What do VCs appreciate in start-ups?

I.e. what I think about and what I pay attention to when meeting young entrepreneurs.

Exactly a year ago, we were actively engaged in the Belgrade Venture Forum. Besides acting as jurors evaluating start-ups, we were also involved in discussion panels regarding the venture capital sector. During one of such panels, entitled “Selecting the right startup team“ Marek Rusiecki, asked what this process looks like in our company, aptly compared it to speed dating with this small difference that it results in investment amounting to between a few and a dozen million zloties a year. I watch hundreds of start-ups every year, devoting from a few minutes of my time (in case they are not very promising) to maximum an hour to the more promising ones (with representatives invited to a meeting). This hour actually decides whether a potential investor will be still interested in analyzing Your company and eventually investing in it. What do we pay attention to while encountering new projects, dreams and ambitious plans every day? Whether someone has come up with a new, unique and completely revolutionary product that will be worth a zillion zloties in no time? Well, the answer is “no”. We are mostly interested in people, their personalities and characters. We have adopted a philosophy to invest in people and not in projects.

Intelligence

This not only sounds like a truism but also is one. Investors do not invest in teams that are not exceptionally intelligent. Smart entrepreneurs stand a much greater chance to see their business plan executed faster and cheaper than their competitors. They are also more likely to be a step ahead of others. One of the first investments, we embarked on, was purchase of a large block of shares in a small SEM (Search Engine Marketing) Agency — Cube Group. At that time, the PPC market was fledging but very promising. However, what convinced us to go ahead with that investment was the founder of the company — Andrzej Cudny. Andrzej had plenty of ideas how to develop his company and a clear action plan. And we were right. Today, this company is the leader on the broadly understood performance marketing market and it generates revenues of a few dozen million zloties a year. Back then, there were many start-ups that have not been so successful. Everybody had the same product and operated on the same market. I guess you already know what they did not have.

Imagination

Imagination has driven our civilization for many centuries now (well, maybe with some exceptions). It also propels many entrepreneurs who have been successful. On the fast changing and dynamic markets there is no room for “products made once and forever”. A good entrepreneur can often foresee the future of the business environment where he operates both in short- as well as in longer-term and prepare respective changes in his organization. What drives me personally to continue what I am doing is exactly the imagination of entrepreneurs and this thrill that being engaged in the creation of a new business reality on the CEE market gives me.

Determination and passion

Being an entrepreneur is no easy task, especially if you are just developing your business. Once you become an entrepreneur, you will be an entrepreneur 24 hours a day, 7 days a week and 365 days a year. Do not count on special treatment or hope for shortcuts. If someone is not ready for operating in an extremely unfriendly environment, sleepless nights, continuous scaling of his business, never ending changes, spending more time in front of his computer than with his family, he should never start this exciting and dangerous journey. Determination and passion are the two qualities that propel entrepreneurs and determine their success, and they play a very important role for investors. If we cannot see the great zeal and the immense energy in You, then nobody will invest in your project.

Expert status and experience

Entrepreneurs also have to prove that they possess in-depth knowledge about their product, respective market and competition as well as they have to guide an investor through the technological intricacies of their venture. What matters a lot is experience (i.e. conclusions drawn from past mistakes) acquired while working on other projects in the past. Generally, funds prefer to invest in such teams that already have some experience working in start-ups as then there is a much lower risk of them making the same mistakes again. The teams already have many more positive and negative experiences, they have certain sets of good practices and they are much more realistic, and — to put it bluntly — they know what they are getting themselves into. There are also entrepreneurs popularly called jumpers who suffer form an affliction, which I refer to ADHD in business. Such people have usually worked on a few projects simultaneously within a short period of time without any spectacular successes. Such practices do not make them trustworthy business partners. However, this does not mean that young and inexperienced people do not stand any chance. With a smile on my face I can recall the first small investment in a file hosting service Sendspace.pl belonging to Damian Sikora, who was then only 18 years old. Back then, Damian was preparing for his finals and developing his project at the same time. In 2011, the project was sold to another VC fund — IQP Parnters with a positive rate of return. Today, Damian is busy developing another company operating in the field of online games, which has over 3 million visitors from 10 countries a month.

Communication skills

It is easy to see if the given person has them or not already at the first meeting. The times, when an entrepreneur, who wrote his idea down on the proverbial piece of paper, went to a meeting with a fund to leave it with a few hundred thousand zloties are long gone. Today, entrepreneurs often have to “sell” their product even as MVP (minimum viable product) and “infect” potential investors with their vision. This task is rather unattainable for introvert people, however sometimes you meet geniuses as we have. Communicative entrepreneurs frequently unconsciously impose a certain business culture right from the very beginning. Their openness helps attract new talents to the company and allows them to actively listen to their customers’ needs or ensure presence in the media. Communicative skills are a must — we need them in business just as much as we need oxygen to live. Just ask Michał Sadowski from Brand24.

Credibility

Your credibility is frequently tested through your business plan (an excel file with a P&L tag is enough). It shows the relations between the price of the product and the size of the market, growth dynamics with defined marketing plan and fixed costs. This tool turns your words into universal and familiar shapes. The shapes should be realistic yet ambitious. Investors do like great numbers and big markets. They dream about large exits. This, however, should not encourage you to prepare an excessively optimistic P&L, hoping for a flash of greediness in their eyes. If growth dynamics of Your business is — let’s say — moderate but you try to prove that right after the investment it will shoot up by a few hundred or a few thousand percent and make a hockey stick projection, then you can be sure that you will come back home with new experience but not necessarily with the money you need to develop your business. I would not advise you to make projections regarding easily achieved revenues either as you could be perceived as not very ambitious or lacking passion and determination.

Street-smart attitude

Michael Douglas in “Wall Street” says that greediness is good. There is no doubt about that. Almost 30 years later, young aspiring entrepreneurs, trying to follow in the footsteps of Gordon Gekko should be street-smart but not smartasses. Their smartness should help them set goals and reach them quickly and often using non-standard means. They should be clever enough to see opportunities where others cannot see them. Being street-smart also helps you find a balance between hard work and creating the right image of your company, which often comprises all the above-mentioned features. This is a recipe for creating aperpetuum mobile that will determine your success.