Building Billion Dollar Babies

QlikTech, a start-up born in Sweden that pioneered a disruptive new approach to business intelligence software, negates some common myths about Europe: European companies are mostly copycats, they don’t scale, and they need to hire American executives to drive the business. QlikTech thrived by first targeting small business customers that were below the radar of business intelligence software companies like Business Objects and Cognos. Then it began to cut into their businesses; today it considers IBM, SAP, Oracle, and Microsoft as competitors. The company launched an initial public offering on the NASDAQ in 2010, reaching its current valuation of $1.5 billion the year it went public.

Its David versus Goliath success story is symbolic of the maturation of Europe’s tech sector, which is starting to produce a greater number of companies with the chops to become global players. Now, a team of executives that helped build QlikTech is setting out to ensure that Europe continues to produce even more billion-dollar babies. Later this month four former QlikTech executives and Danish private equity investor Jens Schroder (pictured on Informilo’s home page) will unveil Zobito, a new $50 million fund aimed exclusively at helping companies scale.The focus will be primarily, but not exclusively, on Europe.

The idea to create Zobito came from Måns Hultman, a Swede who served as QlikTech´s CEO from 2000 to 2007, and its chairman from 2004 to 2009, the years that defined QlikTech’s strategy and created the momentum that carried QlikTech to its successful IPO in 2010.

QlikTech originally focused on search and visualization but its technology also hit a sweet spot: helping companies to more easily access key data and cut the time to install the technology from months and years to weeks or even days.

But as many European companies learn the hard way, strong technology does not automatically translate into strong business. Hultman stepped in as CEO in 2000 to help out. At the time the company was in the red and had only one sales guy, who had already resigned. Hultman made the decision to have the company focus uniquely on business intelligence software and enter the market by targeting mid-sized Swedish manufacturing companies as clients. The client list grew rapidly and so did revenues: during his tenure as CEO, QlikTech’s sales shot up from $2 million to $80 million and by the time he stepped down from the board revenue had mushroomed to $153 million.

Hultman, who left Qliktech in 2009, has spent the last three years advising and seeding a new generation of young European companies. It was through this experience that he realized that scaling remains an issue for European start-ups.

“ I did not see the same kind of firm foundation for growth we had at QlikTech. “ says Hultman. “People do not seem to have the right kind of structure in mind and do not even understand what market they are in.”

While Hultman has tried to help start-ups grow from a position of board member, he says that model does not work very efficiently. Board members usually receive the materials only a couple of days in advance. They fly in for a board meeting that lasts for four hours. The first three hours focus on the things that have happened and only one hour is spent on what will happen or the company development plan, says Hultman. So, he sees the need for a fund that will invest in both early-stage and growth-stage companies but also coach management “to define the market in the right way, define the offering in the right way, and most importantly to try and organize the execution.”

Hultman sees Zobito as a complement, rather than a competitor to traditional venture capitalists. “VCs typically have lots of experience in high-level strategy, helping out with hiring and networking and of course with financial events of various kinds,” says Hultman. “The main criticism I hear from the entrepreneurs is that they need more coaching on the operational side. I hear the same message from everyone, they go to VCs for the money and high-level strategy but they are clearly disappointed with VCs’ ability to help them on the operations and execution.”

So why the name Zobito? It is a variation of the Italian word Subito, which is what Italian waiters say when you order an espresso in a café. It means “coming right up” but in reality it could take 30 seconds or half an hour. One never really knows. It is the same with start-ups, says Hultman. Some companies need longer than others to get the job done and that is something that VC funds have difficulty accommodating.

Most VC firms raise money from big pension funds or insurance companies or wealthy individuals. These funds have a lifetime of seven to ten years. When the fund sells its investments, the proceeds are distributed to the investors in the fund – the limited partners. If the returns are above, say eight percent, then the excess profits are split 80/20 between the limited partners and the management company. The funds are set up to exit after a set period of time, and then the money needs to be returned to the limited partners. “That is what drives lot of exits,” says Hultman. “The start-ups are not necessarily mature or ready for a exit but the VCs need to close the fund. This is not very healthy for the companies; the entrepreneurs know this and are against it but they have no choice.”

However, so-called evergreen funds, which are often funded by individual wealthy investors, don’t face the same pressures; they can stay invested for 15 years or 20 years. “This changes the mathematics,” says Hultman, giving start-ups the time they need to grab a decent share of the market. “We are structuring our fund to behave like an evergreen so we will never force an entrepreneur to an exit if it is not the right thing for it to do,” he says.

Zobito will focus on coaching companies to look for gaps in the market and then target those niches. Hultman points to two European companies that made a killing by doing just that: one was the first to introduce a margarine targeted towards people who wanted to lose weight; the other was the first to design ski boots for people who did not want their feet to ache after spending a day on the slopes.

QlikTech had its own market revelation: it was the first to target SMEs with business intelligence software, a huge market that no one else had addressed.

Zobito wants to help the next wave of start-ups discover  market revelations and go after them. “We want to contribute to the change,” says Hultman. “We are seeing a change already. The start-ups I see today are much better than the companies I saw 10 years ago. Clearly entrepreneurs have been inspired by the successes that have come out of Europe already. I wouldn’t be surprised if over the next ten years many more billion-dollar companies come out of Europe and if we can help in that process I would be very happy.”