Jouko Ahvenainen
In this show Bob and Pat talk with the co-founder of Grow VC, Jouko Ahvenainen.
Grow VC is a new player on the global startup investment space. Grow VC aims to be a global, virtual Silicon Valley, not just reproducing the “secret sauce” of the Valley in some other place.
In its first year, Grow VC has racked up some impressive numbers for this social network/capital marketplace: 73 active startups, 7,229 registered members, $16,721,135 total capital available, $5 million in co-investment funds from angel investors and other networks, and 1,758 total number of member startups. Grow VC is also an open investment fund that allows individuals to invest as little as $20 a month.
In 2010 Grow VC launched local chapters in India and China and plans to open chapters – much like local angel-investment networks – in the U.S., Europe, Russia and Latin America in 2011.
In this interview, we ask Jouko what makes Grow VC different and what makes Grow VC work. If you’re building your first company, whether you’re in Silicon Valley or the rest of the world, you need to know about Grow VC.
Amy Logan, our audio engineer extraordinaire, has been sidelined due to illness – hence why this is show 102 instead of 103. Get well soon Amy!
On the brighter side, this is our second show with our new Show Summary feature, this time as a continuation of this post. Please let us know what you think of it.
Tired of being stuck in neutral in your startup? Why not do a MicroConsult with Bob Walsh? Instead of hypotheticals and too much information, Bob will work with you for an hour via Skype developing 8 to 10 specific todos that will get your startup in gear. Details at 47hats.com.
Download Show #102 here: Show #102 Or if you prefer, Subscribe to the podcast in Apple iTunes.
Bob Walsh blogs at 47Hats, is on Twitter at @bobwalsh or you can email him at bob.walsh@47hats.com.
Patrick Foley blogs at PatrickFoley.com, is on Twitter at @patrickfoley or you can email him at patrick.foley@microsoft.com
Jouko’s Startup Success Podcast Guest Page.
Relevant URLs:
Jouko’s web site.
Jouko on Twitter.
Jouko on Facebook.
Jouko on LinkedIn.
Show Summary
Show #102: Jouko Ahvenainen, co-founder Grow VC:
Pat and Bob first talk about Seth Godin, his new book “Poke the box”. The book is a distillation of what he has said before, Bob said. Pat added he had bought the book for a buck during the pre-release sale.
“What really struck me about it was that it was a whole bunch of different ways to say ‘Go’, ‘Start’, ‘Keep Starting’, Pat said. “There was one little bit that really hit home: the difference between a creative person who has ideas but those ideas stay in his mind, versus, a person with initiative who actually makes those ideas happen. It’s a very powerful message.”
Bob added that his favorite review of the book was by Steven Pressfield, author of the War of Art, who wrote: “Seth’s message, in a nutshell, is this: Switch from the slave mentality to the entrepreneurial mentality.
He believes that we have no choice any more. The world is changing in ways that will leave us behind if we don’t learn to function, at least partially, as artists and initiators.”
Bob got into the Domino Street Team – about 70 people taking a more active role in spreading the word about the Domino Project, powered by Amazon.
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Interview with Jouko Ahvenainen, co-founder Grow VC starts at 6:48.
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Bob – How is Grow VC different than an an angel investor network or regular VC?
Jouko – We are different than VCs/angels: we are a combination of social network and marketplace. We have mentors who are entrepreneurs, startups and investors and basically startups can look for funding and investors can look for investment opportunities. And we have a kind of micro-funding model, so you can so that you can start investing with 20 US dollars a month. But it is not only micro-funding – it’s a different kind of marketplace where they can meet different kinds of players. they can meet micro investors, private investors and venture capital firms.
Pat- When you created the service, were you thinking more to solve the problems of startups who needed funding or investors who need investments?
Jouko – Both my co-founder Valto and I have worked with startups for over ten years and have done some early stage investments in startups. We had originally planned a different business, but the funding market is not working – we would like to see the market be more equal, more transparent, more open – because in many ways the traditional startup funding market is not an effective market. At the same time venture capital companies are also moving their focus to later stage investments and angel-based investments are very much based on the personal and local networks.
Pat- How do you achieve greater transparency and those sorts of things? How does that come with the approach that Grow VC is taking?
Jouko – It’s an open market – the companies say how how much of a valuation they are looking for, how much money they are looking for and investors can make counterproposals. That way the valuation process is more open and transparent.
