This article has been published on Medium first on December the 13th of 2017.
A few weeks ago, we welcomed our board member Raffi Kamber, partner at Alven, one of the leading French start-up investment funds in France (Drivy, Frichti, Captain Train or Stripe for example) for an "Ask me anything" meeting. No taboo!
It is hard to sum up more than an hour of discussion, but here are the 5 key points to remember.
Team, idea: which element is the most important?
Steve and Alexandre - the co-founders of Qonto - met Raffi at a Start-up Weekend. They had to present their concept 10 minutes later while they were not ready at all. On top of that, their idea was far from convincing Raffi. And yet, Steve and Alexandre won the Start-up Weekend, and most importantly, Raffi - via Alven - invested in both their companies!
Despite this idea of "Airbnb shopping centers" which had not convinced him at all, he was marked by the duo and their ability to think and execute, and he, therefore, followed their progress. When Steve and Alexandre were looking for funds for their first company, Smok.io, he naturally supported them, and then helped them for Qonto as well.
This represents what all investors say: the team is the first criterion on which investors make their choice. This has absolutely nothing to do with affect, but rather with the fact that there is a very strong weight linked to the personality of the founders in any investment whatsoever.
Thanks to this key indicator we can project the company's ability to perform, finance and recruit. So be careful on how you communicate and present to investors!
How to make your first pitch successful?
This may seem obvious, but Raffi's experience proves the opposite: you must be prepared for the meeting with potential investors.
This means that to fully understand its specificities, you must have read about the fund, even if only through their website. It is also important to look for information on the partner who will attend the meeting, on the type of companies they have in their portfolio, etc. This is a prerequisite to ensure a discussion where both parties are motivated!
Then, NEVER try to hide things. Transparency builds trust, which is the key in an investor-entrepreneur relationship. What has been kept secret will eventually come out at some point, and this can create significant problems. It is better to be 100% transparent from the beginning so that both parties can make an informed commitment.
Finally, be unforgettable! No need for a far-fetched staging, all you have to do is get the investors involved in your story, so that they identify themselves with you and remember you at their next investment committee.
When is the best time to raise funds in the seed phase?
It is difficult to answer this question in an absolute way. Raffi points out the obvious: the wrong time is when there is only 3 months of cash left in your company and you have no lifeline.
He advises to identify the seed funds and business angels that may be of interest to you and to test your idea with 5 of them. The purpose is to see if they are interested in the stage of development you are at, and if not to take their feedback and return to them a few months later.
No fear of losing it if you don't take an exhaustive tour of the VCs of the place, and especially if you show a real evolution between the first meeting and the next.
How to shorten the time between the first contact and the signing of the term sheet?
People often say that it can take many months from the first contact with investors to the signing of the term sheet. Of course, this does not happen all the time. The deal Raffi signed the fastest was in 48 hours for example - but he knew the founder for 10 years.
He gives two tips to speed up the time between these steps:
- Creating competition. When other investors start looking at your start-up, the first ones are forced to keep a steady pace of work to be in the right timing! 😉 This is a good way to speed up the process. However, creating these conditions is not so simple!
- Making yourself known to VCs and maintain the relationship. Raffi advises creating and maintaining a relationship with the investors you are aiming for in the long term. Then when it comes to raising funds, you will be able to do it faster.
How to choose the right investment fund?
We come to the essential issue raised by Raffi during this meeting: due diligence is not just for investors! Translation: As an entrepreneur, you need to learn as much about your potential investors as they do about you.
Raffi noticed that very few French entrepreneurs have this reflex. However, accepting an investment fund in your board means that you will live together for about 5 to 7 years. Good understanding is a key factor in the success of this investor-entrepreneur relationship.
At Alven, Raffi forces entrepreneurs to call companies in their portfolio to find out, especially how the partner reacts in difficult times. This will avoid unpleasant surprises!
What advice would you give to entrepreneurs looking to raise funds?