Magnus Ernegård is an Advisory Council Member at Gerson Lehrman Group and a Startup mentor at Book a Mentor. He is also the founder of BridgeToAngels and is passionate about supporting newly started ventures and helping Startups on their entrepreneurial journey. He has contributed to BRAINZ Magazine with articles around the Startup-process and held lectures and training sessions for new founders and entrepreneurs in Scandinavia during the last couple of years. Magnus has a proven track record in starting, developing businesses, company split and merging exercises, corporate exits, and organisational effectiveness programs.
He has lifelong experience in senior management positions in various countries and industries in multinational industrial companies. Background as CEO, CFO, consultant, production, business development, innovation, corporate governance, and entrepreneurship. Further, he has gained Board and Chairman experiences from Boards within the Automotive, Logistics, IT Consulting, and Textile industries over the years. He holds an MSc from the University of Lund, Sweden.
We met with Magnus in Stockholm for an interview.
Magnus Ernegård, Advisory Council Member at Gerson Lehrman Group, Startup Mentor & founder of BridgeToAngels
Could you tell us what you are up to?
Yes. I am engaged as an Advisory Council Member at Gerson Lehrman Group, which takes up about half of my time today. This is more within traditional companies and industries. Then I have some engagement in Book a Mentor within Startup mentorship. This is for ventures that most likely have been in operation for a couple of years at least. Then, the BridgeToAngels activities are more of Startup support and mainly target aspiring and new entrepreneurs.
Right. So, let's talk about the last part then. Why did you start BridgeToAngels?
My background is foremost in larger Group entities, like AB Volvo, which I worked for over 30 years and has been an inspiring part of my life and which I have greatly appreciated. Here I got the opportunity to work in different areas and companies of the Group, with many professional individuals and in different positions and countries with countless exciting challenges and assignments. I learned a lot about starting up companies, closing down, merging and splitting operations and entities.
But my interest has also been to support new and small enterprises. And it goes back, perhaps 15-17 years. It was more of a hobby back then, supporting Startups and entrepreneurs in the early 2000s. This sideline has continued in different degrees of intensity over the years. During the one and a half-decade, I helped and guided friends to structure their newly started companies, coached them and made proposals for their business models, searched for and introduced them to Angel investors, and arranged for exits. Several years back, I got a question from two old classmates from Lund, who are engaged as full-time early-stage investors, if I would like to join them to support their clients. So, after a long time of considerations, I ended my Volvo career and started BridgeToAngels. But to answer your question on why, it simply is because it is so rewarding, fun and inspiring to help passionate entrepreneurs with their ground-breaking and fascinating ideas and to see their ventures starting up, grow and develop. That is what makes me tick.
What could you or do you then provide to your clients?
We saw many new and aspiring entrepreneurs have very little or sometimes no experience or insight about the processes in building and funding a Startup. There was, and still are, a lack
of understanding of how the Business Angels think, act and what they require. The founders need, in general, much better preparation and knowledge of the investor's viewpoints, what they prioritise and would like to understand. The lack of experience in how the process works, for example, when it comes to funding rounds at different stages, results in an imbalance and sometimes miscommunication between the parties. But there is today much focus on pitching, making pitch decks, and the 3- or 5- or 10-minutes presentation, which many new entrepreneurs are doing very well.
This is undoubtedly an effect of the popular TV series such as Dragons Den and its different versions in several countries. It is a great entertaining program and contributes to an increased interest in Startups and entrepreneurship, which I think is excellent. But, still, there is so much more you have to understand, prepare and carry out being a founder and to become investment-ready. Besides starting up the Business and developing your innovative product or service, you should build the team, check out competitors, control and have order of all documentation, legal requirements, and any IPR. Further, you have to be highly engaged in shaping the venture's culture and understand and discuss all the terminology with the Business Angels, like Term-sheet, Cap-tables, company valuation issues, setting up all kinds of contracts, and understanding its consequences. You also have to complete the Due Diligence, which is quite vital to get it right. You, as the founder, should also prepare for dealing with any upcoming external owners, which usually requires more administration, reporting, and potential discussions about what the strategic plan should be and how to implement it. So, the YES from the Angel investors after your pitch is, of course, promising, but there are so much more you have to fulfil before the check eventually could be handed over.
