Who is most likely to become funded by Silicon Valley VCs

Silicon Valley VCs made some remarks on Finnish high tech start-ups when they visited us. Here you can read about the elements we need to have in place to be qualified for applying funding from there.

Note! There are some presumptions: we need to fulfill the regular VC funding requirements, like scalable business model. Secondly, these VCs were high tech investors. Finally, this is not exhaustive list but just interesting highlights.

Finnish clientele is not enough. Sales in Finland are not a proof of business model. We need to have a customer abroad, and VCs want to call him.

We need to make sure our business is veritably international. In Silicon Valley investor’s eyes, revenue in Finland is like selling to friends. The best thing is to acquire a customer abroad – not necessarily in the US but maybe in Germany, or the UK - and make sure that customer likes our product so much he’s not going to hang up when the VC calls him.

If we are looking for funding from best entrepreneurial environment in the world, Silicon Valley, US market must be considered as the primary market. That is because VCs are local players. They will also want the immaterial property to be owned by a US company.

However, Finnish start-up entrepreneurs have no reason to feel they are disabled because they are from Finland. Only if we look just locally it is disadvantage. We should bring in technology wherever it is, bring in people wherever they are from, and look outside of our locality.

They say Finnish entrepreneurs are too humble.

More aggressiveness is needed regarding the business idea and the plans. Our built-in motivation should be like “I’m gonna build the biggest company in the world!”, or, “I don’t care it’s recession/holiday/anything, I am gonna build a great business!”.

VCs said that with best start-up entrepreneurs, they really feel the energy - entrepreneurs just can’t wait to start! They have internal drive, and, actually, those kinds of entrepreneurs even push VCs.

Compared to those entrepreneurs, Finnish entrepreneurs seem to be conservative and thoughtful directed; “this is how I’m gonna use the money, I’m gonna show revenue, I’m gonna make sales in a proper way, it’s gonna be good” – what VCs really want to hear is the drive of youngness! Entrepreneurial spirit comes from naivety - you just don’t know you don’t know. We need to make a big leap towards aggressiveness so that we’ll be able to compete with entrepreneurs from rest of the world.

At the same time, Finnish entrepreneurs put too much emphasis on describing the execution plans, not the market opportunity. After all, for VCs, it is the vision what sells.

Founders create the DNA for the company – passion for solving a problem is a great starting point.

Motivation of the founder is important. Although we are taught to analyze exit possibilities in business plans and presentations, quick exit is not the right motivation. We must want to solve something. Secondly, CEO must be magnetic personality because CEO must bring in money and people.

Many VCs value domain expertise. In this market situation, a lot of time will be used to DD around the teams. What skills, what experience they have. Most important thing in a resume is that what is not in the resume.

VCs invest in team, or market opportunity, or technology. There are no VCs that move around freely; VCs usually stick to one primary reason. We should look for those VCs who see our strengths important. We don’t have to have all three dimensions perfect in the beginning.

On the other hand – VCs say they see so many deals it’s almost too much work. It’s not possible to change the DNA so totally that it’s worth doing it. So let’s be careful with the DNA right from the start.

For me, right type of DNA would be market orientation and compelling value proposition as fundamentals of all business, or willingness to receive coaching and aim higher. Or, build the biggest company in the world!

The ideal deal looks like huge market, huge market, and huge market.

It is very much about market and what’s happening on market side. The ideal investment possibility would be that customers are looking for technologies that current players are not providing. We need to convince VCs there is a huge market opportunity. Secondly, we need to start exporting our products early. That’s the best way to get the real market validation to our ideas.

On the other hand, unique and compelling technology can be it for some VCs. Like Checkpoint was on every Sun computer that made up internet, winning technology is a turn on for them.

What I liked, was the fact that VCs are not too cold-blooded after all – they actually can tolerate some flaws in your business plans. They said: If you are really logical you are not in this business – meaning that they want to trust in their gut feeling, too! VCs are looking for entrepreneurs to help them to solve a puzzle to make great business: together they are creating the picture of opportunity.

Let’s tell them if we have research based, protected and proprietary technology

VCs love it. Recent years, too much emphasis on technology has been considered as a bad thing in Finland. However, these gentlemen wanted to see a huge marker potential combined with great technology. Theoretically, the best case would be if we could prove that our technology will be the winning one. I don’t know how to do that.

But, I would imagine that you might have weaknesses in describing the market potential. Market potential is always full of assumptions. VCs themselves help you to figure out the best potential. Instead, you cannot have weaknesses in your technology, or any obscurity who owns the technology.

Most of us are first-timers, but luckily they don’t even suppose we are serial entrepreneurs.

To my relief, VCs said that we don’t have to be serial entrepreneurs to become successful in high tech start-ups. If you happen to be one, and you still want to do the thing again, it’s an advantage. Not a necessity.

In an environment like Finland, where you feel the fear of failure, we tend to think only successful entrepreneurs as serial entrepreneurs. VCs reminded that also failured entrepreneurs are serial entrepreneurs. In Silicon Valley, they see failure as a learning process.

More important part is that we are persons who know how to operate in start-up environment. It means working in small companies, producing solutions to market need with almost with no staff and budget.

When shall I give my presentation to VCs?

To say it shortly: As soon as I can effectively communicate a huge business opportunity. I should also be able to demonstrate that I can sell my software not only in Finland but maybe in UK/Germany/anything, too.

But, we shouldn’t choose our first-choice VC as our first audience. It’s better to give the presentation to somebody else who is able to give honest feedback so that we can make the changes the presentation, or business plan, might need.

Extra hint for policy makers in Finland:

Put more emphasis on your research based technology. Good idea is not enough, but good idea around great (research based) technology. In general, Finns should create departments within universities where domains merge, like bio and IT, or business and engineering.

Introduce students to venture capital. In Silicon Valley, schools are aware of venture capital and business opportunities; venture capital is something about what is talked about in the campuses. VCs actually are around the campus.

Remarks are written down in a panel where Dave Epstein (Crosslink Capital), Curtis Feeny (Voyager Capital), Prashant Shah (Hummer Winblad VP), and Don Wood (Draper Fisher Jurvetson) briefly analyzed their experiences in Finland. Possible interpretations are mine. Thank you VCs.