'Venture Capital for the Future - Implications of Founding Visions in the Venture Capital Setting'

Ph.D. Dissertation by Miriam Garvi, Jönköping International Business School

THE PLAY

(Prologue, Excerpt from Chapter One, Chapter Three, Chapter Five, Excerpt from Chapter Seven)

Prologue

Welcome to this Play.
It is set in the late 20th century, somewhere in the heart of Sweden.
A young woman – our Research Apprentice – has just embarked on the journey of a doctoral thesis.
Little does she suspect that it will take several years to find the answers to the questions she will encounter along the way.
Equipped with a simple notebook and a tape recorder, she launches into the world of venture capital, eager to explore a new challenge that has been set before her. 
In her quest, she will meet a number of different people, each group with their own ideas of what venture capital is all about.
Reflecting on the visions for their initiatives, our Research Apprentice is then faced with a new question: how was venture capital originally intended?
Seven years later, her quest has finally come to an end. Has she found her answer? That is for you to find out.

Introductory Scene: The Assignment
The play opens in a large office. The walls are white; there is a huge window at one end letting in bright sunlight. A couple of bookcases are surprisingly empty. Two young women are sitting at their desks at the window, glancing through their calendars. There is a soft knock on the door; RAT-A-TAT. The two women turn around as a middle-aged man enters the room, greets them and takes a seat in the empty chair by the door...
THE PROFESSOR: … So, welcome both of you to our Business School. I think it would be good for you to start with a research project. We try to get our Ph.D. Students enrolled in a project as soon as possible. It’s like a form of research apprenticeship. (The two women are listening intently, nodding). Now I’m not really sure what your research interests are. (Turning to one of the women) I understand you’re into marketing?
FIRST WOMAN: Yes. Well, I haven’t really decided yet. Marketing or management, I have a background in both.
THE PROFESSOR: Anyway, I’ve had a project in mind for some time now. I was thinking that maybe one of you would like to be involved! You see, I know a guy who teamed up with other successful business founders to launch a regional venture capital firm. There is a lot of innovation happening in that Region. And now a group of quite prominent people in our Region has taken a similar initiative. There may just be a different business logic here that could be worth exploring. (Pausing, then addressing both women) What do you think? Does it sound interesting?
FIRST WOMAN (In a hesitant voice): Eh… I don’t know. It doesn’t really sound like my area…
THE PROFESSOR (Addressing the second woman): And how about you?
THE RESEARCH APPRENTICE (eagerly): I think it sounds exciting! I’d like to be involved! I don’t have that much to do at the moment, either, besides taking a few classes. 
THE PROFESSOR: Good. Maybe you could start then by writing down a couple of pages on venture capital and how you would picture this project. I think we can find some funding for it here at the Business School. Then we can have a meeting and discuss how to get the project started. (Takes his leave and exits the room).
(The first woman leaves the room.)
THE RESEARCH APPRENTICE (Addressing the audience): What did I just get myself into? What is venture capital, anyway? Well, he’s this great professor, if he thinks it’s important then it must be! (Distressed) What am I going to write about? What did he say the project should focus on? I’d better get down to the library right away; there must be some literature that can give me a clearer idea of what I’ve got myself into…

Introducing the First Act
This is the story of Lucina in good times and in bad, told in the voices of many of those involved in the initiative.
It is about the hopes and aspirations of a group of enthusiastic people as they set about implementing their own particular version of venture capital.
It is about the expectations of those on the receiving end as the relationship between venture capitalist and affiliated entrepreneur unfolds. 
It is about what happens when high expectations meet reality, and when new people with their own ideas on effective management meet those who cling to the origins of the undertaking.
It is about a research apprentice who comes to meet with these people, and her journey as she tries to make sense of what happens.
So, without further ado, let us enter into the world of Lucina, a venture capital company that has recently been established in the Region by a group of private investors with own entrepreneurial backgrounds. As the Act begins we find ourselves in the middle of a board meeting where the original investors are assembled...
The first act opens.



ACT I
The star that shone so brightly
  


Scene One: The gathering of the founders’ network
The Cast (in order of appearance):
THE PROMOTER (Lucina): Initiator and chairman
THE TEACHER (Lucina): Original investor; board member
THE ENHANCER (Lucina): Original investor; Board member
THE SYSTEM-DESIGNER (Lucina): Later investor; board member
THE CLARIFIER (Lucina): Original investor; CEO
THE COACH (Lucina): Original investor; board member
THE CONSTRUCTOR (Lucina): Original investor; board member
THE PATH-FINDER (Lucina): Original investor; board member
THE DEVELOPER (Lucina): Original investor; board member
THE SCANNER (Lucina): Original investor; board member
THE INVENTOR (Lucina): Original investor; board member

