Some days ago I read an interesting article in The Information about increased focus on burn rate in the US tech sector (see www.theinformation.com/Venture-Investors-Sound-the-Alarm-on-Burn-Rate, for those who subscribe). The backdrop for the article was the increasingly ridiculous valuations of major US technology start-ups, and how non-VC investors have started to withdraw. The Information’s prescriptions for technology CEOs were clear: reduce burn rate, preserve cash (you may not get more from your investors), but do not scale back ambitions.
I am pretty sure that the above situation will have direct ramifications for Norwegian tech companies, as Norwegian VCs talk with US VCs and attend the same conferences as US VCs. However, in Norway we have in addition lower investment level on the NCS, at least in 2015 possibly also in 2016, and significant pressure to reduce margins, all bad news for Norwegian tech companies with exposure to offshore oil and gas. Not only that, we can expect the Norwegian investor community to react with less enthusiasm for anything related to offshore oil and gas. In sum: less easy order intake, less high-margin order intake, less appetite for technology and business risk amongst prospective customers, and less cash available from investors.
I have over the last few days had interesting dialogues with senior people in the technology cluster in Trondheim, Norway, including with a representative from a soft funding governmental scheme targeting SMEs, and they all, to varying degrees, confirm the above story. (I will in a separate blog present an interview with one of these discussion partners.)
My prediction is that the above situation will force Norwegian technology SMEs to do the following over the next few years: build cash flow from operations by early focus on sales (and significantly earlier than what is typically the case today), and be prudent abut costs without revenue streams attached to them. However, do not scale back ambitions, as now is the time to build an attractive and defensible position in the market, and establish credibility with the investor community.