This article was originally published in Norwegian in Shifter. Read the article here.
John Markus Lervik in Cognite has been contacted by over 100 VC investors, but he had long warmed up one of the very, very hottest.
It is early morning Silicon Valley, and late afternoon at Fornebu. One of the real seniors in the investor community "over there" has got up at six o'clock to attend a video conference he does not want to miss.
TCV top Jake Reynolds has previously led investments in Splunk, Webroot and ExactTarget, the latter now known by a new name; Salesforce Marketing Cloud - but this time he has "traded" Norwegian. On the direct line to the Aker quarter, he can finally tell about something he has wanted to do for a long time - invest in Cognite from Norway.
- It is incredibly cool that we have got the world's most competent technology investor as a partner, says founder and CEO John Markus Lervik about the big event earlier this week - when it became known that Norwegian Cognite will raise NOK 1.2 billion in fresh capital from the venture capital fund Technology Crossover Ventures (TCV), at a valuation of more than NOK 13 billion.
The super portfolio
The venture capital fund, with more than 70 employees, was founded by American Jay Hoag in 1995. The technology investor, based in Palo Alto, California, has been repeatedly recognized on Forbes' Midas list as one of the industry's best .
Among the fund's active portfolio companies, TCV boasts giants such as Airbnb, Klarna, Revolut, Spotify, Strava, Netflix and Tripadvisor, among others. Hoag himself sits on the board of the latter three, and has an active role in many others.
"It has been intellectually and emotionally gratifying to see how the Netflix team has continually disproved the skeptics," the technology investor said in 2013 after selling a number of Netflix shares with double returns, according to Forbes.
As of May this year, Hoag has an estimated fortune of just over $ 370 million, according to stock exchange data website Wallmine .
To date, TCV has invested more than $ 14 billion in leading technology companies, in addition to participating in more than 125 IPOs and strategic acquisitions.
Røkke's meeting with Silicon Valley
To understand why one of North America's hottest tech investors joins a Norwegian company, we must go back to September 2018 - when Kjell Inge Røkke and his right hand man in Aker, Øyvind Eriksen, are on a learning journey to Silicon Vally, together with Cognite founder John Markus Lervik. The first stop on the round trip to the "valley's top 10" is at the aforementioned TCV boss Jake Reynolds in Menlo Park.
It will be a meeting between two very different worlds, the industrial builder Røkke who has built his values on goods that can be touched and felt, and the VC legend Reynolds who is bottled up in "The Holy Grail of Software".
- We gave a simple presentation about what we wanted to achieve. Now, three years later, we see that we have achieved exactly what we said we would achieve.
Ready for Cognite
According to Lervik, Reynolds must have been excited already at that time. TCV had previously invested in the company OSIsoft, a platform for storing sensor data. The company was sold last autumn for five billion dollars to AVEVA, but Reynolds did not reach its full potential because he had had to sell out at an earlier time than desired.
In Norwegian Cognite he saw a data platform that was on the level above OSIsoft in the technology stack, one that connected all the data together to something handy for the industry - in his head a company that could therefore be even much bigger - especially when it was also backed by an industrial owns as Aker.
- The early sale of OSIsoft had obviously irritated him for a long time, and already in the first meeting he started talking about getting into the ownership side of Cognite. But TCV typically invests 100 million dollars or more in a company, so it was too early for us at the time, says John Markus Lervik, and points out that the Norwegian startup then only had a handful of customers, including their own co-owner Aker.
The beginning of a "friendship"
Lervik describes the signing trip in Silicon Valley and the interest from TCV as a confirmation that they were on the right track, not least Røkke and Eriksen were even more convinced of the possibilities in the new project.
- It was nice and gave us extra confidence. As an entrepreneur, you are constantly paranoid - "are we sure that this is a good idea", "it goes fast enough", "is there anyone else who is further than us". The meeting gave us a sense of security that has been good to have with us later.
John Markus Lervik continued to maintain regular contact with Jake Reynolds, although he realized that there would be no investment immediately. There were many conversations across the Atlantic, never with questions of capital, but to keep the good relationship warm when Cognite would one day mature for an investment of the right size.
- Such top managers are just ordinary people too. It has been very important to invest this time, build a "professional friendship". Because you should not think that others are ready when you are ready. Since we met in 2018, we have therefore talked together almost 15 times. We have talked about big and small - the market, competitors and about how it goes on other levels as well. We have shared something we have seen, and they share what they have seen. Every time we met, Cognite has come a little further. This winter, Jake saw that we had delivered on what we said in 2018, and the train was ready to go, says Lervik.
Cognite was founded by John Markus Lervik and Aker. The industrial giant's well-stocked wallet financed the start-up with a couple of hundred million, and gave a solid majority in the company. Lervik sat at just under ten percent.
- For American VC investors, it is a somewhat unusual ownership seat. Did you ever experience a skepticism about this?
- It is a new structure for many of them. There have been some discussions about it, and there has been a need for some "education" for investors. At the same time, they see that we are entering an extremely large and complex landscape, where competence and networks from industry are a competitive advantage. We have probably been contacted by over 100 investment companies, and less than five have had problems with this part, says Lervik.
Instead, the domain knowledge of the Aker system has helped to open doors in a market where the challenges have been queuing up. Lervik points out that Cognite strictly speaking builds a completely new software category - which can be described as a "Google Maps" of all the world's industrial processes, a platform with a wide range of applications for different purposes. Not only must a product be built, but they must also convince industry players that this is actually something they need. Then it has been an advantage to have an owner who can also be a customer.
- The collaboration with Aker has meant that we have progressed 10 times faster than we would otherwise have done.
Joining the board
The stock market also smells of the investment from TCV. According to Forbes, the company is known for investing in the portfolio companies after they have been listed on the stock exchange, hence "Crossover" in the group's name.
This autumn, Cognite CEO John Markus Lervik told Shifter that the company had no concrete plans to go public , but now confirms that the company wants to go public in the US.
TCV will have an ownership share of 9.4 per cent after the transaction, while Aker will retain the majority share with 50.5 per cent of the shares. At the same time, Jake Reynolds joins the board.
It is now safe to say that Cognite has a solid ownership side, after they also acquired Accel, Facebook's largest investor, last year .