The Exchanges

Q Absolutely. And your most recent investment and why you said yes?

A So, um, my last deal was the, um, a company from London called Onfido, um, who do, um, Basically, background checking, um, as a service, which is very developer friendly, so you can have an API, um, to include their checks for right to work and criminal background. Um, if you're, for example, an on-demand cleaning company, and you want to check all your cleaners, because you have many new cleaners every, every week or every month. And we, we, we like that team a lot, and when we met them, they're, um, Three guys from Oxford, um, who, who are very smart and, you know, know exactly what they're doing. Um, but we, we also got really excited because of the, the immense opportunity in the on-demand economy and sort of the sharing economy where everybody interacts with everybody. Um, so you don't know who's driving your car. You don't know who's looking after your child. You don't know who's making your food. Um, but what you want is that you want to trust all of these people. Um, and so we think that Onfido is in an excellent position to, you know, to be the enabler of trust, um, for the, for this type of new interaction between people.

AI assessment note: “my last deal was the, um, a company from London called Onfido”

Q And how should we phrase that opening email to an investor?

A Um, I would try to avoid sending a completely open email to an investor. I, what I would try to do is, um, find someone to send that email for you, um, and giving this person really good ammunition to get the investor excited, i.e., Um, having like a short PDF PowerPoint, um, like maybe 10 slides. Um, that outline what a business is doing in really simple terms, um, that the founder is comfortable sharing, um, because, you know, it will probably get forwarded to other people. Um, and, um, and then at the same time, you know, um, make it really, make it really clear why you want to talk to a particular investor. Um, because it's really frustrating, um, when, you know, when people blanket email 10 investors at the same time, and, you know, it's hard to spend time on that kind of thing. Whereas when they say, Stefan, you know, we've read your blog post on X, and, you know, we think your recent investment Y is really cool, um, and, you know, we would like to learn from you, um, what you, um, did when you worked in e-commerce, because that's really relevant to what we do, then obviously I would be keen to help, um, as opposed to the investor, you know.

AI assessment note: “Whereas when they say, Stefan, you know, we've read your blog post on X”

Q startup, our metaphorical startup that we've just created, that it is, we want aggressive growth, and the only way to get that aggressive growth is through getting around the VC funding. So, what next? What, how do we connect with VCs? How do we Uh, get meetings with them. How do we get our foot in the door and proactively position ourselves well? How would you like to be contacted?

A So that's obviously what a lot of people, um, struggle with, and the, I think the simple answer is, it's all about, um, reaching out to the right people. Um, your initial investors, typically people have invested in companies before, um, someone like Wellington or other VCs do. So those angel investors should be in a position to point you in a couple of directions with regards to more later stage investors. And, um, If these guys, um, are trustworthy and, you know, make good choices with their investments, then people like myself are very keen to hear from them, you know, who I should be looking at next. Now, if you don't have that, which is obviously often the case when you are the first time founder, um, it's really, um, I think a good idea to just look in your, um, LinkedIn network or, um, at university, like who are people that know people that have maybe set up a successful startup in the past. Um, who you can talk to and see whether there are no investors who might be interested. Um, but it's really all about getting, um, getting other people to sort of lobby for you.

AI assessment note: “it's really all about getting, um, getting other people to sort of lobby for you.”

Q an article on Medium titled, 29 Early Stage Fundraising Pitfalls. So in today's episode, I was hoping to flip that on its head and discuss not what not to do, but what to do for a startup. Entering a round of funding. So let's start from the beginning. Uh, for all founders thinking of raising VC funds, what are the right reasons to enter into a round of venture funding?

