A venture investment is like a marriage
By Niels Vejrup Carlsen
Being a part of SEED Capital, I often meet entrepreneurs who insist that Denmark suffers from a lack of funds for startups and who claim that investors are intimidated by companies with high ambitions. They are convinced that companies should rather look for funds internationally. However, I have never turned down an investment due to lack of funds. We are in fact more than willing to invest before anyone else and we love high ambitions. The law of Jante does not exist here!
“We often come across entrepreneurs, who have not searched the market for funds fully. When a newly started company initiates a collaboration with an investor it can be compared to a marriage. Because it will be in sickness and in health.”
So if you are an entrepreneur, please do yourself a favour: search the market to get an idea of the different investors, who are interested in your industry. We are certainly competitive in Denmark, but if you have the right contacts and a strong network, it might be relevant to look across borders, even if you are an early-stage startup. You want to make sure that you get the best offer possible.
This phase can be extremely frustrating. You must kiss a lot of frogs before finding your prince or princess. Even though you probably will be rejected repeatedly try to use the input you get constructively. It will make both your pitch and your company stronger.
When you finally start getting offers — the so-called term sheets, from either professional funds or from business angels — then you will notice an increase in the interest in your startup. Having a term sheet from an investor is a strong hand, as it further validates your business.
Investors don’t take lightly to you shopping around. They will often ask for exclusivity for a period, before entering the final phase, where due diligence will be conducted and contracts will be drawn up. This is completely fair.
Conversely, it is also important that you choose the investor that is right for you!
Make yourself aware of what the different investors can offer you. Find out what companies they have invested in previously and take references. You wouldn’t hire someone without taking a reference — same goes for an investor. A VC’s portfolio companies can, unlike anyone else, provide you with information about how the investor is to work with.
Also consider the investor’s level of ambition. Do they focus on short term results to reduce risk and need for capital — often at the expense of your long-term potential. Or do they see this long-term potential of your company? Are you building an international category winner, it’s essential that your investor focus on a long-term collaboration, has deep pockets and experience raising capital internationally.
An essential part of amarriage involves matching expectations. So, make sure you know who you are dealing with, before your marry them. If everything goes well, it will be “till exit do you part”.
Oversat fra dansk. Original bragt på Finans.dk
