Patrick Kersten is a seasoned entrepreneur as well as the chairman and co-founder of Startups.lu, the newly formed Luxembourg Startups Association. He tells us more about his view of the ecosystem, the crucial role VCs play in growing it and how startups can better prepare to get VC funding.
How would you describe the current relationship between the Luxembourg VC and startup ecosystem?
VCs play a very important role in the local startup ecosystem because local VCs are very involved in sharing knowledge with founders. Furthermore, they play an active role in explaining how to pitch and raise money from institutional investors.
As for their activities, most VCs look for projects all around Europe that fit their selection policy. Whilst the local ecosystem is growing fast, the current size is still too limited to come up with enough projects for VCs to invest in.
Then, we need to mention that Luxembourg has two kinds of VC teams: the back office and the front office VCs. Luxembourg is mostly known for its financial back office which has limited to no interactions with actual projects requiring investments.
However, there are a growing but still limited number of VCs with front offices in Luxembourg. This is encouraging to see because they show much more interest in local projects and potentially help them grow. At Startups.lu we encourage all VCs to have their front office teams in Luxembourg, as there are interesting projects for them and they play an important role in the ecosystem.
Would you say it’s important we have more VCs in Luxembourg?
Absolutely, yes! Firstly, VCs bring an element of education to the startup community and communicate how to set up projects so they become eligible for funding. Secondly, in an ecosystem growing as fast as Luxembourg, more and more interesting projects are coming up.
It’s also important to understand that, due to the small size of the country, Luxembourg startups are meant to go international. Once they go abroad, they are no longer a local player, so having a community of VC investors in Luxembourg would be really important to create links between countries and set these startups up for continued success. VCs create connections and open doors to other countries.
Lastly, Luxembourg is known for its short decision ways. It’s an entrepreneurial state we have here and over the last years, we’ve launched multiple verticals. Looking at the spacetech sector, for example, I think it’s stunning to see what kind of substance we’ve been able to produce in just a few years. With more VCs, we could really leverage this and expand different verticals in the country. Luxembourg is a fertile ground for fruitful investments.
What is the government’s role in this?
It would be useful to the ecosystem if the Luxembourg government could make it easier for VCs to establish a front office in Luxembourg and give them advantages for doing so. But I also think the state is very aware of this and the importance of attracting talent to Luxembourg. All of these are necessary to create the right ecosystem which we’ve been working on for the past 20 to 30 years.
What tips do you have for startups looking to get VC funding?
The most important point is to be prepared because it’s a lot of work. You really have to have a plan, know how you want to implement it and know your business inside out. You also have to believe in your plan and be able to adapt it if someone changes the assumption behind it. Ideally, you want to be ambitious too and know your markets. That’s it basically.
It’s important to remember that VCs want to identify superheroes and future business champions. So, it’s also a question of product-market-fit, growth perspectives, attitudes, personality and having a strong team from the start. If you know where you are going, VCs will feel it and getting an investment will be easier. But this does not happen over night, it’s a long game and you need to build a relationship with them first.
In five years time, what do you hope Luxembourg’s VC ecosystem will look like?
In five years it will definitely be way bigger than now. The startup community will have doubled in size and the local front office VCs in Luxembourg will have grown even faster. The more startups we have, the more networking and the more relevance the local startups will have to VCs.
As for Startups.lu, we are here to share the experience of startup founders who have done fundraising before and to give back to the youngsters so they are better prepared and for their first interactions with VCs.
This article was first published in the VC Guide 2022