From Pieter Welten – Prime Ventures (@WeltenPie)
I have been working for almost 2.5 years at Prime Ventures. I work hard to establish a network of entrepreneurs, investors, and (financial) advisors and try to attend as many relevant tech events as possible. In addition, I read dozens of tech blogs and books, be active on Twitter and Linkedin and together with a few others I established VEECEE. Why am I doing this? One of the reasons is to generate as many leads (or ‘investment opportunities’) as possible. Do I believe that my work is paying off? Absolutelty! Every day I start receiving more and more leads from across Europe, either in my inbox ([email protected]) or through Linkedin. I am being approached by start-up founders, friends that introduce their friends, TMT boutiques, corporate finance advisors, consultants, angel investors and other VCs. This is all great!
However, I am surprised how often I am introduced to companies that fall far short of meeting our key investment criteria. You can send us your investment proposition (and please continue to do so), but please bear in mind in order to proceed in the ‘Venture Capital Funnel’ you should meet a VC’s key investment criteria. Why? Every year we review thousands of companies, have meaningful discussions with a few hundred of them and invest in only a handful. Hence, the odds of raising money seems to be against you. But this applies especially if you don’t meet a VC’s investment criteria. Yes, we do try to think out of the box, but in my view it is a battle not worth fighting. And I have been there. I lost many battles when I was trying to raise money for my start-up and literally approached every VC out there. Looking back at it, I realize that it was pointless. Three guys + a pitch deck, no MVP or whatsoever, approaching dozens of VCs.. we luckily ended up with angel funding plus dozens of emails telling us that we were ‘too early stage’, that they wanted to see an ‘MVP’ and a ‘few months of traction’.
Therefore, I can highly recommend entrepreneurs, advisors, angels etc. to identify and approach those investors that you think will be a good fit. Whereas an early stage investor (investment tickets €0.5m – €1.5m) is unlikely to participate in a Series C round, it is also unlikely that a growth investor (like ourselves) will invest €2.0 million in a company that is pre-revenue. Now we can have endless debates whether that is the right thing to do or not, but that’s simply the case. Please don’t shoot the messenger, I want you to save time and effort!
So how can you find out that your investment proposition is suitable for a particular investor? First of all, an obvious one, look at the website. Often you can read here in what sort of companies they are interested in or what their investment thesis is. If that’s not the case, then there are a few other things you can consider / look at:
- Portfolio: Look at the type of companies the fund has backed in the past (stage, geography, sector etc).
- Fund size: The larger the size of the fund, the larger the minimum investment treshold. A VC with a +€100m fund is unlikely to make €250k investments, but more likely to make investments of €3-7m.
- Press releases: Sometimes you can read how much they have invested in the companies.
- Blogs & Social Media: Read the blogs or check out the Twitter account. If it is for instance all about enterprise software, chances are little of winning the battle with a mobile gaming company.
- Investment Size: Most VCs want to acquire a significant minority stake (20-30%), unlikely less than 10% and also not a majority.
Concluding, I recommend entrepreneurs, advisors, and investors to carefully consider which VC to approach at what stage. If you believe you might be a good fit down the line and want to start building a relationship now, fair enough, but please emphasize that. We are very keen to facilitate a call, meeting or coffee. It is all about networking right?! I just want to manage expectations. Please do your homework and make sure that you target the right investors, that way increasing your chances of making it to the next round! We do the same if we are looking for a partner to participate in a follow-up round. Lost time is never found again and your time is the most valuable thing you can spend, please spend it wisely! Looking forward to hearing from you!
Cheers