On the backdrop of the EBAN Winter Summit 2018 that took place in Luxembourg, we met Olivier Coekelbergs, Partner at EY Luxembourg and Private Equity Leader, to talk about venture capital and pitching.
(Featured Image: Olivier Coekelbergs, Partner at EY Luxembourg and Private Equity Leader, conducting a panel discussion during EBAN Winter Summit in Luxembourg / Image Credit © Silicon Luxembourg)
In your view, what are the key elements for a successful pitch?
One of the first and most important question to bear in mind when pitching is who you are talking to. This is a common mistake on the startup side. It goes without saying that startups need to present a convincing idea, but it doesn’t work if you don’t present it to the right people! Targeting the right investment fund is paramount.
First of all, knowing the venture capital investment strategy is key. You don’t need to reach out to early-stage funds if you already have a product ready to be commercialized. It is important not to create a mismatch between the stage of development of the startup and the investment fund strategy.
Another big dilemma for startups is setting the right valuation in the pitch. If I could give but a little advice to startups, it would be to not blow your chances by presenting a high valuation to VCs. It might scare off potential future investors that will need to inject a lot of cash. Even if the valuation is not optimal to close the investment round, startups need to consider future necessary funding. And setting a high price too early might impede development.
Secondly, focusing only on the innovative idea in a pitch can be a mistake. Startuppers must prepare their business plan considering a key point that VCs will look out for: is the current management able to grow this idea, as good as it sounds, into a real business? Sometimes, a team can have the best technical abilities while also minimalizing the difficulties ahead. They thus lack what it takes to build this idea into a successful business.
Finally, some VCs will invest only in specific geographical areas, such as Asian and African markets. In that case, the pitch will have to be built around presenting market entry and geographical specificities—which is much more than the idea itself.
“Apart from stating the obvious, VCs also consider the relationship with startups. A good match between VC and startup is key to success.”
Indeed, David Waroquier, a partner at Mangrove Capital Partners, an early stage VC in ICT, declared on stage during the EBAN event that it is a mistake to ask too much too early. “A startup should not fight to optimize the valuation!” He then gave insights on the screening process for startups. “We receive between 1,500 and 2,000 pitches every year and invest in only 7 or 8 of them! The human aspect is essential to establish trust with an entrepreneur. That’s why we never rush into an investment. To choose, we focus on one preeminent key point: the ability of the team to tell a story and captivate the audience. Then, it all came down on having a team that can productize their ideas, a speed of execution—as we generally exit after 5 years—and a real need on the targeted market.”
Daniel Beck from the European Investment Fund also gave an interesting side to this panel, as the EIF only invests through venture capital funds or business angels, but never directly in startups. “Today, we have invested in around 680 funds, with a ratio of 60/70 per year, at the EU level. We only invest in the most promising funds in promising sectors and geographical zones that we choose well. We act as a passive investor, as it is the funds that ultimately make the decision to invest. The process is different to BAs, as startups do not come directly to us. We need to actively source them and choose the best, and out of those bests select even further to choose wisely our commitment.”
Who do venture capitalists look out for on the market?
They look out for THE golden idea! Apart from stating the obvious, VCs also consider the relationship with startups. A good match between VC and startup is key to success. Startups need to understand the requirements put on the table by the VC. On one hand, some VCs want to be involved in the management and decision-making process. This needs to be discussed with startups at the beginning of the collaboration to avoid issues further down the road. On the other hand, some VC will just inject cash and be silent partners.
“We have the perfect environment for VCs in Luxembourg, with more VC funds setting up and some great stories such as those of Wix and Job Today lately.”
This all comes back to the first point: clearly identifying who you are talking to!
In Europe, VCs also hope to come closer to the US model. In the US, billions of dollars are raised in VC funds, which is still not the case in Europe. VCs fund the companies of tomorrow, and larger funds need to be more present on the European market. Another side of the story is the fact that even if there are more VC funds in Europe, with cash to invest, they have a hard time finding the startups to invest in! We still need to increase the level of entrepreneurship in Europe—to create more and more innovation.
Luxembourg is a great contributor to the question of VC funds. We have the perfect environment for VCs in Luxembourg, with more VC funds setting up and some great stories such as those of Wix and Job Today lately. That being said, we could to do so much more!