It is here where BridgeToAngels and its partners come in. We provide a full-scale structuring to get the Startup investment-ready and guidance throughout the funding journey until the exit. This includes corporate governance, enterprise risk management, business intelligence, financial planning with various scenarios, valuation, analysing Term sheets, securing the DD process, etcetera. Then we are looking and scanning for a match to find and introduce to the most suitable, potential and contributing investors. We scan the networks to pinpoint and propose the most suitable Angel investors. Those who only invest in the A and B series are not likely to be the right ones if you are at a pre-seed stage. Similar consideration must be made if the Business Angel or VC only are and have been investing in FinTech, and they might not be the one you should pitch for with your promising MedTech idea.
So, a crucial part is to dig into and investigate what the Business Angels' investment focus is and what the portfolio looks like and where the investors previously have invested, ticket
sizes, business models, and geographical areas the investors have and had to get a promising founder/investors match. We are also investigating how well-versed and engaged they are in other previously invested ventures' strategic and operative parts. Then we check whether they have an extensive and helpful network of, for example, potential customers, which could be highly valuable for the early-stage Startup.
But, are there not many similar organisations that support Startup founders, like non-profit organisations, universities and government-owned? So, what are your competitor advantages?
Yes, most certainly, there are other organisations supporting Startups, many of them arranging pitch events, incubator- and accelerators-programs, and several have investor groups providing good services, capital and input to the entrepreneur. They are all contributing to increasing the interest to start a venture and helping the entrepreneur to get going and scale. So, of course, there are competitors in this industry field as well. But often, we are instead cooperating with many of these organisations. They are sometimes channelling Startups to us in areas where we might have the specific competence or experience. We, on the other hand, are, of course recommending Startups to other support providers. We sometimes discuss with the other providers what and who could contribute in the best way to the specific entrepreneur. For instance, we at BridgeToAngels are not likely experts in the Startup's product technology, the product-market fit, how to carry out and present a Minimum Viable Product, approach the customers, EU funding applications, and so on. This is not in our niche, and other suitable individuals and organisations likely have more expertise in these areas, which we then recommend.
Further, as more and more new entrepreneurs want to start a venture, and by that, the Startup market and the new business world are growing very fast, there is still room for many support providers to contribute. But I would like to emphasise the importance of checking the Startup support providers regarding experience, seriousness, knowledge, and full-time commitment. Be sure the ones you pick are self-going and hands-on before choosing those who feel stable and genuine. And who has started up and run at least one or two ventures themselves. Further, if they are or have been investors themselves, it is advantageous to better understand views from both the entrepreneur and the investor.
There is a risk for you as a founder to engage a Startup service provider who spends a big part of your valuable time and has all kinds of questions without providing any helpful advice, fruitful outcome, or not delivering any actual results in the end. Another essential factor is that the chemistry is right, and there is a solid trust between the founder with the team and the Startup support provider. In the Startup world with its ecosystem, a significant part of our assignments comes through recommendations from earlier supported ventures, so it's good to check around and listen to other seasoned entrepreneurs about what and who they would recommend.
So, regarding competitor advantage and to conclude the answer, it is for us to take the structures and control mechanisms from well-proven methods like in traditional listed
companies. We are then adjusting to the Startup world for a more agile way to operate and manoeuvre more easily and quickly. We take on much of the administrative work, carrying the founder and team through the process and making it easier to focus on what is essential, enabling a clear focus to develop superior, innovative products and solutions to their customers. Our strength is that we work very much hands-on in the Startup process and that we have a delimited focal area where our partners and we have the specific expertise.
So, what you are saying, you take the processes from how multinationals like Volvo Group are working?
No, we are not trying to push the large company's processes into a new ambitious and aspiring Startup. That would kill the venture for sure. But I think, and it has turned out so far using our approach and model, both the traditional listed companies and the new business community have a lot to learn from each other. And at BridgeToAngels, we have the experience and network on both sides.
If we take the traditional companies, they have well-proven structures, processes and governance whereby they likely have an advantage through their scale of operations, market
position and pricing models. On the other hand, Startups provide value because of their potential to disrupt traditional industries with innovation. They contribute with their ingenuity, and probably a faster and easier way to execute and gets things done more quickly.
And this is where BridgeToAngels comes in with its network of contacts, partners and business associates, investment network organisations and lawyers, thereby creating added value for the entrepreneur and the Business Angel. As a niche and boutique player, we can mix the agile, high-energy approach and implementation with order, governance, processes, structure, and financial planning. Both parts are essential in building a robust and long-lived venture. That is our view upon it.
Could you describe more in practical terms how you are supporting the new entrepreneurs and their Startups?
