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.
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.
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.