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There are now almost 440 European VCs (more than 2x the number a few years ago) which can make it tricky and time consuming to differentiate the best from the rest. Most founders I have spoken with indicated that they met with 50 to 150 investors in the past year in preparation for their upcoming fundraise.

Is that the best use of time when there are only 20 to 30 VCs that are really relevant for the business today?

 

Last time I wrote about how to evaluate VC funds from the perspective of their investors (a.k.a Limited Partners or “LPs”). In the next two articles, I will address the same topic in a more practical way for software founders who are looking to fundraise this year.

The articles provide a framework for the following two key questions:

How much money should a startup raise?

Who should a startup raise from?

In order to answer these questions, software startups need to understand the purpose behind what the money is used for and what expectations they have from their investors.

These would include evaluating the business and prospective VCs in terms of:

  1. Business maturity: Scale vs. Predictability
  2. Purpose of money: Cash Flow vs. Growth
  3. Business objective: Flexibility vs. Cost
  4. Fund strategy: Fund Size vs. Growth Acceleration

Let’s dive into the first two topics in more detail.

 

How much money should a startup raise?

In March 2017, I had an one-hour meeting with a founder who told me his thriving startup was a “lean and mean army ready to strategically attack the old kingdom that had become complacent & entitled and was sitting on a throne of riches”. He had tracked the efficiency of every individual within his 50-person team down to each phone call and minute working inside the business. I thought he was completely bonkers and (possibly) brilliant. I walked away from the conversation with high conviction that the business had measured, analyzed, and took action on all employee engagements and customer interactions in order to scale towards a predictable commercial engine and navigate a very complex, regulated market. (The company has since gone on to raise over $120MM in funding.)

The amount of external capital a company should fundraise depends on:

  • Maturity of the business
  • Purpose of raising money
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