A I think that's a really good question, and I think, you know, a lot of people Come with this preconceived idea that they want to raise money and, you know, it then often becomes a weird situation when, um, when they go and talk to investors because they don't do a great job in, you know, conveying why they're raising money. Personally, I think, you know, if you want to raise external money, then you need to have this appetite for building a high growth company, which you try to grow faster than it could naturally and organically. Um, just by reinvesting your profits. And the way we look at it, um, when someone wants to raise money is that we try to understand what sort of phase of growth we are financing. And if you're talking to a really early stage company, um, that has basically maybe a prototype and a few better users. Um, we would like to understand, okay, the next phase could be, um, you know, really launching it, um, and getting X many users. Um, and then We try to, to, to see whether we believe that the amount of money that the founder is looking for kind of matches our experience and how much you need for that phase. Um, and then we think whether, you know, the next phase after we've invested, whether they can realistically reach that, um, next milestone to be able to raise more because ultimately most of these, um, high growth businesses will not just take a seed roun…

AI assessment note: “you need to have this appetite for building a high growth company”

Q And how can founders make the most out of their meeting with VCs? Are there any questions that founders should be asking?

A Um, I, I don't think there's any particular questions, but I think, um, a lot of investors will talk about all the introductions they can make. And I always recommend people to really follow up on that and, you know, not let any offer for an introduction to a potential customer or potential portfolio company, et cetera, like slip away. Um, I think the other thing is, is Trying to, um, understand what the investor is looking for. So, you know, what is their vision for the particular space you're working in? Um, what additional data points are they looking to see? Especially if you're talking to a more junior person in a fund, um, trying to understand what their, the other people in the team, um, are usually asking and sort of as a preparation for the next meeting. Because when you go for that second meeting or second call, um, and you can, Show that you've listened to the questions and the feedback in the first interaction and kind of, you know, bring good answers to those questions. I think that's a really powerful way of showing that you are an easy person to work with.

AI assessment note: “I don't think there's any particular questions, but I think, um, a lot”

Q And when you're saying no to a startup, um, how do you phrase that? Do you provide feedback or is it quite a curt, I'm afraid it's not for us?

A I would say it depends on the, on the depth of the, um, interaction that I've had with that person. So if we've had several meetings, um, and we decide not to do it in the end, I usually try to be as transparent as possible because I would ultimately like to help that person to, to be successful. And, you know, there's usually, um, usually it ends up being a reason of, you know, we like what the team is doing. We like the product, but nobody is extremely excited about it. And I think, you know, you don't, you don't want sort of to marry an investor, um, that isn't super excited about what you're doing. So it's probably better in that case not to, to invest. Um, but of course, um, the, you know, I still would like that person to be successful. But of course, if, if I've received a, um, sort of a email that says dear investor, then, um, the, uh, pass on that will be extremely short.

AI assessment note: “I usually try to be as transparent as possible”

Q And when you were at CityMapper, what was it about being a VC that attracted you?

A I think the, um, There's really exciting parts of being in a different roles in the system. Um, when I was at CityMapper and we were raising a big round with Bolton, um, it was, you know, very exciting to be part of that on the, on the company side. Um, but personally, I find it exciting to see the different viewpoints over time. And so, um, when the opportunity came along to join the investment side, um, I was, you know, keen to jump on that train and see where it takes me. But, you know, That doesn't mean I want to be an investor for the rest of my life. I think, you know, um, having worked in startups in a large one and a small one, and now working in a VC, I think, you know, there's always this kind of urge to maybe go back, um, on the operational side and, um, maybe set up something by myself. So we'll see.

AI assessment note: “personally, I find it exciting to see the different viewpoints over time.”

Q an article on Medium titled, 29 Early Stage Fundraising Pitfalls. So in today's episode, I was hoping to flip that on its head and discuss not what not to do, but what to do for a startup. Entering a round of funding. So let's start from the beginning. Uh, for all founders thinking of raising VC funds, what are the right reasons to enter into a round of venture funding?

A I think that's a really good question, and I think, you know, a lot of people Come with this preconceived idea that they want to raise money and, you know, it then often becomes a weird situation when, um, when they go and talk to investors because they don't do a great job in, you know, conveying why they're raising money. Personally, I think, you know, if you want to raise external money, then you need to have this appetite for building a high growth company, which you try to grow faster than it could naturally and organically. Um, just by reinvesting your profits. And the way we look at it, um, when someone wants to raise money is that we try to understand what sort of phase of growth we are financing. And if you're talking to a really early stage company, um, that has basically maybe a prototype and a few better users. Um, we would like to understand, okay, the next phase could be, um, you know, really launching it, um, and getting X many users. Um, and then We try to, to, to see whether we believe that the amount of money that the founder is looking for kind of matches our experience and how much you need for that phase. Um, and then we think whether, you know, the next phase after we've invested, whether they can realistically reach that, um, next milestone to be able to raise more because ultimately most of these, um, high growth businesses will not just take a seed roun…

AI assessment note: “you need to have this appetite for building a high growth company”

Q And how can founders make the most out of their meeting with VCs? Are there any questions that founders should be asking?

