Seeking Early-stage Funding for Startups in the European Ecosystem?
Here’s What 4 VCs Want You to Know
Founders sometimes face uncertainty about reaching out to venture capitalists. We want to change that. Together with our friends at Antler, we at Earlybird helped put together an event where four VCs, including Creandum and eVentures, could share approaches and address questions directly from founders. Antler hosted a Clubhouse session moderated by Dubai-based innovation expert, Vera Futorjanski.
Since the invitation-only, iOS-required Clubhouse platform is not the most accessible platform to Europeans (where approximately 70% of the population is Android-reliant), we’re sharing this collective summary.
⚡️ A quick introduction: Vera has worked internationally for Rocket Internet, the Dubai Government, and 500Startups. Now she runs her own advisory firm and is building a VC fund. Vera gracefully navigated this conversation among Earlybird’s Fabian Heilemann, Antler’s Alan Poensgen, Creandum’s Ines Streimelweger, and eVentures’ Christian Miele. In preparation, Vera crowd-sourced some burning questions via Twitter and Linkedin. During this 1-hour event, we covered a lot of ground!
Get to know the panel: Fabian is from the Berlin-based Earlybird team and is a serial entrepreneur, super angel turned VC and co-founder of Leaders for Climate Action while pioneering the intersection of social impact and profit. Alan, another serial entrepreneur, represents the global VC firm Antler that recently arrived in Berlin and works with founders from the very beginning of their journey, in many cases even before founders have found their co-founding teams. Christian has worked with Fabian and had a hand in many startups before turning VC with eVentures. He is also president of the German Startups Association. Ines explained that Creandum invests in early stage companies across Europe. The Fund is sector agnostic and backs teams across B2B and B2C.
Let’s jump into the four main questions and later you’ll get key takeaways that emerged from the audience interaction.
1) When is the right time to reach out to VCs? ⏰
When reaching out to VCs, the first step is research. Fabian suggests getting clear on at least 10 VCs who might be interested in leading your round. Follow investment team members or their firms on social media; read their website to be sure you understand their stage and sector, says Alan.
Alan also suggests contacting investors 6 months before you need financing, but Fabian encourages relationship building even earlier. Fabian recommends keeping investors informed with extremely brief updates on your startup’s story or development — just 5 bullet points addressing the business level (assets, commercial plans, roadmap, etc.) This front-loading gives the investor enough time to engage slowly, and they can act faster later during due diligence or when the deal is on the table.
“This front-loading gives the investor enough time to engage slowly, and they can act faster later during due diligence or when the deal is on the table.” –Fabian Heilemann
The goal on both sides is to build trust and connect on a personal level but without draining too much time on either side. Ines takes a more philosophical approach here, but concurs that early reach-out is ideal. She says: share your company story initially; share what you are building. Then reach out again later when going out for that fundraise. Christian’s view is that founders should rather wait until they know how much they require.
“Share your company story initially; share what you are building. Then reach out again later when going out for that fundraise.” –Ines Streimelweger
Vera’s personal hack: Once you have your top-10 list of investors, reverse your thinking: start contacting them from the bottom-up; begin with your B-list to gain experience in the reach-out and you will be more confident in asking or approaching by the time you get higher up to your A-list.
By the way, although warm intros are usually preferred, it’s not completely applicable anymore because now VCs look for startups too, and not just the other way around. To recap, in building relationships — it takes time, so start early. As Alan says, reach out at least 6 months prior (if not more!) prior to when you need money.
2) How do founders and VCs meet without IRL events? Can deals happen remotely? 💻
Given the pandemic influence of everything-gone-remote, Vera asked, how does distance affect decision-making and have these VCs invested over Zoom? Despite geographic separation, VCs continue to seek out strong teams or strong founders. Here, Fabian admits that it was a cultural stretch at first, and one that meant a slow ‘letting go of the hope of a return to normality.’ But that said, it pushed him and his Earlybird Digital West teammates to develop some new systems and now remote investment is on track.
He adds that ideally founding teams are made up of 2–3 co-founders, max. Traits he looks for boils down to: entrepreneurial energy, intelligence, and integrity. Beyond the team, he looks to the category: Is the market big enough in volume? How will they obtain value creation in that market? Is there a clear product and go-to-market strategy? Commercial traction is less of an initial factor. But generally, he avoids niche-games, rather seeking something to break and replace legacy solutions.
From Alan’s perspective, a key drawback is that it’s harder for people to find the right co-founders in a remote world with less personal interactions. He acknowledges that being close to the founders in-person makes it easier to gain confidence in a team, especially as a very early-stage investor who works closely with individuals for 10 weeks before deciding where to invest. Alan explains that at the stage at which Antler invests, there are no business metrics available on which to judge the business, which is why he looks at how the team works and the early progress velocity as a predictor of how quickly the team will develop later-on. For example, how quickly the team validates and tests their founding hypotheses, or how fast they produce a first MVP.
When asked about deal terms, Alan emphasizes that to him, it’s important that founders are in the driver’s seat of their companies. This means that it’s important that founders have significant equity in their business and do not give up too much early on, so that the team still holds enough shares at a later stage, even after raising significant capital.
