Specialists in startups, investment analysis and legal aspects have explained in the Science Park mistakes and learnings in contact with business angels, investors and venture capital funds.
"Two basic mistakes in an investment round are: one, not knowing how the investor thinks, because you will not know what to offer, and two, not knowing what objective an investor has; all of them seek a return on capital of at least 20%", explains Manuel González, senior investment analyst at Startupxplore. He says it in the day 'Keys to success in the search for investment', organized by the University of Valencia Science Park Foundation (FPCUV), and in which experts in startups, investment analysis and legal aspects have participated to break down errors and learnings in contact with business angels, investors and venture funds.
Manuel González has experience in financial auditing, mergers and acquisitions of companies and capital markets focused on MAB and MARF. As an example, he highlights the reasons why BVP, an US fund, did not invest in companies such as Tesla, Ebay, Google, Facebook, FedEx, Paypal and Intel before they triumphed: "In Kayak they did not see the clear exit, they did not see how to make their investment profitable, so you must offer data and names, business metrics".
"And in the case of Facebook, they did not invest because in that initial moment there was another similar and older company. In this sense, you must explain why it is not necessary to be the first company in that sector and what makes you different or cheaper".
The investor emphasizes that it is not trivial to choose the moment in the calendar in which to insist on establishing conversations. "To contact investors, there are two periods: from after Christmas to May 15 and from September 8 to October 15." In addition, he adds, "do not forget that we are few investors in the market and we talk to each other to know why we have rejected a project, therefore, the speech before each investor that is always the same".
Both González and lawyer Antonio G. Asturiano, founding partner of Aktion Legal, stress that the cap table "has to be attractive." "Investors do not like atomized cap tables, made up of people who were in the initial phase, in the setting-up of the company, and gained social participation to reward services", Asturiano says.
In the line of determining legal aspects, Antonio G. Asturiano insists on the importance of going to the round with an own model of partner agreement, because otherwise, "the investor will propose one and always it looks for their interests." In it, you must pay attention to demonstrations and guarantees; in other words, "investors ask the whole team to carry out certain checks on compliance with legal regulations and to certify that there has not been or is no open litigation and there will not risks in the future. The guarantees pursue that, if there is something false in our words, we will have to compensate the investors out of our pockets. Therefore, we must carefully read the demonstrations and guarantees".
Likewise, "it is necessary to define your red trading lines and know them well, as well as to know the language of the investors: term sheet or LOI, pre-money and post-money valuation, issue or assumption premium, convertible notes, phantom shares , etc.".
Asturiano explains that it is important to determine the carryover, which may be the percentage of capital that may force to sell to the rest or the minimum price from which you can be forced to sell, and this is established from a certain minimum value of the company.
And he also alerts about the double dip and the multipliers. "We must vehemently deny them. There are market standards and these two requirements should not be accepted. The double dip implies that the investor will not only receive the amount of his or her contribution, but also part of the rest to be distributed among all the partners. They indicate the correction factor of the amount of the return to the investor in the case of sale of the company".
Out of 3,321 startups registered in Startupxplore, 500 are Valencian
For his part, Raúl Martín, president of the Asociación Valenciana de Startups, insists on the preparation of the presentation: "It can not be possible that your pitch is not understood and the business idea is perfectly developed in the business plan. If the investors does not have patience, they will only listen to you and they will not read the more than 60 pages that describe the plan".
In addition, it invites startups to ask themselves "two important questions". The first is: Do you really want the investment? "If you want a fund to enter, it's because you want to run, the fund wants you to run. If you invest 500,000 euros, it's not to finance cash or stock, because that's not going to accelerate growth", explains Martín.
The second question that the entrepreneurs should ask theirself is: Do you want to have options? "Venture capital seeks returns by selling the company, and even if you do not want it, they will influence you in your decisions. When you attract an investor, you do not have the freedom to decide as if you were alone," he concludes.