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15 years with more than new ventures – May Edition

Written by - 13.07.2018 - kl. 15.55

The fifth presentation in our series of master’s theses contains three theses that all focus on
questions that the authors have obtained through their work in their start-up or through other
projects. The two first focus on the funding of new ventures and one especially on student-led
ventures, while the latter enters into an industry and focus on the competitiveness of these new
firms. The thesis are written of students graduating from NSE in 2006, 2009 and 2010, and are old but excellent in terms of their questions and findings!

We hope you get inspired and enjoy the reading of this month! If you want to read more about our
students’ prior theses, you can find theses from January, February, March and April here, here here and here.

– The faculty of NSE

In 2018, NSE celebrates its fifteenth anniversary and as a part of the celebration, the faculty has gathered fifteen theses from prior NSE students, and intend to present three of these theses through the first semester of 2018. The theses presented will be a variety of academic prodigies, timely written investigations and theses not necessarily meaningful to the majority of the world, but with topics of profound importance to NSE’s students. Some will carry limited empirical foundation, nevertheless with impressive results. Others have a data collection that would cause professors to become envy, but where the students still handled the data in an impressive manner. Moreover, all of the above show the impressive span in the students’ theses.

In this series of presentations, we intend to provide you with an overview of what NSE students focus on, what outcomes the Master’s theses could give, and what the students themselves think of their theses – some of which written more than a decade ago! You will therefore find abstracts and interviews with the authors of the presented theses. If some of the works are of interest to you, the majority of the theses are available at the Norwegian University of Science and Technology’s library. If they are not available, we assume the authors would be happy to share some of their knowledge.

Venture Capital Term Sheets and Incentive Structures

By Ole Sebastian Stein and Morten Solum Mathiesen


Let’s dig into investment principles and behaviours of venture capitalists! The fist master thesis in this May edition is the one written by Sebastian and Morten from class of 2006. Their main motivation was to explore a topic that was useful for them as aspiring entrepreneurs. They ended up writing a thesis that could help them in their contact with venture capitalists. Sebastian explain their choice of topic as a result of meeting a former investor during their stay at Boston University in the summer program:

– We chose the topic of incentives in venture capital deals after our stay in Boston where we met former investor Paul McManus who kindled our interest in this type of investments. Needing venture investors in our own start-ups and wanting to properly understand these investment deals, we chose VC term sheets as our topic.

The world of entrepreneurship often tells stories about differences between entrepreneurs and their investors. According to Morten, this topic sparked their interest, and they included it in their thesis:

– We saw that there could be tension between entrepreneurs and investors when it comes incentives for value creation in the start-up and wanted to investigate possibilities for addressing this.

As many master’s students know, the topic of their thesis should not be too broad, as this will make the work more challenging than necessary. To find the best fit, Morten and Sebastian spent a lot of time with experts in the field of investment to understand and discover interesting research questions:

– Discussing the topic with the faculty, real investors, proven entrepreneurs and lawyers made us fairly certain that there was something interesting to be investigated in the structure of the VC investment term sheets. We read up on research literature, was in contact with researchers around the world, and conducted detailed interviews. Then we developed an analytical model to describe term sheets and with which we could propose improvements to the mechanisms in such investment deals, Morten explains. Sebastian adds that the faculty at NTNU provided invaluable support during the whole process. Through the thorough investigation and interviews, the authors obtained deep insights in the topic, and obtained their goal in their work. According to Sebastian, the two authors gained both theoretical insights and practical results from working on the thesis:

– On the theoretical side, we proposed an adjustment to some of the payback structures to make sure everyone was incentivised for maximum value creation and growth. This was not certain given some peculiarities of the normal payback structures. Perhaps the most practical outcome of the master thesis was the ability to readily analyse term sheets and use that analysis in negotiations with venture companies for our own start-ups. They also learned to solve academic problems by trying many different solutions:

– We learned that to solve hard problems you have to look at them from multiple angles. In addition, it can be quite fun to write a master thesis, Morten states.

When we ask the two authors whether they would “do it again” or rather change their topic, Morten and Sebastian hold on to their thesis focus. Twelve years later, there is still much to explore in this field:

– Incentives in the relationship between entrepreneur and investor is still an interesting topic. It would be beneficial, perhaps, to add a qualitative dimension from several real-life investments to check if sub-optimal payback structures actually have an impact on company performance.


