Bulletproof elements to raise Seed and Series A round as a B2B startup
-by Louis Coppey (Point Nine Capital), Ben Blume (Atomico), Cayetana Hurtado (Balderton Capital), Bertrand Dufour (RSM France)
They gave this talk about the key elements to raise Seed and Series A rounds as a B2B startup, at B2B Rocks Paris — the international conference for B2B & SaaS startups.
More info on https://b2brocks.co/paris/
Cayetana Hurtado: I’m an investor at Balderton Capital. It’s the most active Series A fund based out of the UK but we invest across all of Europe with sector agnostic and will tell you more in a second.
Louis Coppey: I’m Louis. I work at Point Nine and we are the most active seed fund in the world. That’s half of a joke, but happy to tell you more after.
Ben Blume: I’m Ben. I work for Atomico. We’re a Series A and beyond fund based in London. We may not be the most active in Series A fund I guess but we back really kind of big vision, disruptive entrepreneurs really looking to kind of change industries.
Bertrand Dufour: Let’s provide some elements to raise Seed and Series A for B2B startup. As a startup, you should consider VC are like a client, meaning there is a market. Each VC has its own vision, has its own trend, its portfolio as well, not everyone has the same amount of money and where they wish to use it. They are not active at the same time for your entity or maybe you’re totally out of their focus as well.
We are lucky to have here three tech-oriented funds but you still have very big specificities so if we can go through that.
Ben Blume: So yeah, we’re a Series A and beyond focus fund, so we primarily invest what we call a Series A stage. It’s probably more of a kind of West Coast Series A stage, so our initial investments tend to be 5 to 15 million dollars. And then that’s our core that’s done across Europe so we’re based most of the teams in London. We have one — one of my colleagues is based in Paris, one in Stockholm and a couple of others elsewhere. But we can also invest at later stages as well. So we’ll invest up to 30 or 40 million dollars into a company either at the late stages or over a lifetime.
And as a kind of sector firm, we’re pretty generalist. So we invest in consumer companies, we invest in B2B and enterprise companies which is the part of the team that I run. We also invest in what we call frontier tech companies but those are really kind of science and R&D-led companies that are often pre-product launch when we invest.
We have a 750 million dollar fund which means we’re really looking for really kind of billion-dollar companies. We like every investment we make to have the potential to a multi-billion-dollar company and therefore to kind of be a kind of fund-returner for us. And so it means we look for companies with big visions, tackling big problems and looking at really big markets.
Cayetana Hurtado: So very similarly, we also invest in Series A although that doesn’t mean much today. So for us, the way we try to define that is post-product market fit, so those companies that have already kind of figured out the market and the product or the consumers and the ready-to-scale and that’s what we want to invest and help them scale, go much faster in the current market and potentially internationally.
That’s something that we always try to look for is actually the path to internationalization most of the companies we get in because to your point like we’re looking for very big companies with a very big ambition. And today, the world is really, really global so in order to be one of those big companies is very hard to just stay in one local market.
We’re also sector agnostic, our portfolios almost have split B2B, B2C and in the different verticals like healthcare, mobility, consumer, like consumer mobile, everything really, just a few exceptions. And yeah, we get pretty much involved once we invest. We do about like 10 to 15 investments a year. We’re in equal partnerships so that means we all get pretty much involved once we invest. And yeah, very briefly, that’s us.
Louis Coppey: Yes, nice to meet you all. So I work for a fund called Point Nine which is a Pan-European seed fund. We exist for about 10 years. We invest much earlier than these guys actually. The goal for us is to invest when entrepreneurs that we are close to a product-market fit and to help them structure their organizations so that they can kind of escape velocity and go see Caye, Ben and other Series A fund and raise 5, 10, 15 million Euros.
We invest anywhere between 100K€ and 2 M€ (or dollars) in rounds of let’s say 1M€ to 3M€ that we always try to lead. We do about 10 to 15 investments-buyer and the approach that we have is to be very like thesis-driven in the sense of like we try to really understand what’s happening in the software landscape primarily in B2B and to explain that online. So we are known I guess in the software and the startup ecosystem for the content that we publish which kind of explains the thesis that we have on certain sectors.
We were the first investor in businesses such as Zendesk which was a small company in Copenhagen at the time in which as now, some — probably the largest facing station up in a big space in the US as well, of Algolia, of Typeform in Barcelona, of Contentful in Berlin, quite a bunch of businesses that started really, really early and that we have got to the Series A and that some of them are now pretty big. Yeah, so that’s us.
