Why Do Some Polish Startups Raise Rounds with Global Investors and Others Don’t?
Thanks for great help to Krzysztof Przybylak — co-author of this blog post
Getting a global investor on board is the Holy Grail for many startup founders.
It’s true that global VCs have been showing an increasing amount of interest in the CEE region, yet they’re only investing in a handful of companies.
How can you attract global investors to your CEE startup?
In this blog post, I break it all down. Get your skates on!
First, let’s look at the data…
In the past three years, over 100 global investors have backed companies from Poland.
The table below shows that some of them have even invested in multiple Polish companies.
We didn’t include funds with a big part of team and LP base in Poland (e.g ffvc or SMOK who would be clear leaders if classified as foreign)
Contrary to popular belief, global investors aren’t only interested in growth rounds (Series B+). Some want to get their foot in the door as early as possible, even at seed or pre-seed rounds.
Certain local VCs act as great connectors between the local and global startup ecosystems. Capturing their interest will likely increase your chances of having a great global VC on board.
At Inovo, we’ve made investments with 75 various VCs. Of those, 57 are international, including top brands like Andreessen Horowitz, Insight Partners, Tiger Global Management, Gradient Ventures, and Owl Ventures.
We aren’t the only example — take a look at some other local VCs who’ve made many co-investments with global investors:
Data confirms that international investors are interested in a handful of companies. Historically, over 100 Polish companies raised rounds with international VCs in the past years. The most successful startups attracted significant amounts from many of the world’s tier-1 investors:
The METER that makes the difference
So what makes startups like Uncapped, Ramp, Spacelift, Vue Storefront and Zowie different from all the rest? Let’s break it down!
We at Inovo use the METER methodology to determine a startup’s potential. We look closely at five things we believe are good indicators of how much the company should be worth. These five elements are:
- Market Size
- Earnings
- Team
- Exponential growth
- Retention
Each of these elements is described in more detail below.
🗾1. Market Size
Let’s imagine that we have two companies that come to us with a PowerPoint (That’s what my job actually looks like).
Companies send us a pitch deck — one has a $10B market, and the other has a market worth $1B. I won’t bore you by explaining how we estimate a company’s probability of winning a market. For simplicity’s sake, let’s assume they both have a 1% chance.
I’ll omit the math again because it isn’t relevant — the first company’s value is $5B, while the second is worth $0.5B. Those who remember the theory of probability from school will quickly calculate that the expected value is $50M for the first case and $5M for the second. The same team with the same probability of winning at the same stage will have a greater upside only because they decided to target a much larger market.
Market size doesn’t just influence valuation — it also impacts the willingness to invest. Different VCs can have different minimum market sizes depending on their fund size.
As a rule of thumb, you can assume that you need a minimum market size 10x bigger than the size of the VC fund you’re talking to. Sequoia, for example, looks for startups with the potential to generate $300M — $500M in revenue within seven to 10 years. This translates to market size in the ballpark of $5B — $10B.
Want more insights from Sequoia’s Bogomil Balkansky? Check out our interview with him on our podcast here.
Let’s take Ramp’s market size as an example.
Ramp makes money through commissions on so-called on-ramping — exchanging fiat money (like USD, EUR, or PLN) for cryptocurrencies.
Let’s focus on the USA.
20% of Americans not owning crypto now are willing to buy cryptocurrencies in the next year.
x 329M (US population)
x 75% of the population does not own crypto
= 49M Americans who will buy cryptocurrencies
x $1,000, the average value of a crypto portfolio in the US
= $49B of crypto to be bought within a year by Americans
x 1.5% for Ramp’s commission
= $741M of potential revenue only in America from people who don’t own crypto yet.
💰 2. Earnings
You need to be able to sell internationally. Many companies end up selling locally based on their network. Still, the sooner you prove you can sell internationally, the better.
Our top portfolio companies are international, often focusing on the USA as their core market.
If you look at the top Polish startups mentioned above (Uncapped, Ramp, VueStorefront, Spacelfit, and Zowie), it’s clear that all of these companies have been global from day 1.
Make sure to keep your revenues at proper margins — a healthy SaaS margin is around 80%.
🙋🏽♀️ 3. Team
Here’s what I’ve learned analyzing all the potential teams that Inovo has and hasn’t invested in: there’s no magic recipe for a good team. There are, however, some factors that may indicate greatness (in the VC sense of the word):
- Founders that are serial entrepreneurs — This is especially true if their previous businesses were successful, as it indicates the founder knows what building a startup is all about
- Experience at a high-growth startup — At an early stage, each employee has a significant impact on the life of any startup. So, if they worked at a successful one, it probably means they were doing something right. They also had a rare chance to see how the best startups are built, how they grow, and, if they’re smart enough, how to replicate success.
- Experience at a top-tier company or education at a top university — Let’s be honest: if someone graduated from Harvard or worked at Google for five years, it likely didn’t happen by accident. If they have the skills and knowledge to be at the top, they put in the work and aim high — all great qualities in a founder.
- Exceptional skills in a particular field — We can understand this in one of two ways (both are great!):
a] The founder can be a great developer who’s able to build an excellent product.
b] The founder knows their industry’s challenges, knows the right people, and understands their customers (a great founder-market fit). - Outstanding execution — Here’s a case from one of Inovo’s founders: They first came to us with a 10-slide deck. Ten months later, they came to us again with a fully functioning mobile app, thousands of users, a large contract, and a valuable license.
- A go-big-or-die-trying mindset — This usually means at least one of two things:
a] The team strives for excellence, not settling for less
b] The team goes international from day one
In any industry, the US market is at least 20 times bigger than one in Poland. However, companies that enter the US must also compete with more rivals that are better funded than you are. The importance of market size has been outlined above.
Generally, the more “boxes” a founder checks, the better. That being said, it’s possible for someone to check all the boxes and still be someone I wouldn’t want to work with. Remember, you’ll be working with these people for years, so you have to like and trust them on a very personal level.
🚀 4. Exponential growth
There are companies like Deel which went from $1M ARR to $100M ARR in 20 months — this is true exponential growth.
For early-stage investors, exponential growth means that you are on a certain trajectory, e.g.:
- You have achieved $1M ARR less than 12 months after launch
- After crossing $1M ARR, you grow more than 3x year-on-year
While data for startups usually isn’t publicly available, we can confirm that, in our experience, these are excellent benchmarks that our top portfolio companies achieve.
🧲 5. Retention
VCs back great products because these have the best retention.
Keeping in mind that definitions of excellent retention vary depending on many factors (B2C and B2B companies have different benchmarks, for example), high churn will make it almost impossible to build an amazing company.
At some point, growing your revenues will be prohibitively expensive. You want a high retention rate and a “smiling cohort.” After some time, some of your churned customers will return, and your retention rates will increase.
Churn can have a major impact on valuation. In general, if there are two similar companies, and one’s churn is twice as high as the other’s, its valuation will be half as high.
Wrapping it up
Startups that follow the METER methodology have a considerably higher chance of attracting global investors than those that don’t. Apply it well, and it could be your team’s blueprint to success in the VC arena.
Are you a CEE founder looking to attract local/global investors? Inovo can help you out. Talk to us here.
Inovo Venture Partners backs early-stage, post-traction startups that can grow 100x. We partner up with ambitious founders like Stefan from Booksy, Maja from Zowie, or Marcin from Spacelift. We invest between €0.5–2m in startups from Poland and CEE region.
