The Seven-Step Approach to Evaluating Startups: A Storytelling Perspective | Episode 382
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I invite everyone to sell your value and not your valuation.
Paulina Jänsch — Co-Founding Partner at Leanox Impact Capital
Executive Summary
The Startuprad.io podcast and YouTube blog covers the German-speaking startup scene and in this episode, Joe interviews Paulina Jänsch, co-founding partner at Leanox Impact Capital. Paulina discusses her seven-step approach to evaluating startups and fundraising as storytelling, emphasizing the importance of a financial model that reflects the startup’s value drivers. She also talks about Leanox Impact Capital’s investment criteria, which focus on impact innovation and solving environmental or social problems. The company invests in early-stage startups in Europe, with a focus on industry-agnostic but always impact-driven ventures, and prioritizes investing in female founders and LPs.
Our investment approach is either a hell yes — or a no.
Paulina Jänsch — Co-Founding Partner at Leanox Impact Capital
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Leanox Website
EU Startups Summit
This interview was recorded outside of the EU Startups Summit 2023 on April 20th in Barcelona. Thank you EU Startups for the great event.
The Video Interview is set to go live on Thursday, May 11th, 2023
The Audio Interview
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The Founding Partner
Paulina Jänsch (https://www.linkedin.com/in/paulinajaensch/) is one of two founding partners at Leanox Impact Capital and a TOP 100 most influential women in the European VC and startup space. She holds a Bachelor of Science from Maastricht University School of Business and Economics and a Master of Science from Erasmus Universiteit Rotterdam, as well as a Master of Science from EADA Business School. She also spent time in Singapore (Nanyang) for an exchange semester.
Paulin also worked at EY Analytics, immostore, and participated in the CFA Research Challenge by Caixa Bank. Amongst being GP at Leanox, she is also invested as Business Angel in nine companies.
The Investor
Leanox.eu (https://www.leanox.eu/) is looking to raise a new fund with not only 50% female (co)founded startups, but also 50% female LPs. Leanox is also looking for parity in itself, they have 50/50 GPs in Leanox. The VC is motivated to disrupt inequalities, to tackle social and environmental issues as an opportunity to improve the world we all live in.
Pitch Leanox
You can reach out to pitch Leanox with this email: hello@leanox.eu
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The Interviewer
This interview was conducted by Jörn “Joe” Menninger, startup scout, founder, and host of Startuprad.io. Reach out to him:
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Topics Discussed in this Interview
In this interview, we are talking about
#Innovation #startup #startups #startupradio #entrepreneurship #entrepreneur #business #motivation #success #entrepreneurship #mindset #goals #entrepreneurlife #lifestyle #businessowner #believe #positivevibes #branding #innovation #techstartups #germany #startupinvesting #femalefounders #femaleentrepreneur #femaleinvestor #startupinvesting #impactinvesting
Automated Transcript
Intro (00:00:05) — Welcome to Startup Red io, your podcast and YouTube blog covering the German startup scene with news interviews and live events.
Joe (00:00:20) — Hello and welcome everybody. This is Joe from Celebrate Do Oh, reporting to you, live from the EU Summit here in sunny Barcelona. I would like to welcome Paulina. Can you introduce yourself briefly?
Paulina (00:00:32) — Yes. Hi everyone. It’s a pleasure to be here. I’m Paulina Yen, co-founding partner at Le Impact Capital. And what better city to, uh, be talking to you today than Barcelona?
Joe (00:00:44) — Right. Can you, uh, you’ve been doing a presentation here on stage, that’s why I got curious. Can you tell us a little bit what you’ve been talking about? Because lox, right, lox, lox is an impact investor, so Correct. How do you evaluate startups? That, that was the piece that got me really curious.
Paulina (00:01:02) — How do we evaluate startups? So one really important thing when we speak to startups is of course, their valuation. But oftentimes what the startups say when they talk to us is, we’re worth 5 million. And then we ask, okay, but why? And then they say, well, we don’t want to give up more than a certain percentage, let’s say 5%. We say like, okay, but what’s your value? What are your value drivers? What’s your value? And they say, 5 million. And this keeps on repeating, and my talk today at the U Startup Summit was to explain how a founder should use fundraising as storytelling and how the numbers that you have, the financial model that you’re sending out, it needs to reflect that storytelling. Um, that’s basically in a nutshell, um, but I can, I can go much deeper into
Joe (00:01:52) — Introducing Yes. Um, my understanding is you have a seven step approach for that,
Paulina (00:01:57) — Correct? Yes. So my seven step approach basically asks the founders to start with drafting their financial model. So this, this doesn’t have to be anything fancy or chic, but it can just be the revenue streams and the cost structure so that the founders actually have an overview of what’s going on, um, in their, in their business.
Joe (00:02:24) — Ah, you’re consulting your, um, your presentation.
Paulina (00:02:29) — The second step is the value mind map. Ooh, sorry, the value mind map. And here the founders or anyone actually can just get a piece of paper, a big piece of paper and a pen, and write down the name of their startup in the middle, and then write down all of the value drivers that they have in their company. So that can be, for example, be your team, and then from the team you draw another point, which is your, um, the skills that you have in your team or the connections or the network or whatsoever, whatever value driver you can think of that you have in your, in your startup. That’s what you can, um, can write down here and what you need to visualize in order to go into fundraising. And then once you’ve done this, it’s a little bit of an ego boss boost, but that’s what you need in, uh, when you’re starting fundraising.