The scene opens at a golf club. Part of the restaurant has been closed off, the tables arranged in a U for a conference setting. Large glass windows at the end of the room give a panoramic view of the greens. Twelve people are seated around the table, talking loudly, excitedly. One of them bangs his fist in the table, calling the rest to attention...
THE PROMOTER: (raising himself out of his seat) Gentlemen, gentlemen, please, let’s give everybody here a chance to speak! (Turning to the Constructor) You were saying…?
THE CONSTRUCTOR: Had anyone read the book ‘How to establish your own business’ they probably wouldn’t… So luckily no one has!
THE TEACHER: I’m attracted to the idea that the first generation of firms – those who have been acquired or sold off to some company – their money will be recycled in the Region and come to benefit new entrepreneurs. Sitting on this board has made me realise that all of you really enjoy doing this! None of you see yourselves as financiers, now do you?
THE ENHANCER: Here’s how it is; entrepreneurs give venture capital to these young, fast-growing companies, who in turn consist of entrepreneurs. The entrepreneur has created the capital, ventured the capital and injects both capital and his experience as an entrepreneur into the young entrepreneur. Everything happens in symbiosis, in one unit.
THE SYSTEM-DESIGNER: (nodding in agreement) That’s the way it is. We actually invest in people, not technology. A lousy entrepreneur and leader can have any good idea, but it doesn’t help. But a good entrepreneur can take anything and make it into something good! So we venture on people; that’s how this is done! (Enthusiastic nods from the rest of the group)
THE CLARIFIER: Our entrepreneurs say “we’re to become this big”. So we reply “OK, you’re to become this big, if that’s what you want then we’ll help you!” (Excitedly) Nothing is impossible, that’s pretty much our attitude…! They started their business and that wasn’t because they expected somebody else to do the work!
THE COACH: It’s like being helped by your father. You should get advice and some help but still you’re the one doing it in good times and in bad. We shouldn’t exaggerate the significance of this kind of activity. We can be an accelerator, and help out with some money. But we’re talking pretty small sums of money in these companies.
THE SYSTEM-DESIGNER: What we give is a little courage – to make decisions, to move forward! We keep pushing them, constantly. Sometimes they’re so naïve that they want to move too fast. Then we slam on the brakes as well. So we try to maintain the speed that we think is right for them. Some of them have a very good idea with a vision of the USA and enormous growth and billions. But others we have to push forward, playing up scenarios of growth.
THE PROMOTER: (in an inspired tone of voice) We’re a resource for the existent entrepreneurs! Our will is the same as their will! Our involvement should help them do what they want to do faster than without us. We see to it that they move forward on those paths that they choose – and this also requires that we rectify a bit sometimes. When they choose a distributor, chances are that the Developer here has already worked with this guy for eight years and knows that he’s impossible, right? (Nodding towards the Developer who smiles in acknowledgement).
THE ENHANCER: We have a very good informal contact network that we’ve built around one university. We don’t have to run into those companies that may not turn out to be successful. We find those that are run by the right guys. Lucina hasn’t failed with one single investment as yet. (Pausing) The fundamental business idea here is simply to avoid making mistakes!
THE CONSTRUCTOR: Very true. It’s by avoiding these mistakes that I believe the companies in the Lucina sphere will progress from idea to growth. Until now we’ve succeeded in developing the companies. They go through various stages ―
THE ENHANCER: (enthusiastically) ― and as their capital needs increase, room is made for a second, third and perhaps fourth round of development capital. And then we in the ownership sphere have priority rights!
Laughter and applause from the group. People start talking in smaller groups, there is loud chatter in the room. The Promoter bangs his fist in the table once again, restoring order.
THE PATH-FINDER: I think that some venture capital firms are pretty weird. They come in and say “well, you’ve done this really well, but in two years time we want a new guy in charge”. We don’t do that here, because we believe that the entrepreneur should participate as long as possible.
THE CONSTRUCTOR: But once you get to the growth stage, a different kind of administrative and leadership talent is required. The entrepreneur-inventor is not always the right leader for the company.
THE PATH-FINDER: Those who’ve started a company are often very skilled technicians. So there’s technical and product competence, but there’s a lack of business thinking.
THE COACH: They’re inventors, entrepreneurs. They are dangerous as managers! (Laughter) There are all sorts of alternatives, but that doesn’t mean that they’re good for nothing and shouldn’t stay! Only in a different role! In those cases we can suggest to them; “Hey, what if you were to focus on research instead?” It’s better that we tell them that, rather than they should hear it only when it’s too late to do anything about it.
THE SYSTEM-DESIGNER: (enthusiastically) I think that Lucina’s philosophy is so great, it’s so interesting! Trying to stretch the entrepreneur as far as possible... We’ll be replacing those who do not realise their limitations – they’re technicians and will always remain technicians and they don’t fit as CEOs and leaders. To go in like many do and almost immediately replace in order to take a driveway that’s marked with paper-strips, that’s utterly uninteresting to us, utterly! This is why we talk about sympathetic capital! Obviously we too want a fast development of the company, but it should occur in a specific way. We’re very humble towards the people, they’re the ones doing the job and they’re the ones we should support. Not because we love people so much, but because we believe in sensible companies!
THE CONSTRUCTOR: (brightly) You know what we are? We’re a plant school for new enterprising!
THE DEVELOPER: Well, Lucina’s philosophy is to help these entrepreneurs or companies capitalise on their business idea faster. And all of these companies need help – a lot of help.
THE CLARIFIER: Yes, they do need help. We spend an afternoon discussing certain things with them, and that might make them wiser. Not perhaps because we’ve said the right things, but because they got a wider perspective. It adds some courage to their thoughts ―
THE SCANNER: ― Right! Take Administrative System for instance; we told them “Now you need to get that order from the hospital, reduce your prices!” Had they been on their own they might not have dared take that order…
THE SYSTEM-DESIGNER: In Digital Communication it’s obvious that we’re a sponsor, a mentor, a father – everything, really, in order to try to help these relatively young guys. And that’s based purely on experience. We can’t assist with any technical knowledge, really. It’s about how they should be thinking. We’re a sounding board. And what we’ve tried to achieve in that company is to establish a professional board.
(The group embarks on a discussion on the merits of the two companies… )
THE PROMOTER: All right, we’ll come back to our companies later when we get into the specifics. Let’s get back to discussing our general concept.
THE CLARIFIER: Going back to our role, I’ve seen it many times now. Maybe we need capital from the bank and the bank asks for securities, saying things like “but you only have two or three customers”. And then we’ll say “but there are five new ones on their way”. “We don’t believe you” – then what do you do? There are far too many people out there who are scared (laughing). It helps to have some other person together with myself who knows the industry of the company, and can relate to the stage it’s in. And who also understands the mind-set of the entrepreneur ―
THE PROMOTER: ― Every one of us here today is on the board of lots of companies! It’s as if we went back and remembered “oh yes, this is what it was like ten years ago when I was running a company!” It keeps us alert, because the people who run our companies – even though they’re ten or twenty years younger than us – they weren’t born yesterday! Sure, when they’re sitting with the board of a bank asking for a loan, then they’re schoolboys, they don’t realise that they’re being fooled. But they weren’t born yesterday when it comes to their own operations!
THE CONSTRUCTOR: When I started my own company in 1981 I was 31 years old. I had no idea of how to start; all I had was an idea. It wasn’t easy to borrow any money. So often many ideas die because the inventor or entrepreneur is so focused on his own product that he forgets how to handle marketing and commercialisation… he can’t get the sales going ―
THE COACH: ― There are so many ideas everywhere that are not pushed forward! We represent a local firm that also understands the mind-set of the entrepreneur. I mean, an entrepreneur is a special kind of person who skips a safe career in order to come up with something that may pay off in the future. He believes in his idea. He doesn’t care about laws regulating work hours or any of that! All of us here on the board share the same background. We deal with people, human capital. We relate to such a guy. If he turns to the bank, he’ll have to mortgage his house and car and wife and everything, right? (Nods from the audience). It’s a misery for him! Here he can get a better sleeping partner, one who understands that it could actually be tough in the month of August after the holidays…!
THE CONSTRUCTOR: (Picking up where he left off) What I was saying was that the probability of increased value is far greater with the kind of competence represented by Lucina’s founders’ network. We’re providing the entrepreneur with a safety net! (Nods from several members of the congregation)
THE PROMOTER: (excitedly) That’s precisely the point! Many companies that we encounter have exactly those problems most of us have experienced. You remember (addressing the Coach and the Enhancer) how we were sitting around thinking that our own company was the best in the world at what we were doing. It was so completely unique – why wasn’t there a whole bunch of people lining up outside?! (Laughter from the audience) The banks didn’t understand a thing and they didn’t want to lend us any money. We couldn’t even afford to pay our wages for the following month. Now we can secure money for the companies that we encounter. But that’s not the biggest problem! Of course we’re to give them money… The huge problem is to find the right direction; if you want to establish a new product on a new market, who should you work with? We can seek partners for them quickly…
THE SYSTEM-DESIGNER: We have so many contacts. There are enough contacts for the companies; really, it’s the companies who need to think about what they actually need. And they do that together with our people.
THE COACH: (laughing) Many of us have taken part in the whole journey; we’ve been through the hard times. Far too many people believe that when the company is doing poorly, it’s because the follow-up was bad. We always hear that from the bank. So we explain that “No, it’s because we lost that order in Paris”. (Imitating voices) “Yes, but what are your routines?” (Scornfully) “We don’t have any routines! But had we got that order we wouldn’t need any routines!” What kind of debate is that?? We’ve all done a budget, and we know that it’s like sending out your wish list for Christmas believing you will get everything on it…!
THE PATH-FINDER: There are too many bankers and analysts who are sitting out there doing their calculations. I mean, it’s not uncommon to meet people asking “hey, in year 5 or 7 here, it looks very strange, what’s happening then?” You don’t know whether to laugh or to cry. (Frustrated) But this is about determining the business opportunities of a project!
THE TEACHER: (with feeling) You know, I had the opportunity to set up one of the first companies in the Region – this was in 1978 – and it was extremely difficult to get funds. I tried to set up a venture capital firm together with Ericsson in the late eighties, focusing on telecom companies, but we didn’t find any good investment objects. And I didn’t really have the time to work that hard with it either. So many venture capitalists brag about having more than money to offer, we’ve been hearing that for years. But they can seldom live up to the rumour.
THE SCANNER: (cutting in) Right! I see that people tend to be disappointed with IT funds. What do they really know? And do they have the time? The entrepreneurs get the money but they still have to do everything themselves.
THE TEACHER: (rectifying himself) I mean, they might have a few very experienced people, but they seldom have the time to be really committed to a single venture.
THE SCANNER: (changing the subject, turning to the Developer) I’ve been hearing from you that you’ve been in touch almost every week with the CEOs of your companies! Our most important role is to be sounding boards; not only to attend board meetings. Take the case of Administrative System – it’s such a perfect illustration! (Addressing the Promoter) What did your consultancy firm look like twenty years ago, huh? What were the problems, what were you preparing for? And your Nordic executive has been put on the board of Administrative System, and probably contributes in a way that no one else could. In my view, we’ve got the right individuals into these companies who provide the right competence! (Turning to the Inventor) Haven’t you been involved there, too?
THE INVENTOR: Yes, I have. Still am, actually. When I met Administrative System they were already involved in a project at a hospital in the capital. Their weakness as I saw it was relationships between customer and supplier, how to work together. So I found a solution for the problem at the forest level – look at the forest and not the trees, that’s what’s most important!
THE CLARIFIER:  For my part, living in the capital I see the contrast between firms in our Region and those over there. Down here, you develop a product, see to its delivery and the financial situation... In the Capital, you market yourself, but the capacity for delivering what has been promised is not very high. So many of these castles are built on sand and eventually they come crashing down. And one shouldn’t paint them up as idiots but at least our companies shouldn’t believe they’re any worse. They shouldn’t assume that just because one is seen in the media or takes in 200 million in a new emission of shares ―
THE PROMOTER: (with emphasis) ― We mustn’t be blinded by that race – with Internet booms and quoted companies being worth twenty billion instead of half a billion – and we can’t start hurrying just to catch the train – because that’s not what it’s about! We’ve committed ourselves to the companies that we have! And we have to see to it that it works out well!
THE DEVELOPER: You know, when you embrace someone like that – like a young child – you don’t want to lose that child or see things go bad. For if things work out for the companies, then we know that it works out for Lucina! And probably for us as individuals too. So we focus on the companies rather than on the returns that we’ll make. I mean, we’re the sympathetic development capital, right? (Laughter)
THE PROMOTER: (Addressing every one around the table) In the last two years, the world has shown that increasing value once is really nothing! Value should be increased a hundred times in six months! Each of us here has ventured at the most three million! This company is connected to the Region and you’re sure to gain better returns than if you’d put the money in the bank – it’ll be both six and nine million! If this takes three or five or seven years – who cares, huh? You’re content with that, even if you might be thinking that had you put three million into Icon they’d be worth fifteen million by now. (Throwing his arms up with an air of defiance) Sure, so why don’t you? (Quiet pause)
THE SYSTEM-DESIGNER: I think it was the local connection and taking part in developing companies of the next generation that attracted me the most. But then there’s no idealism in this. It’s strictly commercial all the way. We don’t do it just because it’s fun. It’s fun combined with being an investment. It’s not charity, that’s the word I was looking for.
THE CONSTRUCTOR: The network itself is also – what do you call it, ehh – an alumni association. I’ve put very little into my own education ever since I finished university. So for me this is a way of keeping up to date with the technological development. Which also gives me the opportunity to allocate time for this, without it intruding on my regular work…
THE DEVELOPER: If things go well then I guess some of us will be a bit happier. It’s such a long project that those eventual returns from Lucina, they’re a real side issue. One of these days it’s going to yield good returns, but we have no clue when. But with every day that passes we do see that the value of our portfolio companies increases.
THE COACH: (scornfully) You can make money off anything, but you automatically make money in these kinds of companies if you’re successful. Of course, you can be greedy and try to make more, but greed has killed many a good idea. If the entrepreneur makes money then Lucina makes money, and both parties are happy.
THE ENHANCER: We’ve all seen venture capital become greedy and short-sighted in many companies. We have much more of a long-term perspective, and in my opinion we’ll end up making much more money. Everyone these days is in such a hurry to do an IPO and capitalise quickly and harvest the investment. They don’t care about anything besides chasing their money, completely ignoring the well-being of the company ―
THE CONSTRUCTOR: ― Everybody should work towards the same objective; a company that is healthy and independent and that has a growth of its own!
THE ENHANCER: (Scornfully, finishing where he left off) ― hastily putting together a company, writing a nice prospect, making some kind of hype around it and throwing in a bunch of half-wit underwriters! ―
THE COACH: ― This doesn’t have to become a new Framfab, that’s not the idea. It’s supposed to be something that keeps moving forward. Just imagine if everyone was like us! Many venture capital firms don’t seem to grasp the meaning of the term – venture capital means that the money could be lost. It doesn’t mean a guaranteed profit of 150%! It’s the race track in a more refined form!
THE TEACHER: These small companies that we’ve committed to have had their difficult periods. But it’s never been on our agenda to divest them! I’ve been in other contexts where one has had a very cold view; as soon as the future begins to darken one starts talking in terms of exit. Here we talk about the entrepreneur and how we can help him get his feet on solid ground.
THE SYSTEM-DESIGNER: I don’t think that these companies feel threatened. We never threaten them, they feel pretty secure in their roles if you compare to some of the other venture capitalists. We don’t come after them with a blowlamp in the same way as many others. Then I believe that the relationship will be upheld and remain very good as long as we perform things. As long as we do things for them that they want or need. And it’s actually a very close relationship, especially with you (addressing the Clarifier) being physically out there at the companies. I think that’s extremely important. And that’s where we’re miles away from Ledstiernan and these other gangs.
THE SCANNER: (summarising) Some of us here want maximum returns on investment and others are more focused on developing the region. But if we didn’t believe in the project, if we didn’t believe in entrepreneurs, we’d never venture! How great a risk do we actually take? The last two-three years, the biggest mistakes I’ve made coming from my own investment company is that everything I turned down was worth ten times more a year later! Since 1997, Lucina has been living in an incredibly favourable climate where everything has increased in value ―
THE COACH: ― Yes, right now the world around us is in euphoria!
THE ENHANCER: (in an optimistic tone) The timing right now is wonderful with development happening so quickly... There’s a technological shift and it’s so much fun to be a part of that.
THE COACH: Going back eight months in time the stakes were high, because we didn’t have the same environment, the same inflow of money, the same optimism and so forth. This is long term, so in the course of our journey we’ll see recessions and booms; no bank loans, and as much money as you like! Everything will change. And Lucina is a company that has to live through the seasons to come. You all know the saying; “A true friend is discerned during an uncertain matter”.
THE SCANNER: We need to be realistic. It’s always difficult to predict what will happen when we face a new crisis and we’re out of cash …
THE COACH: Lucina’s role is to pick up companies and bring them forth. Our greatest risk is probably if we felt so good right now that we take these four that we have and turn them into world-wide giants! Then there would be no time for picking up new companies, which is the business idea here. Our purpose isn’t to establish a large company with loads of subsidiaries, it is to bring them forward and sell them. (Laughing) You can’t fall in love with ownership, that’s a bit abstract!
THE CONSTRUCTOR: No, when things are up-and-running we can start thinking about our exit. Our role isn’t to be there for all eternity… I think that you (addressing the Promoter) had the idea pretty clear when we got the letter that described the basic idea; the connection to the Region, the sympathetic capital. And since then we’ve worked out the Lucina model, our way of doing business. Today we have a method for helping the companies reach the growth stage, and we’ve developed a model for board work and reporting. And we can refine that even further. It’s a very cost effective organisation that we’ve got, so far, and so it should remain…
The scene closes while voices fade into the background.

Scene Two: A visit with two enthusiasts
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE CLARIFIER (Lucina)
THE DEVELOPER (Lucina): Original investor; board member; chairman of Linux Solutions

The Research Apprentice appears in front of the curtain.
THE RESEARCH APPRENTICE: (addressing the audience) I’m really excited about meeting these people in Lucina with their sympathetic capital concept! They really do seem to enjoy supporting new ventures with what they need in order to progress. I wonder what kind of ventures they feel are meaningful to support...? Well, I’m going to find out soon enough...

