Startups Looking for Investment: Straight Answers to Straight Questions
In the second half of November 2019, Oana Coșman, editor at start-up.ro, and I sat down for a straightforward talk about the current Romanian market for startups looking for investment.
We went through the process of investment and the right steps to follow as a founder. We discussed trendy buzzwords in the startup industry, our very own accelerator program & metrics for startup success, as well as some VC insights into the future of the Romanian startup market.
Here are some of the most important items of our talk in this article, but if you prefer to watch the video first, feel free to scroll down at the bottom of the page.
How does Early Game Ventures decide which startups to invest in?
As investors, we feel most comfortable with startups in industries that we have experience in. Some prominent examples could be tech startups or the ones that deal with IP-driven intellectual property. We’re not comfortable with investing in healthcare, medical or pharma startups. None of us are doctors and we can’t be of much help to founders in these sectors. Therefore, we’d rather step back and focus on the ones that could use our help.
Our firm recruits regionally (in CEE) and invests locally. Even though the nationality of the founders that reach out to us is of virtually no importance, the location of their company is – their startup should be founded in Romania. Let’s face it – we’re a team of Romanians, trying to build up Romania’s business environment and our national law is the one we know to a T.
Before making the decision to back up a startup, we usually try to evaluate each application through our own matrix. There is criteria we look into that should all blend perfectly together, and should match each other. This doesn’t mean that if a startup meets all these criterias in a small, satisfactory percentage, it’s enough & good to go. Absolutely not. We tend to appreciate more the founders that have at least 1 element that they excel in, be it their awesome team, their innovative tech idea, etc. We tend to look for masters of at least one, more than for jacks of all trades.
What are the criterias investors tend to look into before signing a termsheet?
The Team: the founders should have the needed skills for their respective business
The Problem: it should be real and quantifiable
The Solution: it should fix The Problem
Value Proposition: well explained and formulated
Competition: they should know their competitors and what differentiates them
Fundraising strategy on point & a Business plan that makes sense
Can a Venture Capital fund decide to invest based solely on an idea?
The reality is that no one will invest based just on an idea and nothing more. In our case, even if the founders only have a presentation, it wouldn’t be fair to say we invest in the idea. We invest in the people that stand behind that idea. You have to back up your idea with experience and therefore build credibility.
What are the hottest tech startup ideas at the moment?
We’re generally more interested in companies that activate in industries where we don’t get to see as many new ideas on a regular basis. Think of agriculture, for example: a startup that uses computer vision in agritech to detect plant sickness from an early stage. Also, in Romania, there is an opportunity for APIs, sources of data collection that different startups could use when developing their ideas.
Mistakes that founders should try to avoid:
1.Creating a product without making sure there is a demand for it on the market: they don’t have a good product market fit. All founders are secretly in love with their startup idea and then they’re surprised to see that consumers don’t feel the same and they don’t buy their product.
2.Not checking / questioning the market in order to validate their startup idea. Startups looking for investment should be able to demonstrate from the first meeting that the idea is valid. The founders can do this through conducting interviews, asking prospect clients the right, applicable questions. Hypothetical questions won’t be helpful in building the right strategy.
EGV’s accelerator program: how does it work?
We tend to limit our investment to only 5-6 startups per year. We like to work directly with the founders, we have no third party teams involved, so it takes a lot more of our time & energy. Also, there isn’t a specific curriculum that we follow for each investment, as each startup has its own needs, its own evolution.
EGV takes on the role of a mentor through this program, offering support in all areas, from legal to financial issues.
How can you sign up for the accelerator program?
The process is pretty straightforward: there’s a registration form with standard questions.
What we do recommend is that founders take all the time they need to formulate their answers. For us, it’s obvious from the first 2 minutes of evaluation if a startup is worth our investment or not.
How fast do we respond to an application?
If our answer is negative, we tend to reply pretty fast. But if it’s positive and we’re considering investing, then it might take more time. There will also be a termsheet and negotiation process involved before we’ll be ready to roll.
Thoughts for the future
We do believe in creating a second venture capital fund, besides EGV, but not in the next 3-4 years. There’s a lot to take into consideration, besides the usual lifetime of a VC fund. For now, we will continue to focus on investing in valuable startups.
If we were to compare the two, we could say that the Romanian VC market is in a similar situation to that of founders that are just sketching out their startup idea – it’s just the beginning. There’s a lot more to do, there’s a lot more to see, for startups looking for investment and for investors alike.
Are you a founder that wants to play a role in the Romanian tech industry? Let’s talk.