Yes. I can take a typical example. A Startup founder with an innovative idea and who is at the first funding stage to further develop the venture decides to look for equity funding and go to a pitching event but got a NO from the Angel investors. The Business Angels tell you what the reason is for the NO. It could be: the product is at a too early stage for the market or a too-high valuation or too high competition or whatever explanation. But the actual reason might very well instead be the attitude of the presenter, complicated business model, low scalability, the founder and/or the team do not seem to be that passionate and energetic about their new venture or product or any other reason. So, the NO from the Angel investors could well be the pitch presentation and performance by the Startup founder or not having clear and convincing answers. We at BridgeToAngels could then suggest a solid and extensive training by a tailormade pitch instructor for that specific funding stage to make storytelling more successful in the second attempt for the founder and team to become more focused, secure and convincing.
So, suppose we now believe in the product with its founder and team and are convinced it has high and promising business potential and scalability. In that case, we discuss it with Angel individuals or Angel Groups and with our partners who are familiar, have experiences and know the specific sector. They might have proposals to add new functions to the product/service or to take away or change some parts. We then guide and provide the Startup with a second chance, most likely not with these earlier dismissive investors. We then perform risk- and weakness-analysis, in-depth valuation exercises with different scenarios, competitor assessment, product evaluation, structured documentation, and prepare, prepare and prepare. We then try to build up the venture to become more successful and solid, setting high ambitions for making it click with the Business Angels and training the founders to provide sharp and confident answers to the Angel investors. This is done through a much more improved preparation of the phases in the Startup journey like the DD process, including the Term sheet items, Cap table scenarios, and various valuation exercises. Sometimes we have even suggested changing the name of the Startup and its product to make it more of a brand-new start, sounds simple but might have contributed to the positive outcome.
So, your target market is only those who got a NO, which you are supporting?
We are almost equally often providing Startup support to entrepreneurs in front of their first
pitching event. But we are not targeting or focusing on seasoned entrepreneurs and the ones in the later funding stages. So far, our primary focus and engagement have been in the market segment of first- or second-time fund-seekers who have the ambition to become investment ready and build a robust and well-prepared Startup.
Everyone seems to want to form a Startup these days. Do you feel there will be a recoil on the Startup market in the Nordics soon?
I hoped I could give a firm answer on that, but it is, of course, hard to predict. With the almost extreme capital inflow to the new business industry of Startups and a very high interest in entrepreneurship, we observe a high and even increasing demand for Startup support. We see new records every year for investments in Startups in Sweden and many other countries. According to Dagens Industri (a Swedish financial newspaper, editor's note), I read that during the first nine months of 2021, about 62 billion SEK was invested only in the Swedish Tech scene.
Further, thousands of founders have sold and made an IPO in their Startups, who are now ready to plough their capital into new promising ventures, which further adds to new record levels of Business Angel capital injections and from VCs. So, I do not see that the trend will shift downwards in the next couple of years.
But the market mechanisms are valid also for Startup capital markets, like VCs and Business Angels. If the supply increases, the Angel investors and VCs compete, and the founders increase their negotiation power, we can observe that. This then gives a result in higher valuations. Analysis based on PitchBook data shows that the median pre-money valuations in 2020 for Europe were about three times higher than 2010 among all stages (seed, early, later stage), and full-year 2021 will most likely break records. We also see similar valuation records in Scandinavia. In addition, more players, in particular from the USA, are entering the European Startup scene as they considering looking for alternatives to the even more extreme high valuation in the USA. Further, we see an increased inflow of capital to the Startups from public and government-funded initiatives. Additionally, many corporate, institutional investors, family offices, and crowdfunding initiatives invest directly in Startups.
We know that higher valuations come along with bigger deal sizes. So, the Startup founders might get more capital, more flexibility, and the ability to test new things and develop an
improved product quicker. But a consequence could well be having more money than needed, could end up in a misallocation of the cash as having more cash often might open the door for wasting money, including a significant risk for an upcoming down-round. So, of course, the ever-increasing Startup valuations and many other types of investment also bear the considerable risk of a bubble these days.
Thank you, Magnus, for the interview and discussion! Any last words in this interview from you?
Thank you for having me! As I mentioned, I see the future with Startups and the New Business Community are very optimistic, fast-growing and promising. And Scandinavia has developed the Startup environment very well, and we have great opportunities to grow even
more in this industry sector. The more ideas, curiosity, willingness, knowledge and, of course, financing on building successful ventures with support from the Startup ecosystem, the better the outlook for the coming years and decades.
So, thanks again, and I take the opportunity a bit in advance to wish all BRAINZ Magazine readers a Happy and Prosperous New Startup Year 2022 after a well-deserved Holiday Season.
And keep on Starting up!