Bertrand Dufour: Thanks for the specificities. So as a startup, you have to consider meeting a VC at the good moment, meaning when raising Seed or Series A. What’s interesting is the ratio which is almost the same for all VC funds, meaning they meet like 2,000 or 3,000 startups per year and at the end, they make 10 to 15 investments, which is close to 5%. That is not a very high percentage and it’s always the small team that does the decisions. So you need as a startup to have good arguments at the right time.
Louis Coppey: I just mentioned two things. The first is the customer focus, like how much do you understand your customers and how much of that is actually into your product. We’re looking for some kind of unique insights because this unique insight adds kind of the basis of your differentiation long-term. And the second point is like the ambition, like how much can you build on top of that unique insight to actually build a very, very large company and that’s not the case all the time actually.
Bertrand Dufour: The Seed stage is when there is something to structure and to develop. Series A is when the company is more structured with very big interest from the market. That’s a moment where you can intervene. So then what would be your focus?
Ben Blume: I have the same two points as Louis and maybe to kind of put a couple of practical things around. I’m always amazed by the number of meetings I have with founders where they don’t proactively show the product in the first meeting. And I think we’re all probably kind of product mindset investors. We really like to understand that the product has been built to serve the customer’s needs and that the founding team is spending a lot of time with the potential users.
But it’s also often the cliché saying “A picture is worth a thousand words”, like a product demo can often save two hours of discussion of what the product does. And so I think that’s a great way of kind of helping to capture the product minds that all of us have.
And then I think on vision, I think it touches back to what we’re just saying in introduction that we look for companies that have the opportunity or the potential to become a multi-billion dollar company and that means a few things. It means that it’s a big market. It means that the product has a potential for probable expansion beyond the initial call. It means that the product has probably geographic expansion potential as well or at least some of those back to us.
I always like to see founders and companies who can explain that kind of initial hypothesis of the steps they will have to take to get to the kind of billion-dollar outcome. Because it’s generally not just scaling up exactly what they’re doing today. And so that’s going to evolve over time and that’s a big part of what we like to kind of help and work with founders on kind of refining but seeing a kind of version, one of that or kind of the initial hypothesis I think is a really compelling part of a great pitch as well.
Louis Coppey: If I may pick up just on that because we have a similar view. I think most of the time when you meet the Seeds there or even the Series A founder like telling him, OK, how do you get through a billion-dollar business is a really hard question to ask. I think what matters more is like having this big vision but being focused on how, step-by-step, you’re going to get there. And so, in the end, it’s having some kind of clarity on execution short-term but depicting a very large vision at the back. And so don’t be afraid by like “OK, I need to build a billion-dollar business”. Be focused on the operations but try to dream about something big.
Cayetana Hurtado: And to that point, one of the things that we somehow are always looking for is how you’re building the longer-term defense ability and to Louis’s point is at every step. So how is your company going to be different than the other like 100 companies trying to do the same thing that you’re trying to do in some other geography, what makes you so unique and it might be that you have — the consumer had better put on and you understand better your consumer and you can get to that “wow effect” when your consumer — when you see your product, it might be a much more product-driven approach.
Might be as well, you know more like network effects with very low switching cost, what is that thing that is really making you potentially the winner. It doesn’t mean that it’s going to be just one winner, but how you’re approaching that step-by-step. And I completely agree with you, it’s something that sometimes we may tend to ask which is like how is this going to be a billion-dollar company. But we’re not looking for like how is it going to be tomorrow but like really how you’re thinking through that vision and then how that applies in the way you execute on a daily basis.
Bertrand Dufour: You need to also remember that technology is moving very fast. Meaning these people in front of you, need to be convinced but they also can also help you. Meaning you need two points. The first one, if you have a “No” from investors, it’s very important to ask “Why” and to get some feedback to get better. It’s like a job interview somehow. You should start by the VCs that you know that you won’t get in, to get better at the exercise which is not always very simple.
Another point is that everything is moving very fast. It’s very difficult to say in 10 years we’ll be the best. But yeah, try to find some clarity and a step-by-step approach. It’s also an opportunity to reckon.
Lastly, France is a very small market. That’s something that must be remembered. If you can have the whole French market, it is less than 1% in the world so it’s very different from the US market or the Chinese market. We are lucky to be there at B2B Rocks and Station F which are very good flagship I would say for the French startups and the French Tech. From an international point of view, what would you recommend to a French startup compared to other countries’ startups?
Cayetana Hurtado: Sure. So one observation for me and it might sound kind of basic but it’s focusing more on the story. I think southern Europeans were very good at like looking at the past and proving you know those are my great metrics and this is where I’m going to go to the next phase. But we’re less so good to the point we’re discussing before about like really telling what’s the vision, how this becomes big like telling the story like having that story and making me think how this is a big problem and you’re solving for it and you have that willingness and that ambition to go really, really big.
