The Czech-British fund Opifer sees hundreds of projects every year. However, they have only four startups in their portfolio. Among seed funds this is quite common. In the US, it is expected that a startup will pitch to dozens of funds before it gets an investment. Why are some entrepreneurs successful while most fail? “Good preparation leads to success,” says Opifer co-founder Lukáš Foral.
How should a startup proceed once it gets money from, as they say, family, friends and fools?
I definitely recommend going through an acceleration program, educating yourself and using money to find your first customers, get early feedback and map the competition. It is good to go to an investor with something tangible.
What should a startup founder consider before meeting an investor?
He or she should certainly have a clear idea of the amount that they want to ask for and know what they are going to use it for. He or she should also be realistic about the valuation of the company, or of the idea. Exaggerated valuation is often a show stopper for negotiations. An acceleration program, a mentor or a startup that has gone through an investment round can help new startups decide when exactly to go for the investment and with what requirements.
Let’s say that the founder has decided to ask for an investment. How should he or she negotiate with an investor?
In the first meeting, it is important to explain the problem and the target market, to present the company as unique, show the team’s enthusiasm and listen to feedback. A lot of startups close up shop when they get a few rounds of negative feedback in a row. Negative reactions, however, hide an important message – what to change in order to have a chance to succeed next time.
How should one work with negative feedback?
It often happens that a startup meets a late-stage investor. In their feedback, the investor mentions that the idea is interesting but needs to reach certain metrics for them to consider investing in it. In such a case, the startup can go to an early-stage investor and tell them they need to get to a certain stage. Knowing the requirements is beneficial for the early-stage investor because they can estimate whether their means to achieve the goals are sufficient. In short, the startup did not get the investment, but learned what metrics it should reach for the investor to be interested in it.
What is important to talk about during the first meeting?
Essential things like innovation, global potential, scalability, the team involved and the potential of profit for the investor. Investors always appreciate startups that are empathic, in the sense that they can explain how they think about valuation, strategic exit partners and future investors. Only a few startups can think of venture strategies as an investor, so whenever such a startup appears, it’s a good signal for us.
Continue reading this interview on the UP21 blog.