The scene opens at Lucina’s office premises in an old-fashioned building. The room is sparingly decorated, with a conference table occupying much of its space. Around the table, three people are gathered, engaged in conversation…  
THE RESEARCH APPRENTICE: You know, when I talked to the Constructor, he was ecstatic about the freeware concept. He said it was hard to understand at first how you would make money off it.
THE CLARIFIER: Freeware? Yeah, we’ve had a problem with that. One could see it as getting very cheap tools somewhere and then somebody helps you enhance those tools. Perhaps they see a spanner – and if you’re real talented you see that not only can it be used for loosening bolts, but also you can tighten them if you do something else… But then you have to give the innovation back to this free association. And so you can sell the competence if you’ve fixed this application, but you have to return it.
THE RESEARCH APPRENTICE: So what made you decide to invest in Linux Solutions?
THE DEVELOPER: (laughing) Oh, we had so much money burning in our pockets… No…
THE CLARIFIER: You know, Linux Solutions was our first company. They had some kind of a security product based on Linux that caught our attention.
THE DEVELOPER: The documents they provided for the first investment were rather thorough. Looking at it now it was admittedly quite good material – this support thing – but I can’t say that we really knew what we were getting ourselves into (laughing, winking at the Clarifier). At the time, you know, Linux was far from what it is today!
THE CLARIFIER: (laughing) At that time, nobody knew anything about Linux – people saw it as a shady operative system used by a bunch of communists at the university! No, seriously…
THE DEVELOPER: We estimated that Linux Solutions with its technical competence was something to build on. We believed that the Programmer  who was managing the company would be able to turn this into something.  Plus we thought we had the resources to put in at the board level. We felt we could take care of them.
THE CLARIFIER: Above all it was the Programmer who had a bunch of ideas, and we believed in him. Few venture capitalists place as much confidence in entrepreneurs as we do. Because we believe you can never replace the driving force that they have…
THE RESEARCH APPRENTICE: But how did the Programmer gain your trust? Was it because of his relationship with the Teacher at university?
THE DEVELOPER: ― No, no, no. There were a couple of events where the Programmer presented his case to the board. I remember especially one dinner he attended. You see, in our business, an informal setting is where you get to build trust. We wanted it to work and we gave him every opportunity to do his pitch. We saw a lot of risks, but no more cracks in the armour than what was to be expected when you go in at such an early stage – even if it’s not from start-up. They’d been active for five years, you know.
THE CLARIFIER: (impatiently, glancing at his watch) I saw a team leader in him. You know, he’s constantly pointing out his own shortcomings to me. I will believe in people who know what they want, but who also realise their shortcomings and why they want help.
A mobile phone rings and the Clarifier exits the room.
THE RESEARCH APPRENTICE: (addressing the Developer) So how come you were appointed Lucina’s representative and chairman on Linux’ board?
THE DEVELOPER: They were into computer stuff like me and I had some time to spare.
THE RESEARCH APPRENTICE: So how closely have you been involved with Linux Solutions?
THE DEVELOPER: We’ve been investing about three days a month in that company. You know, when we came in, they were twelve people, and I guess the Programmer was the only one who knew how to spell BUSINESS DEVELOPMENT. The rest were pretty…
THE RESEARCH APPRENTICE: What about the other people at Lucina? Have they been involved too?
THE DEVELOPER: No, not continuously. They make occasional appearances. For instance, when Linux had a problem with an employee we needed to get rid of,  the Promoter helped solve that issue. It did cost us quite some money, but at least it got solved! (laughter)
THE RESEARCH APPRENTICE: So what has happened since you came in?
THE DEVELOPER: It’s been exciting! One of the board’s tasks has been to try to find the structure and the market strategy for the company. We’ve tackled some big strategic issues that has turned Linux Solutions into what it is today. It’s not really homogenous, though – different parts of Linux Solutions work with different kinds of customers, and with various things; services, products. One could say that Linux Solutions is still living off solid technical competence, rather than the ability to make good business solutions with the Linux platform. That’s our challenge.
THE RESEARCH APPRENTICE: And moneywise?
THE DEVELOPER: We just made a follow-up investment in Linux of five million. Expansion and establishment in the capital is on the agenda this year, and for that you need money!
THE RESEARCH APPRENTICE: I guess they’re pretty happy with your involvement, then?
THE DEVELOPER: I would say that we have a very straight discussion. I don’t really remember if there was any other player in the pipeline, but I felt that they chose us because our concept gained their trust. So when this came to be I don’t think the financial discussion was particularly controversial. We had more discussions in the second investment round. It’s virtually impossible nowadays to find rime and reason in the valuation of IT companies! That’s also affecting these entrepreneurs.
THE RESEARCH APPRENTICE: What about your eventual exit?
THE DEVELOPER: Lucina’s philosophy is to find – together with the entrepreneur – the most adequate long-term development. With what’s happening on the stock market the company is asking us for a time plan for IPO. But there’s no rush yet...
The Research Apprentice takes her leave, and starts walking towards the audience.
THE RESEARCH APPRENTICE: (addressing the audience) I wonder how an entrepreneur feels about having someone who tries to influence their strategic direction, will he be as enthusiastic about it as these Lucina guys? I’ll go and talk with the Programmer and hear for myself...
The scene closes.


Scene Three: A confident entrepreneur
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE PROGRAMMER (Linux Solutions): Founder and CEO

The scene opens in another conference room. The wall is decorated with a few marketing posters. At one end of the table is a computer.
THE RESEARCH APPRENTICE: I’ve just paid a visit to Lucina. I talked with the Clarifier and the Developer, and they talked a lot about your company. Would you tell me about your own background and how Linux Solutions came to be?
THE PROGRAMMER: Sure. Around 1990, I and three other people were working as system administrators at different departments at the Institute of Technology. We were using freeware from the Internet for software development and system administration. After a while we noticed that there was room for a firm that would handle these things. We came across a company in Sweden that had started a couple of years earlier and was very successful. So we said to ourselves: “It’s time!” and we started our company. This was in 1992. We got a lot of help from the municipality, who provided premises at low rent. There was a course at the university, which was really helpful for discussing and solving our first problems. To make a long story short, after a couple of years, we were up-and-running, but things were pretty slow. Our first product – an Internet server product – didn’t sell well. And we had just finished our second, a firewall. At the time, we were involved in a consultancy project with a local bank. We worked with a PR firm and got to know the Promoter. It was good teamwork. During that time he and the Clarifier started Lucina, and soon after they got in touch with us. They introduced themselves as a bunch of merry businessmen who had succeeded and had a lot of money that they wanted to put to use. Which sounded fine to us! It was decided that we would start after New Year – this was in the summer – but that’s when the discussions really got going. We actually started the following summer, in 1997. Which was all right, because then we had enough time to really think through what we wanted!
THE RESEARCH APPRENTICE: So what was it you had that caught their interest?
THE PROGRAMMER: They came in because they thought that the firewall was an interesting product. But the soul of our company has never been in product creation; we’ve been a service development company. I think they chose to disregard the outrageous idea that one could make money off services for freeware…!   
THE RESEARCH APPRENTICE: (surprised) But wasn’t that your main idea back then, the one you presented?
THE PROGRAMMER: Sure, it was our main part, but the idea wasn’t well formulated. With time we’ve managed to formulate it better and they’ve understood more of what it’s all about. Now everybody is enthusiastic! You must have read about Linux? (No response) I imagine that the papers are painting it up as the threat to Microsoft. And that’s reality! It’s growing so fast that explosion is not too big a word! And we’re the leading company in Sweden; we have most of the services, the biggest experience, the longest history - in other words, everything! What I mean to say is that this is the next revolution, for very simple reasons. If you like I can illustrate it on the whiteboard…
The man jumps out of his seat and starts drawing a mind map on the whiteboard. (He goes on explaining for some time before pausing…)
THE RESEARCH APPRENTICE: So how come you were looking for venture capital in the first place?
THE PROGRAMMER: I think at the time we had a turnover of about six and a half million and we ten to twelve people. Our initial ambition was to create an enjoyable work place for ourselves. But as we learnt more, our ambitions rose. So we felt that we needed some help in order to progress.
THE RESEARCH APPRENTICE: How did you finance it all from the beginning?
THE PROGRAMMER: We put in some money of our own – eighty thousand. And we brought our computers and technical equipment along. If you’re starting a computer firm that’s all you need! Knowledge, computer, and a room. A transport company in comparison has to buy a truck for two million before they can even start doing business.
THE RESEARCH APPRENTICE: So what happened when Lucina came in?
THE PROGRAMMER: We hired a couple of new developers – there are new threats appearing all the time and you need to find new responses. Then we started with marketing and selling through distribution channels.
THE RESEARCH APPRENTICE: Sounds like quite an adjustment!
THE PROGRAMMER: You could say that we left elementary school when Lucina entered. They had a completely different view on things. Previously, we sold directly to customer, but they thought it was important to have distributors. When you go from direct selling to distributor there is always a drop in the revenues, and realising how big the potential could be in the end can be a difficult adjustment. Unfortunately, the product didn’t sell as well as we’d hoped for, so we ran out of money after a couple of years. But one of the Promoter’s obsessions is that it always takes more time than you think!  
THE RESEARCH APPRENTICE: Are you worried about what would happen in your relationship with Lucina if things go poorly for your company?
THE PROGRAMMER: Well, I don’t think it will be that bad, because things have gone bad once. Before, when we were out of money, the Clarifier personally stated that “there is no way that we will let Linux Solutions go down!”. So they will put in more money if it comes down to that. Because they know that the core idea is healthy, the product is healthy – everything is fine! It’s all about growing at the right pace or persevering if this shouldn’t progress as expected.
THE RESEARCH APPRENTICE: Have you been discussing their exit yet?
THE PROGRAMMER: When you talk to the Clarifier, I’ll bet you he’ll put up a presentation with the heading ‘sympathetic capital’! (laughter) And with sympathetic capital he means that they have a long-term view. They’re really into helping the entrepreneur, not just putting in money, driving up the value of the company and doing an exit. They don’t talk about exit at all. I’ve been talking about an IPO. And they say; ”Great, let’s do an IPO, but in its own time!”…

Scene Four: An unexpected turn of events
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE PROGRAMMER (Linux Solutions): former CEO now CTO

The Research Apprentice appears in front of the curtain.
THE RESEARCH APPRENTICE: (addressing the audience) Well, it’s been a couple of years since I talked with the Lucina people. I wonder how they’re all doing? Linux Solutions was given an award last year for best Linux company in Sweden. I think it’s high time to pay them a new visit!

The scene opens in a cramped office. Computer parts are lying around in the room. The guy behind the desk rises to greet the Research Apprentice as she walks into the room, then they both sit down and start talking…
THE PROGRAMMER: (in an explanatory tone of voice) You know, the whole industry has been through a crisis. Lots of our people were working with Nokia. But Nokia had to shut down their whole business and so we had to close down almost all of our business as well. It’s pure luck that we haven’t disappeared altogether! We started out with fifty people; we have ten left. Now that our new CEO has arrived, we’ve been around to his old contact network trying to generate an interest. That’s how we got a small project going in after a long period of difficulties. We’ve recently launched our new product and now we’re working very hard to get it out on the market.
THE RESEARCH APPRENTICE: (incredulously) You mean you’re no longer in the consultancy business?
THE PROGRAMMER: We’ve gone from being a consultancy firm with a small product, to sending off the product into a company of its own, cutting down on the consultancy activities and then developing a new product. So now we see ourselves as a pure product company.   
THE RESEARCH APPRENTICE: How did you survive the crisis?
THE PROGRAMMER: We had some commissions, old customers that we tried to take care of. We also had assets in our spin-off company, stock that we’ve been selling off gradually … Now we’ve sold the last of it so it’s not our subsidiary any more. That’s sad, but it’s been a question of survival.
THE RESEARCH APPRENTICE: So how have you financed your new orientation?
THE PROGRAMMER: We made a business plan and presented it to our owners – Lucina among others. We said “Now we need some help to get this going. The potential is there and this improved product is ready for this particular market”. They bought our plan and they’ve been helping us during a transition period. It was a package solution.
THE RESEARCH APPRENTICE: Any new investors?
THE PROGRAMMER: Yes – our product has generated some buzz in the industry. Lucina found the Exploiter for us. He believes that just as high as the IT companies were valued before the crisis – just as low are they valued now. So we’re part of his little portfolio and he’s our chairman now. He’s been very much involved in our company. 
THE RESEARCH APPRENTICE: And you’re no longer CEO of the company…?
THE PROGRAMMER: Correct. I had said when we were expanding that it wasn’t right that I should remain in that role – because I don’t really have that kind of experience. There was no acute crisis, I just felt that I wasn’t the best person to be in charge of a continuous progression… Lucina brought forth a number of candidates. But none of them felt right for us. There were people who didn’t grasp what we were doing, and there were those who had ideas about how to drive this forward which simply wouldn’t fit here.  
THE RESEARCH APPRENTICE: Like what kind of ideas?
THE PROGRAMMER: Ideas about our orientation and which customers we should go for. Unlike most of them we have quite some experience. But then Lucina brought our present CEO along, and the two of us get along well. He grasped this quickly, and he liked us, so… (Pauses)
THE RESEARCH APPRENTICE: So what improvements will the customer benefit from with your product?
THE PROGRAMMER: There’s a strong trend where Linux is gaining acceptance as a viable enterprise technology. We can give you a system that will enable you to work in Linux whenever you want – but if you choose any one of our competitors you’re stuck… That’s a very strong argument.
THE RESEARCH APPRENTICE: How do you see the future?
THE PROGRAMMER: In our business plan we say that we’re to leave a considerable footprint on the Swedish market. And once we can prove customer interest and profitability, we will expand. I don’t think Lucina, however,  is the best partner for step two. The Exploiter suits us better.
The Research Apprentice takes her leave and exits the room. The curtains are closed.

