Based on the amount of funding raised by VC firms and the number of investments made in 2018, the European VC landscape is as healthy as it’s been since the 2007 financial crisis. By October, investors had poured an eyewatering €14.8bn into European-focused funds and deployed capital across 2,643 investments. For context, no European-focused fundraising attracted more than €10bn in one year between 2008-2015 (Pitchbook, 2018(opens in new tab)).
The question that every growing business looking for funding should be asking is ‘how do we ensure it’s our business that gets the backing?’. Whilst the investment firms are competing to get in quickly, companies looking for investment must also stand out from the crowd and really understand what VC investors are looking for.
Seed Funding
The key purpose of Seed funding is to develop a product and audience. Typically, Seed funding allows entrepreneurs to create and launch an early version of their product and test out their assumptions, the market and user base. Depending on the amount, it should also allow them to expand the team beyond the initial founding members.
When pitching, the focus is undoubtedly on the product idea, vision for the company and perhaps most importantly, the enthusiasm, drive, expertise and talent behind it. When investing this early VCs are backing people.
Top Tip #1: Don’t go to your preferred VC first
You may be passionate about your business and think that your VC of choice couldn’t possibly disagree, but it may take a while to hone and perfect a pitch. You don’t want to be warming up in front of your preferred investor. Test your pitch on others and if it’s not hitting the right tone, change it. Often the best founders – or those perceived to be the best by VCs - are those who can articulate their message and vision the clearest.
Series A & B
At this stage, with the core product offering and market figured out, entrepreneurs are likely acquiring new customers, but the business model may not be clear or monetisable at scale. Series A funding helps—this also includes optimising the product and user base, so a business is ready to successfully enter new markets and transact with customers.
Top Tip #2: Talent, talent, talent
Fundraising is never easy, it’s painful, and you’ll likely encounter obstacles all along the way. However, once you’re off the ground, your priorities will shift. You’ll likely spend more time hiring the right people to take the business to the next level then fundraising, and attracting, retaining and motivating key talent is crucial in this super competitive marketplace.
Series C Onwards
Companies with established products and services take their business to the next level by broadening their market reach. While you know where your profits are coming from, rapid customer growth may be a trade off. Key drivers for growth are achieved through honing and perfecting customer experience, expanding internationally, acquiring other companies, rapidly expanding sales/marketing functions and hiring key executive talent.
At this stage, operational complexity increases as a business transacts in new currencies and languages, or deals with new reporting and compliance regulations after acquiring a competitor.
Top Tip #3: Be picky and demanding
In an environment of superabundant capital, capital firms should be adding more value to your business beyond just providing cash. Alongside your investors, you should be learning together what the key challenges and priorities are and setting clear milestones. They should help you recruit top talent given their expanded networks, deliver expert networking and peer learning opportunities, help prepare for future funding rounds, and leverage a network of vendors, advisors and contacts who are trusted and can help get things done. Most importantly, they should be offering a different perspective, as some distance from daily operations can be a virtue.
Now is a better time than ever for emerging businesses to apply for the funding they need to accelerate their growth. The last few years have seen record-breaking amounts of money invested in European businesses, but be warned - that doesn’t mean gaining investment is easy – VC’s know what they’re looking for, and they’re aware of the signs of a good deal. Being prepared is essential.
Read the full guide Seed to Series C: The Essential Guide to Business Funding(opens in new tab), for an in depth look at each funding round, more top tips and case studies.