I think that’s something that is a bit in our culture compared to maybe other cultures where the better are better at telling the story. And I think just focusing on that a little bit more and having that ambition and being willing to just go and take bigger markets very, very quickly, so not just thinking. Sometimes it makes sense to do the country by country expansion in Europe but sometimes it makes even more sense to say like I’m a French company or I’m a Spanish company or a German company, I’m going to go take the US. So I think the combination of those few things should be a bit more present.
Louis Coppey: I think no but I think what matters here is to say like maybe 5, 10 years ago, there was no role model in the French ecosystem in the sense of like there were no really, really large tech startups. Today, there are like Algolia is one. There are a bunch of upcoming ones that are going to be really, really big. So the first thing is like it’s not because you’re French that you can’t dream big and some people will believe in that and we believe in that, we all believe in that here. And the point is don’t get crazy, I’m like OK, this is the billion-dollar business I’m going to build. Be focused on like small startups but on — but still keep large ambitions and people will follow you.
I think that’s the first one and the second one which is probably more practical is like I think the issue of French people like me is that we don’t speak English very well. So don’t be afraid of from the get-go say we’re going to speak only one language in this company. And it’s going to be English because that’s ten only way we’re going to make this company really big. And the longer you wait to do that, the harder it is because then you need to go to 50 people and tell them, look, now we speak English, you French and it’s a tough game. So from the get-go write everything in English, hire people around non-French and make sure that everybody speaks English in the office. It’s tough at the beginning, but it makes a huge difference after.
Ben Blume: I think if you look at the French ecosystem now, I think you can say you’ve got amazing places like this. You’ve got incredible talent and I think that as kind of that talent grows and grows and organizations like Google and Facebook spend more time and kind of train more talent here. You have this really deep talent pool that is kind of globally renowned.
I think you’ve got the eyes of the kind of global investor based on Paris and France now I think. Every time I talk to a US investor, they’re spending more time here. They’re kind of more, more and more excited about what’s going on. And I think you’ve got already announced some areas with some really successful companies.
The pieces are all there to be kind of a globally competitive ecosystem with San Francisco and New York and Tel Aviv, and London. And I think that making sure that the problems you’re building companies to solve are big enough and global enough, is an important thing to think about.
Louis Coppey: Maybe I can give an example of this because it might sound like really, you know kind of generic sort of like investors trying to invest in businesses. But like a year ago, there was a tiny company here at Station F called PlayPlay which was started by the previous head of social media of Eurosport. He has close to no technical skills. He hired an agency to develop the first product and start selling to his network like a video software tool with a very strong assumption which is everybody is going to produce a video. I’m going to make the simplest video editor ever but I’m going to produce the nicest in the world.
And when I met within the first time, I was like, “Look, this is a super crowded market. I don’t believe this.” A week after, 10 days after actually, we ended up doing the deal. These guys say, “I’m going to build the best video editor in the world. And this market, I can tell you video is becoming huge and I’m going to ride that wave.”
And so the point is it’s OK to dream big and in the end, I think at the time when we did the deal, Thibaut was the founder was like “whew, a billion-dollar business, it’s a tough game”. And the more it goes and the more he believes in it.
Bertrand Dufour: The only point to consider in front of that is very good to think big but try not to present your business model just stating top to down like the market is two billion now, we’ll take 10%, so here is my turnover in 10 years. That might be very different from the step-by-step approach that recommended, think big and step-by-step. The two points are very critical. I would like to go through another element. As a startup, when you go to a VC, basically, you ask for funding. What should a founder expect from a VC apart from money?
Ben Blume: I think more and more, it’s probably the answer to that I think that as more investors look to Europe, both great European investors but also great investors from other markets, I think the best founders are the ones who are being chased by all the investors are really entitled to ask a lot from their investors. I think that vice versa, as a founder, you should be thinking about what role or what kind of hole in my skillset or my network or the capabilities I have around me can I fill with an investor. And that might be, I mean the kind of traditional things, network, introductions, access to customers, access to talent.
And then I think more and more, the best European firms, you know all of our firms are kind of building out operating teams that can provide specific operational support beyond the capital. So at Atomico, we have a team of 15 investors and we have a team of 10 operators. And the operators come from Google and Facebook and Uber and Spotify and Twitter and they were formerly kind of functional execs in talent, in marketing, in international expansion and Biz Dev.
And when we invest in companies, we give capital but we also give access to those people as advisors, as mentors, and support to you as you’re building your company. And the idea is that you can avoid some of the kind of common mistakes because those guys have overworked both in the kind of Silicon Valley, US scale-up businesses that have become global successes. But also, they’ve also worked with many of the companies across our portfolio.
