Key findings from the CBInsight Venture Capital Funnel

After reading the very interesting post from CBInsight on Venture Capital Funnel, I tried to sort out some key findings.

  • Late stage is not decreasing the risk

The failure rate (dead and self sustaining divided by the precedent cohort) is not decreasing with the maturity of the company.


Except from 2nd to 3rd follow-on investment, failure rate is roughly around 50%. Late stage investment is as risky as early stage !

  • Return should reach 6.3x on success to reach an average 2x on the fund

If I use these figures on a simplified fund model where management fees are 15% of the fund, 50% of the available fund is invested originally, and where the failure rate is 50% after original investment and 50% after first investment, then, considering failures are returning nothing, I need to reach a return of 6.3 on successful investment to have an average return of 2x on the fund.


  • Model is very sensitive on % of the fund invested originaly

A 10% increase in the amount invested originally increase the return needed on successful investment by 9%.


Corporate Media Venture landscape in Germany

When I present the corporate venture activity, I often take the example of Germany and especially the media sector which was always very active. Since 2000, the German media groups used corporate venture activity to scout web revolution and its impact on their own “traditional” activities. It’s also a sector which tested very different options : internal/external team, alone/multi corporate, VC/accelerator and the famous stop and go !

cvc media germany


PS: A great thank to the Capnamic team who help me to draw this landscape !

Business models of Open-source

In a meeting, an entrepreneur asked me what is the best business model for open-source based company. I answered all of them ! For a start-up in this sector, it’s important to maintain a broad range of revenue sources (and in open-source, you have a lot of different sources) to find the right business model. Here are the different models I found:


Is it so hard to raise funds in Europe?

Refusing projects is part of our job. In Europe, it’s very easy for an entrepreneur to say: “VCs in Europe don’t know anything, if I were in the US, my marvelous project would be financed in a minute !”.

Well here are some facts:
Reality is very different: We are filtering less and invest in much smaller project in Europe than in US !!

This fact explains a part (but not all) of the average bad performance of European Vcs compared to US. We are investing too small amount in too different projects … and we are certainly not enough selective in our approach!


How a VC thinks (3/3)

Our company – not just yours anymore

By accepting a VC, you are accepting to be under the constant scrutiny of your board.

A VC is ready to take a lot of risk (compared to a banker) if he’s able to constantly monitor his investment and react. In general a VC has adequate rights in the shareholder agreement to do so. In a partnership with a VC, an entrepreneur will not only find cash, but also someone alongside to at least monitor him.

The entrepreneur should accept that or just find another type of funding. No, the board is not there to question a CEO or his relevance. But yes, if a CEO does not provide visibility to the board, at some point, the board will question the CEO’s relevance.

Do not antagonize your board – manage it, get the best from it.

Metrics – we are driven, give us a map, please

VCs are reporting internally and to their own shareholders (“Welcome the layer cake, baby”). We need figures to report. We are reporting on 15 to 40 companies, so figures are key and remain stronger at the end in internal discussion with senior partners. Figures speak always louder than words.

A never ending story

Existing VCs are crucial to raise funds. Choose well your VC to prepare next steps in order to have follow-on investment. It’s very difficult to raise funds from a new VC if your existing VC is not following. You can’t change a lead VC to another so easily and a bad experience with a VC will be known in the market.


As an entrepreneur, you have to know you shareholders (and beloved VCs) as well as your own customers. VCs are not particularly difficult partners but, in Europe, very few entrepreneurs spend time to understand them and manage the relationship. Every entrepreneur who does that properly will be able to create a strong competitive gap compared to its competitors in the financing path.

How a VC thinks (2/3)

How many VCs, and how? – Lead or not lead

A lot of VCs are just followers, but as an entrepreneur, you need to start the structure of your fund raising with a lead investor. It’s very important to identify with whom you are talking to avoid losing time with followers when you are looking for a lead investor.

To do so, how much are you raising? Do you want one, two investors? (that may mostly relate to their ticket size, and the diversity of skills, support, you expect from your board).

Is there a VC that you click with, and who moves fast? He may very much be your lead. Beware: once you sign your lead, valuation is set (a second VC is not coming to help you get better terms from your first VC, we do stand for each other, and this way of doing will not be appreciated by anyone).

Understanding feedback – Yes but no

Every good deal was a bad deal, taken earlier. That’s why VCs don’t want to say no: the longer an opportunity is alive, the better you can evaluate signs of development and ramp up. Given a choice (a.k.a. no term sheet issued so far J), in doubt, we always prefer to stand-by rather than telling you “Not gonna happen this time”.

