Poised and beautifully dressed, Vanesa arrived half an hour late to greet a small group of girls and women from Start Up Chile and the local entrepreneurial community. Nobody minded at all as she had unfortunately been locked inside her apartment that morning and liberation had been a little slow to arrive.
Vanesa Kolodziej is a mentor at 500 Startups, a three-time veteran in the business of start-ups, curator of the StartUpDigest for Buenos Aires, and has her finger on the pulse of investments and venture capital here in Latin America. Vanesa is currently in the process of launching Nazca Ventures – a seed venture capital firm based in Buenos Aires, focused on nurturing LatAm-based start-ups into flourishing regional companies.Loyal to Maptia and to me, Jonny and Dean were the token guys in the room – dragging themselves out of bed at 7am to come along too. This turned out to be a great decision, and not only because of the epic English breakfasts they served at Cafe Melba. Organised by Girls in Tech Santiago, it was a fascinating and informative meet-up – we all learnt a great deal about navigating the rarified waters of investment and venture finance.
While this blog post focuses on the practical and useful advice Vanesa gave, also check out the great interview with the down-to-earth Chris Sacca, founder of Lowercase Capital, who talks about how he focuses on the entrepreneur as a person when he chooses start-ups to fund. I like his methods a lot.
The morning began with 15 minute slots of individual mentoring for girls from a variety of start-ups – including me – and was followed by a whistle-stop guide to venture capital for start-ups. Exactly what the doctor ordered for us. We were just beginning to feel a gaping hole appearing in front of us, and asking ourselves the question, ‘what comes next?’. The uncharted waters of securing funding can certainly seem daunting to a first-time entrepreneur. Reading countless blog posts or dense texts on the topic is definitely not as engaging as hearing it directly from someone with passion and first-hand experience. To be honest we had been avoiding it, but we now feel equipped to dive in and start long-term planning to help us realise our visions for Maptia’s future.
Here I will share some of the areas Vanesa touched on, and the practical investment strategies she outlined as a starting point. I hope perhaps it may prove useful to a few of you, who like us, are determined to jump in at the deep end. This is her advice.
Why do we seek venture capital?
In all its forms, venture capital allows people to pay for the creation and operation of a company. The goal is to reach a certain scale in your company where it is sustainable. Good early stage investors should not only bring money, but top-notch contacts and mentorship. VCs are looking for the right person, the right team, and the right idea.
From an over-arching perspective, she outlined four main reasons start-ups should seek funding, including for working on patents, IP, and product development, to maximise a window of opportunity, to minimise your time to market, and to create brand awareness while gaining traction.
Vanesa also pointed out that getting funded does not equal success, and said that many people get confused. More funding rounds means more value creation. Her advice was to conduct a number of smaller investment rounds, so your start-up can gain momentum and grow faster.
When are you ready to seek venture capital?
The answer is now. Typically start-ups should get their first funding within 6 months to a year. Don’t wait longer.
When you are looking for funding you need to research, research, research. Investigate how much money different funds have under management, who deals with the funds, what their specialities are, who is in their portfolio, and who the partners are. Find 15 big players in your industry and look at who funded them and what their investment strategies were. You need to understand who the influential VCs are in your sector. And if you don’t, then you need an angel investor who knows the system like the back of their hand. If you want to grow more than 30% per year and double your employees then you need to know the VC system.
As a woman, there are a number of funds all over the world that will give you better terms, better evaluations, and are more likely to work with you to agree to what you want. Find funds that focus on your specialisation. Vanesa also highlighted the findings of the ‘Startup Genome’ project, which suggested that while women do not scale fast enough, men scale too fast, and that most women don’t know how to navigate the VC and funding world.
Investment Strategies for start-ups
Depending on your structure and business model, the following is an investment strategy Vanesa suggested to a number of people she mentored in the session, including us, who so far have only the $40K from Start Up Chile. She also highlighted the importance of pre-empting the points at which your company will need to seek investment. Her advice was to allow three months before you ‘run out of runway’, and to seek investment in plenty of time.
