Winning over US Investors
Investor AMA w/ Ash Egan
My time in the States has revealed that US investors are growing more and more interested in foreign technology startups. Many recognize that talent is global and are strongly incentivized to meet the very best founders they can. The problem is that venture doesn’t scale. Distance and time zones make ecosystem engagement very difficult and relationship building near impossible. We think it’s time that changed!
Last week we held our first Investor Ask Me Anything live chat in an effort to build greater connectivity across the Atlantic. We were joined by my good friend Ash Egan , Principal at Converge Venture Partners. Converge is among the most active Seed stage investment funds in Boston and seeks to back the next generation of software and internet startups.
Ash’s specialization in machine learning and blockchain made for a perfect match with EF’s frontier tech portfolio and we were thrilled to see such engagement on our first attempt. Our discussion quickly focused on three main themes; What Do Investors Look For?, UK Startup Perception and How to Attract US Capital. We were thrilled with the quality of the conversation and thought it only right that we share the insights covered. Below is the transcript from our live chat (organized by theme) between Ash and our EF portfolio founders.
What Do Investors Look For?
Q: How important is an exit to an investor? Are investors always looking for a buy-out or are they in it for the long run (IPO)? — Nimantha from Ackcio
- Ash Egan(AE): I think it really depends on the investor, it’s case by case — some investors are very transparent about consistently hitting 3x returns, others are “go big or go home”. These things will vary by fund location, fund “sweet spot”, partner experience, LP expectations, and a number of other factors.
Q: What are the three most important things you consider when evaluating a startup? — Giacomo from alpha-i
- AE: For early stage investors (note: there are subsets of early stage) — I put most scrutiny around: team, product, market potential. Ability to recruit and ability to attract users fall into team, then product respectively.
Q: What are the best pieces of tactical advice you can offer for companies on the journey from Seed to A? — Barney from Cleo
- AE: There’s a lot in that question, from fundraising to product to growing the team to growing revenue. It also depends on what your goal for the company is. If it’s “I want to create a billion dollar consumer oriented company”, I’d say attracting top tier talent, and showing insane usage (and likely virality). My answer would be very different for a vertical SaaS company.
Q: Are patents (or any other IP protection scheme) a must-have or a nice-to-have from the viewpoint of an investor? — Nimantha from Ackcio
- AE: It depends on the category you’re in. If you’re doing something in deep tech, I think it’s important to (at a minimum) understand the patent landscape. On the flip-side, if you’re building a video-conferencing app, it’s more important to focus on users, virality, team before distracting yourself with patents (if you breakthrough, of course load up on patents to keep the big boys at bay).
Q: How would investors respond to the possibility of investing in niche, not so well known industries? — Rishi of Observe
- AE: If there’s a market, there’s an investor. Investors have different goals/expectations for their fund. Fund strategy might be broken down as: “I can fund the top company in a niche space and win the market” OR “I can join the red sea of investors battling for the next big thing in enterprise software”. As an approach, don’t waste your time talking to category B if they haven’t made niche investments before. If the niche market gains significant traction, aim for those VC’s as future potential investors.
Q: How do VCs view split-brain startups, with presence in multiple geographic locations both from a customers and product point of view? — Stefan of Propportunity
- AE: I’m all for remote companies, we have a number in our portfolio: Chainalysis and Help Scout are the first that come to mind (check out Help Scout’s writing on managing remote culture). I think we’ll see a massive wave toward remote companies — the most important thing IMO if your company falls in this category, is keeping employees excited on task, essentially putting more resources around communication. There are pros/cons to the remote company wave, but I think it’s the future given co-working spaces, great communication tools, online training (less of a need to be trained in person), better video-conferencing tools, etc.
UK Startup Perception
Q: What are the challenges with investing in an UK company; what can be done to mitigate those challenges? — Gaetano from LoopPerfect
- AE: The biggest challenge IMO is familiarity — getting to know the executive team, and their ability to execute on a vision. That’s why we see so many VC funds set up shop locally and focus on building local portfolios (as funds grow in size, this changes), but some ways of building a strong connection are: getting warm intros, engaging/tweeting at VCs, using some type of communication (maybe newsletter) to keep investors updated.
Q: What makes investing in UK companies particular interesting? — Gaetano from LoopPerfect
- AE: Innovation comes from everywhere — I think we’re seeing some interesting stuff happening within Fintech (I spend a lot of time in the blockchain/distributed system world), and the government is clearly promoting innovation in that sector.
Q: Do you know of negative prejudice US VCs/angels may have regarding EU/UK startups and if so, do you have advice on how to overcome them? — Lorenz of Sentient Machines
- AE: I think US VCs/angels don’t know the UK tech ecosystem well, so inherently are unsure of the caliber of companies born there. This is changing as more VCs set up shop in Europe, so my suggestion would be: be active in making yourself familiar to the VC’s you’re targeting. Prove you’re a thought leader in the space you’re building in. Get your US customers to tell their local VC’s that you’re building the next big thing.
How to Attract US Capital
Q: Do you think companies need to be present in the VC’s local market and/or have sales in the States? A lot of our teams want to be in the US but focus on enterprise which has long sales cycles and look to a lead VC to support them with that. — Matt Wichrowski
- AE: I don’t necessarily think you need to be present to successfully raise capital in the US — it helps, but not the end game. What I’d say is more important is showing that US based companies (where you’ll likely be selling/scaling in the future) are excited about your vision — ideally that’s in the form of revenue, but given long enterprise sales cycles, it may simply be pointing to pilots, or even pointing to folks the VCs respect that can vouch for you/your team/your product.
Q: Is it important to have an investor-market fit? Does it make sense to raise in US if most our customers are in Europe and Asia? — Guillaume of Bloomsbury AI
- AE: If you’re selling in Europe & Asia, I say go with investors in those areas, unless you’ve identified a US investor that you absolutely NEED on your team (i.e. they have proprietary insights into your market; can help scale the company from afar). IMO, VCs add the most value where their network lives.
Q: Any advantages / how important is it to incorporate in the US ? — Gaetano from LoopPerfect
- AE: From a VCs perspective (especially seed funds), I’d say it’s very important for their portfolio companies to be incorporated in the US (for tax reasons, etc).
Q: How many times should we travel to US and meet potential investors? — Guillaume of Bloomsbury AI
- AE: That’s very situational. If you can meet everyone relevant in 1 trip, fantastic — go for it. The reality is, you need to become familiar to VCs, which typically takes more than one meeting. Things always take twice as long as you think, but i’d say be extremely targeted on your US meetings.
Q: I heard that it may make sense to first have a US angel invest in the company, before we approach a US VC (the Angel could help open doors). What are your views on this? — Lorenz of Sentient Machines
- Ash Egan: I think that’s a great way to build a relationship with US VC’s — especially if the Angel has a good network (ie is a Venture Partner at a VC fund). The higher the profile that individual is, the more credibility you’ll be able to show to prospective VC’s — and make sure the Angels are singing your praises!
A huge thanks once again to Ash Egan for taking the time to speak with our portfolio. We received amazing feedback from the event, which is proof enough that we will hold many more AMAs in the future. Stay tuned!
If you’re an investor that would like to engage with our portfolio please reach out here or via Twitter.