Paulina (00:03:20) — And then afterwards you need to write down your, so that’s, uh, the third step is the future milestones. And here I would like everyone to write down the one year, three year and five year future milestones. And why do we do that? Um, because founders of course need to dream to be able to think about what would be the ideal world in one year, in three year and in five years. So here, the crucial thing is really to write down, for example, a list of the best potential customers or the best investors that they could get and visualize that, um, in the future milestones. Next we have a needs analysis. So this is kind of your shopping list for your, uh, for your goals, for the milestones that you have set. So this part is kind of like you have looked at a, a very fancy recipe, but now you need to know, okay, what are the ingredients?
Paulina (00:04:19) — And also, um, how can I get them? So at the needs analysis, you’re writing down what you need and who you need in order to realize those goals that you have set. So if you had set a really, um, a really, uh, high goal, then try to see what would help you in giving and in making that goal become a reality. Next, we have the reality check. And this is not to see, okay, which of those can I, can I actually, um, do in the next year or three years or five years? But the reality check is, is crucial and it’s you asking for feedback and asking the right people for the right kind of feedback. I have two main things here. The one thing is that you’re asking not only your best friends and the the people that, that are willing to to help you, but really ask the people that might use the product, ask them for real constructive feedback.
Paulina (00:05:14) — And then when it comes to pricing and your business model, don’t ask them, would you buy my product and would you buy or pay for my service, but will you buy my service and will you buy it from a product? And one example I’d like to give here is that if I ask my grandma whether she’s going to, whether, whether I’m her favorite, uh, grandchild, then she says, yeah, yeah, yeah, sure. But if I ask her, grandma, will you tell my two brothers that I’m your favorite grandchild? Then that’s a whole different story. And that’s the same with feedback. So you need to ask for constructive feedback to the right people. And then a little piece of advice. If you get unconstructive feedback, feedback that was meant to hurt you, then my advice is to think about it and take maybe the 1% of truth, the 1% that you can take away, the 1% that that can actually be, um, be helpful and then just move on and let the rest go.
Paulina (00:06:12) — And that’s as far as the reality check goes. Now we’re coming to the sixth step, which is the financial roadmap. And here we’re coming back to our first financial draft and we’re putting all of those value drivers actually into numbers. What we’re doing here initially, or essentially is looking at our numbers as a dynamic and interrelated system, just as your fundraising, just as your business. To give an example, if you are a marketing heavy B2C product and you show the investors in your financial model that you’re doubling every month in revenue, but then your marketing actually is stuck in it and doesn’t increase by much, then we as investors, we will have some questions. So it is crucial that your numbers, they might be boring for some people, but it is crucial that they are part of the storytelling. And some investors say, ah, why do you ask for a three year or five year financial plan?
Paulina (00:07:11) — It doesn’t make sense. It is not the truth. You won’t ever have exactly this revenue in two years, but it is an essential part of you understanding your business model. And we as investors, understanding your plan behind it through your numbers, we can check what are your goals? How a how high are you ch um, are you aiming? So going back to the future milestones, what’s your plan? So we can ask, how do you want to realize doubling in revenue every month? And then you can go back to your needs analysis and show how you want to do that with who and what. And that brings us to the last part, which is the key value drivers because here you go back to the star, to your value mind map and you’ll see which of those value drivers directly leads into one of the future milestones.
Paulina (00:07:58) — And which of those future milestones is actually achievable through the needs analysis and which of those needs that you can achieve and you know how to achieve them, which of those actually is going to, um, turn the needle into the right direction in your financial model? Which of those has margins that will make your business model sustainable also from a financial point of view? So when you have done all of this, you have narrowed down your key value drivers from a, from a um, mind map that is full of value drivers to your key, the key parts of your business model and those that you can then sell. And if you know what you want to achieve when how with who, then you’re selling more than your valuation, then you’re selling your value and your worth. And that’s why I invite everyone to sell your value and not your valuation.
Joe (00:08:52) — That sounds pretty promising and it’s quite a step from, um, the usual VC pitch. Just get your financial models in order. Um, what are you as an investor specifically looking for? I remember you talked about having to or wanting to invest 50% in FEMA founders,
Paulina (00:09:11) — Correct? Yeah. Our investment criteria, we invest in impact innovation. For us, impact means anything that is inherently impactful. So our startups, they need to be created to solve a environmental or social problem. At the core, that’s what impact means for us. And we in our whole investment process, we follow quite the radical um, approach there, which, which is either it’s a hell yes or it’s a no. And um, and that’s how we, how we see impact as well. That’s of course only the screening. And then we have developed together with experts, uh, the Linux impact framework. Um, but that would, uh, go further than the question. So our, in our investing criteria impact innovation that is scalable, um, early stage startups in Europe. Uh, we invest industry agnostic but always impact and very important, um, especially for the uh, fund that we’re planning to raise soon 50% female founders and we’re planning to raise from 50% female lp.
Paulina (00:10:09) — So that is a core. Um, the numbers show that investing in females is an investing in parity is profitable. And now we need to show that it is also possible and we do this through the whole supply chain, um, of the investing ecosystem where we have 50% female founders but also 50% investors and we’re 50% at the partner level at our company with me being the, the female GP and my partner being a male gp. So we really invest in parity. It’s um, all of us together against the problem and not us against each other, and that’s why we invest in parity.
Joe (00:10:44) — That sounds pretty interesting. And down here in the show notes, we’ll share your LinkedIn profile as well as a link where startups can learn more and can pitch as well as potential LPs can reach out to you.
Paulina (00:10:57) — Perfect. Thank you so much. Totally.
Joe (00:10:59) — My pleasure.
Paulina (00:11:03) — So much.