This thesis gives an overview of the venture capital funds, the investment principles and investment behaviour of venture capitalists, a detailed description of the term sheets used in venture capital deals and a review of a few selected models of financial contracts in venture capital. We create our own model of venture capital deals and show that 1) for certain types of entrepreneurs and start-ups the formulation of milestone plans is essential to value creation, and 2) the pay back structure of the two most common securities in venture capital deals, simple convertible preferred and participating convertible preferred, have properties that are sub-optimal with respect to value creation. We propose to overcome these problems by a) slightly modifying the design of participating preferred, and b) reduce the liquidation preference when using simple convertible preferred.


Funding of startups with student involvement

By Eirik Hogner and Espen Andreas Linløkken


How many times haven’t you heard that there is lack of venture capital in Norway? Well, if you are interested to find out if this really is true, keep reading! Funding of Norwegian startups is the topic of the second thesis in this May Edition. This is a master thesis relevant for most university-based entrepreneurs and students developing a new venture. Eirik and Espen wrote their thesis in 2010 while both working in their own start-ups. As many of the master students at NSE, the topic they chose was one that the authors had a close experience with and genuine interest in. Eirik tells how this boosted their motivation for the work:

– We wanted to use the master thesis to address a key challenge for student led university start-ups. Together with others at NSE we had hands on experienced the challenge of raising capital without prior industry or business experience. We knew this type of angel capital was readily available at big universities in the US and wanted to understand if Norwegian investors had a different attitude to university start-ups or whether the real challenge was identifying and matching capital and start-ups.

Investors are busy people, and may be hard to identify. Thus, the students spent a lot of time on planning their data collection and understanding the different interviewees’ work and interest in the study.

– We spent a lot of time planning what to ask investors and given that this was a novel topic in Norway, a huge amount of effort went into building the large sample of investors (68 in total), Espen explains.

– On the other hand, once the data was gathered, the actual thesis «wrote itself», Eirik adds.

The findings in the thesis might surprise many students, however, equally important is it for students and new venture teams to reflect upon these conclusions and include them in their new venture work. As Eirik tells us:

– We often hear there is no lack of ideas, but lack of capital. We would perhaps rather say that there is no lack of capital, but lack of good business concepts and motivated teams and entrepreneurs. Our findings showed that business angels wanted to get in touch with more student-backed ideas. If you have a sound business idea and are willing to put all your time into it, the capital likely exists. The passion of the entrepreneur was flagged as far more important than their educational merits or prior industry knowledge.

Thus, as many have stated before us, investors invest in teams rather than ideas, and one need to be dedicated to manage difficult and challenging situations. Something the authors here also learned through their writing process:

– We were both extremely time constraint during the period as we were actively working on start-ups and other projects. Hence, we were forced to design a very efficient work process from day one, with hard timeliness and targets for each milestone, Espen recalls.

The final delivery came out well in the end, with interesting insights and findings. Their findings include what you may call a critique of those who call for more investors. This critical view is something the authors would bring with them if they (hypothetically) were to write a second thesis. They explain how the entrepreneurial milieu is something they both care for, and a topic worthwhile researching:

– Entrepreneurial «Fraud». Where is the border between a sexy elevator pitch and deception? Business plan competitions and the media are attracted by disruptive technologies and billion dollar global addressable markets, but are we risking that entrepreneurs oversell their ideas to investors? Our work revealed that trust and realism were hugely important for investors in early stage businesses. We learned at NSE that business plans are nice, but only real customers and users matter. This is backed by the fact that real customer was flagged as the most important investment criteria in our study. Recent billion dollar start-up scandals, like Theranos, highlight the risk of putting too much weight on the idea and vison. Are the global entrepreneurial community in risk by emphasizing too much on glossy papers while not getting their hands dirty with the actual work of recruiting the first user and deliver value to her?


Purpose: Students have in the recent decades shown to be successful of generating huge wealth through entrepreneurial companies. Entrepreneurship research has however shown that experience is a critical investment criterion for business angels. This raises problems for students raising capital in early phase. The purpose of this thesis is to better understand how start-ups run by students can attract funding from business angels. More precisely the study will examine the role of entrepreneurial experience, industry knowledge and advisors when students seek angel capital. The study will in addition present a framework to connect students with business angels normally not found in their own network.

Design: The study will use existing theory on the characteristics of business angels, their investment criteria, the effect of knowledge and network, in combination with empirical data from four qualitative interviews and a survey of 64 business angels in order to answer the research questions at hand. A purpose sampling method was used to ensure that all participants were active business angels. All angels were contacted by phone and later followed up by e-mail to ensure a high response rate.

