Venture capital funds are creating crisis-resistant ecosystem of starts-up
When the pandemic started, the emerging starts-up encountered a new reality and challenges, hence, resulting in the necessity to correct and adjust the plans to the changed needs and restrictions, while the persons searching for investments through venture capital funds had to work very hard to persuade the investors. However, the new and relevant ideas created during the pandemic not only revived the investments, but also turned the starts-up into one of the strongest and the most resistant sectors. However, in order to receive funding, not only the idea, but also the preparation and determination to work with the gathered team are needed. The co-founder of Startup Wise Guys, Ms. Jonė Vaitulevičiūtė, agreed to tell, how to prepare for an interview and why some starts-up collapse, to the national development body “Investicijų ir verslo garantijos” (en. Guarantees for Investments and Business”) (hereinafter – INVEGA).
Homework prior to referring to the venture capital funds
According to J. Vaitulevičiūtė, the companies with different experiences and in different growth stages are referring to the fund. Therefore, prior to referral, the company should make the decision inside whether it wants to try the investments of the venture capital fund. According to our interviewee, this path does not suit everyone, and this financing type is suitable only when the possible growth of the company is manifested in times and not in percentage, and sometimes when the decision is made to accept the investors who would stay with the company for a long time.
We recommended to do your homework before applying to the venture capital funds. Start by investigating whether the product under development is really relevant, whether it is going to solve some problem. Give time for market research because it will help to avoid failures.
“We recommended to do your homework before applying to the venture capital funds. Start by investigating whether the product under development is really relevant, whether it is going to solve some problem. Give time for market research because it will help to avoid failures. If you are going to speak with the investors, prepare the so-called pitch deck, the examples of which are available on the internet. It will definitely make communication easier,” – recommends the representative of Startup Wise Guys.
She also advises to learn something about the already present venture capital funds, to contact their managers and maybe even to find the companies, into which the fund of interest had invested. However, the most important thing is to purify your idea and to understand what the funding is needed for, and where the company is going to be after spending the money, because the progress and potential to grow the company fast are of key importance for the investors.
Just an idea is not enough
So how is the business asking for funding considered and what are the most common mistakes leading to negative answer?
“When the funding person assesses the project, he assesses not only the idea, but also considers the team and how long the team has been working together or whether they have been working together at all, - tells J. Vaitulevičiūtė. – Because it is normal in the early stage to change the product, various financial calculations and plans numerous times, while the team is the foundation for successful growth of the start-up.”
The possible obstacle is also absence of any actions performed before application for funding. It is an often case when such teams do not succeed to attract funding, however, it is a technical obstacle that could be solved.
“One should not concentrate on selling the product. It is necessary to speak about the need and the problem that the created product may help to solve,” – says J. Vaitulevičiūtė.
Not all the starts-up grown into unicorns
However, not all the starts-up succeed to reach the top and grow into a unicorn. Sometimes, everything has to be started from the beginning again. “Failed businesses are not among the most favourable topics in Lithuania; however, they should not be avoided. The implementation of the idea does not have to be successful from the first time, but it is important not to give up and to try again. Maybe the first or the second time will not be successful, but the third one will. If something goes wrong, it is not necessary to keep on the same path. It is better to make use of the lessons learnt and to try to find another way,” – advises the interviewee.
No serious reason for failure of business is needed. The most common reason is lack of funding. Sometimes, the business becomes short of money at certain time, thus, it is very important for the starts-up to attract money cyclically and continuously. Disagreements within the team are also among the key reasons of failure. It is for some reason that the investors assess the team and stress sits importance. It is an often case that the formed team does take the fact into consideration that they will have to stay partners and cooperate closely for several years.
The State contributes by investing into the venture capital funds
INVEGA always try to offer the funding means satisfying the current needs of the business. It has invested almost into all the venture and private capital funds operating in Lithuania, thus encouraging business to trust alternative funding sources. In 2020, the investments of venture capital of almost 16 million euro were performed successfully with the help of INVEGA, while the investments in 2021 reached even 27 million euro.
The information about various measures of venture capital, depending on the stage of business growth and needs of the business, is available on INVEGA website. When the most suitable measure is chosen, it is recommended to refer to the respective venture capital fund for more information.