Mobile Foresight » vinnova

Verification, a substitute for seed financing

Jonas Lind — Fri, 23 Oct 2009 14:33:36 +0000

One of the many hurdles for startups and entrepreneurs in Sweden has been the shortage of investment capital for seed financing. In the very first stages of a new company the capital requirement can be as little as a below 50,000 Euros.

In countries such as the US entrepreneurs have often been able to raise the small amounts that are needed by taking out a second mortgage on their house, or from FFF investors (Family, Friends and Fools), or sometimes from angel investors. The higher level of private capital accumulation in a low tax economy makes that easier compared to Sweden.

The Venture Capital model is not suited for seed financing. For a VC investor, the amount of work needed to evaluate a 40,000 Euro investment is almost the same as for an investment of a million Euros. Failure rates are much higher for seed financing and the higher returns do not compensate for all the work that goes in to managing a portfolio full of many small investments.

That seed financing is a bottleneck in the Swedish Innovation System has been known for over a decade. The already existing government agencies for funding of new companies such as Almi and Industrifonden were adapted for lending to and investments in established companies. Agencies such as Vinnova and Tillväxtverket (formerly Nutek) used to fund applied industrial commercial research, often in partnership with larger companies, but did not have specific programs in place to help innovators to transform their innovations into a viable startup company.

What the Swedish government has viewed as particularly dissatisfactory is that the high percentage of GDP spent on R&D in Sweden has produced so few new successful companies.

To facilitate the commercialization of scientific results from the Swedish university system, new government funded programs have been put in place during the last few years. Their aim has been to fill the gap where there is insufficient support and funding in the earliest phase of the startup.

In 2005 the government agency Innovationsbron (the Innovation Bridge) was founded. They provide funding for regional incubators and have some funds available for loans and seed investments.

What I find unconventional and interesting is that as a complement to the traditional role as an angel investor Innovationsbron also offers support for an extensive verification of the technological and commercial viability of the innovation.

This way the entrepreneur doesn’t even have to set up a legal business during the first evaluation phase and can put all their focus on getting a better understanding of the viability and potential of the business concept. Innovationsbron offers the first phases of this evaluation. Vinnova (The Swedish Governmental Agency for Innovation Systems) can offer the most promising concepts a deeper commercial and technological evaluation with prototyping up to an additional 200,000 Euros from their program called Vinn Verifiering.

A few weeks ago I listened to the program director for Vinn Verifiering Kjell Håkan Närfelt at a seminar. An interesting observation was that the linear planning and control paradigm seems to be falling out of favor in the startup and innovation world.

Närfelt defined his mission as valorisation of R&D (valorisation is a term that means creation of value). Instead of viewing verification and early phase work in a startup as a development project he stated that it should be viewed as a learning process.

The linear control paradigm with roots in Industrial age Fortune 500s and MBA-style management consulting works well for large corporations that operate in stable and well defined markets. For environments with very high uncertainty it is less helpful to work with a framework built on plans, predictions, and deviations from plan.

For a startup a better method is to use Discovery Driven Planning and turn common practice upside down. Instead of starting the market analysis with the macro level concept “market attractiveness” it is better to start with an analysis on the micro level with an understanding of the customer’s context and needs. Instead of beginning with a business plan it is better to go through the extensive verification process first and write a business plan when you have more facts on the table. Another example of the new approach in the Vinnova verification program is the ambition to give prototyping a wider scope than technology only. Prototyping should also be used to learn more about the users and their context.

I find this whole approach very promising. If you are a talented researcher in the Swedish university system and have a scientific discovery with commercial potential, the government has paved the way for you. In addition to these verification programs, the government will (starting next year) spend somewhere around 5 million Euros annually on eight new Innovation Offices located at the major Swedish university campuses. The Innovation Offices will be the first point of contact for the budding entrepreneurs and offer support in patenting and hands-on business skills. What sets Sweden apart from most other Western countries is that the scientists are allowed to keep the intellectual property of their discoveries such as patents. Sweden has been at a disadvantage in attempting to attract international top scientists due to high taxes, mediocre salaries and a less than inviting climate. However, the promise to keep your patents and get support for your startup might be a magnet that can overcome these disadvantages.

As it is right now these programs only target commercialization of scientific results. If your startup is outside the R&D area you can’t get this support and funding. Hopefully in a few years, the experiences from these programs can be repackaged into a other programs that are aimed at promising startups in all sectors of the economy.

Open House with Mobile Life in Stockholm

Jonas Lind — Sun, 19 Jul 2009 15:53:50 +0000

The research center Mobile Life at Stockholm University had an open house in March 2009 (this is a translation of my Swedish blog post from March 7th) with keynotes, mingles and demos of their prototypes for new mobile services. The center has been operational for two years and is one of 15 centers of excellence that won ten year funding by the government agency Vinnova.

