Criteria for considering potential investments from Simula Innovation
When approaching a company for potential investment, Simula will target companies that are in accord with the below guidelines. All the company setups in which Simula has been involved have been quite different, each with its own particular history; hence, the guidelines tend to be guiding rather than absolute. These guidelines are intended to help boost the success rate of start-ups in terms of financial growth and returns. To ascertain finally whether a company is a suitable candidate for investment, it will be evaluated according to a series of investment criteria. All entrepreneurial investments are done through Simula Innovation, a subsidiary of Simula Research Laboratory.
1. The company must be in the ICT industry
Simula's business relates to ICT and it is in this area that we can provide particular expertise. However, ICT is a key area in most industries.
2. Technology Panel
Before Simula invests in a new project, the technology must be assessed by a panel. The panel's composition reflects the technological solutions that are to be reviewed. The panel will comprise three to five employees with particular expertise within the relevant specialist area. The assessment will be guiding and is intended to verify the technology through a presentation and follow-up questions.
3. A company comprises the people who work for it
Every start-up company relies on the people who work there for development and financial growth. This makes it critical to recruit the most skilled individuals, who have a thorough understanding of the technology that is the company's lifeblood, along with critical expertise of commercial realities. Simula will not commit to a commercialization process without clearly dedicated individuals who are willing to bring the results of research all the way to market.
Other important qualities include drive, integrity, an analytical approach, and relevant experience. SI does not wish to invest in companies whose managers or employees appear overly concerned with negotiating their own terms and who focus too much on their own shareholdings. This will impact SI's future contributions in the companies in which it already
4. Paying customers from day one or no later than within 12 months
The technology may be pioneering, but a number of other factors can have a critical impact on the company's ability to convert this technology into financial results. Consequently, SI will focus on a short route to the first paying customer and a short route to the first year of profit for the business. There are many examples of recognized companies whose customers financed both the start-up and growth.
SI will strive to achieve growth in the companies in terms of both sales and earnings. This will make the companies more robust and boost their value. It will also establish a platform for effective agreements with new owners or favorable recapitalization when expansion is on the agenda. SI expects a minimum contribution (earnings before interest, taxes, depreciation, and amortization) of 15 percent from these companies. Market leaders generate a contribution of 20--25 percent.
5. The company must avoid dependency on investor capital
We find that many technology companies focus too strongly on sourcing investor capital and too little on generating earnings. SI shall focus on earnings and a model under which capital is obtained when required or when the escalation or development of a new product is commercially viable. The reason for such a strategy is to avoid early dilution and to achieve higher pricing of the company for the benefit of the owners. SI will help obtain soft funding where possible; however, at the same time, it must ensure that this will not divert the company's activities away from a clear market focus and future commercial operations.
SI shall have board representation in spin-off companies commensurate with its shareholdings and will be an active driver of the business. To do so, SI must have a shareholding that makes active participation in the company commercially viable. SI will therefore strive to achieve 30 percent or more ownership of the business but will accept lower shareholdings if there are particular grounds for doing so.
7. SI's activity levels
SI aims to be an active owner; however, activities will depend on shareholdings and earnings potential. SI will strive to inject capital directly into the companies, including through soft funding. SI will be particularly committed in the first year following the company's start-up, when it will contribute legal, financial, and strategic assistance, as required. Subsequently, SI will focus on contributing expertise that can boost value and when it is not expedient to engage external assistance.
8. Due diligence
Before SI invests in a company, due diligence is performed. This applies even if the technology is particularly promising. Commercial potential and the resources required to manufacture a saleable product are two particular areas to which we consider important. This must be balanced against realistic financing. If SI wishes to participate, an offer will be issued based on this assessment, the ownership rights already accrued by SRL, and the amount to be invested by SI.
9. Corporate social responsibility
Simula is wholly owned by the Norwegian government through the Ministry of Education and Research and bears significant responsibility for ensuring that all activities serve the interests of society as a whole. SI will therefore participate in commercial activities that are in the interests of society and will refrain from participating in commercial activities that could impair Simula's reputation. SI will comply with the government's guidelines as far as is suitable for the company in question. Simula takes the view that, in the long term, this will boost value for the company.
10. Working methods
SI strives to achieve an environment based on individual trust, equitable agreements, and clear objectives. SI endeavors to establish appropriately adapted incentive schemes for employees that will be easy to understand. There will be a ceiling on the remuneration paid to executive employees and an emphasis on paying dividends. To the extent appropriate,
Simula will comply with official government guidelines on remuneration and incentives.