Findings: Results from the survey suggest that students are equally or less attractive as investment opportunities compared to more experienced entrepreneurs. On the other hand the results show that a large part of the angel community wants to get access to more student investment opportunities through a proposed network. The results also show that the most effective way for the entrepreneur to increase the likelihood of angel investment is to establish collaboration with potential customers. The preferred way for business angels to get new opportunities presented is through an executive summary of 2-3 pages.

Research limitations: The sample used is too small to generalize to the larger group of business angels and it only includes Norwegian respondents. As the study has been conducted by students there is a risk of bias in the answers regarding students.

Originality/value: Little or no research has focused on how students are perceived as investment opportunities. This study can thus be seen as a pioneer within this field of research. Based on the empirical data several implications for researchers, business angels, policymakers and students entrepreneurs are found.


Why are small oil companies competitive despite their resource constraints?

By Nils Skuncke

Nils Skuncke

Nils Skuncke, who graduated in 2009, wrote the final thesis of May and in this anniversary series. As the previous two theses of May, this thesis’ topic was chosen due to the author’s interest and extensive knowledge in this field. However, to obtain such a knowledge is not something that comes easy.

– While working on my project thesis in cooperation with Rystad Energy, I got an insight into several smaller oil companies who had been doing very well on the NCS (Norwegian Continental Shelf). With “competitive advantage” being one of the major focus areas of entrepreneurship studies; it seemed like a good choice to write a thesis about why these smaller companies could compete with larger ones.

Thus, through his prior work and collaboration with others, Nils identified interesting questions to be explored in his thesis. Further, by identifying an interesting framework, the questions were easily adapted to the context and topic. He explains his process in the following way:

– I focused on theory/literature the first few weeks to make a framework for the interviews to follow. I was lucky and was able to get an interview with six CEOs/CFOs in small oil companies on the NCS quite early on. That left me quite a lot of time to dig deeper into the literature to find support for my findings.

Nils identified human resources and the benefits of being a small company as firms’ competitive advantages:

– It seems that small oil companies are able to attract skilful workers who like to work in a cross-disciplined workspace. This leads to fast decision making and an increase in creativity, but there also seems to be a big motivational factor involved; people feel more ownership towards their company.

The results were interesting, and the thesis turned out well. However, it is worth mentioning that writing a thesis alone is a demanding task. To be able to cope with this difficulty, Nils share some of his insights on how to make the process more planned and easy. These are primarily to recognize the importance of having a well-defined thesis. One also have to be able to maintain focus throughout the project. If Nils should start on a second thesis, his insights and experience obtained through his first thesis would set the standard. He explains:

– Reverting to my project thesis, I think I would write about “decision making under uncertainty”. More specifically, decision making in offshore drilling projects. Multimillion-dollar decisions are often made in a relatively small amount of time, often based on subjective bias, and it seems that objective expected value considerations are neglected.


The area of Competitive Advantage holds a strong position in the field of strategic management literature. Since its emergence as a research filed in the 1950s, scholars and researchers have launched several theories and frameworks to explain the sources of competitive, and especially sustained competitive advantage in firms. The most pronounced of these are the Industrial Organization perspective and the Resource-Based View of the firm. In addition, in more recent years, the Dynamic Capabilities view of the firm has also emerged.

Major oil companies have been on the Norwegian Continental Shelf (NCS) since oil was found in 1966. However, in 2001, Norwegian petroleum authorities decided to relax some of the requirements for companies on the NCS. Since then, the number of companies has increased from 23 to almost 60, the majority of these being small oil companies. Based on this development, the following problem statement was defined: Why are small oil companies competitive despite their resource constraints?

The thesis studied six small oil companies on the NCS. In an attempt to uncover the sources of competitive advantage in these companies, interviews were performed with top management in each company. A relatively large amount of quotes from these companies makes it possible to gain deep insight into their characteristics and approach to business. With the strategic management literature on competitive advantage as point of departure, a solid foundation for a discussion on what makes these companies competitive was established.

The thesis concludes that small oil companies are able to attain competitive advantage by positioning themselves where the need for resources is minimal, and where certain attributes characteristic to small companies give them an advantage over large companies. Further, the thesis finds that these companies are able to sustain this competitive advantage through their extensive use of cross disciplined teams, which is the basis for fast decision making, professional creativity and innovative solutions, as well as the enhancement of individual skills. The ability to attract skilled individuals is also considered as an important source of sustained competitive advantage, since it allows small oil companies to be far more effective than larger companies.