1. Seek a 150K seed round in the first 6 months to a year. For some start-ups, a good strategy could involve joining an accelerator to gain 50K and all the benefits that come with it, and securing another 100K from outside seed investors. At this point you should be showing clear value within a vertical target market, and most likely you will offer around 20% equity for this investment round, but it will get diluted in further rounds.
2. Once you have moved beyond your MVP (minimum viable product) and are ready to do some serious scaling within your target audience you should be looking for between 500 to 800K from early stage investors, most likely at 15-20% equity.
3. As a regional player and ready to expand, your next funding round might consist of 1-5 million in venture capital.
Advice for start-ups seeking funding
Vanesa believes that opportunity is almost always in verticalisation. In finding a niche which cannot live without your product. She stressed you have to be careful not to confuse big projects with big thinking. To scale quickly and profitably, a start-up needs a very targeted and vertical solution, in which they can quickly become the global leader.
VCs are looking for founders that think big and act fast, have killer teams, prioritise execution, have profitable models, and are creating real value within a definable sector. Vanesa also said that VCs extremely rarely invest in a sole founder. What if you got run over by a bus?! In reality their investment would then be worthless no matter the insurance policies you had taken out. She said that even if you bring someone on for 5% equity, it is absolutely crucial to have more than one founder.
Aim to have revenue from day one. Create real value for your users or customers – someone needs to pay – so you need to be solving real problems. In addition to solving an existing problem, this could mean providing a service they didn’t know they needed. You can break a market by changing the way people do things. She used the Simon Sinek ‘start with the why’ analogy – that someone like Apple is creating value in the vision that they sell. They sell the fact that they challenge the status quo through great design, and just happen to make computers.
Vanesa said that value can mean a lot of things. In her world, it means money. In the world of a cancer patient, it is finding the right cure. In the world of a mother world it is finding the best education for her children. Think long and hard about how your start-up creates value.
Mentors & Advisors
Vanesa couldn’t stress enough the importance of finding these people early on. Ask when is a good time to find mentors, and the answer will always be ‘now’. From their experienced perspective they can offer guidance that will help you avoid common mistakes and speed up the process of creating a company which will sustain your product. They will help you think.
Send the people you trust a formal request for mentorship. Massage their ego a little. Equity-free mentoring is absolutely fine. If there are a number of people who can offer you 15 minutes a week that is fantastic. Don’t aim to get high-profile people as your mentors as you need people with time, who know your market, and who have launched a similar product or service. Talk to them as soon as you have a question. Tell them you are shit scared, tell them you have screwed up, ask them for help. Tell them everything.
Nor is upwards of 20 mentors too much. Find as many as you can. You need access to people you trust who are able to offer you advice and feedback in the following areas of development: start-up, client, product, company, team, and finance. You need to be able to drop these people specific questions a couple of times a week. She even suggested creating a google group for your mentors, where you can collectively pose open questions. Advisors are typically offered 0.5% equity and are equally important to find early on.
Not only was Vanesa on the ball re investments and venture capital, she also had some practical and more philosophical advice for us.
She said – act fast, get your product out, and move, move, move. If it isn’t to do with execution don’t do it. Don’t do long-winded business plans, don’t go to fad conferences just to boost your ego, don’t do accelerators if you don’t need them. The three key steps of prioritise, execute, and evaluate should be repeated backwards and forwards – fast – throughout the process of building your start-up.
On the more philosophical side, Vanesa said that every day she reminded herself she was going to die. We all die, sooner or later, and we should make the most of our time. Don’t die with regrets. She found this one of the most powerful ways to prioritise, because you start saying, ‘why would I waste my time on this?’ and filtering out the things that really should be done now.
It was certainly a fantastically informative morning, with a splash of inspiration and a dose of realism thrown in. I learnt a lot, and we have been able to move forwards a little with our thinking on growth and investment strategies.
Vanesa’s snappy brainstorming and acute assessment of each of our start-ups was interesting to watch, and it got our brains whirring into motion. Thinking hard, and most importantly thinking early, about how long-term strategies will help you achieve your ‘why’ and realise your vision, is extremely important.