The ancient Viking laws of venture capital investment

Greg Herrera, Energy Ventures, Aberdeen
Emily Bernard, Energy Ventures, Houston

Rising global energy demand has prompted oil and gas companies to uncover new reserves and gain access to resources previously considered unreachable. As exploration and production efforts expand, so does the need for technology innovation and, consequently, venture capital investment.

Venture capital (VC) funding is a critical element for many oil and technology-led companies seeking to accelerate commercialization of new technology. However, gaining access to this invaluable resource requires time, dedication, and careful planning. Like any relationship, the interaction between an entrepreneurial venture and a funding partner should be mutually beneficial and one that operates on pragmatism, flexibility, and innovation. But how does one go about attracting VC funding in the first place?

Centuries ago, when the Vikings were hard at work conquering new lands and expanding their trading zones, they established a set of laws to serve as a roadmap guiding their successes. Taking a closer look at the ancient Viking laws, we can see how those tenets, particularly when applied to venture capital investment strategy, still hold true today.

Be brave and aggressive

In any business environment, taking the initiative to get results is one of the most fundamental facets of success. While most VC firms have methods for uncovering new deals, experience shows the most successful relationships begin with start-ups seeking them directly.

Whether an entrepreneur pursues a VC or gets in the door through someone the firm has worked with before, tenacity can go a long way. A good example of this is 2TD, the most recent addition to the Energy Ventures portfolio. 2TD was originally developed from the SEED stage by a number of Norwegian serial entrepreneurs. Once the business was ready for VC funding the entrepreneurs contacted Energy Ventures. 2TD is now working with the firm to develop its electro-mechanical rotary steerable drilling technology.

Although persistence is an important characteristic for companies seeking VC funding to possess, casting a wide net to see who bites first is not always the best strategy. To establish a carefully crafted plan, it's recommended that start-ups go after one big fish at a time to avoid spreading themselves too thin. Taking the time to research who will be the biggest advocate for the technology helps narrow this focus and allows companies to create a solid business plan that speaks to a firm's investment philosophy.

Venture capitalists are also known by their thirst for opportunity and like to work with companies that share a similar appetite. Like VCs, start-ups should constantly work to uncover new avenues for growth and be ready to act on a potential opportunity when they see it. Additionally, the knowledge and industry foresight a VC relationship brings is an invaluable tool and should be met with flexibility.

An entrepreneur who is not averse to venturing into a new market or experimenting with a different application for a technology is a prime candidate for VC funding. For example, Energy Ventures portfolio company DeepCasing Tools invented a downhole disposable and through-bore turbine for the offshore drilling market. Following investment, an adjacent market opportunity was identified within the growing onshore shale sector to adapt the technology to both reduce overall well cost and assure maximum productivity by guaranteeing precise placement for multi-stage frac completions. After a number of successful commercial runs, the technology is now being adopted to meet the needs of the growing shale market.

Be prepared

Every warrior knows not to go into battle unprepared. Similarly, VC firms spend time and effort conducting due diligence to ensure the companies they are examining have top quality "tools" at their disposal. This can run the gambit from the technology's viability to the sales and presentation skills of the employees. Because every VC calculates the degree of risk associated with a deal, start-ups and early stage growth companies must be able to demonstrate a reduction of risk over time.

A company's willingness to refine a sales process, train its employees, and develop its technology makes it extremely attractive to potential investors. Caltec, a recently exited Energy Ventures' portfolio company, had developed a unique processing technology offering originally designed for topside applications and was in need of an experienced finance director to help define its value proposition so it could transition into the subsea sector. After working diligently to revamp the current sales process and pricing model, Caltec generated significant interest from strategic partners and was sold to Petrofac, an international provider of facilities solutions for production and processing, in a transaction valued at GBP 30 million (about US$47 million).

Being prepared also means assembling a top-notch management team. As with any business, there will be ebbs and flows that will test an organization's foundation and having a robust team that will continue moving the company forward is an invaluable asset. In addition, having a charismatic leader, or CEO, at the helm of an organization is essential.

At the end of the day, big decisions will have to be made and it is important to have someone who can take responsibility, give marching orders and rally the troops. Having a good CEO can mean the difference between success and failure, which is why VC firms pay particularly close attention to leadership agility when evaluating an opportunity.

Be a good merchant

Introducing a new technology to the market is an exciting thing, but a good idea can only go so far. When a VC firm looks at an investment opportunity, they not only focus on the solution itself but its potential to bring significant and lasting contributions to the industry. Asking questions such as, "What does the market need? How can this technology make a difference? What problems will it solve?" provide the necessary framework to complete a thorough opportunity assessment and market evaluation.

Having a firm grasp on a potential gap in industry service offerings and articulating the value points that set the company apart from the herd early on is crucial – particularly when the market is wrought with competitors. Being knowledgeable about what the market needs and demonstrating why the proposed solution will close that gap is by far the most important factor in securing VC funding.

Much like tangible market insight, transparency and reliability are two ingredients in any business venture that should not be negotiated. Just as VCs want to work with companies exhibiting professional integrity, entrepreneurs should seek to work with equity firms that have maintained a reputation for being honest and fair brokers. While having an arsenal of trustworthy and high-caliber people at your disposal is vital, seeking funding from a company with similar values is equally important.

Maintaining professional integrity also means maintaining a level of pragmatism. Overpromising only to under deliver is a common challenge VC firms uncover when working with start-ups because many people are quick to set unrealistic expectations about what they can deliver once funding is secured. When seeking a VC relationship, entrepreneurs must be cautious about making promises they may not be able to keep.

Furthermore, it's important for entrepreneurs to understand they will have to put forth effort to maintain a good relationship with their investment partners. Investing time to build a solid relationship with a VC firm can open up more doors down the line for additional funding, counsel or even referrals. A firm's understanding of industry challenges, ability to assess and predict market trends and connections with major industry players is critical to the growth of its portfolio. In the VC world, development and establishing meaningful relationships with industry leaders can be just as important as the capital itself.

As oil and gas exploration and production continue to progress to meet growing global demands, the development of new technologies will remain a key factor in pushing the energy industry toward a more productive and profitable future. Wherever there is innovation, venture capital investment will abound, and we should expect increased capital funding to persist alongside this continued growth. Seeking VC funding is not something to be taken lightly, but with careful planning and diligence the end result can be a profitable one. OGFJ

About the authors