This post was written by Ricardo Schäfer, from Seedcamp’s Investment Team. Follow Ricardo on Twitter @schaeferric.
In the US, you will undoubtedly find some of the best Venture Capital firms in the world. Funds like Sequoia, KPCB, Greylock, NEA and DFJ have financed the rise of Silicon Valley as the leading startup hub for global high-tech innovation and have backed some of the most successful tech companies of the past 30 years.
For startups, an investment from a renowned US VC brings a number of advantages over other sources of funding. US funds often leverage extensive operational experience, connections, and support functions to assist their portfolio companies. For this reason, they are often labelled as smart money.
The team was recently in the US for our bi-annual trip with Seedcamp founders. Visiting New York, Boston, San Francisco and Silicon Valley.
One of the key points European founders need to be aware of when seeking to fund from US VCs, is that they predominantly back US companies. Of course, there are exceptions, like Peter Thiel’s New York-based Valar Ventures which mainly invests outside the US (for example in Seedcamp’s own, Transferwise). Fred Wilson’s recent blog post about investing in Europe also indicates increasing appetite for leveraging the valuation discrepancy between the US and Europe. Overall, US investments outside their own territory are rather the exception than the norm.
So is it even worth pitching in the US as a European company? How can European founders increase their chances of receiving funding from a US investor? What are those funds actually looking for? I’m responsible for organising Seedcamp’s biannual US trip across New York, Boston and Silicon Valley, so I was keen to compile a number of useful criteria European founders should consider before pitching in the US. About a third of Seedcamp’s portfolio companies have raised from US investors, so it’s important our founders understand the relationship and how to increase their chances of success. Below are questions to consider when actively looking at US investment.
Are you willing to move to the US or enter the US market?
If you’re not planning on entering the US market, it may make sense to stick to local VCs. The reason for this is that many American VCs avoid investing outside the US. Common reasons include the difficulty of evaluating the European (or local) market and limitations around being able to add value as an investor or even exercise control. If you want to increase the chances of an investment you should, therefore, state a clear plan on when, why and how you will move to the US. This is particularly true for earlier stage companies.
Do you have the potential to become a $bn dollar business?
A lot has been written about fund economics and the necessity of billion dollar exits in order to return a fund. Investments in companies that are more likely to exit below $100m are irrelevant for the performance of any significant fund. Venture firms managing hundreds of millions of dollars are therefore looking for startups that have unicorn potential. Size matters, and the question of “how big can this be?” is going to be one of the most important ones European founders need to address as early as possible in their pitch. This is particularly true for a large number of US funds often managing a lot more capital than their European peers. Always make sure you talk about your long-term vision for the business and why your company will be big! If you do not believe your business is going to be another unicorn then consider that US VC funds may not be the right fit.
Are you building something customers care about?
European VCs generally tend to be more metrics-focused than in the US, which is probably one of the few places in the world where founders can raise a substantial amount of money without any kind of traction or even an existing product. Note this is during the bull market for investing. However, this is only true if you can convince the investor that you are building something customers truly care about and the market is big enough. This customer-centric perspective is particularly important in the US, and whatever business you pitch in the States you have to make sure you explain why customers will want to have your product.
Do you understand the US market dynamics?
If you haven’t moved to the US yet, American VCs will want to know how familiar you are with the US market. Among the questions that repeatedly arise are:
– Who is your biggest competitor in the US?
– What does your typical US customer look like?
– What’s your sales process and sales cycle in the US?
– How do you arrive at your price point? How much do you charge your US customer?
– What’s your total addressable market size and how much of this is in the US?
Make sure you have good answers on these questions when you pitch as you will look a lot more credible, in particular if you have said that you are planning a move to the US.
Don’t forget to ask for help and advice
In the US, there is a view that the entire tech ecosystem is connected and that personal relationships form a critical component of success. Good investors are therefore generally open to helping founders they are not going to invest in. Be sure to do your research in advance and ask for introductions or advice when you pitch. You will be surprised by how much more helpful American VCs can be compared to their European counterparts.
Ultimately, it’s of course not the geography or the reputation of a fund that you should seek. Regardless if the fund is European or American, what you will want to have as a founder is a VC that shows commitment and can add value to your business. Make sure you’ve done enough research on the individual investors you are pitching. Check out our podcast series, which includes interviews with US VCs, and, of course, try to speak with portfolio companies, your network and fellow entrepreneurs to be best prepared.
