Bio: Özge Öz is an experienced investor, currently taking on the role of Partner at QNBEYOND Ventures - a VC firm supporting early-stage startups developing financial services. He is an enthusiast of the startup ecosystem, participating in many startup conferences and programs such as the CEE Startup Challenge, Growth Circuit, Wolves Summit and many more, as well as contributing to themed podcasts and articles.
Today, Özge shares with us his tips and insights on the successful startup fundraising process and the importance of building an investor-startup-founder relationship. Let's get started!
We are in front of the incoming recession - the economy, the private equity and VC markets are slowing down. In your opinion, how will this stagnation affect the fundraising scene from the perspective of both startups and investors?
Obviously, the companies, especially at the early stage, should be more cautious right now regarding their burn and fundraising expectations; the multiples are squeezed and money is no longer cheap. However, I do think that the best startups - the ones who hustle hard, constantly talk to their customers, get the insights, and build a great product - will still get funded easily. Most VCs would also acknowledge that this is a perfect time to invest and there are many success stories that started in a down market. We should not forget that the startup journey takes usually 10+ years and markets will go up and down. So I think the best teams wouldn’t pay too much attention to the current market conditions and lose hope.
So, you advise early-stage startups to simply take this hard time as it is and simply keep developing their solutions?
Yes, the most important thing is to make something people want. If you can show the fast adoption of your product and tell your vision clearly, VCs will be interested to partner. If the investor is a CVC like us, they might also look out for possible synergies besides financial returns.
This synergy and mutual understanding in founder-investor relations are crucial, however, it is not easy to get to this point. It requires time and 100% engagement and even after all the effort success is not guaranteed. How to find the right investors?
Yes, for sure, usually fundraising takes a lot of time. And building an investor list is very crucial.
A founder should do their homework and find out the investors that could be a good fit in terms of stage and vertical. In fact if you don’t have this list prepared you might waste a lot of time trying to raise from irrelevant investors. There are many databases out there to check out. And a founder should always meet with new investors even when not actively fundraising, because building a prior relationship helps a lot.
What startup should pay attention to while contacting investors and preparing a pitch deck?
First of all, if we’re talking about a cold reach, the email must be short, clear and striking. The founder should personalize the message and make sure it doesn’t look like spamming. If you’re also sharing a deck, it should be intriguing enough to get the meeting. I think this “teaser deck” should be 10-12 slides. Each slide should have a clear statement that can convey the whole narrative. At the early stages I believe the most important slides are about the “team” and “traction / how far along are you”. You should definitely nail those two slides.
Sometimes I have an impression that VCs are not paying enough attention to the pitch deck and reject startups due to lack of business comprehension, is this the case? How can one avoid such an attitude from prospective investors?
It really depends on the VC, but if they don't get it, maybe they're not the right investor for you. Remember, VCs make a lot of mistakes. So if you really think that a particular VC fund could be a good fit for your company - don’t give up. Keep them updated about your metrics and growth.
What do VCs think about startup funding rounds run by advisors or appointed team members instead of CEO?
I think that is a big mistake. It signals one of these; I’m not good enough at fundraising. I don’t want to execute fundraising. I have money to delegate this to an outsider. These are all bad signals about a company because one of the main tasks of a startup CEO is to tell the story of the company and raise capital to fuel high growth. Especially at the early stage the most important aspect of a startup is the capability of the founding team. So, investors would expect to see a CEO that can successfully build relationships and sell the vision.
Let’s get a closer look at the cap table - should seed stage companies start looking for VC investors already or there are no contraindications against a few business angels being involved in the financing?
It depends; there are many great angel investors that can help with growing the business and give a good signalling for other early stage VCs to get interested in your company.
Traction-wise, what is better perceived by an investor - having a big market player as a customer or having more, but SMEs customers?
I think both could be fine, but what is more critical is the growth of the number of customers and revenue. Obviously if most of the revenue is coming from one customer or just a few, that carries some risk.
Is the high traction in small business-wise countries relevant for VC funds or they are rather looking for worldwide reach?
It depends on the investor strategy and focus. Most early stage VCs would have some mandate around geography. In our case, we can invest anywhere in the world. And if a company can easily scale global, that’s also a plus.
How do VC funds evaluate the growth of late-series startups? Is it more about revenue or growth rate?
At the later stages, VCs would assume the company already found product-market fit. There is substantial traction, the metrics and unit economics are assessable. There is sizeable revenue and the growth rate is high. I think the growh rate is always very important because it signals an important trait for the the future of the business.
What is investor’s target for their return on investment along with startup exit?
A common success benchmark for VC funds is to 3x the total size of their fund when returning money back to their LPs. And we know statistically most funds out there can’t achieve that actually. Usually, the goal with a single startup investment would be making returns at the size of the fund itself. So let’s say you have a 10M USD fund, and you’re investing 200K USD tickets getting approximately %10 of companies. You hope that ticket which got you %10 initially, dilutes to a state in about 10 years and after a successful exit returns back 10M USD. In this example we can assume your share dilutes to %5 with subsequent rounds and the company achieves an exit valution of 200M USD.
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