Member Insights: Three tips to attract VC

Member Insights: Fincite Ventures give three tips to attract VC

Meet Thomson Nelson, Senior Manager Digital Ventures at Fincite Ventures.  The company is about four years old and generally has two or three venture projects going per year with big success and a notable equity portfolio of leading European tech companies. Their portfolio focus on scaleups, and all of them have raised capital and demonstrate rapid growth.

A mainstay of the ecosystem in Frankfurt, Fincite Ventures acts as a technology co-founder, servicing early stage startups in Tech for Equity deals. They provide experience and insights into efficient building and scaling web platforms and business models with a focus on building startups in digital asset management services and marketplaces verticals. 

“We know that overall our selection process of ventures is superior to what the current market standard is. The reason for that is that we take risk factors out of the equation. The results prove us right. All our ventures are doing great and we have not lost a portfolio company so far,” Thomson said. He is an expert on identifying and nurturing fintech startups especially focusing on raising venture capital.  He has developed some insights and tips applicable to startups in all sectors that are looking for funding.

Thomson’s first area of focus is looking at a founder’s leadership qualities. Can he/she attract talent with a compelling story? Can a founder endure the obstacle run of growing a company? Can he/she lead teams? Do he/she foresee the future of where markets are going? Can he/she inspire a team, customers and investors – even when the going gets tough?

The first tip – Co-founder/Market Fit

Thomson advises founders to think like a venture capitalist. Ask the question “How is this team best suited to implement this idea?”

“A VC’s evaluation will focus on the team. They know that ideas are not proprietary. In fact, VCs assume that there will be many founders and companies pursuing the same idea.”

According to Thomson, the biggest risk in B2B ventures is often the execution risk. Often there is inherent product/market fit as most ideas stem from experiencing problems first-hand in the industry. In B2B startups it is often important show to the investors that the execution risk is mitigated with co-founding team expertise.

“Funding teams need to show their unique characteristics. Ask the questions: How has the founding team experienced the problem? How can the founder mitigate the technology risk of execution, how is the founder team positioned to acquire end customers easily, because in B2B case-customer acquisition is not only costly but time consuming. How is the co-founding team best suited to tackle this problem?”

The second tip – Product Idea Process/Problem fit

Thomas knows that VCs evaluate the founder’s idea maze. What was the founder’s process to get to his/her current product idea?

“It’s the process of idea maze that is better predictor of the founder’s success than actual product idea itself is. You need to showcase how the product vision is best suited for the problem and why your execution strategy will differentiate from the competitors. Often understanding the current process of how it is done now and then making process efficient is the key differentiator for forming the ideal product maze. Developing customer journey maps and how you envision the new customer journey helps.”

Thomson’s inside knowledge often helps in this development. It’s also important to understand in B2B context when you are selling your product to a corporate.

“You need to figure out how much effort the corporate would need to do in order to fit your product efficiently within their setup. Sometimes product implementation costs for the customer might be a deterring fact. These are also equally important points to be considered when designing the product.”

Finally – Market size:

What if your market is too small? Size does matter in this case. Thomson advises that VCs are looking for big market size opportunities for their investment.

“Sometimes your business model is profitable, your team is really good and the product idea is perfect, but market size isn’t big. That means equity value of the business is often capped, because the market size isn’t big and hence sometimes VC’s reject you.”

But market size should not limit your idea. Sometimes a dedicated, smaller target group is worth investment.

“There are smaller VC funds that invest very early in companies and their business model is to exit companies through acquisitions at lower ultimate end valuations. This might be the VCs you should pursue.”

A final nugget of knowledge from Thomson is about pitching to the right investor.

“Certain opportunities are not relevant for a particular investor. It is important to match the investor-problem-co-founder fit. Many founders oversee that. They make finding an investor a large number game. This does not work well when applying for a job, so why should it work with finding an investor?”

 

Thomson Nelson

About Thomson Nelson

Before joining Fincite Ventures, Thomas worked as Senior Engineer in Energy industry in the United Arab Emirates. His love of finding venture capital angels and product development is a thread in his career. He has a masters degree in Management focused on Innovation and Entrepreneurship from Technical University of Munich and Bachelor’s in Engineering from India. He also has visited 10 counties, lived in 6 and worked in 4 countries.