The European Landscape of Venture Capital has changed quite a bit over the past few years. The number of repeat entrepreneurs or experienced operators was shy, first-time rookie entrepreneurs were paving the land of startups, grabbing everything they could from the best practices across the Atlantic. Small valuation, little ambition, yet full of hope.
A new breed of angel investors and founders started to arise, the funding capacity of institutional investors as well… And in no time the prom night turned into a 24/7 packed club where realities got mixed with signals.
Investors have set poker tables to win deal. Entrepreneurs get in, get loaded, get out. It’s a never ending circle where certain behaviors and decisions taking process are sometimes questionable.
For all the founders, even sometimes experienced ones, maybe it’s time to debunk some absurd arguments or dynamics that arise during founding rounds.
Ownership is bullshit. Too many institutional investors will argue that they absolutely need a 15% ownership or so. This is bullshit, if they back off your deal because their ownership is 30% lower than what they expected (and even more sometimes…), maybe they don’t believe enough in your venture or simply lack ambition. At seed stage stage, skin in the game starts in the low 10%. Seedcamp has demonstrated this with talent. And I doubt that Stride regrets their investment in Cazoo!
It is your cap table. Never let an investor tell you how the dynamic of your round should be structured. If you have leverage, use it. Especially from established venture brand. Keep a pretty large bucket for a co-investor, angels, micro-funds, up to 50%. Your job is to gather the best people around the company. It’s not about their fame, it’s about how can they be instrumental or useful at some point in your journey. And it doesn’t take much. Office hours, sound advice, support, knowledge, network… Ask them for references !
Divide and conquer. Surely you can sign with one investor for this large seed round (3M onwards). Do you really think it makes sense to put one big egg in that bucket ? What is going to happen if you need a bridge financing ? How are you going to handle that big head around the table ? Do not believe that this is going to work just fine, the world is full of surprise. If you have the ability to put two institutional investors around the table with enough skin in the game for each one of them, do it, and then work the dynamic in the best possible way. Don’t be lazy.
Interactions control. Investors are only useful if you use them. Their daily job is to handle inbound requests from their network and from entrepreneurs in their dealflow and portfolio. Be specific about what you need or how you feel. Then see who is fit to help you out with this matter among your investors. Reach out. If you have Kima in your cap table, our 900 portfolio companies allow us to have a broad exposure about founders dynamics, founding rounds, M&A, investor comms, company building… And we connect our portfolio founders through our Q&A platform.
As a founder, you will make thousands of decisions. The majority of them are reversible. You can always change strategy, adapt execution, hire, fire… However, among the irreversible (or incredibly hardly reversible) decisions you will make, and one that will impact your company, your wealth, more broadly your future, is how you compose your cap table.
For every line in your cap table, again, do real reference calls, work with people who are fast, benevolent, who aren’t afraid to lose and will always speak their mind with positive honesty !
Have a phenomenal 2021 vintage :)