Have more bravado, take advice from the Cruel Sea, and buck the trends: What VCs are looking for in 2017

By Sophie Cohen

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Last week, Frog Valley presented a Venture Capital-focused event at CAPCO with a panel of experts, looking to the year ahead. The panel comprised of Jeff Tijssen - Head of Fintech and Digital Partnerships at Capco; Gary Stewart -Director of Wayra UK; Cornel Chiriac - Managing Partner of London Venture Factory; and Fernando Valda - Investment Director at Nord Engine Capital. Below are the biggest takeaways from the evening.

2016 and Brexit

You’ve heard about it about extensively; 2016 has been the year of global political, economic and social changes and challenges. In the UK, Brexit came as a surprise and certainly the government was not prepared for it. London is going to face competition from other cities in Europe; we are already seeing governments including Germany, France and Portugal attracting and facilitating the implementation for tech startups in their countries. Some financial institutions have already started to move some of their staff to Frankfurt and Paris. Looking to Asia, Fernando explained that by the UK positioning themselves as a global free trade leader, it could facilitate them doing business with China and other countries globally. Across the Atlantic we’ve seen Trump’s actions on America’s global trade deal. The alternate optimistic view is that the falling sterling has encouraged some foreign investment into the UK. Overall; we haven’t seen a decline in investment yet. Furthermore, London is still the main hub for tech talent in Europe; with over 300.000 developers it has four times more than Berlin or Paris.

Startup challenges

Whilst Brexit is certainly not the challenge number one for the startup community it certainly represents an additional difficulty to the numerous challenges that they already have. The biggest challenge being continuing retaining and attracting tech talent. One out of three tech employees in London are European. To this date, we still don’t know what the status is going to be for Europeans already working and living in the UK, and neither what the new immigration regulations will look like. All of this uncertainty is surely damaging for those businesses that need to plan for growth and build their vision. Another challenge that startups in the UK encounter is the lack of local funds with a heavy reliance on US investment. This is a phenomenon that happens at all stages, from Series A to E, where more local investments are needed. Finally, Jeff commented that more exit are needed in the UK to strengthen and encourage further investment.

Advice to startups

  1. Focus on solving a problem; experiment, gain insight and develop traction. You are not expected to know everything from day one, you are on a journey of trying, testing iterating. Once there’s traction is a good time to engage with investors, and then to surround yourself with a team of executives to help scale the business.
  2. Choose your investors wisely and maintain a good relationship with them. You must make sure that there's a good connection and strong communication with your them, otherwise it will be damaging for the performance of your business.
  3. Gary made a point that a VC will prefer investing £1m in 30 start-ups who have provided evidence that their idea works, as opposed to investing £30m in one startup who has the idea of the century but no evidence yet. That is far too risky for investors.
  4. To quote the Cruel Sea, “You better get a lawyer, son. You better get a real good one”. This is vital whens signing the terms with your investors.
  5. Make sure you have an honest appreciation of your company and avoid wrong due diligence as VCs truly dislike bad surprises along the way.

When startups are pitching, what are VCs looking for?

• Ensure that you describe the problem that you are trying to solve. The question is not about disruption; it is about solving a problem. If your product or service solves a problem then you have a greater chance to attract investors.
• Be more American in your business bravado, with Gary commented on how Americans are so openly confident and proud in what they do, to the point that it influences their success. • Present the cost of customer acquisition, life time value & ROI. If you win that game then you have a great product. • Have a strong vision and a compelling story. • Traction, traction, traction, is a must to attract investors. Present evidence that you have a product or service that can generate traction and revenue.

Trend for 2017, where to invest?

Blockchain, Proof of concept, AI, Machine Learning, Medtech and Google Deepmind are the big trends for 2017. However, Gary made a point here that if you are looking at developing a revolutionary idea, then do not look at the trend. If it is the trend then it may be already too late. Instead he recommends thinking of problems and how to solve a problem and then you may come up with a revolutionary idea.

Vision for 2017

Nobody knows what the future is made of, however the panel gave some tips and strong suggestions for 2017 to ensure London remain a grounded place for startups to grow: - Reassurance from the government that we will be able to keep our tech talent and attract new ones - Encourage more local funding as opposed to keep relying on US investments - Having more exits to encourage more investors - Show more confidence. Gary made a point here that ideally we would need more investors who are also entrepreneurs. Unfortunately there are too many investors who have no empathy for the entrepreneurs and make their life very difficult as opposed to facilitating them.

In Conclusion

Ensure you’re solving a problem, traction is everything, and have conviction in your vision. We are working hard to ensure London is able to attract key tech talent. With all of this we’re looking forward to a prosperous and competitive startup scene in London.

Based in London, Sophie Cohen is an Executive Search Partner focusing on the digital space. London is just one of our locations that also include Singapore, San Francisco, Sydney, Melbourne, Gold Coast and our latest addition, Austin. We're mad about startups and talent the world over, and would love to chat about your next role, or growing your team. Contact us here.