There are other components: we basically have standard documents that we recommend for these investments, so that all parties can see what are the main terms and conditions.
Bob – Startup investing was been more personal network than marketplace. VC’s have been doing that for 40 years. Why is that not working now?
Jouko – First of all, while VCs always expect the companies innovate business models, It hasn’t happened in the venture capital industry. VCs are doing very much what they have done 20, 30, 40 years ago. But things are different now – more globalized investors, and startups are very international immediately. If you only have very local investors, that doesn’t support having a global business. The traditional investment model is very much of the traditional technology startup.
Bob – So it’s not about if you’re a startup you’ve got to make the pilgrimage to Silicon Valley because that the only place you are going to find investors, that there’s money to be had in lots of places. Is that because the investors in say Asia have felt locked out of the juicy deals that the Americans have been getting all these years?
Jouko – I would say so. Definitely Silicon Valley has been still the most important place for startups, the how ecosystem works very well. On the other hand not everyone can be in Silicon Valley. There are talented people, excellent investors and important markets all over the world.
We are also starting local networks in the US – there are many places in the US where the startup market does not work so well.
And we’ve had interest from within Silicon Valley. If you’ve had two or three successful exits, then its easy to get money. But if you are new, if you are not from Stanford, if you are starting your first company, then it is not so easy to get your funding. This is a global phenomenon.
Pat- Any success stories you can share with us?
Jouko – We actually started in Feb. 2010: in the first year there’s been three companies – one in the US, one in the UK and Spain and one in China – have been able to raise major funding. Most of the success stories have been let’s say more like angel investments stories – several people who invest 20k, 10k or 5k each – it’s still in a quite early phase.
Another part of what we’ve done is since all members of Grow VC have to invest a minimum of 20 US dollars a month, most of which they can choose to invest in particular startups, all of the startups are getting evaluated – its a kind of crowdsourcing of startup evaluation.
Bob – If you fund an Indian startup with funds from a UK investor, and they are going to be doing business in the United States and half of their development team is in Prague, how do you sort out the national rules and regulations that might apply?
Jouko – It’s a very complex area. One of our founding team members is a lawyer who has started 35 venture capital funds around the world. And we are using external lawyers. I would say in that way, its also difficult to get exact answers from a finance regulation point of view, because this is a new model. For example in the US, we’ve limited membership to only accredited investors.
But most of the time, the investment agreement is done in the country where the startup exists – we have a standardized term sheet that is a kind of a global model. And we have a network of partners – typically law firms – who can in each country make the final investment agreement and provide a final checking and due diligence.
What we see as important is that we have local partners who can do due diligence, but its also important that the community provides due diligence. If you say you have a successful startup, someone in the community, or through Facebook or LinkedIn will probably know if that is true or not.
Jouko likened it to how dating sites 15 years ago were thought to be jokes, but now are seen as being an effective way to meet people, more effective than going out every Friday and Saturday night.
“It takes some time for people to learn to behave in these kinds of virtual environments, and of it is never to replace all personal contacts. But it can be an extension, how you can keep in touch with people around the world. I would say our service for investments is very much the same.”
Pat – It’s an interesting perspective that the trail we leave behind on the web is part of our reputation that needs to be nurtured. As we wrap up, any specific advice you would like to give startups?
Jouko – I think one of the really important things is to think how much money you need and how to will use that money. People have said that when you get a lot of money from venture capitalists the outcome can be total chaos.
I had a hard time believing that until I could see it in one of my companies. It is really important, for example to know exactly what your business is when you go talk to VC’s.
That’s why it makes sense to take money step by step, and when you find something that is working then you take more investment money. Especially if you are a mobile or investment startup, that’s one way to innovate your idea. So if you get say 5,000 people interested in investing in your idea, it probably tells that some people are interested in using your service.
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– For past episodes visit the Startup Success Podcast at http://startupsuccesspodcast.com/.
– Bob offers a service to startups called Microconsulting: you sit down with Bob via Skype for an hour and focus on coming away with 8 to 10 actionable steps to improve your bottom line. Visit Bob’s site at http://47hats.com/microconsult to learn more.
– Microsoft also has a program specifically for startups: Microsoft BizSpark. If your startup is less than three years old, and making less than a million in revenue, BizSpark gives you access to our premier development tools, server products for production, even Windows Azure with no upfront costs. Visit http://bizspark.com or email Pat at Patrick.Foley@microsoft.com to get started.
That’s our show – thanks for listening!
