The VC marriage

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Following coaching the start-up companies pitching for finance at Invest in Photonics, Géraldine Andrieux Gustin, a senior partner at Yole Finance, gives her five tips for attracting investment from venture capitalists

To support our customers in their fundraising process, Yole Finance has one rule: ‘Do not run after venture capitalists (VCs) but attract them’. VCs explain that the entry of a private investor in the shareholding of a company is comparable to a marriage; except that, while you know in advance that it will end in ‘divorce’, all parties have to make it a success.

To push the comparison further, looking for investment is comparable to a seduction game. If you want to succeed and if you want to do it efficiently, do not have a pathological approach to scouting VCs. Rather, check your strengths and work on them. Here are five tips Yole Finance used to guide the companies it worked with during Invest in Photonics 2014, an international event gathering the most attractive European start-up companies.

Tip 1: Think big

If you are looking for private investors, you have to present them with a business plan targeting an attractive market not inferior to €100 million in value. But make sure that you present a real market opportunity with key drivers, and that your market data is realistic and consistent.

Tip 2: Have a vision

The market is the same for everybody. But your own vision on how you will interact with this market and its environment will make the difference. Build your own vision that will become your own story, the story that you will sell to VCs with a concrete and pragmatic action plan to turn the story into reality. Know the competition, but think differently!

Tip 3: Define your business model

Tell VCs a good business story where success depends mainly on the business model you will adopt. Define and adopt a business model that ensures you will capture the largest part of the value. Your position in the supply and value chain is key to attracting and seducing VCs.

Tip 4: The team, hiring is key

Your track record, your ability to execute, your determination, your motivation, but also the capacity of your team and your advisers will make the difference. At the end of the day, VCs’ invest in you! This goes hand-in-hand with the marriage metaphor.

Tip 5: Adopt a fundraising strategy

CEOs can waste a lot of time contacting the wrong VCs. Contacting the wrong VCs will make fundraising a nightmare with many months spent in discussions and facing negative feedback, despite the quality of the project. This can impact heavily on the business when the CEO should actually be focusing on the core activities that generate business and revenue for the company.

CEOs have to know that each VC has their own investment strategy. Depending on the maturity level and needs of the VC, different options and combinations are possible: business angels; private investors; corporate venture; and also crowd funding.

Moreover, each investor has their own positioning: some of them are local investors and generalists covering various topics. Others are active covering a larger geographical scope with a specific focus on themes and activities; they have a specific expertise and network. CEOs and private investors will build a strong collaboration. It is crucial for CEOs to work with VCs sharing a common vision and with added-value expertise. Networking with private investors at events like Invest in Photonics is an excellent way for CEOs and the investment community to get to know each other. It provides an opportunity to better understand their investment strategy and open initial discussions. Invest in Photonics offers a strong added-value.

Finally, it is also important not to depend too much on the success of the fundraising as a means to sustain the company. Fundraising should be considered as a way to accelerate the growth of the company. Priority should be given to generating first business and revenue. A larger number of VCs are investing in companies generating at least €1 million in revenue. But, of course, it is specific to each company.

In any case, by generating revenues and building strategic partnerships, a CEO demonstrates its company’s market potential and ability to execute all key aspects; this is attractive to VCs. This is the reason why at Yole Finance, we are not only sharing tips with companies we are supporting, but we actively work with them to implement and execute pragmatic and efficient growth strategies. It combines the relevant business model, focus on a confirmed attractive market, access to strategic customers and efficient communication towards the private investment community.

Like a marriage, fundraising takes effort. But if it is a good growth project, well prepared, with the right timing for the company and with a good team, it will be successful.