And I think that operational support whether that comes from your investors who have just worked across many portfolios of companies or from dedicated operators. I think that insight as well is something that really you should be looking for from the people who invest.
Bertrand Dufour: As you stated here, this is a very professional market getting more and more operational. Do you have just a few last pieces of advice you wish to share with the audience?
Cayetana Hurtado: Just to finish up on that point and so as a bit of advice is to use your investors as much as you want and can. It’s super important to get the vibe that we’re on the same boat and we actually want the same thing. And at the beginning, there is kind of like a weird relationship maybe when we start meeting and getting to know each other. But realistically, we really want to help with everything we can. So is it a platform team? Is it like the investment team? Is it also the network? So just you know being able to meet all the founders in our portfolio.
And then in terms of generic advice, I would just go back to what we’ve said is if there’s one thing we love seeing is that big ambition, thinking big. And I think the talent pool that we have in Europe is absolutely amazing and we have more and more of those role models that we were talking about. So just like really go big and step-by-step go big and have that ambition shared with us.
Louis Coppey: I think fundraising is a weird thing because it takes like three to four weeks. And in three to four weeks, you need to decide where you’re going to spend the next 5 to 10 years with. What matters most I think beyond just this operational support and all the network is actually the personal relationship that you will build with the one person that’s going to come at your board every month or every quarter but also that you’re going to call when you have a problem.
So look for brands, look for support but also look for like people-to-people relationship and one that whether or not you’re actually going to trust these people to help you build the business because yes, we’re on the same boat, so make sure you bring the right people on the boat actually.
Ben Blume: Yeah. And I think maybe picking up on that last comment, it’s a much harder decision to meet somebody on week one and decide that you want to spend 5 to 10 years with them on week three. It takes time to meet investors and it takes time out of doing what you probably really much more want to be doing which is building your companies.
What I advise the companies I work with is to take a small amount of time out of each week or each month to keep in touch with some investors who you think is kind of the most likely investors for your next round so that those people know you and you know them. And by the time you come to raise the round, you’re not making that decision in two weeks but you’ve kind of spend two years making that decision.
I think for most of us if we look back across the investments we made in the last couple of years, the vast majority, 70, 80% of them we knew the founders for over a year and some for much longer than that. And so there are going to be times when the right investor walks through the door and offers you a timesheet in seven days but I think more and more that kind of longer relationship enables both sides to make it much more informed and kind of comfortable decision.
Participant: What is the kind of key areas that you’re at the moment most excited about?
Louis Coppey: We do primarily B2B at Point Nine. I think two things which we’re quite excited about now are B2B marketplaces. For the past 10 years, most B2C markets have been changed by marketplaces, Airbnb, Uber and a bunch of other industries. I think in B2B markets now, there are exactly the same opportunities where you just try to match supply and demand. For ages you know, you had traders in each market, and these traders are doing a job that can be completely automated through technologies.
And the second one is the next generation of enterprise software. Using data to actually build more intelligent interfaces or build disruptive experience for the B2B market. It’s very generic but I guess it helps.
Cayetana Hurtado: I agree. And I’ll add to that the consumerization of SaaS. It is something that we’re very excited about. So, just realizing that different SaaS tools that any organization uses are getting more and more specialized. The way those companies behave is very interesting also from an investor’s standpoint because your product-market fit is going to be there much faster. You’re going to realize where you’re building the right thing much faster. So it’s all like faster cycles and it’s something that we also like seeing and that market is there and that specialization exists.
Ben Blume: For me, one thing I am spending a lot of time on is businesses doing automation of human processes. And so there are kind of two ways to think about that. There are processes that people can do, the computers and software can do faster and there are things that humans can never do or no reasonable number of humans in the kind of reasonable amount of time could ever do that software can do because it takes a different approach.
Facilitator: What are the things that you don’t want to invest in? The reasons for a “no-go”?
Ben Blume: Things that where we don’t see a path towards a kind of billion-dollar company. And I think that ends up being things that we would say as components or features rather than things that are kind of full products or propositions.
Cayetana Hurtado: I’d say when we don’t think the market size is big enough, that’s already one like less obvious one is when we see sometimes the team interactions that they don’t feel for some reason don’t feel right. You have to judge on that very quickly but I think to have like a core team, the co-founders to see how they interact is an important thing for us to look for. And yeah, I mean I’ll leave some for you.
Louis Coppey: Well, I think there is no “no-go” because most products look like a feature when they start and they become huge. Like Zendesk was looking like a feature, and became massive.
I think, well, no-go is like people that are mean to their employees because if you’re mean with your employees at the very beginning when you have five employees, what it’s going to be like when you have like hundreds and you’re going to manage these people.
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