After a brief pause, the Research Apprentice appears in front of the curtain, press release in hand.
THE RESEARCH APPRENTICE (addressing the audience): What’s this?? It says here that Lucina sells its shares in Linux Solutions? Why do that now, when Linux Solutions is back in business? I was talking with the Programmer only a couple of weeks ago! Sure, he said that the Exploiter is a better partner for the next step, but he didn’t say that Lucina were withdrawing? I need to find out what has happened!


Scene Five: A tragic tale
The Cast (in order of appearance):
THE IMPROVER (Linux Solutions): Former chairwoman
THE RESEARCH APPRENTICE

The scene opens in a smaller conference room. Two women are sitting at the table, drinking coffee...
THE RESEARCH APPRENTICE: I met with the Programmer not long ago and he suggested that I talk to you about your involvement with Linux Solutions. I have to say I was surprised when I found out that Lucina have sold their shares in the company now that they have launched a new product. When did you invest in the company?
THE IMPROVER: I was part of the shift when they increased from 20 to 50 consultants. I had just put in sixty thousand of my own money, because I thought the whole Linux community thing is a good alternative to Gates’ world. There is tremendous power in such a concept. And Linux Solutions was very big at one stage. But then the whole market folded and we had to start dismantling… It turned out to be a hard trip.
THE RESEARCH APPRENTICE: How did they manage to reorient the company?
THE IMPROVER: The Programmer and company had – with customer financing – developed two thirds of the concept Thin Clients. But then to take it from white papers to actually building the structure and documentation in order to sell their product, and then establish the indirect channel with distributors, certification and so forth – the present CEO has that knowledge, he brought it with him to the nest. Had they not managed to develop their new product and had the present CEO not brought along his businessmanship … then I believe Lucina would have made their exit long ago. That would most probably have meant bankruptcy.
THE RESEARCH APPRENTICE: During those months that you were on the board, how did the relationship between Lucina and Linux Solutions unfold from your perspective?
THE IMPROVER: There was criticism towards the management of Linux Solutions for not delivering what they had promised. For several years, they had been far too optimistic in their faith in the market – compared with what they delivered. When this goes on for several years you easily get hard words. “Why should we believe in this now when you’ve done it before?” There was a lot of mudslinging, and I felt that we entered a very non-constructive phase. As an attempt to summarise it, Lucina felt that Linux Solutions made grand promises they failed to keep. And Linux Solutions felt the same way about Lucina. We fell into a position where neither party trusted the other any more. And that’s pretty hard to manage. It becomes a war of positions. I was very upset during that period – to the point where I actually resigned and left the board.
There is a knock on the door, a man pops in with a question. The Improver excuses herself and rushes out. Left to herself, the Research Apprentice looks pensively out the window...
THE RESEARCH APPRENTICE: What a sad story! How could a relationship that was supposed to be so sympathetic end on such a bitter note? Well, I’m meeting with the Lucina people again next week to find out their reasons for exit.
The scene closes.

Scene Six: The Lucina people tell the story
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE TEACHER (Original investor; fourth chairman of Lucina)
THE DEVELOPER
THE PROMOTER
THE CLARIFIER

The scene opens at a coffee shop. A breakfast buffet is laid out on a large table, a handful of customers are scattered about the room. Over by a window, a small group of people are sitting around a table, sipping coffee…
THE RESEARCH APPRENTICE: So what happened with Linux Solutions? Did somebody make you an offer you couldn’t resist? (loud sighs from several people at the table).
THE DEVELOPER (breaking the silence): Well, every case is unique, and Linux Solutions has had a very special journey. Us doing an exit there is more about divesting than doing it by the book…
THE RESEARCH APPRENTICE: Have you given up on them?
THE PROMOTER: We really invested in Linux Solutions... I don’t really know what happened! We lost focus. After we sold their firewall product to the Firewall Company, there was a vacuum in management. The Programmer has told us later that he didn’t know how to handle the situation at the time, and he wasn’t getting any support from Lucina either. Instead of sitting down at a table and saying “Now that we’ve made this change, how do we organise what’s left?”, there was some kind of mudslinging going on. So the situation continued to deteriorate without the right analyses ever being made.
THE CLARIFIER (in an explaining tone of voice): Linux Solutions was with us in the beginning when money wasn’t really an issue. The mistake we made was giving them too much money back in 2001!
THE TEACHER: You know, when the present CEO came on board, he asked me if we would be putting in more money. I said we wouldn’t. By then we had invested ten and a half million and still didn’t see what product or service Linux Solutions would be dealing with. The only thing we knew was that they had failed as a consultancy firm.
 THE DEVELOPER: Yes, at that stage we lost patience, because things never grew any easier.  There was still the pressure of not knowing whether this company would be able to make it at all! Linux Solutions was becoming smaller and smaller instead of bigger and bigger. The classic plans were never implemented, even though we had injected quite a bit of capital in various rounds.
THE PROMOTER (sighing): A whole year went down the drain. The continuous dismantlement of the company with “well you have to save 100,000” probably set off a vicious spiral. Money went to paying people who then chose to walk out the door. So many misunderstandings…!
THE CLARIFIER (wearily): We should have had some extra clause in case we started fighting. When that happens you might as well pull out so as not to wear each other out.
THE RESEARCH APPRENTICE: But you remained on board even though you had lost patience? How come?
THE TEACHER: I was told by the present CEO that there was an old product idea that had been put on the shelf after the decision had been made not to deal with products any more. It was called Thin Clients. The Programmer and his boys were very keen on turning it into something. And that’s when I felt that the former entrepreneurial enthusiasm still existed. So I said yes, that’s probably your only chance of saving the company – finding something that you can get out there pretty quick that the market is ready for, and that people feel so strongly about that they could forego a few months’ wages. They were running out of money. At our strategy meeting in September, the general view was that we shouldn’t be throwing good money to bad entrepreneurs.
THE RESEARCH APPRENTICE: So what kept you from an exit at that stage if the majority on the board was in favour of this?
THE TEACHER: I presented a mathematical model I had worked on. I showed that it could be a very good investment for Lucina to invest in the new Linux Solutions. So we put the past behind us, mentally writing off ten and a half million. Then we took a fresh look at the project. Knowing the experience of the Linux people, knowing their name in the industry, we said we would give them half a million for 30-35%, which is a high percentage for a small sum.
THE RESEARCH APPRENTICE: So why sell now?
 THE DEVELOPER: (clearing his throat) The reason why Lucina has exited is, you could say, that the Exploiter is taking over. He has become more and more important to Linux Solutions. His agenda is different from ours. It’s like a playground, “this could be fun!”. After almost seven years, Lucina no longer shares that inspiration.
The conversation fades into the background as the scene closes.

Scene Seven: A late board meeting
The Cast (in order of appearance):
THE PROMOTER (Lucina): Initiator, board member
THE DEVELOPER (Lucina): Original investor, board member
THE SCRUTINISER (Lucina): Controller, new (interim) CEO
THE TEACHER (Lucina): Original investor, chairman
THE OBSERVER (Lucina): Vice chairman; representing investment family
THE ASSESSOR (Lucina): Later investor; board member

The scene opens at the office premises of the Lucina Company. Six people are gathered around the conference table, engaged in quiet conversation...
THE PROMOTER: (on a resigned note) These last two, three years have been pretty tough to get through. We’ve put in money in these companies both two and three times during this defensive period. And I think that we’ve all agreed on doing this; it’s what we need to focus on.
THE DEVELOPER: (sighing) But during this difficult investment time – this ice age of venture capital – we’ve made no new investments! It’s been impossible to generate any money through exits!
THE PROMOTER: In my view, we’ve been too defensive on the market, too withdrawn, and too little Lucina-wise.  
THE DEVELOPER: Look, we’ve been affected by the market and the climate. True, we’ve been a bit afraid to do things, but we’ve also focused on supporting the companies that we have.
THE SCRUTINISER: I believe what we need is more financial thinking! I mean, it would make sense to use some of the traditional tools of this trade.
THE TEACHER: When we make decisions in Lucina it shouldn’t just be based on gut feeling. There should be an analysis behind it.
THE PROMOTER (in a weary voice): There’s been a considerable shift in Lucina’s strategy, how we are and how we’re perceived! (sighing) Professional venture capitalists…!
THE ASSESSOR: I think what has changed is that people’s private economies have deteriorated. They’ve also grown older and less mobile. Few of us live in the Region, which means a limitation timewise as well. The interest for this kind of thing is very much related to the value. When the value is low, interest drops. When it’s hot, it’s hot – when it’s not, it’s not. That’s just how it is.
THE DEVELOPER: One mistake we made in the happy nineties was that we put in way too much money at one time. It was like – here you go, here’s a bag of money and then we’ll provide support – let’s take a ride!
THE ASSESSOR: (on an ironic note) Perhaps the business flair of these generally speaking, capable, intelligent, technical people was overrated.
THE DEVELOPER: Everyone was blinded by the IT hausse! With the Internet and globalisation one believed that it would take less time to establish oneself on other markets. And get fast growth that way. But it’s not that easy, it doesn’t go that quickly! I think we overestimated the opportunities for fast growth.
THE ASSESSOR: Yes! The capital market was way too generous, and a lot of money was poorly allocated. Compared with many other venture capital firms, Lucina invested in very good projects – relatively speaking – but Lucina has been over sympathetic.
THE TEACHER: But we’ve learnt something special about the companies that we venture on – that the people are extremely important. We knew that before as well, but we believed that if only we could identify individuals with drive and ability then we’d done a good job. However, we need to be attentive to the fact that these people can tire and leave before the company has gained speed and direction! I feel that our task is to evaluate whether the entrepreneur is worth venturing on. Whether he will be able to cope with the race or not. Personally, I don’t believe that one can tie up someone who’s tired. They’ll give up anyway. 
THE SCRUTINISER: That’s why it’s essential to let them know our expectations right from the start!
THE ASSESSOR: Yes, and if you forget about the financial part then the business dies. We can establish in hindsight that most of the businesses started during the bubble are gone because there weren’t enough people who cared about the commercial aspect of the idea. That’s very unsympathetic! Running a commercial business but not doing it on commercial grounds is simply stupid!
THE SCRUTINISER: So now we wash off our old label ”Go to Lucina and get more aid money”. Gone are the days when you get three chances.
THE ASSESSOR: There should be a shareholders agreement with each company from the onset, stating the purpose of the investment, and what will bring in the money. This way the entrepreneur knows our long-term purpose is to sell. Every investment made should lead to some return on the money, otherwise, it’s no investment, it’s charity, and that’s not what’s written in our documents!
THE SCRUTINISER (in a doubtful tone): In those companies where we have discussed exit, we’re dependent on the entrepreneurs wanting to do a deal and wanting to sell their company. If they don’t want to do that, then we can suggest that we do this, but we can’t go any further. I doubt you solve that with a contract…
THE TEACHER: (with feeling) We have a saying in Lucina about sympathetic capital! We’re talking about the very heart of Lucina here – not the brain, but the heart. My interpretation has always been that there is sympathy in going for very early firms, because there are so few others who do! There are other things as well – like giving the entrepreneur a lot of freedom, and not abusing our power. 
THE OBSERVER: (pensively) I think we should be emotionally close to the entrepreneur. Just like in a family, you need to be close to your family, but be able to say uncomfortable things when needed. Otherwise you’re no real friend.
THE ASSESSOR: (impatiently) If the purpose is to create return on investment, and then – in a so-called sympathetic way – to help this company get where it is headed, then you need structure! If you have an agreement on the owner side then there is no discussion. That’s all you need to do!
THE TEACHER: But sympathetic capital means that we build value together! I think that we have some homework to do when it comes to this  issue because we on the board have different views!
THE OBSERVER: My interpretation of sympathetic is that we don’t start by talking exit with an entrepreneur. We’re interested in the people and the product, and we have no explicit exit strategy. We’ll never let a firm into someone’s jaws for it to be chopped up and slaughtered. I don’t equal sympathetic capital to vague; it’s more about taking responsibility for the people and the investments. Of course we don’t go around saying that we’re doing this as philanthropists. We’re supposed to make money. But on that journey we enjoy ourselves.
THE PROMOTER: (in a tired voice) We started off with several parameters that we said should be equally important. We were supposed to enjoy ourselves when we met, have the sympathetic capital that we launched, and be an active player locally. Our ambition was to be an engine here, whether that benefited our bottom line in the short term or not. To do it differently than others in the same industry – that was one of the drives! I have a different picture in my heart of how I think Lucina should be, but I don’t see that we’re living up to that any more…
The first act closes.


