Millions of companies are founded around the world every year. For these big ideas to become successful startups, most of them inevitably face the challenges of fundraising.
While there is no magic formula, there are variables that founders can focus on when working with potential investors. TNW met with San Francisco-based VC Plug and Play early-stage investor Letizia Royo-Villanova during the year Red Bull Basement global finals in Tokyo to gain their insights.
The only thing that really needs to stand out, according to Royo-Villanova, is the founder's drive and authenticity. “Maybe they have experienced a problem or know someone who has had that problem and are desperate to solve it. Not because they make money – that’s a plus, of course – but because they actually care about solving this problem.”
In addition to this passion, the ability to sell is another key competency. Founders are constantly challenged to sell their ideas to investors, customers – and also to talent. “The best founders will have the best talent on their team,” says Royo-Villanova.
The 💜 of EU technology
The latest rumors from the EU tech scene, a story from our wise old founder Boris and questionable AI art. It's free in your inbox every week. Register now!
While direct industry experience is valuable, it is not always essential. “There are great entrepreneurs who don’t necessarily have that experience. The urge to start a business is something they are born with.”
However, insight into the customer and an understanding of the market are non-negotiable: “You have to really understand the pain point and the industry.” This will open many doors in the future,” adds the VC.
Ultimately it depends on personality and the relationship. “I think you can feel it in the first half hour,” says Royo-Villanova, referring to understanding whether a founder is someone the VC wants to spend time with. “If you end up investing in a founder, you’re going to have a lot of meetings with that person. So if you don’t feel the vibe, you don’t want to invest in it.”
Mistakes founders make when pitching
Even if a founder has the best idea imaginable, it's important to create an effective pitch to get investors on board. (Not everyone is lucky enough to survive a disastrous pitch like the one from Nvidia co-founder Jensen Huang In 1993 he gave Don Valentine of Sequoia.)
One of the most common mistakes Royo-Villanova sees is that founders spend too much time describing the general problem instead of focusing on their specific solution. “If it’s a climate or sustainability startup,” the VC explains, “and they spend 15 minutes talking about how there’s a climate problem, I don’t have to listen to it.” You could break it down to me in an or say two sentences. Then we can concentrate on more important things.”
And while individual entrepreneurs can certainly be successful, the VC is more likely to consider financing a founding team of two or more people. “Building a startup is hard enough, and if you do it alone, what if you suddenly have a bad week or month? You need that other person to support you,” she says. Additionally, teams with complementary skills are more likely to achieve success in the future.
Common pitfalls when running an early-stage startup
Of course, in addition to the pitch, there is also the small matter of actually running the company. Particularly when it comes to fundraising, Royo-Villanova believes that taking money away from every available investor without considering strategic direction is a major misstep.
“The money will run out, but the support of the people who invest in you shouldn’t run out,” she says. The right VC can provide help with recruiting, sales, or networking with the industry.
Going back to the question of talent, hiring decisions are a crucial area for running the company. Founders often try to save money by hiring cheaper talent, but Royo-Villanova says this can backfire later. “It’s about finding the right solution for your company and building a culture from day one,” she says.
Finally, the inability to rotate is another potentially fatal flaw. “If you have an idea, talk to potential customers from day one and understand if this is actually a problem and that they will prioritize and pay for it. If not, it's okay to pivot. If you’re going to fail, fail fast – and it’s not even a failure, it just changes into something else.”
A focus on education and supportive regulation could drive European innovation
Given all the concerns and recent discourse about the innovation gap between the US and Europe, we couldn't help but ask the California-based VC what she believes are the key areas holding Europe back.
She sees the lack of early contact with innovation and entrepreneurship as one of the main problems. “I don’t think I was as aware of the world of innovation or venture capital as probably some students in the US,” says Royo-Villanova (who is from Spain). “If you start instilling this culture of innovation at a young age and explaining how important it is, it will be very helpful in the future.”
Regulation and company attitudes also play a role. European companies can often display a risk-averse mindset, in contrast to the more dynamic and entrepreneurial culture of their North American counterparts. Additionally, complex regulatory frameworks can prevent startups from scaling quickly – something that affects initiatives such as the recently launched initiative EU Inc hope to overcome.
Founders who want to build successful startups must embody passion, salesmanship and customer insight, while avoiding common pitfalls including neglecting strategic fundraising and failing to pivot quickly. Meanwhile, the European innovation ecosystem would benefit from early education, a change in business attitudes and a streamlining of regulations.
Tackling all these challenges together could open up enormous opportunities for European startups to create a virtuous circle of innovation and investment produce more winners on the global stage.
Comments are closed.