It’s important for you to get a clear status and to keep VCs informed about your evolution, as long as you want/need to keep a door open to a term sheet.

Metrics – Short-term metrics, long-term dream

VCs want short term realistic goals, but a long-term dream.

Entrepreneurs should be very careful to give short-term realistic, achievable targets, as the analysis phase could be quite long. On these metrics, it is important to establish trust and reliability: we promise you something that we can deliver. It’s easy for a VC to check the credibility of these short-term goals – they shall get closer day by day, month by month!

On the other hand, we invest in a perspective of “multiple”. To multiply our investment, you need to multiply your potential! That’s why you have to show strong growth perspective – otherwise the VC won’t see the value of your project.  Achieving multiples and exiting a company (for an entrepreneur or a VC!) is already hard enough; we cannot bet on companies meant to remain “reasonably sized”.

Analogies – How we evaluate

VCs usually react and provide feedback based on their historical experiences, which are in general linked to a sector they focus in (you cannot know so many things in tech, especially if you want to pick the right projects).

My advice: take the feedback, and take it for something valuable – remember our stats in terms of project seen per year, investments made, exits, etc… We are not bankers, we are tech people providing funds to projects we believe in. Of course, some feedbacks are good, some feedbacks are not relevant. And some people might only provide you feedback of one sort J. But overall, it is likely we have seen most of your competitors already, so give it a shot, at least.

The same applies for your board. Given that you admit a VC may come with his or her tech experience, the question for you is not only about money, reputation of the VC; it is about the experience they bring to your company and your board.

Keep in touch – It makes us more relevant to you

Once we enter a relationship (pre-, or post-investment), VCs need regular contact with entrepreneur to help. You are the entrepreneur. Day-to-day, on the field. Changes happen in days, weeks, not months, especially at the beginning of your company.

Meanwhile, we are seeing three new entrepreneurs, taking care of 5 to 7 investee companies (average in France), while dealing with a difficult board in London on one of our investment, and agreeing to an exit (a multi-billion exit, of course) in another one in Paris. So, we are dealing with several topics, and need to be helped keeping track of what matters in your company meanwhile, knowing that, by default, we do not have access to any other information than the one you provide us with.

You will have to keep us posted, for example for the board meetings once we are your investor. The more regularly you do it, the more our relationship is not a pull (“hey, I have not received the board decisions yet, and it is in 3 hours!”) but a push (“hi, I saw your latest report and figured you’d be interested in meeting XXX, an entrepreneur I worked with 3 years ago and who got outstanding results on his SEM efforts”).

Also, let’s talk about the bad. When problems happen, natural instinct is to decrease the number of contacts with your VC. Example: “People don’t pay me, but if I tell my board, I’ll look weak, and they will blame me for it”.

On the contrary, you should open up and invite board members to share your problem so that they find a solution. Remember: we’ve seen it before, and your success is our success – we want to help you as much as possible.

Rule of thumb, by the way: never announce a bad news during a board, but before the board meeting, one-to-one with your key board members… Don’t lose the confidence of your VC, he’s there to support you in bad times, not to worry about what you may or may not tell him. Trust brings trust.

Conclusion: a relationship between a company and a VC builds over time, you need to invest in it. And the best ingredient for a long-lasting one: trust, and therefore open communications, regardless of the news, good bad (actually, especially bad).

How a VC thinks (1/3)

Let’s focus first on our side of the table. On your side, you work, grow, think of the money you need to grow accordingly to your plan, prepare your pitch (with an intermediate’s help or by yourself), contact us and then have an appointment. What does it look like on our end?

Funnel – Although you are unique, you first appear to us in a funnel of opportunities to investigate

VCs are constantly managing a funnel of opportunities (on our side, we receive 1500 opportunities per year, with a constant level of 100-150 live opportunities). The goal for an entrepreneur is not to be a wonderful deal – yes, you are going to take up the world, but that’s later. For the moment, you need to focus on being the “best deal of the moment” that we could invest in. You cannot imagine the “competition” of deals in our pipe (just imagine it is higher than the competition of term sheets you need to decide between). Even if you have a good project, you might be not selected.

What is “the best deal of the moment”? Entrepreneurs with a track record (we look at people first). A market meant to grow (that we need to be presented, in metrics). A product that “brings something” acknowledged by a cohort (so that we “know” what it can be).

