3 Lessons for European Entrepreneurs Facing Investor Doubt
Sometimes it's not you -- it's them.
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If you'd offered me the following growth path when I launched Thriva.co in June 2016, I'd never have believed you: more than 30,000 customers, 15 percent month on month revenue growth and consistently hitting well over the magic £100,000 monthly revenue threshold.
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Add to this proof of a massive market opportunity, increasing clarity on the timing and evidence that we're improving people's lives, and "2016 Hamish" would have told you we had hit a homerun.
Why did I believe solid metrics would make fundraising so easy? Because I believed that they proved beyond doubt that this was a company on the make. And no investor would risk missing out on a company on the make, would they?
Spoiler alert: 2016 Hamish was wrong. When I hit the fundraising circuit, though we got to partnership-level pitches and a total of 140 investors were pitched for the round, many of them passed and opted instead to stay on the sidelines.
As most entrepreneurs know, a great business can be easily let down by a terrible pitch, meeting the wrong investors or failing to build the right relationships.
But, with the benefit of hindsight, here's what I think really happened:
1. Be realistic about what's motivating your investors.
A fellow founder who'll remain nameless once told me that investors are motivated by fear and greed. I'm not convinced this is always the case, but for the sake of intellectual convenience let's assume that it's true.
Let's take fear first. In our case, we were lacking one crucial draw for investors -- "FOMO." Sure, we had a company with metrics to gain interest from investors, but it wasn't a "frothy" deal. Why? Because we hadn't yet taken any institutional money so there was no pre-made lead investor already in place who would follow on and dial up the heat in the market. There's no magic solution to finding a lead but the importance of nailing one down can't be understated.
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Greed, then? In order to understand this particular driver, it is worth considering the market in Europe more broadly. There might just be more capital piling into early stage investing in Europe than there are good startups to back. According to a 2018 TechNation report, the U.K. was in the top three countries for total capital invested in digital technology companies from 2016 to 2017, behind only the United States and China. In 2016 alone, there was a total of £3.3 billion in investment and 2,645 deals in digital tech companies.
Ironically, this may not be making it easier for U.K.-based startups to get funded. It could be argued, in fact, that's it's hampering innovation. A lot of that money ends up in big funds that need to be sure that their investments are fund-returning in scope.
Entrepreneurs in the U.K. who could build a £10-million, £50-million or even £100-million business might fail to get out of the starting block because funds want to see the very real potential for a startup to hit the £1 billion-plus mark. Now that all of us have witnessed Amazon and Apple reach £1 trillion in value, I can't see this situation getting any better for startups.
This is a shame, because we need "smaller" startups to test new markets, prove they exist and break molds. Innovation is critical to test viability and develop markets which will ultimately create those billion-pound businesses in Europe. Do your homework on the investors you're talking to and gear your pitch accordingly.
2. Pick investors who mirror your belief in the business, and educate the ones who don't.
My second learning: Pick investors who can see the market opportunity and invest heavily in making the vision tangible. If investors need to believe your business is a "fund-returning" investment, they need to believe in the size of the addressable market.
When Thriva started out, the U.K. investor market hadn't "seen" the consumerization of health. The vision was too far away from their realities, and metrics alone weren't going to change their view. VCs in particular often don't want to move too early in a space and the larger funds can afford to wait until the later stages to come in so it's interesting to navigate.
Related: Why Raising Capital Is a Challenge for European Startups
If I could do it over again, rather than relying on email-based updates to all would-be investors, I'd have invested in coffee time with only a handful of them and made sure that they saw the market evolving the way we do. I would also spend more time engaging the market and discussing how health is changing.
The lesson here? Don't enter the journey making the assumption that investors will just 'get' the problem or see the opportunity for you to change it -- in fact, realize that education might well be your first job in the pitching room even if your metrics are solid.
3. Stay determined and focused in the face of setbacks.
In Thriva's case, it all worked out well in the end, and we have a great roster of backers. And I want to be clear, I'm not resentful or angry with the potential backers who didn't pull the trigger. Venture capital plays an important role in the innovation development cycle.
Most startup founders who have been through an investment round will have come out with a few scars that have valuable learnings attached to them. Accept that setbacks will happen and that they are a fundamental part of the journey. Reflect on the other giants who were laughed out of the room when they began their journey and maintain a razor sharp focus on your product, and the problem you want to solve.
Rejections can hit hard when startup founders are emotionally and personally connected to their venture. The flip side is that it builds a phenomenal resilience. Rejection always hurts but it also helps to build a reflex muscle that's able to find the learning.