A Um, I, I don't think there's any particular questions, but I think, um, a lot of investors will talk about all the introductions they can make. And I always recommend people to really follow up on that and, you know, not let any offer for an introduction to a potential customer or potential portfolio company, et cetera, like slip away. Um, I think the other thing is, is Trying to, um, understand what the investor is looking for. So, you know, what is their vision for the particular space you're working in? Um, what additional data points are they looking to see? Especially if you're talking to a more junior person in a fund, um, trying to understand what their, the other people in the team, um, are usually asking and sort of as a preparation for the next meeting. Because when you go for that second meeting or second call, um, and you can, Show that you've listened to the questions and the feedback in the first interaction and kind of, you know, bring good answers to those questions. I think that's a really powerful way of showing that you are an easy person to work with.

AI assessment note: “I don't think there's any particular questions, but I think”

Q And when you're assessing the size of a market for a startup, how, how big is, I'm sorry, how small is too small?

A Ah, that's a good question. I think there's no too small. Um, I think if it's too small, then you just need to, um, think about, uh, you know, adjacent things that you could involve your product to, or other people that you could, um, sell a similar solution to. Um, I think the, the, the important thing about the market is that, uh, you know, everybody, it's easy to make it look big, um, but it really comes down to a realistic, uh, To being realistic of how much you can address of that market, um, you know, some people are taking, um, let's say a 10% commission in the marketplace, then suddenly a big market is only 10% of, um, of that you can actually address. Uh, so I think being clear and being, uh, honest to yourself when you estimate a market is actually more important than showing that it's huge, because it's relatively easy to just make up something really big.

AI assessment note: “I think there's no too small.”

Q And when you're saying no to a startup, um, how do you phrase that? Do you provide feedback or is it quite a curt, I'm afraid it's not for us?

A I would say it depends on the, on the depth of the, um, interaction that I've had with that person. So if we've had several meetings, um, and we decide not to do it in the end, I usually try to be as transparent as possible because I would ultimately like to help that person to, to be successful. And, you know, there's usually, um, usually it ends up being a reason of, you know, we like what the team is doing. We like the product, but nobody is extremely excited about it. And I think, you know, you don't, you don't want sort of to marry an investor, um, that isn't super excited about what you're doing. So it's probably better in that case not to, to invest. Um, but of course, um, the, you know, I still would like that person to be successful. But of course, if, if I've received a, um, sort of a email that says dear investor, then, um, the, uh, pass on that will be extremely short.

AI assessment note: “it depends on the, on the depth of the, um, interaction”

Q startup, our metaphorical startup that we've just created, that it is, we want aggressive growth, and the only way to get that aggressive growth is through getting around the VC funding. So, what next? What, how do we connect with VCs? How do we Uh, get meetings with them. How do we get our foot in the door and proactively position ourselves well? How would you like to be contacted?

A So that's obviously what a lot of people, um, struggle with, and the, I think the simple answer is, it's all about, um, reaching out to the right people. Um, your initial investors, typically people have invested in companies before, um, someone like Wellington or other VCs do. So those angel investors should be in a position to point you in a couple of directions with regards to more later stage investors. And, um, If these guys, um, are trustworthy and, you know, make good choices with their investments, then people like myself are very keen to hear from them, you know, who I should be looking at next. Now, if you don't have that, which is obviously often the case when you are the first time founder, um, it's really, um, I think a good idea to just look in your, um, LinkedIn network or, um, at university, like who are people that know people that have maybe set up a successful startup in the past. Um, who you can talk to and see whether there are no investors who might be interested. Um, but it's really all about getting, um, getting other people to sort of lobby for you.

