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I sat down with Søren Jonas Bruun at the 1st Corporate Technologies offices in downtown Copenhagen. Søren is straightforward and uses creative analogies to get his point across. A candid interview. (September 2008)
"You need a horse (the right product with the right patents), a jockey (the right management team) and you need to choose the right track (the right strategy). If you can do that, you can win horse races."
- Søren Jonas Bruun
Management buy-ins from New York; the elevator pitch; earning medals and scars
Alex Farcet (Q): What's your personal story?
Søren Jonas Bruun (A): More than 20 years of helping companies grow internationally.
I started off in classic industry. Prior to that, I was employed at Nordea, Denmark's oldest bank, in New York. I was expatriated there for a six month mission and ended up being there for two years. I worked with entrepreneurs who were building up companies in the States and helping them get financing through the bank I worked for.
But I realized that the bank system was too tight for me. So a friend and I started working on an escape plan. We spent a year putting together a board, we got financing, and we contacted over five thousand lawyers and auditors in Denmark with a simple message: 'If you see companies that need fresh blood, we're a team ready to step in and take over'. This was long before the recent trend in 'generationskifte' [generation change - many Danish company owners are or will be retiring soon, which has created an active company market] or management buy-outs; this was actually about management buy-ins because we came from the outside and bought our way in and installed ourselves as the new management team. We finally found one and had the board approve the acquisition (which in itself was unusual because we had the board before we had the company!). We borrowed 3 million USD, signed in blood since we had no rich aunts, and that was the start of my entrepreneurial career. I suddenly found myself the CEO of a plastic injection moulding factory at the age of 25.
We grew from 60 employees to 170 in two years, made two big acquisitions, became the biggest in Denmark.
(Q): Was there an exit?
(A): Yes, we sold to a Norwegian company, Dyno. I didn't make any money, in fact I ended up owing money because we sold at the wrong time, but we had turned the company around and it was a fantastic ride.
I then went to work for large industrial companies and was sent on missions around the world helping industry groups make acquisitions, restructure, buy out, sell off and so on.
It was at that time I started my Executive MBA course at SIMI, which was a complete eye-opener for me. I had a mentor at the MBA program, Erik Kjær (who built one of Denmark's leading consultancies in the area of corporate psychology, and is currently one of the top directors at Saxo Bank). He put me in touch with Michael Mathiesen who was a big star in Denmark in the areas of IT and venture capital.
So I've worked in international finance, industrial business development, and IT business development, internationally. The common dominator has been international business development.
I now live in London with my family and come to Denmark once or twice a month and try to build this company of ours.
(Q): Can you give me the elevator pitch for 1CT?
(A): "We are a special partner to companies that need to grow internationally in 2-3 years to sell".
If you want to grow intensively in 2-3 years to sell, you can work backwards from that and see what you need to do to make that happen - that's a story which is longer than an elevator pitch.
To make that happen we approach the whole thing much differently than many of our colleagues in this industry. I like the analogy of horse racing. You need a horse, a jockey and you need to choose the right track - and be good at riding on that track. If you can do that, you can win horse races.
We don't see ourselves as venture capitalists, but rather private equity for small companies. Private equity is about having a plan, executing to it and selling in 2-3 years. That's what the guys who own TDC are doing, even though they're dealing with an old apple tree that needs to be cut back in order to find the life of the tree next spring. They're restructuring in order to sell. We work with young apple trees that don't need to be cut back because they're growing. It's similar to a nursery, where you need to grow a tree in a pot before it's planted.
So there are two analogies. The horse race and the apple tree. The planning part, knowing what you want to do from day one is different from VC's because they like to get into something sexy which they think can become big in x years. They have a more patient approach and they expect management to execute what needs to be done. It's a fair approach and it's favored by some companies. It's a longer approach, it's less exit-oriented up front and it's less of an involved approach. I'm not saying they don't add value or that we're smarter and our approach is better, it's just a different business model. So VC's will do long runs where all three aspects of the horse story are in place: right horse, jockey and track. Which put into management lingo means the right product with patents, the right management team and the right strategy. If you can present these three elements to a VC and dazzle him, then he will invest, simple as that. And I've been in that industry so I know how it works.
We're saying we don't need all of those three to be completely lined up. We just want the horse to be the right one. We'll fix the strategy with you and we'll even find the people to put around you to go do it. In fact, most companies, if they look hard at themselves in the mirror, will realize that the strategy may not be exactly as it should be, or perhaps the strategy they had until yesterday was right until then but they're entering a new phase and it needs to be adjusted.
So if you are a company with a great promise that needs an evolution of strategy, or potentially need to strengthen your management team, or you're entering a new market (for example, you want to conquer the States and need access to the right people in your industry), then you come to us. That's the difference.
(Q): Can you describe your partnership with MLC LLP?
(A): Well, part of the story of preparing the apple tree to move to its more permanent home is that you need the right people scouting the terrain for hungry gorillas. MLC know the key people in the right companies (such as Cisco, VM Ware, Microsoft) and they have greatly expanded our reach into the large American companies, into which the best of our clients need to be fed.
This is one example of how we are able to deliver when it comes to knowing the right people. And even conduct the transaction with the right buyer.
(Q): Are they a bank?
(A): Let me explain what they did for us and you'll understand. In January, we closed a transaction with them for a company based in California. This was a company - Thinstall - with a great product but no management team (just the founder and a few technicians), no commercial management, no distribution, no sales. They had the most fantastic product but no strategy, a classic entrepreneurial approach. So we brought in a CEO, someone who had relevant experience. He set up the distribution system and took the company to a point where it was not only visible in the market but recognized as a leader in this emerging technology space (virtualization, allowing you to run everything from a USB memory stick). Consequently, the company was built from a couple million dollars in initial valuation to a point where VMware was showing serious interest. The trick at this point is to say no and to stay in the game - otherwise all the hungry guys go buy something else. We then went to MLC and gave them the mandate to find other strategic buyers. The first bid was 15 million USD. Four months later we sold the company at three times as high a valuation. From 2 to 45 million USD in 18 months.
(Q): You weren't in on the 2 million but you were paid in 'sweat equity' which turned into cash at the exit?
(A): We've been in international business development, especially in this IT space which is a game of its own, for a long time. Everybody here including Jonas (Pilgaard, the 1CT Partner running the Copenhagen office of 1CT), have been out there earning their medals - and their scars. And it's the same thing for MLC, they're entrepreneurs as well. They decided to create an investment bank and corporate finance advice boutique which is basically serving these hungry gorillas in the States who wake up every morning wanting to eat something. We know what's going on over there and eventually we'll turn the current around and start delivering to the gorillas what they'll eat in 6 months. We have on-going discussions with Google, VMware, Corel and a few others so we know what we're looking for.
Startups are too early. You're going to miss the party if you start something based on what your potential buyer says he wants to eat tomorrow. Because you can't get there soon enough. You need to go out and find stuff that is more or less there and twist and turn it in terms of strategy and corporate focus into what these guys want.