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.