Introducing the Second Act
This is the story of the Research Apprenctice’s encounter with the Acacia people, as she strives to understand their particular form of venture capital.
It is about the deliberations of a strategist with time and fortune at his disposal.
It is about the implementation of venture capital strategies as we descend from the apex and gradually move closer to the realities of the affiliated company.
It is about the real-life meaning of what is prospected and set in motion.
So, without further ado, let us enter into the world of Acacia, a venture capital company that has recently been established in the Capital by a retired entrepreneur and his recruited associates. As the Act opens, the Research Apprentice is given an audience at the mansion...
The second act opens.



ACT II
The unexpected taste of excellence




Scene One: Audience at the Mansion
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE OPTIMISER (Acacia): Founder

The scene opens on the grand terrace of a mansion. Two people are sitting at a table in the bright spring sunshine, talking together whilst admiring the beautiful lake scenery spread out before them.
THE RESEARCH APPRENTICE: So what brought you into the venture capital business?
THE OPTIMISER: I’d sold off large parts of my companies. I had the opportunity to choose whether I wanted to work or not, and it seemed fun just to focus on board meetings – on that level. But it didn’t turn out to be any fun. So after eight months I grew tired of it. Plus I thought that one should be able to perform far better as a VC if one had industrial experience. I’d seen how one of the largest VCs in Europe operated. They were co-owners in two of our product companies and there they were handicapped since they had no industrial knowledge, they didn’t know what the market looked like, the competitors, how to relate to a strategic deal – quite naturally they lacked the ability to make a decision about that. On the other hand, I thought that, as a model for financing, having access to capital in the same way as a VC and being able to make clear-cut decisions based on what’s best for the company was very attractive. But combined with more conventional industry-building – something I’d been involved with previously in telecom, on the mobile side.
THE RESEARCH APPRENTICE: And you’d started your own company?
THE OPTIMISER: I’m a very typical entrepreneur; I don’t like people who tell me what to do, I want to make my own decisions. I have a record of actually succeeding in these pretty tricky areas.
THE RESEARCH APPRENTICE: I gather that your former exit was pretty successful, then?
THE OPTIMISER: We sold our companies with pretty good timing – not ideal timing, but pretty good. So in total eventually I think we got 15 billion. I myself put in 75000 once upon a time. We had a pretty good rate of return – about a hundred times the money...!
THE RESEARCH APPRENTICE: What were your ambitions when you founded Acacia?
THE OPTIMISER: I wanted to achieve something new, in the sense that there would be a more industrial view, and more industrial behaviour, in a business model that was equal to that of a VC. I was inspired – I can tell you that as well – by a company which has been out three to four years longer than us, and is clearly successful in biotech. I’ve met their CEO a couple of times, and he asked me “Why the #&”#¤% don’t you do the same as us in your area?” And then I translated that into this picture here (flipping through presentation material on a computer screen, then pointing to a diagram on the screen). We’re very narrow in the industrial sense. But in the financial sense we’re broad. Most of the others are focused on a certain stage, and then they run for anything under the sun when it comes to technology. But we believe that you stand a much better chance of really making a contribution by being specialised in some way. The financial players here (pointing to a circle in the diagram) they often say “But wireless, isn’t that narrow?” “No, no, no, it’s way too broad!” we answer. You  need to be even more selective in order for this model to work! You need to be able to select the very best companies and not simply those is in the right stage! 
THE RESEARCH APPRENTICE: What made your investors take an interest in an industrial way of running VC operations?
THE OPTIMISER: We relate that to credibility. Eh, if everyone is running VC operations in the same way then it doesn’t matter where you put in the money. You need new approaches in order to perform above average. For these investors, it’s a question of finding the best managers, and they had enough faith in us to put in quite a lot of money! If you compare with private equity, one point three billion is very little, but in the VC area it’s  pretty good, and for a first-time fund it’s very good!
THE RESEARCH APPRENTICE: What distinguishes your company from others? Is there more to it than the industrial thinking that you’ve brought up?
THE OPTIMISER: Most VCs depart from their deal flow, meaning that people approach them and present their ideas, and then they evaluate that. We too have a deal flow; we look at a few prospects a year within our area. But we’ve only made one investment based on deal flow. For the remaining fourteen of our investments, we carefully considered which areas we believed in and looked at what kind of companies were to be found in these domains. We found a few companies, and tried to evaluate which of them had the best prerequisites to succeed. And then we worked on promoting ourselves as owners. So it’s very much the opposite of how others do it – there the poor entrepreneur should come crawling, asking to sell his idea.
THE RESEARCH APPRENTICE: So what determines whether you believe in an area?
THE OPTIMISER: Right timing is important, but also right geography. It has to be an area where we in some way have the natural prerequisites for being a leader. You could say that we operate on home turf. The industry in this country is pretty good at adopting new technology. And areas we invest in should be growth areas. You can talk about growth, but it might be coming in ten years time, and the more proven the concept, the better. Well, it’s a fine line: the right timing is not just about being as late as possible, it’s just as well about not being premature. We were the first worldwide to invest in w-LAN  as a technology not just to connect things but also for establishing these hotspots – you know about those, don’t you? (Affirmative nod) So we’re the first out there, and we have five investments – more than any other investor. And that’s because we carefully considered what we thought of the market and the technology. So we’ve had our own vision. There’s another slide I want to show you (rummaging through his presentation on the screen looking for the right slide)…
THE RESEARCH APPRENTICE: (reading the heading) Aha, success factors?
THE OPTIMISER: Mm… Take, for instance, the industrial application of wireless technology. We identified that as an interesting and a bit forgotten area during this hype period. Scanning companies in this area we found Remote Control, a company that had been dealing with wireless and industrial applications since the fifties. It was an old family firm up in the Northern Region and they’d made loads of interesting solutions, and they had products out there. Obviously we thought it was much more interesting to invest in them than to jump into a new company. Here we had 100 people, 120 million in turnover and loads of customers. So we bought the entire company, and that’s part of our model, that we like to have control and influence, and not having to talk drivel with other owners about how the business should be built and structured and so forth.
THE RESEARCH APPRENTICE: So you tend to have clear ideas on how to build the business?
THE OPTIMISER: If you become dominant in a niche area then you make money. And then you become valuable and so forth. Focusing on the money itself doesn’t lead to good business. There is little guidance in telling a CEO “hey, you’re supposed to do twelve million!” You need to break it down into something that is intelligible both for him and for others… It’s better to start from “how do we build the best business?” One of our recipes is precisely to build what we call gorillas, for lack of a better term…
THE RESEARCH APPRENTICE: The Gorilla Game…?
THE OPTIMISER: (laughing) Yes, of course. If you’ve read your Geoffrey Moore you know what this means. It’s better to be number one in Europe than number four in the world. From a value perspective the Number One is valued infinitely much more. So we try to get all of our companies to think about narrowing down! (excitedly) It’s so easy to have the wrong thinking in this industry, to think of this as a stock portfolio! We too made that mistake in the beginning! (Putting up a new slide on the screen). Here you see how we had grouped our companies based on their value compared with what we had paid for them. Some were doing lousily (pointing at the screen), but most of them were here (pointing at the other end of the screen). Then a couple of them plummeted. But this doesn’t matter as much as one would think! You see, high IRR is not the same as more winners than losers. Instead, it’s all about finding the big winners! That determines everything! You can never lose more money than what you’ve put in, that’s the floor for losses. When we go through our portfolio based on this thinking, we have a handful of potentially great winners. And if one of these should turn out really well, then we’ll have crossed the line for what’s decent – that’s to return the money. If we get two, then we’ll get a decent IRR, and if we succeed with three, then we’ve made huge success! It’s a matter of focusing one’s resources and money – it’s absolutely not worth the money to do a lot to help those that are doing poorly at the expense of dedicating too little time to potential big winners!
THE RESEARCH APPRENTICE: During a presentation, I heard you talk about the importance of knowledge and commitment. What’s the reasoning behind that?
THE OPTIMISER: It comes from my background. In the companies that I was dealing with the thesis was quite rightly that in order to build successful software you need to be &%¤# bright! You need solid knowledge in order to build security software. And this we called brainware. But you need something more in order to build a successful business – personal commitment and drive – and this we called heartware. As a manager you need to encourage both, and recruit based on both of these criteria. You always succeed if you find the right people who have both of these traits. When I was lying in the bath thinking about what would actually determine success in this kind of business, I came back to these two traits.
THE RESEARCH APPRENTICE: In your mind, what’s Acacia’s most important mission?
THE OPTIMISER: (pensive silence) I’m trying to find a well-fitting wording… It’s to be what we could call a coach, not to individual people, but to the company, in order to build success. And here I include both the ability to determine the direction in which you should be running, and to be an excellent sounding board for managers, technicians, and marketing people to be on the right track. (Pausing). Yes, that’s it.
THE RESEARCH APPRENTICE: What about the entrepreneur?
THE OPTIMISER: The entrepreneur’s significance is huge in the typical high-tech firm where there’s an invention of some kind, such as a new chip technology… Our companies are not really of that character. They’re more execution – it’s a good idea but it’s not completely unique, there are others who are doing something similar. But it’s the execution that determines whether you’re a winner or not. It’s a relay. And you need managers who can accept this. That’s not so easy if the company was founded by entrepreneurs. Succession is a very tricky issue… We’re very fond of what we call doers instead, people who have done it before in a medium-sized company, who have that kind of experience. (On a hurried note) OK! Now we need to wrap this up!
The Research Apprentice takes her leave and exits.