AI assessment note: “it's really all about getting, um, getting other people to sort of lobby for you.”

Q Absolutely. So now we've got that intro, we've got our startup friend who's introduced us, and we've been called in for a meeting. What you expect, a ten-slide PDF, Do we need a cap sheet? Do we need a financial breakdown, financial forecast? What do you expect in terms of documentation for the initial meetings?

A So I would say the, the 10 page PDF is something where you can get the investor excited. When I go to a meeting as a founder, I would probably have something between 10 and 25 pages with me to explain all the important aspects of the business. But Not necessarily look at every slide during the one hour meetings, typically a one hour meeting, but rather try to tell a story why you started a business, why you're so passionate about this, and why you're the right person to, to, to tackle this hopefully huge problem. And it's really important to, um, sort of build a friendly atmosphere during that meeting, because ultimately it's a people business, and we, we like to invest in people, um, That we want to work with. So, um, if people come across as arrogant, or if they're really late, or, you know, if they're just very cold during the meeting, that I think is not really helpful with, um, getting the vibe right.

AI assessment note: “I would probably have something between 10 and 25 pages with me”

Q And with the increasing amount of capital available nowadays, um, competition obviously between VC firms has increased for the hot startup rounds. So what services can VCs bring other than market, other than connections?

A So I think it's, it's a combination of, of, of connections on all levels of the, of the seniority spectrum, right? So you may know a couple of, um, really good designers, um, but you also may know someone in the acquisition team at a large Silicon Valley acquisition, um, company. Um, but it goes beyond that. I think it also goes, um, about sharing, um, best practice in the portfolio. Um, and it can mean, uh, just really, uh, Helping founders do the right thing at the right time, because a lot of the times, um, people are doing it for the first or the second time. Um, but of course we've seen similar situations several times in, in, in our portfolio. And so kind of bringing that experience, I think is, is probably the most important thing we can do.

AI assessment note: “goes beyond that. I think it also goes, um, about sharing, um, best practice”

Q Absolutely. And, and then we leave the meeting that we've had with the VC, and they say they'll be in touch, but a week later we haven't heard from them. Should we follow up, and if so, how?

A Really interesting problem, right? And I think everybody has that. Um, I have that, and you know, and, and founders that reach out to me have that. I think it's all about sort of gentle nudges, and it's totally ok to, to follow up once or twice. Um, the thing is, I think as a, as a, as an entrepreneur, you need to understand that, um, the investors are working on several things at the same time. Um, and while for you, the business is like, The one thing for the investor, it's probably one of five or 10 things they're currently looking at. So it's sometimes other things just have to be dealt with more urgently. Um, now that, that still means though that, you know, you want to, when you get back and then follow up and say, Hey, you know, you, you said that you'd get back to me next week. I haven't heard from you. I would include, um, success stories. So by the way, we've signed, you know, um, three more clients and we've had a real good, um, new hire. Um, to make it, um, really worth the while for the investor to think, ah, you know, even if I wasn't so excited the first time, uh, sort of to get re-excited about the topic.

AI assessment note: “it's totally ok to, to follow up once or twice”

Q And then which pitch, or Preliminary email or initial email has impressed you most, and why?

A I mean, I think there's many good ways of reaching out. I think what I personally I like the most is when people really refer to something that I've done in the past. So say that I've worked for CityMapper, or that I've worked in Stylist Pick, the e-commerce company, and then ask me specific advice about what I learned there. Because I think every VC wants to be helpful in every interaction with founders and entrepreneurs. And so, you know, just Being a recipient of some information is one thing, but being able to, you know, help the founder, even in my first interaction with them, is something that is really rewarding, and therefore I'd be much easier reachable when I see that in the initial email.

AI assessment note: “what I personally I like the most is when people really refer to something”

Q And with the increasing amount of capital available nowadays, um, competition obviously between VC firms has increased for the hot startup rounds. So what services can VCs bring other than market, other than connections?

