The fundraising trends and tips for Ukrainian startups in the US and the EU
On June 6th, we held a webinar for Ukrainian founders to help them navigate the ever-changing global VC markets during and after the war. Our Investment Director Elena Mazhuha discussed this topic with two experienced international VC investors:
Semyon Dukach, the Managing Partner in US-based One Way Ventures, invested in successful startups like Brex, Momentus Space, and Chipper Cash, founded by immigrant founders. Semyon is an experienced American investor and former Techstars Managing Director
Speakers were asked the questions that were prepared by founders of our portfolio startups. So, we propose to learn the most exciting thoughts of the recent webinar about fundraising in the Q&A format.
Elena Mazhuha (EM): How did the war affect Ukrainian startups' chances of raising the investments in the future or now? For example, a part of their team or some of the founders are still in Ukraine and cannot leave the country.
Semyon Dukach (SD): Some of our portfolio companies have employees in Ukraine, and we continue to work with them. Besides, One Way Ventures invests in immigrants, but we only invest on the east and west coast of the US and a little bit in eastern Canada. Our partners need to get to know the founders, so they must live in the US permanently. But they may have people on their teams in all kinds of places, including Ukraine, and that's not a problem from my point of view.
Michał Rokosz (MR): Inovo Venture Partners has already invested in Ukrainian companies (Allset, Preply). We think it's more important where your market is versus whether the team is at some risk. And it's ideal if at least the core part of the team is outside Ukraine because this is a risk component if each team member of a startup is still in Ukraine. We think some funds can be skeptical in this case, but it's not a disqualifying factor for us.
EM: Did the war impact startup valuations or other fundraising trends in Europe?
MR: Globally, the war is just one of the components. All our colleagues in Europe didn't stop investing. Yes, they are slightly more conservative on the valuations now, but they want to keep the pace. I haven't heard any comments from them like “we wait and see what's going on”. But regarding valuations, the current market is lower than it used to be.
EM: What happens to valuations in the US market?
SD: I think the valuations return to more or less reasonable levels. They climbed rapidly for a while, and now they're probably a little lower. Late-stage rounds are a little harder to raise, and the valuation multiples have decreased.
EM: How do you think which industries are the hottest right now on the market? And which industries won't be as hot as right now or as they were in 2021?
SD: We avoid the hot stuff because it gets overheated, and there's a lot more garbage to see through. It doesn't really help you if your industry is perceived as hot. It means there are a million more competitors to talk to.
EM: Does the jurisdiction of startups matter for potential investors? Is it critical, for example, for Polish investors to invest in companies based in Delaware or Poland?
MR: We have two-thirds of our portfolio registered in Delaware (US). And we assume that successful European companies will eventually want to enter the US market. Actually, only a few US funds are investing in non-US entities. So, the later you register your company in the US, the more difficult and expensive it will be.
Besides, Poland doesn't have any benefits as a place to register a company. So, sometimes it's better to register your entity in the Netherlands, London, and Cyprus because they have some tax advantages.
Register your company in Delaware as soon as possible if you're going to the US with your sales and want the fundraising in the US. It's also easier to do the next rounds, and you won’t need a notary appointment to sign any round’s documents.
EM: Would you ask UK-based startups to change the jurisdiction to which they're registered? Will you invest in the UK entity if you like the startup a lot?
SD: It would be very short-sighted. Our fund would invest in entities based in Delaware. If startups are not registered in the US, we're probably not going to invest anyway in them because we back immigrant founders in the US.
MR: So even if you are fundraising in Europe and you are going to raise funds from more than just one specific country, you will run into the problem. You will be lost in laws because lawyers in Europe are usually only familiar with two countries: their local legislation and US legislation. For example, funds from Germany don't have British lawyers because they have German and American ones.
EM: What is your overall opinion of the board of directors, and when should a startup form it?
SD: I think boards can add value and provide a different perspective. It can be perfect for a startup and fund. However, if you get a bad director on your board, it could ruin your life, and it's just a terrible experience for everyone. So, it really matters who you put on this board.
MR: I think the Seed stage is already a relevant stage to form the Board of Directors. As an investor, I like to see previous board decks and see if the company has always been looking at the suitable KPIs, solving the correct issues, etc.
EM: What do you think about networking, cold messaging, and emailing? How is it better to connect with US investors?
SD: I have a pretty strong view that cold emailing is annoying and very unlikely to produce anything of value. The people you need to network with are founders, not investors. Besides, a successful accelerator is an excellent way to start building local network when you move to a new place.
MR: I find it extremely difficult. Therefore, my partners and I prefer to communicate with the founders in person.
These Q&A are just a short summary of our exciting webinar for founders who missed it.