12 months a VC. A message to Entrepreneurs about Fund raising and Ambition
Duh. Thanks for the head up, LinkedIn. So, I’ve been a Venture Capitalist for a full year!? Time is flying for VCs as fast as it does for Entrepreneurs!
“How different is it to be a VC?”
“Are you happy to be a VC?”
Over these 12 fast flying months, I’ve heard these questions many times. Short answer:
It’s terrific. It’s absolutely fantastic. It’s huge. We have the greatest job in the world. It’s true.
I became a VC because the mission is both exciting and useful; I became a VC in France because the French ecosystem is poised for massive success; and I became a VC at Elaia Partners because I love the focus, the performance and the values of this awesome team. 12 months down the road, I’ve been disappointed by none of the above.
Having completed my first 360 around the sun as a VC, I’d love to share a few impressions; and a message to Entrepreneurs about raising VC fund and about Ambition.
The frustration of the passenger seat
As Xavier Lazarus, in his unique style, once told me: “As a VC you are invited on the passenger seat; you pay for the fuel but you don’t drive”. Xavier, as the rest of the Elaia’s team, is very hands-on. But he wanted to warn me: sharing is not driving. Coming from an Entrepreneur background, it can be frustrating from time to time to discuss with a passionate founder, to embrace a vision, to fall in love with a mission, to challenge ideas and suggest perspectives and … not being able to actually hold the steering wheel. There is more octane in the driver seat!
A hands-on VC creates a circle of trust where brain power, experience and network are shared; but does not drive, indeed.
A privileged observer and a useful catalyst
It’s however utterly exciting and enriching to meet so many founders, so many dreamers, doers, innovators, inventors, disruptors. Focusing on Elaia’s area of expertise — early stage, deep tech, B2B, digital — we’ve reviewed 1500+ projects since I joined! Assuming (and this is just a statistic proxy, not an alternative fact) that we at Elaia see three fourth of all projects, it means that every working day, at least 10 people come up with a new technology or business proposition. That’s a lot. There is no shortage of energy, no shortage of imagination out there. Yes this ecosystem is thriving. And the best place to take the measure of, and dive deep in this wave, is to be an early stage VC.
We VCs, from our passenger seat, can be the useful catalyst of this hefty momentum. This is a sheer privilege, that comes with equally paramount duties.
Ambition; or lack thereof
There is no shortage of energy and imagination; no shortage of opportunities. Yet, I experienced, surprisingly frequently, a lack of business ambition. Or, perhaps more accurately, a persistent misunderstanding of what “VC funding” means.
I met too many entrepreneurs saying: “I need 1 million”.
(or 100k; or 10 millions; whatever)
Ok. So what. I know many people who need 1 million too (that would include me); that does not make them a valid VC investment thesis (even though many great things could be done with 1 million, above and beyond the startup or VC scene, by the way). VCs do not invest in entrepreneurs who need 1 million; VCs invest in entrepreneurs who have a plan to scale 1 million into more millions.
Your opportunity, not your needs, will drive VCs attention.
Offer an opportunity that has the ambition — and a credible path — to scale.
The bakery syndrome
I know a bakery with a flawless execution record spanning many years: quintessential product-market fit, superlative customer satisfaction, positive contribution margin since inception. This bakery generates more revenues than most early stage startups (I heard it; someone said “than most every startups”; come on, please). I love this bakery; it’s totally legitimate, fundamentaly useful and downright respectable. And I value my chocolatine more than I value most connected objects or mobile apps around. This bakery would not raise VC funds, though: an additional million would not, if operations and products were kept undisrupted, generate any scalability effect.
There is no judgement here: VC money is not any better nor worst than bakery money; it’s just different; different funding models apply to different businesses; different businesses call for different funding models.
The VC maths; and why it’s correlated to your ambition
This “one million scales to more millions” requirement is inherent to the VC model. Here are the over-simplified maths that explain it:
- The money put in a startup stays there many years (5–10) before being returned
- This money has a cost (management fees, financial cost, cost of opportunity)
- A number of startups (30–50%) will not return the money (*)
- Limited Partners (who allocate their money to the VC funds), expect, quite rightly, benefits in line with these associated time and risks
(*) This is OK. Innovation implies risk. It’s a necessary part of the game
It means that successful startups need to return many times (make it 10x) their initial value to make the whole system work. In short, VCs and scalability are intrinsically correlated: Entrepreneurs need VC money to scale, VC money need scalability to “work”. And if the model does not work, it will stop. Simple.
10x? I often hear: “You’d make an easy 3x with this plan”. Well, first, I don’t believe in such things as “an easy 3x”. Second, indeed, VCs would often be happy with a 3x exit: it could be a very decent outcome for some ventures. But it cannot be the reason why they join; it’s not the ambition. Because of the maths!
That’s why entrepreneurs should not come see a VC with an innovation that needs money, but with a plan that generates ambitious scalability. This is not a question of taste, judgement, nor dogma: this is just how the VC industry is defined.
The single most urgent thing I want to tell Entrepreneurs, after a year as a VC
Your vision and the mission of your Company is what will make VCs dream, what will arouse their right brain.
Your execution plan and its associated arsenal (solid team, defensible road map, identified market, etc) is what makes your opportunity credible, what will convince the VCs’ left brain (note: it’s very possible that some VCs have only a left brain; but I swear: most have both).
And your ambition is the prerequisite to your VC-worthiness.
Before to go see a VC, assess your project genuinely: you have a nice idea but no foreseeable scalability? Don’t bother see a VC. Still, follow your dream and make it a reality! No judgement — just another place.
On the other hand, if you have an unquestionable willingness and a robust plan to scale, go see VCs: their millions will fuel your ambition.
You have skills, energy, imagination and courage. Be ambitious.
And yes, I know; this sounds fluffy and over-hyped. But still.
Ultimate bonus: Choose your team
With an ambitious plan that makes the VC math work and that content both VCs’ brains, comes the ultimate bonus: you’ll be able to choose your VCs! The ambitious entrepreneurs hold the steering wheel all along but still need someone to pay for the fuel: they better carefully choose who they invite on the passenger seat, because this road is long and bumpy. Invite someone who will not take-over the wheel; someone who knows the road and who is willing to share — a who will help you change the flat tire when bad time comes; someone who’s excited by the journey. Ambitious entrepreneurs have the power to choose — and I believe it’s a quite delicious one.
One year a VC, I felt the frustration not being in the driver seat anymore, largely compensated by the stark privilege of being invited in many entrepreneurs’ dreams; I appreciated how good my Elaia team is, how ardent the French startup ecosystem is. And I also realized that we could now kick the ambition up a notch to turn this energy into large scale successes.
Oh. And I also learned the VC job. VCs also raise money and invest on startups, you know. Please stay tuned… great news coming very soon on both fronts!
Happy anniversary to me :)
