Every year, millions of businesses are created around the world. In order for these big ideas to turn into successful startups, most of them will inevitably face fundraising challenges.
While there is no magic formula, there are variables that founders can sort out when engaging with potential investors. TNW sat down with San Francisco-based early-stage VC investor Letizia Royo-Villanova during Red Bull Basement Global Final in Tokyo to get her knowledge.
The only thing that really stands out, according to Royo-Villanova, is the founder’s drive and authenticity. “Maybe they’ve experienced a problem, or they know someone who has, and so they really want to solve it. Not because of making money – of course that’s a plus – but because they actually care about solving this problem.”
Apart from the mentioned passion, the ability to sell is another key skill. Founders are constantly asked to sell their ideas to investors, customers – and talent too. “The best founders will have the best talent on their team,” says Royo-Villanova.
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While direct industry experience is valuable, it is not always essential. “There are great entrepreneurs out there who don’t necessarily have that experience. They were born with that desire to start a company.”
However, having knowledge of the customer and understanding the market are non-negotiable: “You really have to understand the pain point and the industry. This will facilitate the opening of many doors in the future,” adds the VC.
Finally, personality and rapport matter. “I think you feel it in the first half hour,” Royo-Villanova says, referring to figuring out whether a founder is someone the VC will want to spend time with. “If you end up investing in a founder, you’re going to have a lot of meetings with that person. So if you don’t feel the vibe, you don’t want to invest in them.”
Mistakes founders make when pitching
Although a founder may have the best idea imaginable, creating an impactful pitch is essential to getting investors on board. (Not everyone is lucky enough to survive a disaster field like Nvidia co-founder Jensen Huang famously awarded Don Valentine of Sequoia in 1993.)
One of the most common mistakes Royo-Villanova sees is that founders spend too much time describing the general problem as opposed to focusing on their specific solution. “If it’s a climate or sustainability startup,” explains the VC, “and they spend 15 minutes talking about how there’s a climate issue, I don’t need to hear that. They could tell me in a sentence or two. Then I could let’s focus on more important things.”
And while solo entrepreneurs can succeed, the VC is more likely to consider funding a founding team of two or more. “Building a startup is hard enough, and if you’re doing it yourself, what if you suddenly have a bad week or a bad month? You need that other person to hold you up,” she says. What’s more, teams with complementary skills are more likely to drive future success.
Common pitfalls when running an early-stage startup
Of course, beyond the pitch, there’s also the small matter of actually running the business. Specifically, when it comes to fundraising, Royo-Villanova believes a big mistake is taking money from every available investor without considering strategic alignment.
“The money will run out, but the support from the people investing in you shouldn’t,” she says. The right VC can provide assistance with recruiting, sales or industry networking.
Turning to the issue of talent, hiring decisions are a critical area when it comes to running a business. Founders often try to save money by hiring cheaper talent, but Royo-Villanova says that can backfire. “It’s about finding the right fit for your company and building a culture from day one,” she says.
Finally, the inability to rotate is another potentially fatal flaw. “If you have an idea, talk to potential customers from day one, figure out if it’s something that’s actually a problem and that they’re going to prioritize and that they’re going to pay for and if not, it’s okay to spin around. If you’re going to fail, fail fast – and it’s not even failing, it’s just changing into something else.”
A focus on education and supporting regulation can boost European innovation
With all the recent concern and discussion about the innovation gap between the US and Europe, we couldn’t help but ask the California-based VC what she thinks are the most important areas holding Europe back.
One of the main issues she identifies as the lack of early exposure to innovation and entrepreneurship. “I don’t think I was as aware of the world of innovation or venture capital as maybe some students in the US,” says Royo-Villanova (who is from Spain). “If you start from a very young age to introduce that culture of innovation and explain how important it is, it will help a lot in the future.”
Regulation and corporate attitudes also play a role. European corporations can often exhibit a risk-averse mindset, in contrast to a more dynamic and entrepreneurial culture than their North American counterparts. Additionally, complex regulatory frameworks can prevent startups from scaling quickly—something like the recently launched EU Inc hope to overcome.
Founders looking to build successful startups must embody passion and the ability to sell, as well as customer savvy, while avoiding common pitfalls, including neglecting strategic fundraising and failing to move quickly. Meanwhile, Europe’s innovation ecosystem would benefit from early education, a change in corporate attitudes and regulation.
Addressing all these challenges together can open up tremendous opportunities for European startups to create a virtuous cycle of innovation and investment, and produce more winners on the global stage.