”It’s important that founders have significant equity in their business and do not give up too much early on, so that the team still holds enough shares at a later stage, even after raising significant capital.” — Alan Poensgen
Ines agrees that the founding team is the deciding factor. Ines likes to ask: How well do the co-founders get along? How passionate are they? Do they think big? Will we enjoy working for them? Similar to Earlybird, Creandum takes a strategic level of involvement post-investment, offering ecosystem intros, and following on in later rounds.
3) What are some differences between the US and Europe? 🌎
Christian identifies a problem in that hundreds of millions of people cannot think in the same entrepreneurial, explorative way about VC, tech, and startups as this self-selected panel and audience. It’s a challenge to emerge out of one’s own bubble. Given his view that it is 80% mindset & 20% regulation, he predicts Europe will have a tough situation in 20–30 years time. This is considering how far Europe has progressed in terms of supporting technology and startups, when compared to the rest of the world, particularly Asia and America. He believes we must convince people that founders and scientists are capable of coming up with really good ideas and that will drive more growth in the European ecosystem.
He notes a more aggressive and competitive style in the US vs Europe, cascading from SF, to NYC, to Europe. While it’s heating up here with more American VCs coming over, right now we’re still a couple of years behind. Ines notes that VCs in the US tend to invest more on vision or on potential. In Germany, she says we’re very diligent on numbers and traction and seeing what the future can really look like.
“Convince people that founders and scientists are capable of coming up with really good ideas and that will drive more growth in the European ecosystem.“–Christian Miele
In sum, we have to do a better job of balancing pragmatism with support for innovation. Check out what is going on with ScaleUpEurope.
4) Which investor or VC should you choose? 🧭
Fabian suggests that founders think in ‘concentric circles’: Map the ecosystem of who are 5 or 10 comparable startups. Go on Crunchbase and find out who are the investors that back them. Ines agrees with this approach as well: look to who has funded similar startups. This gives you an idea of who might have the conviction to invest into a business like yours.
Look for relevance in business angels if you start that way, he says. You want to make sure that angels can connect you to the most relevant VCs, etc. If you have a pool of investors, ensure that you have a pool leader so that the governance can remain easy to handle.
Audience Q/A with Key Tips
After the panelists spoke, Vera fielded audience questions on a wide range of topics including: approaches to crowd-funding vs traditional VC, cap table configuration to incentivize founders, generally incentivizing leadership, addressing lack of diversity, and support for sustainable startups who may not have a mega exit strategy.
We boiled the responses down to a few key takeaways about each, though there is obviously a lot more to say. So join us again for future sessions!
🤳 On user validation
- Alan says it’s not an easy question to answer because it looks completely different based on what you’re building. One learning though is: don’t overthink it, be fast. As a VC, we want to trust your product vision and qualitative judgement. How do you react? A VC may judge that in their very first user testing to see if an investment makes sense.
📈 On growing in an already- saturated market (e.g. food delivery)
- Fabian says it can be a bloodbath consolidation game — national and European champions. Who are going to be the 3 or 4 champions of today? It’s a land grab and about building a household brand, showing availability to attract vast amounts of capital.
🧩 On finding the right team
- Alan says how to find a team is something Antler specializes in. Look for the best personal fit: do you have shared values? Can you work together as a team?
🦸🏽♀️ On being a female-only team
- Ines is a strong believer in diverse teams, in general. She suggests looking at who has funded startups like yours.
- Alan emphasizes the topic of diversity and equality is very much on everyone’s mind. So find the best-fitting VCs based on your particular industry.
🌱 On closing the gap on climate and sustainability startups
- Ines is big on the climate tech space. Not enough has happened so far, but a lot is going on right now. A lot of the climate tech companies were super hardware focused. Can they really grow large enough? She’s optimistic that we will close the gap, and that we will also see more software solutions in the climate tech space going forward.
- Fabian is also committed to pushing this topic, welcomed ClimaTech pitches this week, and suggests checking out Leaders for Climate Action for what you and your startup can do.
🦓. On whether VC funding is right for every business
- Fabian points out that it’s important to still be aware, VC may not be the best instrument for every company — whether it’s climate tech or not. There must be a transaction at some point for VCs to engage. There are many businesses that are excellent Zebra cases, or stand-alone, long-term, independent businesses.
In closing, we offer our collective thanks to Vera for hosting, to our guests for attending, and to you for reading! 👀 Be sure to check an upcoming session with Antler’s Community about the Creator Economy Boom as well as follow these panelists above on Clubhouse or social media. You can read more from each of them on Medium here: Earlybird, Antler, Creandum or eVentures.
👟 Next steps: Want to get in touch with Earlybird? Head to our contact page. Interested in applying to the Antler cohort? Visit Antler Berlin for more info.
If this article answers any questions you have, give it a clap 👏🏽 so others will be notified to read it. If if sparks more questions, please get in touch with us!
Written by Elisheva Marcus from Earlybird and Anna Drescher from Antler.