Also, you need to be aware of our investment scope: the “best deal” for one VC is not the same as the “best deal” for another – do we already have a company doing what you do in the verticals we cover, for example? If yes… you may not be the best for us, but for another VC, yes! Or perhaps you are too small, or too big, etc…

A piece of advice: a long lasting relationship with us (catch-up, update, email,…) is key to be contacted by VCs when windows of investment are better for your project. A best practice on this aspect is to keep informed key VCs on your evolution every quarter even if they refuse to finance you.

Time – The time we take before getting back to you

VCs love to have time to analyze a project as this phase (pre-investment) is very good to evaluate the live execution of the project before investing. We have a totally different timing pressure than entrepreneur: time is our ally as we use it to have constant information on the company whereas time is an enemy for an entrepreneur who is in emergency mode.

Time management could lead to major misunderstandings between VCs and entrepreneur, and our priority is to support you, not to hamper you… The only way to reconcile our timetables… is to share them, and agree upon them. You have short deadlines, limited time availability, tell us, rather than be concerned that we do not get back to you appropriately. And we will tell you if we need more time, too.

My best advice: communicate on your deadlines. You are our priority, since what matters is your business. Deadlines, communications and exchanges will minimize your input and allow us to address the investment opportunity you represent in a reasonable timing for your business.

VC Value-Added – It is not only about us choosing you, it is about you choosing us

Every VC is the best (especially me).

Unfortunately the addition of claimed first tier VC will give you 80% of the VC market! You should know and check with whom you are working (which, by the way, is a good thing to manage time – see above J).

Don’t hesitate to interview CEOs in VC’s portfolio to check it. Value added is the most difficult thing to provide for a VC but it’s also the easiest thing to claim. As it’s the case in all business relationships, entrepreneurs should do minimum check on the quality of their future partners.

Where does our value stand? In our contribution to boards, in our knowledge of the market and how we can help you define your strategy in your regular board meetings. In our address book – who can we put you in contact with to hire, to prospect, to partner, to grow, to raise more money…

Conclusion: learn to establish a relationship with us, one that involves regular catch-ups, clear visibility on your priorities, deadlines and status. And learn to know us. The more we communicate, the more we get to know each other – nothing will be lost out of that.

What matters in the eye of a VC (2/2)

Long lasting innovation

Too often, project proposed a limited disruption in the market (price -20%, limited new features …). Developing a start-up is so difficult that you need to really disrupt the market (for example Cirpack, a company I financed, entered the market with equipment at -50%, even less, than traditional players). We also check that the proposed disruption could be maintained in the future, as it’s not only a question of first mover advantage, but also how to maintain it. This point is very important in Europe where financing is more limited and exit more difficult. Then companies could be more endangered by heavy US players which are better financed.

An addressable large market

Our goal is to finance companies to drive them to exit (IPO, but in Europe essentially trade sale). In acquisition, size matters a lot to be in the radar of potential acquirer. Then market should be large enough to build a strong newcomer and addressable by a start-up (some sectors are not buying from a start-up, for example mobile access network). Entrepreneurs should show they know their market and their competitors. They also should show a good segmentation work (a small company can’t address all the market). VCs want to see ambition in the market perspective. To do so, it’s better to address an existing market, and generally, VCs don’t like new markets as it’s much more difficult to develop.

A product

We want to see a product rather than an idea, so don’t hesitate to perform product demo and show the list of your customers, as it’s the only way to convince us on the reality of your product. We are also looking for scalable production to build quickly a large enough company.

An entry point

Start-ups should solve a real pain in the market if they want to be successful. We receive too often projects with nice-to-have products. Again, it’s so difficult to develop a start-up that we need to see a product generating appetite in the market.

A business model (profitable)

In Europe, it’s almost impossible to develop a company without a profitable business model. A start-up should quickly reach profitability as exit and financing are very difficult.

An exit

VCs are investing to exit. The market you are in should be open to exit with potential buyers. Some markets are more difficult than others for exit because large players are not well valued and are not M&A active.

This list of key elements may appear very difficult to meet (and it is) but start-up development is so difficult that we have to condensate a maximum of positive elements around a project to hope to be successful. My advice for entrepreneurs is to structure their presentation to VCs in order to provide consistent and credible answers to these points, but also to keep in mind that all their presentation to VCs is a way to evaluate their personal attitudes. They should use this presentation to promote them.