The projects conducted by Mobile Life were somewhat disparate, however, they have worked quite a lot with expressions for emotions and the integration of sensors that can measure things such as body temperature and heart rate in new applications (e.g. the project Affective Health). The prototype FriendSense (see picture) is similar to a Twitter that uses images and colors to capture how the members of a group feel and whether they have cold or warm feelings for other people in the group. In ActDresses you can control the behavior of a robot (a doll) by dressing it in different clothing. The project Mobile 2.0 covers a number of more mainstream mobile applications with integration of maps, geo-tagged pictures, friends’ pictures, geo-tagged chat rooms, friend finders on the subway, etc.

FriendSense

SwarmCam is an application where users can upload streamed video from their mobiles to a mixer with editing capabilities. Envisioned applications are a DJ that can show videos from the dance floor on a large screen and real time citizen journalism from, for example, an accident site.

The project e-Adept which is a co-operation with the City of Stockholm develops services which enable handicapped pedestrians to get exact walking instructions. Geographical micro-data have been coded for objects such as park benches, crosswalks, stairs and lampposts. With the aid of a PDA with GPS and voice output, blind people can navigate in the city streets. Other projects focused on different aspects of Pervasive Games where the players move around in an urban environment aided by GPS and their mobile phones.

In her speech, the center director professor Kristina Höök addressed how mobile data facilitates a breakdown of the old closed telecom paradigm and that the mobile Glasnost is now entering a phase of mobile service revolution.

The keynote address was given by design professor William Gaver from Interaction Research Studio at the well-known Goldsmiths, University of London. I like the policy at Goldsmiths (Damien Hirst is a former student) which demands the highest academic standards from their creative departments. The projects Gaver’s research team have worked on display an impressive creative madness. How about the idea of placing a piece of furniture as the Double Deck Desk (see picture) in an office to study how people interact with it? It is a good sign that Mobile Life has succeeded in building networks with other leading institutions in the field such as Goldsmiths.

Double Deck Desk

As it is hard to objectively determine the difference between genial creativity and things that are just odd and pointless there is always the risk that resources are wasted on bad projects. The fact that design and creativity are subjective can unfortunately be an excuse for not setting the standards as high as they are in areas that can be quantified and measured. The way leading arts schools (such as the Royal Institute of Art in London or the Art Institute of Chicago) have solved this problem is to ensure that the creative leadership is in the hands of extremely talented people. These creative leaders are confident in their assessment abilities and use brutal honesty to uphold high quality standards by rejecting subpar project proposals. I assume that Goldsmiths has a similar system.

The reason for my elaborate digression is the failure of a similar Swedish strategic research project, The Interactive Institute. The story of its failure is a textbook example of how not to manage national strategic research.

The background can be traced to the former Persson government which became aware of the Internet around 1997. At that time, the MIT Media Lab was the center of media attention and the Swedish government asked the MIT Media Lab if it wanted to open a research center in Sweden. The MIT Media Lab knew the value of their brand and asked for $100 million (if I remember the figure correctly) just to begin working with the Swedish government. After that slap in face, the Swedish government decided to start on their own. The outcome was the Interactive Institute, with an annual budget of 100 million Swedish kronor, which made it one of the largest budgets in the world after the MIT Media Lab. The idea was that interaction designers, scientists and artists would work together and develop new creative concepts.

For politicians the populistic elements must have been irresistible: an aggressive investment in the future, flashing lights, bright colors and animation, kids skateboarding in the corridors doing cool things. What a joy to be connected to all this youthful vibrancy. Tony Blair had paved the way a few years earlier by introducing “Cool Britannia”. In addition, government ministers could bring foreign guests to the expensive office floors at Östermalm in central Stockholm and show something that was visually appealing and easy to understand.

The invested resources did not produce any lasting results. I believe the failure was due to the lack of professionalism and quality in recruitments and execution. Collaboration and developing networks with leading institutions were neglected. Direct political interference and decisions governed by regional policy is not the right way to build a world class research environment. When I visited their open house demos around 2000 I hardly found any interesting projects. In an international academic review in 2003 they received damning criticism.

The situation for Mobile Life is much better. They managed to secure funding in a highly competitive academic environment. The problem for Mobile Life is rather how they will manage to differentiate themselves from commercial product development.

Comparing with the MIT Media Lab in the 1990s might be unfair because they were in a much better position to make themselves interesting at that time. MIT had the resources to implement and test new interactive services before the technological infrastructure was deployed in the rest of society. They became a demonstrator for all the new cool applications that everybody could envision in theory but were unable to implement in 1996.

Today there is a huge industry with tons of start-ups, entrepreneurs, and major corporations that develop these services for the marketplace. This makes it much harder for the academic world to advance and produce innovative products.
In a world where iPhone, Twitter and Facebook already exist, academics will have to choose peripheral and sometimes unintuitive projects to avoid replicating commercial product development.

As usual, one gets updated through the grapevine at these events. The most interesting fact that I can write about is that the head of Ericsson Consumer & Enterprise lab, Henrik Pålsson is now stationed in India. He said that the reason for his move is that the Indian market is developing very quickly right now. It is notable that Ericsson has relocated its most senior user market expert from Lund, Sweden to India.