Scene Two: Promoting excellence
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE SCOUT (Acacia): Partner and CEO
THE IMPLEMENTOR (Acacia): Partner

The scene opens at Acacia’s office premises in the Capital, with a view of the harbour. Three people are sitting around a conference table, engaged in conversation.
THE RESEARCH APPRENTICE: (addressing the two people across the table) So what brought you to Acacia?
THE SCOUT: At my former firm, I was part of a small group who redesigned the whole company – on the condition that we could leave once this was done. We had about nine weeks to come up with what the whole company should look like! We removed half of the company, it was very dramatic! I had  already met the Optimiser a few times before, but I didn’t really know him. He came to see me, and he told me that he had a few ideas he wanted to run by me. I didn’t think more about it at the time, but when I resigned I called and asked him whether he was planning to do something about those ideas? And then he said: “Oh yes, %&#!” And then we got the whole thing going.
THE IMPLEMENTOR: My story is similar. In my former position, I took the initiative to divest a large part of the company, including my own job. When I looking for a new job within the same corporation, I happened to run into the Optimiser. I was a complete novice when it came to venture capital. When he asked me I wasn’t interested at all! I wouldn’t dream of working with the financial world, which was what I thought this was. But when he got more time to explain his industrial approach I thought “£$€££, that’s not so bad!” What I had enjoyed in my former position was working with new projects and turning them into business. And I so I chose to do what I thought I would enjoy the most.
THE RESEARCH APPRENTICE: (addressing the Scout) How about you? Were you familiar with venture capital?
THE SCOUT: I had no idea of what it was and why it was needed! But I thought the whole line of reasoning from the Optimiser’s part was pretty good, I bought the fact that if you understand what you invest in as well as how to run and build companies and markets then you might be able to invest other people’s money in a pretty wise way!
THE RESEARCH APPRENTICE: So what happened after the two of you came on board?
THE IMPLEMENTOR: We started out by raising a fund and polishing the strategies and so forth. And then we gradually started investing.
THE RESEARCH APPRENTICE: Nowadays there’s talk of a shake-out in the venture capital industry. How are things going for Acacia?
THE SCOUT: (impatiently) Most people agree that vintage 2000 and 1999 weren’t any good years! We have a few companies that we shouldn’t have done with that timing, we should have waited a bit.
THE IMPLEMENTOR: I think we were lucky with our timing, really. Our way of operating fits the market climate pretty well. I was pretty uncomfortable with valuations when we started. Growth, growth and growth with no focus whatsoever on what the results look like! That  has quickly bounced back to what people like myself are used to! You need to make ends meet as well! (Laughing) Customers are a good thing to have!
THE RESEARCH APPRENTICE: Wireless technology, is that something you were interested in from the start?
THE SCOUT: We agreed on wireless early on and on the strengths that come from living in something so that you know it very well – not having to deal with all these consultants in order to make decisions, right! Wireless is big enough for us to be able to live with it as a venture capital firm for 25 years, if that’s what we wan to dot! It’s timeless in a way, you see? So it’s no fling or any such silly thing. It’s simply about continuous improvement and simplification. Lamps with no cords – wouldn’t that be a great thing to have? That’s wireless too. We continuously ponder about what we think will happen until we find what we call segments, which we show those qualities that are necessary in order to succeed as a venture capitalist. This isn’t about starting up and building nice companies. It has to be what’s called venture projects, companies that can produce great returns on industrial money. That’s the job! We wouldn’t need to be building companies, really! But it just so happens that some of us here feel that building nice companies is a rewarding task. So I guess we do both!
THE IMPLEMENTOR: You know, when the Optimiser’s got this idea he thought that we should be a narrow venture capital firm in the industrial sense, by operating in a selected niche. If you want apply your own knowledge about the technology and the industry, then you must be narrow. And he’s picked people with a background in this area. So it’s no coincidence that it’s precisely wireless and precisely us sitting here who are doing this!
THE RESEARCH APPRENTICE: So within this domain you have different areas of expertise?
THE SCOUT: We divided things up a bit between ourselves. You (addressing his colleague) work with industrial applications, you have that background. I deal with wireless broadband solutions. The Optimiser works with GSM and these things. In my area I’ve identified investments opportunities in w-LAN. We’ve calculated what we think will happen on this market, and we’ve made five investments. We’ve moved in very early in this segment. We’ve organised our own events and conferences. I’m running around chairing w-LAN conferences all over the world! We write reports, analyses and I’m writing a chronicle that’s being read by about a thousand people around the world. So you could say that we’re very active in promoting this area!
THE RESEARCH APPRENTICE: What is your preferred investment scenario, then?
THE IMPLEMENTOR: We would much rather seek out the best within our area than select the first one who comes knocking on our door. In our current portfolio there’s no company that has come in by deal flow. What’s typical for our companies is that we’ve found them ourselves, and often we’ve worked very hard to win their trust. Remote Control is one such example. (Addressing the Scout) You especially spent a great deal of time creating trust with the former owner. We’ve had to promote ourselves and explain that we’re not just any financial player, but we work in a more industrial way.
THE SCOUT: We always know what we want to invest in before we make an investment! And then we go looking for such companies. And if we don’t find any suitable prospect then we set up a company ourselves! And look for suitable people instead of companies! In one case we were at it for a long time before we found our CEO down in Luxembourg, who has precisely the right background! And only then did we make the investment. We’ve started up four or five companies ourselves and we’d much rather do that than enter a company that’s only just been founded.
THE RESEARCH APPRENTICE: I get the impression that you’re not too keen on founders?
THE IMPLEMENTOR: It’s not that we’re not keen on founders, but no one individual can possess all thinkable qualities! The one who comes up with the initial idea probably lacks the competence to raise the company.
THE SCOUT: You know, founders always have a clear sense of what the company should be doing, what it should become, how this should occur and so forth! (On a frustrating note) They often have a lot of influence also in the legal sense, they’re owners! The problem is that we have our own ideas, as well as a lot of experience. So it takes us a lot of energy and time before finding the right forms with a collective of founders –
THE RESEARCH APPRENTICE: How do you deal with the ownership issue, then?
THE SCOUT: We’re very happy to hold a majority of the shares. We don’t want to invest in anything where we can’t take part in running the companies, getting them where we want! Because we know what we want to invest in, that’s already been determined! We know our industrial segment quite well! And all of us have taken part in running and building companies. (Pausing) When we don’t hold the majority we sometimes come to an agreement with the other owners that we’re lead when it comes to the industrial side, when it comes to where this company is going. So we work very hard with our investments! I usually say that we’re a venture capital firm operating as a buy-out fund. That’s a pretty strange version.
THE IMPLEMENTOR: Our wide financial span is a bit unusual – at least in Sweden. Many venture capital companies in the late nineties were so focused either on very early seed, or a later phase. They clearly defined what stage they entered. We haven’t done that, instead we’ve defined which industrial segment we enter. But we’re not into companies that deal with revolutionising new technology – which you might think, considering how tied we are to our technology area. We deal with companies that apply established technology in a new way.
THE RESEARCH APPRENTICE: These ideas that you have about a company prior to investment, what are they typically about? Specific products or product areas, how to operate or…?
THE IMPLEMENTOR: Well, it could be specific product areas, specific markets, deciding to focus on reaching Scandinavia and then Europe. Or we can decide that no, we’re not going to Europe, we’ll try to penetrate the U.S. first … We’re going to try to merge with this kind of company pretty early on. It’s that kind of thinking.
THE RESEARCH APPRENTICE: Do you discuss this openly with existent owners before you come in?
THE IMPLEMENTOR: We have many discussions about focus. It doesn’t pay off for anyone to go in with a hidden agenda! We usually feel that their plans and strategies are too wide. Because our tenet is that it’s way better to be excellent in a narrow area than tolerably good in a wide one. Even if the numbers add up in similar ways, much more value is built by being the very best.
THE RESEARCH APPRENTICE: So what has happened in Remote Control since you took over?
THE SCOUT: Remote Control is our dream scenario! The owner, board, CEO, management team, it all came down to one and a same person. So this all disappeared as soon as we took over. Then we spun off a company and so the sales manager and the CFO went off in that direction. So there was no management left in the company! That’s how we’d planned it with the Provider because he didn’t want to stay! It was a tough challenge to do this whilst remaining up there in the Region and still have the staff with us.
THE RESEARCH APPRENTICE: How did you find the new CEO for the company?
THE IMPLEMENTOR: We knew the position of CEO would be vacant. So the Planner had already been recruited. Then things took quite a while, so he spent some time here at the office learning about the company.
THE RESEARCH APPRENTICE: What’s the next step, then?
THE SCOUT: We’ve rebuilt the whole company. Financially and logistically, everything has been worked through in an exemplary way. And we’re increasing our market share in the Nordic countries. We’ve taken out one business deal to Europe and the U.S. with the industrial PCs. And we’ve established a new business area that is doing really well! There’s a world of opportunities here: spin-offs, mergers – it’s such a great project!
THE RESEARCH APPRENTICE: What about your financial owners, how involved are they in your operations?
THE SCOUT: Our LPs, you mean – that’s limited partners in our terminology. We usually call them our partners / supporters, because we work very intimately with our owners. We make a lot of decisions together, we listen to their advice, and they have a lot to offer.
THE IMPLEMENTOR: It’s a huge advantage to us – this is our first fund; our investors have taken part in these things before so they have a lot to contribute with.
THE RESEARCH APPRENTICE: What about reporting to the owners?
THE IMPLEMENTOR: We have quarterly reports – I don’t know if the Optimiser showed it to you? (The Research Apprentice shakes her head). Well, it’s up to him what kind of material he wants to show you. We update our ownership plans regularly, and report that to them. We assess when we’re to exit and how much we believe we get back. And then we estimate how much more capital will be consumed.  (laughing) We’ve come to know how they operate and how they reason! So we don’t bring an investment item up for decision unless were fairly sure that it will go through!
THE RESEARCH APPRENTICE: (glancing down at her pad, then addressing the Scout) What kind of lessons have you learnt along the way?
THE SCOUT: Lessons about what? About what we’re doing? (affirmative nod from the Research Apprentice) That’s hard to say, there are so many different categories. I mean, lessons learnt (pausing)… Some of our initial assumptions proved wrong. In the beginning, we had something we called vertical applications. They all followed the same pattern: a couple of guys from some industry came up with the idea that if they were to apply wireless technology in their industry it would be much better. But we don’t know anything about pharmaceuticals or the lottery business… So once we’ve helped these companies bring forth their product, we find ourselves in complete darkness! We can’t verify any numbers, any plans – we don’t have any clue about what their talking about!
THE IMPLEMENTOR: In such cases we have to rely on our co-investors, but that’s hazardous. We can’t do too many of those investments because we don’t have the energy to get into too many industries.
THE SCOUT: One area where we can improve is people, it’s so incredibly important to have the right people! We need to pick up the signals even sooner and make sure that we fix it! Too much time is lost if things go too far! I really had no clue about the founder problem – how serious it is, and how you should be very, very careful!
THE IMPLEMENTOR: It’s better to decline than to engage in something with the wrong individuals – unless we see how to replace them. When we came to this industry we believed that we had to be super fast and that there was fierce competition about the investments! Now luckily it didn’t turn out that way! We’ve had time to meet with people, we’ve often brought the teams here and introduced them to several of us. And then you understand how they’re thinking, you get to know them, and you get a gut feeling. (with emphasis) Take references!
There is a knock on the door, and the Optimiser pops in his head. The Scout excuses himself and leaves the room.
THE IMPLEMENTOR: (pensively) You know, there’s no guarantee you can evaluate projects just because you come from the industry and can recognise ideas that will lead to business. It’s a whole different thing to generate such values will make it an attractive investment item! It took me some time to realise that we need to look at other criteria. Another gear is needed to get interesting rates of return for our investors! There are ideas that are really good, and which should make a lot of money, but not the kind of money we need here. That’s how it is for any venture capital company. We’re not supposed to live off the companies, we’re supposed to live off selling them.
The Implementor escorts the Research Apprentice to the door.