A So I think it's, it's a combination of, of, of connections on all levels of the, of the seniority spectrum, right? So you may know a couple of, um, really good designers, um, but you also may know someone in the acquisition team at a large Silicon Valley acquisition, um, company. Um, but it goes beyond that. I think it also goes, um, about sharing, um, best practice in the portfolio. Um, and it can mean, uh, just really, uh, Helping founders do the right thing at the right time, because a lot of the times, um, people are doing it for the first or the second time. Um, but of course we've seen similar situations several times in, in, in our portfolio. And so kind of bringing that experience, I think is, is probably the most important thing we can do.

AI assessment note: “sharing best practice in the portfolio... Helping founders do the right thing”

Q And when you're assessing the size of a market for a startup, how, how big is, I'm sorry, how small is too small?

A Ah, that's a good question. I think there's no too small. Um, I think if it's too small, then you just need to, um, think about, uh, you know, adjacent things that you could involve your product to, or other people that you could, um, sell a similar solution to. Um, I think the, the, the important thing about the market is that, uh, you know, everybody, it's easy to make it look big, um, but it really comes down to a realistic, uh, To being realistic of how much you can address of that market, um, you know, some people are taking, um, let's say a 10% commission in the marketplace, then suddenly a big market is only 10% of, um, of that you can actually address. Uh, so I think being clear and being, uh, honest to yourself when you estimate a market is actually more important than showing that it's huge, because it's relatively easy to just make up something really big.

AI assessment note: “I think there's no too small.”

Q And when you were at CityMapper, what was it about being a VC that attracted you?

A I think the, um, There's really exciting parts of being in a different roles in the system. Um, when I was at CityMapper and we were raising a big round with Bolton, um, it was, you know, very exciting to be part of that on the, on the company side. Um, but personally, I find it exciting to see the different viewpoints over time. And so, um, when the opportunity came along to join the investment side, um, I was, you know, keen to jump on that train and see where it takes me. But, you know, That doesn't mean I want to be an investor for the rest of my life. I think, you know, um, having worked in startups in a large one and a small one, and now working in a VC, I think, you know, there's always this kind of urge to maybe go back, um, on the operational side and, um, maybe set up something by myself. So we'll see.

AI assessment note: “personally, I find it exciting to see the different viewpoints over time.”

Q And how should we phrase that opening email to an investor?

A Um, I would try to avoid sending a completely open email to an investor. I, what I would try to do is, um, find someone to send that email for you, um, and giving this person really good ammunition to get the investor excited, i.e., Um, having like a short PDF PowerPoint, um, like maybe 10 slides. Um, that outline what a business is doing in really simple terms, um, that the founder is comfortable sharing, um, because, you know, it will probably get forwarded to other people. Um, and, um, and then at the same time, you know, um, make it really, make it really clear why you want to talk to a particular investor. Um, because it's really frustrating, um, when, you know, when people blanket email 10 investors at the same time, and, you know, it's hard to spend time on that kind of thing. Whereas when they say, Stefan, you know, we've read your blog post on X, and, you know, we think your recent investment Y is really cool, um, and, you know, we would like to learn from you, um, what you, um, did when you worked in e-commerce, because that's really relevant to what we do, then obviously I would be keen to help, um, as opposed to the investor, you know.

AI assessment note: “make it really clear why you want to talk to a particular investor”

Q Absolutely. So now we've got that intro, we've got our startup friend who's introduced us, and we've been called in for a meeting. What you expect, a ten-slide PDF, Do we need a cap sheet? Do we need a financial breakdown, financial forecast? What do you expect in terms of documentation for the initial meetings?

A So I would say the, the 10 page PDF is something where you can get the investor excited. When I go to a meeting as a founder, I would probably have something between 10 and 25 pages with me to explain all the important aspects of the business. But Not necessarily look at every slide during the one hour meetings, typically a one hour meeting, but rather try to tell a story why you started a business, why you're so passionate about this, and why you're the right person to, to, to tackle this hopefully huge problem. And it's really important to, um, sort of build a friendly atmosphere during that meeting, because ultimately it's a people business, and we, we like to invest in people, um, That we want to work with. So, um, if people come across as arrogant, or if they're really late, or, you know, if they're just very cold during the meeting, that I think is not really helpful with, um, getting the vibe right.

AI assessment note: “I would probably have something between 10 and 25 pages with me”