offerings here, as well as to spot tech and investment trends earlier. This enables us to make better investment decisions and help ‘crack the code’ on propositions and positioning for the investments we make.
Alliance Venture is a small fish in the large Silicon Valley pond, and we are highly selective in terms of fit to compete for deals here. A component of the big globalization trend is that more Nordic startups test the waters of Silicon Valley early on, which can be effective for learning, validation, and acceleration. Despite the openness of Silicon Valley, it is still a ruthlessly competitive arena, where “second place is first loser”. This dynamic is obviously very challenging and a fit for only the best and most focused startups. Nordic Innovation House is the perfect place to meet Nordic startups testing the market, to get an understanding for their challenges, capabilities, and opportunities, to provide some guidance, and to build relationships and credibility as an investor. This is an interesting new dimension and perspective on our home market deal-flow that has paid off in identifying and qualifying investment opportunities.
Overall our Silicon Valley presence helps the firm meet and evaluate the best deal-flow aligned with our investment strategy while making us more attractive as a partner for the best founders and startups interested in a US expansion. This will impact investment returns and fund performance over time, and we are happy to see this scenario play out as planned.
Your network is your value
“That’s it? That’s pretty obvious…” Just one more thing… Silicon Valley is highly relationship driven, and your personal network plays a huge role. Going ‘native’ is a key enabler in this context, by giving much stronger credibility than being a ‘tourist’. This personal network can be leveraged for our deal flow and portfolio activities today and in the long term, for example by connecting portfolio companies with top advisors with deep industry experience and strong local relationships. While Silicon Valley fundraising for portfolio companies was not a primary driver for being here, we now have co-investments with about a dozen US VCs. This has been a fairly organic development that has played out in two ways. First, a subset of our portfolio companies has attracted US VC funding as a result of being great companies and taking the right approach in the market, which is a great validation of our approach. Second, we have made select investments in US companies as part great investor syndicates, where we are valued co-investors based on our experience and capability to contribute in specific ways. We see this as a virtuous circle that will continue to speed up with the right approach, the right execution, and the right connections. We expect more syndication and co-investment opportunities in the future, as the number of Silicon Valley VCs seeking opportunities outside of the local ecosystem continues to grow.
Now you know why we are represented here. The experience of being a home market focused and value-adding European VC in Silicon Valley has been awesome. We clearly see the value, effects, and results. My question is: Why are there so few of us here?