Scene Three: Executing excellence
The Cast (in order of appearance):
THE PLANNER (Remote Control): New CEO after Acacia’s acquisition of the company
THE RESEARCH APPRENTICE

The scene opens in an austere conference room. A glass window leaves a glimpse of the grey buildings of a suburb. Two people are sitting at a table, looking at a computer screen.
THE PLANNER: Let me run through our presentation of the company Remote Control. (Selects a slide show on the computer screen). This is an old company founded in 1918 by the manager of a power plant. He was an ingenious guy up there in the Region who opened a radio store. In 1958, they made a radio system for cranes. An operator wanted to radio steer the winch for hoisting lumber. And as with all good ideas, it soon spread, and in time they started working with the heavy industry – steelworks, mining and forestry. In 1979, they designed a system for wireless data transfer, because a crane operator at the ironworks wanted to connect his recipes for the right alloy to the weighing scale.
THE RESEARCH APPRENTICE: How pioneering were these ideas?
THE PLANNER: All of this is very early on – they’re pioneers within just about every area! It’s like they say at Acacia – Remote Control has been in wireless since 1958, so we have 45 years of experience of the wireless technology! In 1994, we developed the first wireless industrial PC – in house – with a broadband solution. And then Acacia acquired the company in 2001.
THE RESEARCH APPRENTICE: How did that come about?
THE PLANNER: The Path-Layer made contact with them and went up there. Initially there was no interest, but then a year later the company had been acquired! I know that the Path-Layer asked the Provider; “Why shouldn’t more people get the chance to know these incredibly fine products that you provide to the Swedish market?” (Pausing) But returning to the company! When Acacia made the acquisition, Remote Control was successful and growing. It had about ninety employees, a turnover of about hundred million. But the company was in need of restructuring. It was an entrepreneur-driven company. So the first thing I did was to see to it that we got management into the company. And a professional board. Our chairman is the Advisor. (Changing slides on the screen) Remote Control today is an international company with Swedish owners. Our headquarters are in the Region, we have a subsidiary in Denmark and a sales office right here in the suburbs. We’re just below ninety employees. All of our products and services are designed based on demands from the heavy industry, so we’ve been forced to maintain very high quality and very good service. We were certified according to the ISO 9001 standard in 1993. Now that we’re expanding the company outside of our domestic market, we’ll be operating through partners. We’ve designed a clear partner strategy with partner agreements, pricing, discount structures, support – the works. It’s important to have a clear partner strategy, otherwise they might think that we’ll be taking over some of their key customers, or setting up a rival company.
(The Planner goes on talking about the partner strategy and the future plans for the company).
THE PLANNER: (continuing his presentation) We’ve also got the financial control system of the company in order. We know where we make money, we have complete control of the company’s finances! We’ve changed both the product planning and the pricing – now the market is in charge of what we’re doing in the company. We do real cost estimates before we start up new projects. We’ve changed our logistics. Before we assembled things ourselves up in the Region. Now we’ve outsourced our PCs. Our core business is to develop and market a product, not to manufacture it! We’ve restructured the company, making it more flexible. By the middle of last year, we had come so far in this restructuring phase that I was asked to identify our first growth area. (closing down the presentation) OK! That’s Remote Control for you!
THE RESEARCH APPRENTICE: Interesting company! (Laughing) I have loads of questions for you. What you were you doing before you came here?
THE PLANNER: Let me just take a seat over there, it’s easier to talk that way (gets up and takes a seat at the opposite side of the table). I have a background in logistics. I spent six years in charge of logistics at a Company Group – and for a while I was logistics manager for all six of their companies! Then I was CEO of three different companies who faced similar challenges – though none of them had such great potential as Remote Control.
THE RESEARCH APPRENTICE: So what brought you to Acacia?
THE PLANNER: I had left my former company. When I got in touch with Acacia, they said “come over to us and we’ll tell you about our company!” This was when Remote Control was in the pipeline – the investment was to go through in January-February, but now it happened in the month of June. (with a sigh) All these acquisitions tend to take much longer than planned! So I spent six months getting to know the people at Acacia. It was very good to get a picture of what the owner is thinking and what they want to do with the company! It’s one thing to create a healthy company; it’s a different thing to make a company valuable for our owners!
THE RESEARCH APPRENTICE: What happened when you came to Remote Control?
THE PLANNER: First I recruited a new CFO. It was the third time I hired that guy, so I knew he was terrific! We were a dream team! When you come to a company like this one, pretty much on your own, you need someone you know you can trust completely.
THE RESEARCH APPRENTICE: So there were big changes?
THE PLANNER: Yes, it was very dramatic. Here was a company located in a small village in the Region that had been in existence for 83 years, and all of a sudden the people from the Capital come barging in and acquire the company! And then a new person takes a seat up there in the corner office and starts the make-over! (sighing) It’s been very, very heavy! It would never have worked without a lot of support and coaching from the Scout. We’re dealing with the same stuff as before, but we’ve enhanced the company compared to how it was managed before, that’s for sure!
THE RESEARCH APPRENTICE: So what’s the vision for Remote Control?
THE PLANNER: (thinking out loud) Where do we want to be? We’ve produced a plan until 2006. (pausing, returns to the computer). I have an investor presentation here that I could show you! There is vision and mission, but our vision is that we believe that people, machines, vehicles will be communicating without wires and without any limitations in terms of mobility in the future. We want to equip the traditional industry so they can communicate in a wireless way. We’re targeting one billion in turnover, half of it in Europe, a quarter in the U.S. and 20% in the Nordic countries. How do we plan to do that? We’ll enter new countries, add partners, add more personnel. And furthermore we need to see to it that we have something to offer, something to sell, we need to be in the forefront when it comes to new products and new technologies. So we just hired a new CTO with expertise in his area!
THE RESEARCH APPRENTICE: What about Acacia’s exit?
THE PLANNER: We’ve discussed how you become most valuable. Other than that we haven’t discussed if it’s to be through an industrial spin-off or an IPO. We’re dividing the company in two parts now, with different kinds of organisation, different sales people, different customers. It’s easier for a financier to understand a business plan for one specific area. Last spring we did a road show for six different venture capitalists. Should we hold on for another year so that the company becomes more valuable? That’s up to Acacia! But the promoting is done!

Scene Four: Assessing excellence
The Cast (in order of appearance):
THE RESEARCH APPRENTICE
THE ADVISOR (Remote Control): Chairman

The scene opens in small, windowless conference room. Two people are sitting around a small table, sipping coffee.
THE RESEARCH APPRENTICE: What did you think of the company when you took on the role of chairman?
THE ADVISOR: Going through their products, I realised that Remote Control had the kind of solid technical expertise acquired through long experience. It was exciting because it had it all! But a family firm has limited financial resources, so they’d pretty much had to stay on home turf. They had operations in Sweden with business in Norway, Finland, Denmark and Poland – but that was about it! The Optimiser described what Acacia wanted to achieve with the company – take it out to Europe, go international. 
THE RESEARCH APPRENTICE: So what has happened since you became chairman?
THE ADVISOR: Remote Control was run by a strong owner who made all the decisions. Now we’ve created an industrial structure with a CEO and an executive group, where responsibilities can be delegated in the organisation.
THE RESEARCH APPRENTICE: How was this greeted by the employees?
THE ADVISOR: You know, in the early nineties, I incorporated two family firms into our group here. So I quickly recognised that people in Remote Control felt lost when the new owner came in, not knowing what this owner was after. They were used to going to the Provider for answers. Now we have created an organisational structure where the heads of department can answer questions, like in any regular company. In my experience, such things create insecurity. A number of co-workers left in these rather turbulent times, which is quite normal. In my experience you can’t achieve something like this without replacing a number of people. Some people lack the ability to adapt. We met with staff representatives and established a dialogue. I think people were expecting international expansion. But our objective was that the company be standing on solid ground before embarking on large-scale expansion. When I came in the company was making losses, but by the second half of last year we were showing positive numbers. So the recessionary market we’ve been able to increase sales substantially!
THE RESEARCH APPRENTICE: Did key individuals remain in place?
THE ADVISOR: Yes, there are a number of key individuals left. Not on the market side, which we had to do something about considering that we’re to expand internationally. But on the technical side I think everyone remained in place. In a firm such as this being able to keep that expertise is of utmost importance!
THE RESEARCH APPRENTICE: What brought about the decision to outsource production?
THE ADVISOR: That decision was made before I came into the picture, including who they would outsourced their operations to. And this stirred up feelings in the village. Which surely doesn’t make things any easier ...! Had I been there at the time it wouldn’t have happened in the same way. It’s not optimal to have manufacturing up in the village. But it’s a question of timing! It’s absolutely vital to gain the support of the organisation in such a turbulent situation as this one!
THE RESEARCH APPRENTICE: What precisely is your role as chairman of this company?
THE ADVISOR: When the Planner has problems related to people and how to deal with such issues, he gets in touch with me and we talk over the phone. As chairman I usually meet with the Planner every now and then. We go through each item before a board meeting and how to gain support for those decisions. At our last meeting we were debating the issue of a venture in the U.S.
THE RESEARCH APPRENTICE: What the reasoning behind splitting Remote Control in two parts?
THE ADVISOR: Well, there’s no advantage from an operational viewpoint, because of the costs associated with such a split and the strain it puts on the company in the short-term. But in the long-term it can create further value, right? If you were in this with a long-term perspective looking to take out maximal dividends, then perhaps it wouldn’t be such a good idea. But if you’re trying to create shareholder value then it could be the right thing to do. Consider why the Provider had sought capital to expand internationally? The reason is obvious: he didn’t want to take those risks in the same way. Had a venture capital firm not moved in, with the ability to absorb certain losses for a while, then swift growth would never have been possible! Now we’re rolling out on several markets at the same time! You can never bring back the profits in six or twelve months, it takes a couple of years before you see the full effect. In the meantime all you see is costs. But value lies in taking something from point A to point B. It’s in the nature of a venture capital firm to be prepared to make these sacrifices in order to build value.
THE RESEARCH APPRENTICE: Is there anything particular that you feel was lost when the Provider – or the family – left the company?
THE ADVISOR: (sighing) Generally speaking, it’s my experience also from other companies that the strong loyalty towards the owner is lost in all processes such as these. Here a more anonymous owner moves in who undertakes changes which are necessary in order to bring this company into another dimension. Then you lose part of people’s identity. Remote Control remains in the village, which isn’t exactly the centre of the world even if it’s a beautiful place! And naturally there is enormous pride regarding what has been built in the village! It’s so easy to underestimate such pride in the regional affiliation. I can tell you quite frankly that I’ve warned the Planner and a couple of his colleagues that when people choose to live in the Capital instead, identification with the region will be lost. In an organisation such as this one where you’re used to having the Provider around in the village, you don’t feel the same loyalty any more. It’s something that can be handled, but you need to be aware of it!
THE RESEARCH APPRENTICE: Are you saying that some of the friction could have been avoided if things had been handled differently?
THE ADVISOR: It’s one thing to deal with start-ups or the earlier phases of a cycle, but here you have a company with a history that goes back seventy years! This is Acacia’s first real experience of such an acquisition. It would have made sense to do a more thorough analysis – before taking action, before outsourcing the manufacturing process. I’m not saying that a fundamental mistake has been made. When they acquired the company, Acacia held a kick-off. People were also offered companionship, as a means to gain their support. But there should have been an even deeper dialogue, in order to really check that everybody is on board – in order to understand and explain things that are done. That’s one thing I feel in retrospect could have been done even better. It’s so easy to think that those decisions you make are obvious to everyone. They are obvious to the management. But they’re not obvious to the collective. That’s why it’s necessary to put a lot of effort into the process of seeking support! You see, without the collective competence and motivation in the organisation it’s not possible to take these steps forward. And it won’t be the Planner or other individual person who will achieve that, you need the whole of the organisation on your side.
The two people leave the room.