What matters in the eye of a VC (1/2)

You are going to present us a project, a company, your company. Let me try to present you the key elements we are looking for in a start-up project.


People are the key success factor of any start-up. Start-up life is so unpredictable that you need people to operate in such a difficult environment. Large successes are due to people able to dramatically pivot the company into the right direction. So any meeting is for us, a way to evaluate the people in front of us. We are seeking key attitudes in entrepreneurs:

  • Passion: Developing a start-up is so difficult that we need passionate entrepreneurs to support the pressure and amount of work they will have to dedicate to their project.
  • Experience and skills: People with past similar experience, either in the same sector or similar position, or with operational skills, are better entrepreneurs than inexperienced ones. Again the journey is difficult and we can’t spend time training people in new skills.
  • Leadership and vision: entrepreneurs will have to settle a team around them and manage them to operate. They must lead a team and give a vision for the project, in an environment which is always unpredictable.
  • Commitment:  We are investing in people, so we have to make sure that these people will support the up and down of any project and stay in the boat.
  • Integrity and ethics: One of our main risks is fraud. Every VC had a bad fraud experience. As we are investing a lot of money in a project we are not controlling (at least in France the CEO has full power), we are a good target for frauds.
  • Realism: A start-up project is not only a dream but real product, market, people, money … so entrepreneurs should also keep their foot on the ground.
  • Coachability: In this unpredictable environment, an entrepreneur should be able to easily learn from others experience.

Obviously, all these attitudes are impossible to find in the same person and can sometimes be contradictory, but from an entrepreneur standpoint, that means that all its project presentation should show and confirm that he or she has this (or a part of this) kind of attitude.

Conclusion: test yourselves against these axis, and focus your pitch around them; do not worry, if there is something missing… we’ll ask.

Entrepreneurs, you need to get to know VCs better

As a 15-year VC, one could say I have met many, many entrepreneurs. Given that we on average meet 1 entrepreneur a day, 4 days a week (besides boards, etc…), 40 weeks a year (vacations + trip to Ljubljana + kid got sick), that makes an estimated 2,400 entrepreneurs met at least once, series on-going. Not counting the forums, networking events, etc… At least, that definitely fits the number of business cards I still have to sort out on my desk. But the truth is, I think I met much more entrepreneurs than that.

One thing that I often am surprised to find in the entrepreneurs that I meet: they do not know what my job is about. Not even being too sarcastic here, too many of them still see us as “bankers”: people looking for a “good bet” on the market, that will bring us a lot of money, while we do not always understand the deep layers of technology involved by the entrepreneurs’ latest innovations.

You could argue that you know us: of course, there are many VC blogs (hey, there’s another one J), and fund-raising has become the topic of a very hip press (Techcrunch etc…), that keeps on talking about funds, series, IPOs, exits, etc…

So that you get much more value out of our encounters – regardless of its outcome

Still, in the morning, entrepreneurs come to us for money. My belief is that there’s so much you can get from us, prior to that. Do you know how many investments we have made prior to meeting you? How many exits? How many companies in your field we have met, scrutinized? Haven’t we met your main competitor yesterday, or the day before? What do WE know about YOUR market? Often, more than you imagine.

See it from another angle: you are likely to spend some time with us (at least to pitch us, answer our questions, and wait for our feedback). Have you at least googled us to know what was in our personal or professional story that would be relevant for you and your project? Your time is limited, and you will have to spend some of it with us. Should you not raise the money you need, are there other benefits you may get from your time with us?

So that you get a better “deal” out of us – one that involves not only money, but also experience

Also, please bear in mind that this is not a casino, and we are not “THE BANK”. We do not gamble on entrepreneurs hoping we picked the right one. We choose carefully the people we want to partner with. Because we do believe that, at the moment a term sheet is signed, we are entering a partnership, the topic of which is… your start-up.

This “partnership” is more biased than you think: for the entrepreneur, this is his first, perhaps second or third, start-up. For me, this is my 105th, or 106th term sheet, and my 23rd, or 24th investment. Out of the 250 investments of Iris. Out of the 1,800 companies we meet per year. Our level of information is much more elevated than you can sometimes imagine, while the entrepreneur’s one is focused on his company, his market, his customers – and it’s a good thing. 🙂

The coming blog contributions are my attempt to “restore the balance” by putting you in my shoes when I meet new entrepreneurs and new companies. This series of articles is focused on giving you a few keys to understand what we look at in your project, and what happens with us, VCs, when we meet you, entrepreneurs.