Even if your fundraising trip to the US has not been immediately successful, you’ll find that coming back to Europe your pitch has dramatically improved and you’ll have better chances of successfully raising funds at home. There is an increasing number of great European VCs, so unless you’re moving to the US, or believe your business is in the top 5-10 per cent of European startups, the US might not be the right place for you to seek funding.
But once you have spent some time pitching in the US, those new relationships will put you in a great position to return to pitch for your next round.
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This post was written by Seedcamp Founding Partner, Reshma Sohoni. Follow Reshma on Twitter @rsohoni.
Storytelling is a powerful tool. In business, it is the most important and first thing you will do in developing your company. Now in 2015, where the cost of starting up your business has become increasingly cheaper and products are more and more similar, being a great storyteller is what will separate you from all the other startups fighting for attention and investment in a crowded space.
In the past year, I’ve spent some time traveling and have noticed that what makes tech ecosystems such as London, Berlin, and the Nordics truly stand out when compared to Central and Eastern Europe, is their ability to tell great stories. This perception came up in conversation whilst I spent some time in Prague earlier this year. I was discussing the evolution of the CEE/Balkans tech scene since we started Seedcamp in 2007, in comparison to the larger tech hubs of Europe.
Startup hubs including London, Berlin, and Stockholm, are key examples of great storytelling Cities.
In my view, the one key attribute to the perception that startups in London, Berlin, and the Nordics are killing it en masse is storytelling. CEE/Balkan-based startups and tech hubs, whilst they are growing, are not perceived to be on the same scale as others in part due to their storytelling abilities.
Founders need to be able to do more than just build great products. That’s hygiene and you won’t survive long-term without delighting customers. But when you are just jumping off the racing blocks, what enables you do go one step further is telling your story phenomenally well – in a way that ultimately brings value and understanding to your audience. So what really stands out amongst those who reach escape velocity, beyond the 1M users / 1M revenue, is user experience and marketing. These begin with storytelling.
If you can tell your story incredibly well the marketing, sales, recruiting, fundraising, and even the product, ultimately have to fall naturally in line and become more effortless and effective.
So what is Storytelling?
It’s not a story about your product and the litany of features. It’s not a story about the amazing technology you invented at University. Storytelling is about the value your audience derives from listening to you, using your product, working on your technology, bringing in sales, investing in you and your vision. Storytelling is about the value you bring to them all. The more it’s one story that you can tell, the more you know you are towards that perfect alignment.
One great exercise to help you improve the way you tell stories is to challenge yourself by sharing yours in one minute. Now try doing that in five. Then 10, and then 30 minutes. What 99 per cent of you will do is get that one-minute story perfect. Because you have been beaten down to perfection through a multitude of pitch competitions, accelerator Demo Days and even just explaining to friends and family what you actually do. But what the one per cent does, and why they become the unicorns, is that they nail that story in the 5, 10, and 30-minute discussions.
Here are a few tips to improve your storytelling:
That should give you a few more weapons in hand to become a great storyteller. The next time you find me engaged, enthusiastic, excited, and asking questions you know you have just mastered storytelling – good luck!
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In the ‘Seedcamp Podcast Series’ we talk with key people in the tech startup industry to hear their stories and gleam key advice and learnings from their experiences.
Scott Sage, Expert in Residence at Seedcamp, sits down with Carlos Espinal in the first of a three part series. In this episode, Scott and Carlos discuss Internationalisation.
Scott begins by explaining his move from wanting to study music into majoring in finance and building a career in investment. He talks about his keen interest in SaaS, marketplace and enterprise companies and what makes a business stand out to him as an Investor before providing some key lessons learnt from his first few investments made at Draper Esprit (previously DFJ Esprit). He then discusses Internationalisation and why this is important for young companies, before looking at some best in class examples, when European startups should look at opening international offices, and advice based on the experiences he went through working with Conversocial, Datahug and Trustpilot.
As an Expert in Residence at Seedcamp, Scott helps our Founders with their early go-to-market strategies, figuring out early sales execution, marketing campaigns and think about how to capture more value for their businesses. He also supports them with their fundraising strategy and laying the groundwork for taking their company to their first international market.
Prior to Seedcamp Scott was a Partner at Draper Esprit in London. He invested into SaaS, big data, developer tools and marketplace companies across Europe with a focus on the UK and Nordics. During his time at DFJ Esprit he supported some of Europe’s fastest growing companies including Bitbar, Campanja, Conversocial, Datahug, Lyst, SportPursuit and Trustpilot.
If the above player doesn’t work for you, you can also listen directly from our Soundcloud page.
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