Raising money and entering US: Two tips to help founders navigate turbulent 2022
Deciding to put their money in a company during the turbulent year 2022, investors may start looking at metrics differently.
For some VCs, aggressive growth remains the main criteria in a startup, but others may ask founders to get as close to profitability as possible if they want to raise a round.
Christoph Janz, managing partner at Germany-based Point Nine Capital, thinks the right approach is in the middle—even in 2022. He believes that startups should help investors have a deeper look at their situation to convince hesitant VCs they’re on the right track.
I listened to his conversation with Flyer One Ventures investment director Olena Mazhuha. Here are my two takeaways.
Growing fast or seeking profitability: What should you do?
If early-stage startups show profits, investors might think their founders aren’t aggressive enough and could spend more money to grow faster to get a bigger market share. But if investors form their opinion right away – they’re overreacting.
When the markets go up, some VSc think that profitability is a bad thing. When things go down, these same people may ask startups to change course and try to break even.
Investors shouldn’t label profitability as a red flag, without looking deeper and pointing out specific areas that have been underinvested. After all, there are always companies that grow fast and, at the same time, are close to profitability.
One more thought on this topic: When founders are thinking about raising money with investors, they need to keep in mind the current cost of capital on the market.
If the capital is relatively cheap, they should take advantage of that and raise money. In this case, it makes sense to adapt the strategy and start growing faster, instead of looking to reach profitability.
Expanding business to US: Founders, take the helm
When using the raised money to enter the U.S., founders should take an active role in the process, according to Janz. It’s not enough to set up a call center or hire a superstar from an American company.
Hiring a star manager from the United States won’t guarantee a successful expansion to North America. Even specialists who worked at Google can be bad at adapting a European startup to the U.S. business realities.
Only the founder is the right person for the job, when it comes to launching new products, entering new markets or building a team from scratch. An outsider can rarely be successful at it.
That’s why when a startup wants to succeed in the U.S., I’d advise one of the founders (if there are several) to move there and hire people herself.
Should you open up a branch there right away? A startup can work without an office if its contracts are small and the sales process is relatively easy—like a couple of calls or product demos. But if a company tries to sell six- or even seven-figure deals, it gets more challenging.
Founders might have to visit potential clients physically to reach an agreement. The larger your company, the more essential it is to have dedicated salespeople in the U.S. After all, they live in the same time zone as your clients and understand the American way of doing business better than anyone else.
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Cover photo by Marcus Woodbridge on Unsplash