When you have a startup in the EU, eventually you might want to look beyond the borders of your country. Having a group of international investors to back your business is essential to scale up internationally. But how to get them on board?
There’s no better person to ask this question to, than Frenchman Daniel Michel. As Head of Access to Finance for European accelerator EIT Digital, he spends his time connecting deep tech scaleups to investors all over Europe and getting them ready to raise funds. Together with his team, he facilitated over €100 million in investments for European deep tech scaleups. Michel manages an investor network of over 300 investors. What is his advice for businesses that want to scale up in Europe and beyond?
#1 Prepare your first impression
“The first thing we do when we take a startup on board, is to develop a fundraising strategy. We determine what a business needs, what they can do with it and when they would need it. It also involves a lot of coaching for the CEO. It is important to get the idea of the business plan crystal clear in his or her head. We want them to be trained like soldiers, so to say. Because if you have a chance to speak with the partner of a fund, you only get one chance to make a good first-time impression. You have to make sure you know what five things they will write down in their notebooks about you. When it comes to presentations, I always like the strategy: ‘Say what you’re going to say, say what you want to say, say what you said’. It’s a very effective way to hammer in the key investment considerations.”
#2 Think internationally from day one
“A good example is French startup Metron, an EIT Digital alumni. They created an AI-driven platform dedicated to energy intelligence for the industrial sector. Factories can use that to reduce their energy consumption. They created their product so they could sell it to customers all over the world, from the very first day. They want to sell their product to factories. It really doesn’t matter where the factory is located. This works for them. Just a week ago they closed a new funding round, bringing the total to 20 million euro of investments.”
“When you want to scale up internationally, it is important to think internationally from day one. Startups in Sweden and Finland generally do this very well from the onset. They build their business to be European and want to sell in the US right from the start. This does not mean you need 28 salespeople in 28 countries, but you do need to have documentation translated and your website to appeal internationally. Startups from larger European countries often lack this international mindset, as they focus on their domestic market for too long, which is often seen as large enough; often this is wrong.”
#3 Cast a wide net
When scaling up internationally, you often don’t know any investors in other countries. Everybody can spend half an hour on Google and find the big names. But these famous funds are likely not the ones that will invest in your startup. The main challenge here is to find the right investor for your company. This search is very time-consuming.”
“To find the right partner, you’ll probably contact around 80 to 150 funds. Don’t consider this to be a lottery, you need to qualify each of them and make sure they are a good fit. Eventually maybe one or two will stick. I recently spoke with the CEO of a Nordic scaleup who contacted 80 investors. 79 investors told her ‘no, we don’t believe in your business’. Her company became a unicorn. Lots of investors don’t recognize a good company.”
#4 Don’t go at it alone
Finding the right investors for your company is time-consuming. Some startups try to do it on their own. But a CEO should be running the company, he shouldn’t be fundraising all the time. He should rather focus on developing his business, secure customers and work with people with Venture Capital expertise to get the company prepared for fundraising.
“You can hire an outside advisor or take somebody on board to do it in-house. Important thing is that that person is experienced in fundraising. As for myself, I sometimes come across deep tech startups that have technology that is very niche, like some highly specialized agritech or medtech applications. This means I’m starting with a blank page and do a deep dive in their technology before looking for suitable funds.”
#5 Product is nice, business is nicer
“In Europe, a startup must prove it gets sustainable within the next 18 months or two years. So in case it will not be a unicorn, it can still be a profitable business. Discussions with VC’s are never about the technology of a startup. They are always concerning the business. This is possibly why we have fewer unicorns in Europe than in the USA, while we have equally good companies here.”
“There are approximately 50.000 startups in the EU and one-third of them are raising funds every year. That is 100 times more than the number of investors we have in Europe. So as a startup, you need to be super prepared. Don’t talk too much about all the features of your product. The most essential thing is to show your product has proven traction. Second, you need to prove there is a sizeable market. Third, show them you have the right team.”
Remember, this is not the US
For startups looking at investors from the USA, wondering why startups have easier access to big sums of investment money there, Michel has one last bit of advice: “Stop looking at the US: European startups are very different from those raising 50m€ A-rounds in the US. This has to do to the addressable market which is different for a US startup versus a European one present in only one country with only a few national customers. On this topic, EIT Digital Accelerator makes it easier for startups to scale up in Europe. But don’t forget, it is still a big continent where customers and investors have their own habits and risk aversion.
Despite all the efforts, Europe still has a fragmented market compared to the USA. Only a few companies manage to build an international shareholding, which can really make all the difference in scaling up a business fast. The problems are not the physical borders, nor the language, it’s mostly the fragmentation of the European markets, both in terms of targeted customers and investors. At EIT Digital Accelerator, we break these boundaries for European scaleups.”