US venture capital (VC) firms attract a huge amount of attention when they invest in European start ups.
And rightly so: US VCs – including firms such as Bessemer, Battery, Insight, Sequoia, Andreessen Horowitz and Menlo – have a track record of incredible exits, huge IPOs and track records growing some of the most high-profile and fastest growth businesses in the world.
And there’s increasing evidence that US investors are now more keen to put money into the right sort of European firm.
When even Peter Thiel, PayPal founder, and a man who last year described Europe as a ‘slacker with low expectations’ starts to invest (he put money into two German start ups in June) then you know something’s afoot. Andreessen Horowitz has also invested into two London-based start ups in the past year.
So if you want to make it in the US – and if you’re looking for world domination, you certainly do – then getting noticed by them is going to be a major focus.
But what do US VCs get out of bed for? What are the things that will make them sit up and take notice of your business?
Let’s start by taking a step back and asking why a business would want US VC investment.
Aside from all the reasons given above, the track records of these US firms means they have very deep pockets, capable of really putting large amounts of cash behind businesses they back.
>See also: UK dominates European VC activity
And the interest and PR generated when they invest in Europe is huge. Investment from one of these firms is one of the greatest stamps of approval a start-up can have. It immediately puts you on the ‘one to watch’ list for the entire global community.
There’s a huge amount of competition for the attention of these firms from start-ups all over the world. But there’s always competition to invest in the best assets – and if you think you fit this category, you’ll want them to notice you. So what will get you on their radars?
Here are our top six prerequisites for generating interest from US VCs.
It should go almost without saying, but high double or triple digit growth is vital. It shows that you have already achieved traction and a degree of success, and that there’s a hunger for your product. This is obviously an essential requirement for all VCs, but for the US market it’s even more important.
The US market is so huge that companies there won’t struggle to get 100 per cent growth, but if you manage that consistently in the UK or European markets, you will really stand out. However, they will want to know how that growth can be sustained and translated to the US. Which brings us to our next point…
A strategic commitment to enter the US market
Fundamentally, a VC looks to be as useful as possible, helping the Board of your company make the right decisions and contacts. Unsurprisingly US VCs feel they can be most useful if you’re looking to grow significantly in the US, where they have the most contacts, the most experience, industry knowledge and understanding and the deepest relationships.
If you’re already generating revenue in the US or it’s a key growth strategy, that’s great – and if the management team is willing to relocate there, that’s even better. VCs like to be close to their management teams, rather than a seven-hour flight away. But if they believe in a business, wherever you are based, they will be willing to invest significantly to help them succeed in the States.
It is very important for European businesses to be able to differentiate themselves not just from other companies in Europe, but also from businesses operating in the States that the VCs may be familiar with.
We always hear that the US is one-two years ahead of Europe but that isn’t always true – but if you are similar to a business which has already been successful in the US, or raised a lot of funding to date then they will want to hear how you will disrupt and compete unencumbered by these other players that may have deep pockets to compete with you.
No VC wants to invest a huge amount of money in a ‘me too’ business where the main market player has already raised $200m or has IPO’d – be prepared to prove your differentiation, explain why these potentially larger players are no threat and how you’re going to succeed in the face of the perceived competition.
A proven route to exit
All VCs are going to want to know how you see the future exit. And prime US VC’s like Seqouia, will want to know you’re going to be their next $1bn exit, either through IPO or strategic sale.
If your plan is to IPO, and you’re targeting a US exchange, a VC can be incredibly helpful – particularly if you are looking for that last round of funding that will make sure you have the best possible strategy in place for an IPO.
But at the end of the day, these VCs want to add you to the list of fantastic success stories that has got them where they are today and more often than not exceptional exits come from strategic M&A – know who might buy you, what your angle will be and educate them on your ambition to get that $1bn exit everyone want.
Whilst the US is clearly a big driver for many tech companies to grow, ultimately that big exit is going to be driven by just how scalable your business is. Is your tech easily translatable into multiple languages?
Is the functionality set up to support differentiated international markets? Is it sellable all over the world with only money needed to hire sales personnel to achieve this? Or is it applicable to users everywhere (like Facebook or eBay or Airbnb?)
Proof of industry disruption
Are you taking an industry and turning it on its head? Have you developed an infrastructure or platform that’s going to change the way an industry operates and grows?
VCs are looking for the next wave of innovation across all industries and whilse the story might be exciting, nothing proves the point more than use cases – evidence that your platform works, is generating value and visibility of just how big it could be.