VCs are constantly looking for win-win situations. Startups and investors want to benefit from the cooperation alike. Only in this way, both sides are happy. “For us, it’s more about cooperation and partnership. We are looking for entrepreneurs whom we can help with our capital, network and know-how,” said Olaf Jacobi, Partner at Target Partners Munich Venture capitalists.
However, Jacobi warns startups that all the efforts shown and the handshake mentality make forget easily whom the investors are indebted to: larger investment funds whose venture capital make the investment possible in the first place. For their risk, they require an appropriate return. That’s why Jacobi always determines whether a startup can become really big. “Only then it will deliver above-average returns for the entrepreneurs and the investors.”
Team, market and competition
VCs try to find the quality via quantity. Target Partners reviews around 1,500 deals annually and ultimately invests in three to four startups. “We first look at the size of the market, which is attacked with the company’s idea. We examine the competitive environment and the intensity. If someone wants to sell only red ties, then it becomes difficult. In addition, the founding team is very important. We must be convinced that they remain competitive and can really put their ideas into practice,” says Target Partners associate Markus Grundmann. Target Partners has invested, among others, in Doo, Adsquare, Conrad and Tado.
The needle in the haystack
Each VC wants to pick out the cherries. Andreas Weiskam of Sapphire Ventures (formerly called SAP Ventures) gives a good example. Weiskam is their only employee in London and scans the European market from there. His colleagues are all in Silicon Valley. “I have been in London more than a year, and I have invested only in Criteo so far. Because they simply fulfill all criteria that we apply. Criteo was already market leader worldwide, grew faster than the competition, the team was excellent and superior to the technology of its rivals. However, it was not easy to get to Criteo as an investor. Only at the third attempt it worked.”
Team as a criterion
Team is mentioned repeatedly when talking with investors about the prospects for success of the company. Especially when several startups are trying similar business models, the team is the decisive factor, says Christoph Janz, CEO at early-stage investor Point Nine Capital. Therefore, they determine whether the team is harmonious, hard-working, inspiring and open and whether the founding team members bring different skills.
Patience and trust
A startup should not assume that after meeting the first VC investor a deal is about to be signed. VCs consider investments rather three times than once. “The decision for a startup needs to be carefully considered, because it finally takes usually five to ten years to make it big and then sell it or go public,” said Janz. In other words, VCs most likely have to wait a long time before their investments – eventually – multiply. Therefore, they need a large amount of trust in the startups they fund.
The right time is money
Personal recommendations make the beginning easier. “If you have any kind of connection, then you should take advantage of this,” advises Christoph Janz. Directly approaching investors at industry meetings or making reference to common acquaintances or activities may be worthwhile. Andreas Weiskam: “It’s all about the right timing and good contacts. When the startup is about to skyrocket, all of a sudden many investors show their interest for the startup and you are in the middle of a tough competition.”
Once the contact is established, professionalism is required. What expectations VCs have, can best found out at pitch events. And for this one should practice well. Your favorite VC will listen only once.
[August 2015]