Scene Five: The unexpected taste of excellence
The Cast (in order of appearance):
THE PROVIDER (Remote Control): Former owner and CEO
THE RESEARCH APPRENTICE

The scene opens in a scenic landscape. Two people are walking along the riverside, watching the rapids. Reaching a patch of grass, they take their seat on a rustic wooden bench.
THE PROVIDER: Let me take it from the beginning. I’m born and raised in this since the time of my grandfather. I wasn’t very old before I realised that you can do anything with marketing! At the time there was a lot going on in the company – we were facing expansion and so we were forced to implement some changes. Those years where the most formative. First I was responsible for staff, sales, car pool, real estate – that kind of stuff. I got binder after binder laid on me – “here you go, take this, I don’t want to see it again!” My father delegated a lot of responsibility as well as authority.
THE RESEARCH APPRENTICE: So you’ve been working at the family firm most of your life, haven’t you?
THE PROVIDER: Yes. Since 1974. When my father started stepping down, I started stepping up. My father was more of a technician than a marketer, and compared to him I’m probably more of a marketer than a technician. All of the practical stuff is pretty self-learnt.
THE RESEARCH APPRENTICE: When you were contacted by Acacia, was it the first time you were approached by someone wanting to acquire the firm?
THE PROVIDER: All in all, I’ve been courted seven times. One very serious advance was in 1983 by a company group who had been tipped off by one of our customers in Sweden. People came up here to have a look, then they sent their technicians to have a look and then the CEO actually came down here himself. Then I went down to Southern Sweden to have a look at his company. That day I got an envelope with a concrete offer, which gave me some insight into how they valued this company. Not just from a financial perspective but what kind of opportunities they saw in it. That was real fun actually, felt flattered  and grew a couple of inches.
THE RESEARCH APPRENTICE: But you didn’t take the bait?
THE PROVIDER: No, this was in 1983. I’d been working nine years in the company and I felt that there was so much to develop. I wasn’t ready for that in 1983. To sell and then become a retiree or to start a whole different business wasn’t on the agenda at that point. But it doesn’t get any easier to run a company like this one, although I’ve never put the company up for sale. I hadn’t even put the word in my mouth despite being asked several times how I would respond to the question.
THE RESEARCH APPRENTICE: What did you feel was special about your company?
THE PROVIDER: I guess it was those things that we were sensible enough to take care of. The total expertise if you add up all those who were working in the company. When I left, there were ten to twelve people who were travelling around Europe, the U.S. and Asia monitoring every trade fair. They were looking for ideas and suggestions for further development – components, even building blocks. The total knowledge in the whole building, from the experience brought back from every trip by salesmen and the marketing department, to the service technicians who were out installing servers and repairing and maintaining, and then to the people in production who took part in manufacturing and assembling, who knew how to build electronics and how not to do it! We had unique competence and we had long experience. I’ve been working with electronics since the fifties. In the beginning, when you showed someone they didn’t believe that it was actually possible, they thought it was some kind of science fiction. But when they had invested in a trial they realised it was so good that they wanted to implement it on all other products in various companies. The valuable skills that have existed in this company are not related to one or three people, it’s a big assembly of people who account for that.
THE RESEARCH APPRENTICE: So you relied on close relationships with customers?
THE PROVIDER: When people on the service have been travelling, it’s been important to use these two small things on each side of your head (pointing to his ears) to listen and pick up ideas, and report back how our customers perceive the company and how they feel about our products. Everything is built on personal relationships and we have always promised a lot. I believe the difference between our success and others’ failure is that we’ve stood by our promises. Even if at times this has cost us more than we’ve enjoyed. Our customers know that OK, Remote Control might be a bit exclusive, a bit more expensive, but in the long run our customers know that it’s worth it. We’re happy walk you around at lunch-time and show you our assembly line with robots and ovens. It’s more or less completely automatic. Everyone was amazed that we were into that kind of stuff out here in the woods. That’s why it’s important to get people to come here and look us in the eye. When I’ve been asked what concept made us so successful, I’ve always said it’s because we have a good reputation – I can still say that today. Those who came here to visit – supplier or customer, it didn’t matter which, retailer or end user – their spontaneous reaction was “what a tremendous spirit you have in the house!”
THE RESEARCH APPRENTICE: So what happened when you got the call from the Acacia people?
THE PROVIDER: When the Scout called a small flame ignited and I started thinking. The offer sounded really good especially for the company but also for the village. I really hope that the company will remain in the village, and that key products or positions are not relocated to the Capital.
THE RESEARCH APPRENTICE: How come you chose to step down?
THE PROVIDER: We’d discussed it long before the Scout called. At that point the question was: are you ready to sell? No... I don’t know... (pauses) Imagine that somebody comes along who’s really eager to buy your company and who puts a lot of money on the table. Have you ever considered that? No, I said, I never have. We had discussed it several times. When my health was poor, my son-in-law suggested we recruit a CEO so I could take it easy, but remain as working chairman of the board. No, that’s out of the question, I said. I couldn’t envisage stepping down, I saw no point in owning the company and then being at home mowing the lawn for my children and grandchildren!
THE RESEARCH APPRENTICE: Didn’t any of your children want to take over, or your son-in-law?
THE PROVIDER: No, he definitely didn’t want to either. Then when the Scout called to check if there was an interest he was in such a hurry, he wanted a yes or a no! I said that we could get together so I could find out how they envisaged running it. I wanted to know if they were buying it and then relocating to the Capital? And how much money they were prepared to inject into the company in order to ensure further development? How many resources would they put into marketing? This was quite important to me. I have to admit that what they were saying sounded mighty good. They talked about how much money they were planning to put in, and how they would venture forward, especially moving out on new markets. It costs big money to rebuild and reconstruct and develop. I could never make that kind of money appear. The company would become even stronger and the volume would increase both maybe even four times. Then it would become something big, see? (pausing, catching his breath) We were the second or third company that they recruited. They said that you give us a positive  response, then things will move very quickly.
THE RESEARCH APPRENTICE: Was this what you discussed during your first meeting with the Scout and the Optimiser?
THE PROVIDER: The Scout had already discussed things over the phone. So we arrived at their office and we sat there for a while with the Scout and then the Optimiser came in and introduced himself. There was a bit of chit-chat and then he left.
THE RESEARCH APPRENTICE: Did they tell you why they had taken an interest in your company?
THE PROVIDER: Yes, their concept is to be very strong within radio-based wireless networks and wireless broadband. The Scout suggested we pay a visit to one of their investments. This company was growing tremendously and I thought they had to be quite some guys to get things together in such a way! The first time I visited they were three guys, the next time they were thirteen, and the next time again they were thirty. Then three months later they were bankrupt. Acacia told us flat out that they knew some of their investments would go on the rocks. But not which ones – we venture and then we’ll see what the future holds.
THE RESEARCH APPRENTICE: What happened then once you had made up your mind to sell?
THE PROVIDER: Negotiations took almost a year, due to – and here I’m quoting the Optimiser – ”the fact that I ran into a recession which affected the development of the company”. It also affected the price, obviously. I became so engulfed in myself in the process – almost to the point that it became some kind of life-saving exercise, what could I do in order to close this? They wanted a year to be able to go through everything. And they really did their digging. Then on the very last day there was a letter from the lawyer: they wanted money back. It  all came down to horse-trading in the end. 
THE RESEARCH APPRENTICE: Did you stay in touch with the company after the deal was closed?
THE PROVIDER: When the news had been announced, the Optimiser came in to talk about the vision for the company. Only a couple of hours earlier, the Planner had arrived with one of his guys. I had sold 70% straight off. Acacia really only wanted to acquire 51% but I said that I won’t be left with a minority holding, not even if I’m on the board. We’re five members on the board – I would say that four are stronger than one! But for the sake of the staff I’m prepared to sell seventy now, and then the remaining thirty by the 31st of December. Then I’m completely out, but until then, I’m at your disposal. I thought we could do a divestment plan – a week, two weeks, a month, six months. But the Planner didn’t want that. He probably knew how he wanted things, and he brought some people along that he knew from before.
THE RESEARCH APPRENTICE: How did you feel about the decision to step down?
THE PROVIDER: I grew up with both my grand-father and my father toiling like dogs in this company. My father, he was never at home, if he wasn’t travelling he was at the office. So this is not just any company. Honestly, I was very torn, very. I lay sleepless for a long time, thinking about what on earth I had done. Sold the whole thing, sent off the family business. And I’m not just referring to my relatives, because everyone who works within those four walls has been my family – a team. (On a note of frustration) I’ve tried to get through to these gentlemen that the unique thing about this company is not encapsulated in the product, we actually sell services! It’s software that we sell, human software!
THE RESEARCH APPRENTICE: Has the company expanded with Acacia as a new owner?
THE PROVIDER: You can’t possibly stay at it for three years with so many people and so much money without doing something that’s good! But all I know about what’s happened on the field is what the local press releases say. Things aren’t materialising as fast as expected now that they are working the U.S. and other export markets in Europe. That’s no news to me, it takes time. If a good salesman who was working a specific area quits it will take a couple of years before you get any sales going with his replacement. We’re back to personal relationships.
THE RESEARCH APPRENTICE: If you were to go back in time, would you make the same decision?
THE PROVIDER: Today, I wouldn’t have the stamina for it. I know what to expect. After 25-30 meetings I actually told my son-in-law that had I known it would come to this I would have declined on the spot. When we meet in the village, people at the firm ask me, can’t you buy back this or that branch, or if it’s up for sale, won’t you buy back the company? I’ve said that no, I don’t think I want to do that, because the co-workers that I depended on they’ve gone off on other adventures today. To go back to level zero and start building the reputation of a company that’s very tarnished – I’m sorry, no.
THE RESEARCH APPRENTICE: What is it you feel has been lost?
THE PROVIDER: All the pieces that were there when they took over are no longer unique. All the unique stuff encapsulated in those people who jumped ship isn’t in the house anymore. Far too many people have quit at the same time. When I stepped down, I was actually proud of what I’d taken part in creating together with super co-workers. Few are privileged to have such good staff, such good quality services. But this hasn’t been valued and taken care of. It’s hard to see that.
(Fade out as the people continue talking.)
The second act closes.


Closing Scene: The Lecture
The scene opens revealing the empty stage of a lecture hall. Dim lights are cast as a slim figure emerges from the shadows. There is complete silence. Then a voice rings out…
THE GENERAL (addressing the students): Gentlemen… (Clearing his throat, then continuing in an authoritative voice). In this class, I hope I will be able to teach you and help develop an attitude that will be useful in Manufacturing. I want you to have an ability to pick and lead people in such a way that they will do things they did not think they could do. This is the quality of a great business leader. To help you develop this attitude I would like to emphasize several important factors. First, you must train yourselves to be imaginative. You must look beyond to see objects which you can improve. To do this, you have to realize the needs for which the object is made – learn to think about how it was made, why it was made, who is going to use it, and how it is going to be used. Next, you must be able to get correct information. Previously, technology was simple, progress slow and it was possible to take ten years to succeed by making inevitable mistakes. The truth is that today there is no more time for learning by doing.
(Pausing slightly, then resuming). I have a story of a streetcar, an old-fashioned streetcar. And the story is this: If you stand at rest and try to jump on a moving streetcar, you break your neck. If you gather speed then jump on the streetcar, you stay on it, and ride with it. (Eying the students in the lecture hall.) So that’s the attitude I want you to learn. If you have been aware of the world around you, then you will be able to meet new problems as they come along. Finally, you must be able to prepare yourselves for crisis. On the threshold of crisis it takes courage, stamina and fortitude in order to be successful. You young men must decide now whether or not you have these qualities essential to the make-up of a good manufacturer.
Do not think that operating a company is operating a factory. You must broaden