All companies, big or small, need some source of capital. This can come from a variety of sources, including its own revenue or public funding through an initial public offering (IPO).
According to all the recent headlines about companies raising huge amounts of money it looks like the venture capital world is thriving. For example, Trade Republic raised $900 million, Solarisbank recently raised around $180, and Zilch raised around $90 from Goldman Sachs.
At the heart of many early-stage startups is venture capital. Funds like Speedinvest help to raise the seed money they need to get off the ground or expand.
In this episode of Disruption Talks, we invited someone who knows seed-stage investing inside out, Jon Butterfield, Head of Growth at Speedinvest.
What is seed-stage investing?
Seed-stage investing is a method of acquiring finance for a startup. It’s one of the four funding stages for a company to go from startup to established business.
Private seed-stage investors usually provide funding in exchange for equity in the company.
To get seed-stage investment, companies will approach venture capital funds, which are a form of private equity financing for early-stage companies with strong growth potential.
Speedinvest is a venture capital fund that helps pre-seed, seed, and early-stage tech startups across Europe get the funds they need.
Filip Sobiecki: Can you give us a short introduction to yourself?
Jon Butterfield: I’ve been a serial founder and entrepreneur for most of my adult life. I sold my first company back in 2002 and my last one in 2019. Within that period, there have been lots of ups and downs, and I learned a lot. I’ve started companies in the UK, the US, the Netherlands, and Slovenia, where I live now.
While I was a founder, I had a love-hate relationship with investors. It’s always tricky to work with them, especially when it’s your first time. After my last company, I started looking for ways to make this better for founders, which led me to join Speedinvest.
Will you ever return to being a founder?
It’s in my blood, so one day, I think I will. But for now, this is the perfect situation. I love seeing how all these companies grow, and that’s exactly what we help those founders with.
At Speedinvest, we focus on a number of different industries like fintech, marketplace, SaaS, healthcare, industry, and so on. Working across all those different things, you realize there's no one way to make it work. So we're learning a lot, and we're sharing our knowledge.
What personal lessons have you learned during your time as a founder and at Speedinvest?
The biggest mistake I made and see founders make is to get so wrapped up in what you’re building that you end up just building it for you. You start letting your own emotions take control, but you need a balance between building for yourself and building for your customer.
One of the biggest lessons I learned was to start with data.
By that, I mean when you start planning and designing your products, start doing your analytics then. Start with the metrics and see what the data tells you about what the users want so you can build it for them.
A lot of founders will only do that after they’ve finished building the company, but you should start tracking and measuring from day one.
What type of companies will Speedinvest not work with? What are the red flags?
We invest in the early stage of a business before it begins creating high growth. We look at two things at this stage – the team and the opportunity of the product.
A lot of the founders we work with are first-time founders, so we look at them and their team. We look at how they work together, how they cooperate. This is a huge part because, at the early stage, a lot can happen. Emotions are high, and you’re still discovering yourself.
After that, we look at the opportunity for the product they’re making. We look at the size of the market and how big it could get. The founders need to really understand the market more than anything.
What is Speedinvest’s secret sauce?
We keep seeing these record raises, and it’s just getting higher and higher. The amount people are raising is crazy at the moment. With so much competition, you need to stand out and support your founders more.
We’re different from typical investment firms that give out what I’d call “dumb money,” where you just get given some money, and you run with it. Instead, we like “smart money,” which is where you get access to expertise, knowledge, and contacts. Speedinvest focuses on that smart money side and on supporting our founders.
This is what VCs used to call “operational support,” but that mostly involved going through a Rolodex of contacts. We like to take it a step further and built a program for our founders to get the support they need. We host events with industry experts and get the founders together to talk and network. We also run lots of workshops and help founders access the resources they need.
What’s the latest with Speedinvest? What plans do you have for the next few years?
The last year has seen Speedinvest grow incredibly fast. The lockdowns got many people worried, but there were also a lot of opportunities. During the past year or so, we’ve seen some of our biggest raises.
It’s all about understanding the market and looking at what’s happening.
There’s a lot of competition in the VC world, but from a founder’s perspective, there’s no better time than to create a business right now. With so much competition on the investment side, it means it’s easier to get investment and negotiate.
At the moment, we’re keeping an eye on the markets and are looking at trends.
Interestingly, because there’s so much remote work now, there’s no reason why the next Amazon, Google, or Facebook has to come out of Silicon Valley. It could come from somewhere like Slovenia instead.
Speedinvest is now actively looking outside of the big cities like London, Berlin, or Paris and is instead looking at underrepresented founders to support them.
Has the increase in VC competition had any negative consequences?
There has been a lot of overpromising and underdelivering from every angle. If you’re an investor trying to win a deal, you can easily over-promise and under-deliver on that side. From the founder’s side, you need to make sure you don’t fluff your numbers and give higher expectations on returns.
When you raise money, you spend so much time thinking of raising money that you forget about your business.
You see raising the capital as the goal when it should be building the business.
What are the dos and don’ts for founders trying to get investment?
On the ‘dos’ side, you need to get your data in order from day one, understand the user journey and map every single data point in that journey. By doing that, you can understand where the opportunities are with your product and where you can improve it.
Another thing is to have your team structure clearly in place and understand who owns what. Having a nice cap table means investors can come in and see who owns what and where they fit in.
For the ‘don’t’ side, don’t come in and say I need €300,000 or a million without figuring out what you intend to do with that money.
You need a plan, and investors need to know what that plan is.
If you had a magic wand and could give every 12-year-old in the world the gift of knowledge in some area, what would it be?
A big one is empathy. We need more empathy. Throughout our day-to-day lives, we need to be more understanding of everyone out there and recognize that things are hard. We need to support each other more than ever and stop this culture of take, take, take.
As a founder and entrepreneur, being empathetic to people and supporting them can go a long way.
The last thing you want to do is just lock yourself in a garage, build a product and come out six months later and say, “Hey, world buy this!” That very rarely works. Understanding people, seeing what makes them tick, and focusing on that is the most important lesson anybody could learn.
This discussion is part of our Disruption Talks recordings, where we invite experts to share their insights on winning innovation strategies, the next generation of disruptors, and scaling digital products. To get unlimited access to this interview and many more, sign up here: www.netguru.com/disruption/talks