Swedish entrepreneur and venture capitalist on hunt for 'disruptive technology', writes CIARA O'BRIEN

BEING AN entrepreneur is all about taking risk, and no one knows the risks of building your own business better than Niklas Zennström.

The Swedish entrepreneur has been behind some of the most well-known tech ventures in the past 10 years with business partner Janus Friis, including internet telephone service Skype and the file-sharing utility Kazaa.

But it hasn’t been an easy journey. Zennström left his job to strike out on his own the week the Nasdaq peaked and at the start of the major dot-com crash.

“We tried to raise money, and we weren’t successful,” he said. “Kazaa was a success in terms of a lot of people using it but it was a failure from a financial point of view. We didn’t make any money at all. It caused me a lot of hassle to deal with for several years.”

That particular venture ended in high-profile litigation from the music industry before being sold to Sharman Networks. However, Zennström said that although Kazaa didn’t make money, it showed the pair as entrepreneurs who could build a company.

In late 2001, Zennström and Friis founded Joltid, which develops and provides peer-to-peer-based solutions. “At that time we didn’t even bother to try to raise money, because it was too hard,” he said.

“The reason we couldn’t raise money was because here in Europe, investors had crawled under rocks somewhere. They were so afraid of investing in anything that was ambitious.

“Investors in Europe were too afraid, too risk-averse and when you’re dealing with start-up companies and entrepreneurship it’s a very risky business. The business model is that sometimes it works and sometimes it doesn’t. But that’s why you need to have a portfolio approach to it.”

It was the establishment of the next venture, internet telephony firm Skype, in 2002 that proved more of a success for the pair. Raising money for Skype took time, with Zennström saying he got 26 rejections before finally getting finance. “In Silicon Valley, there has been much more of a tradition of investors who come from an entrepreneurial background themselves and are willing to bet on people who have big ideas,” he said.

It was the difficulty in getting funding that drove Zennström to found Atomico, an investment group focused on fast-growing technology start-ups in Europe. But getting entrepreneurs to take a chance on their own ideas was also somewhat of an issue. “The problem we have in Europe – it’s a cultural problem we have because we’re afraid of failure because it’s a big step,” he said. “The reality is that if it doesn’t work, so what? You tried it and you had one more experience and you can try it one more time. That’s what we did.”

Being an entrepreneur is a round-the-clock job. “If you’re an entrepreneur, you’ll most likely go through phases where you are the only one who believes in you,” said Zennström.

“For me, it was I was committing to a process and I was going to see it through. You have to learn from the setbacks, and see how you can come out stronger from it.

“It’s not a job, it’s not something that will take a short period of time. You’re committing to a lifestyle. You live with it.”

However, the 2005 sale of Skype to auction site Ebay for €2.1 billion marked something of a milestone for European entrepreneurs, who saw money could be made from tech sector start-ups. “Since then, there’s been a much better flow of entrepreneurs trying to start businesses, yet there’s been not that many good VCs who are betting on early stage,” he said. “We wanted to address that market to help entrepreneurs have great ideas and big ambitions.”

The venture capital fund has invested in a number of start-ups and tech ventures, including Last.fm, Fon, MadBid and Technorati. Zennström and Friis have also turned their attention to music again, with subscription service Rdio. The service, which is on Atomico’s list of investments, can be streamed to a desktop PC or Mac, or smartphones including the iPhone, Androids and Blackberries, and is currently available in the US and Canada.

“We try to find people, entrepreneurs, who are sitting on the next Skype the next Facebook, the next big potential company,” Zennström said. “We’re looking first of all for the people – that’s the most important. You have private equity firms looking at the companies, profit and loss statements, cash flows, and balance sheets. For us, it’s much more important to look at the people, because we’re investing in people who are building something. So what we’re looking for in entrepreneurs is people who have leadership and strategic insights, and the drive and passion to make it possible.”

Atomico has clear criteria for its investment targets. Zennström and his team are looking for “disruptive technology”, companies that will address a large market, and have the ambition to become international. “We’re looking for those who have products technology or a business model that are transformative – something that is going to change the way you do things,” said Zennström.

“We would not be interested in a company saying that they are going to do yet another product that is already out there, because there is still space in the market. We want to invest in companies that are doing something very radically different.”

With Zennström set to attend the Dublin Web Summit later this month, the spotlight is on Irish entrepreneurs. The company is actively looking at Ireland for potential investments, and Zennström said he will be using the visit to meet entrepreneurs and get a feel for what’s going on in the industry.

Atomico thinks there are potential “great opportunities” for investment. However, the fund is selective about which companies it invests in, with about five to 10 getting backing each year throughout Europe.

The difficult economic environment in Ireland doesn’t appear to have dissuaded the firm, with Zennström saying the downturn in Europe hasn’t affected Atomico’s business model. It takes a long-term investment view of five to seven years, giving Atomico a better opportunity to exit companies in the future.

“We’re not so dependent on economic cycles. In fact, the way to get out of a recession is to build companies, to build real growth,” he said. “A lot of companies were involved with financial engineering rather than technological engineering. We believe what we need to do to get out of this economic crisis is to invest in growth fuelled by innovation.”

Government support and a willingness to foster an environment for entrepreneurs and innovation is very important, however. Building a “smart economy” has been a stated ambition of the Government.

“You can see it as an opportunity to go out and do things and build businesses,” he said. “What doesn’t kill you makes you stronger.”

The Dublin Web Summit takes place on October 28th and 29th. www.dublinwebsummit.com