Insights into Venture Capital
This article is written by Jeremiah Uke, a Contributor Author at Startup Istanbul.
Magnus Gaarder is a technology focused venture capitalist, with a background in investment banking and computer science. As the Founding Partner of investment firm nFront, Magnus brings capital, software development and strategy support to companies across various stages of development. nFront’s focus is on game-changing, capital efficient, software propositions based in Europe or the U.S. Prior to nFront, Magnus was an Investment Manager at VC fund Nauta Capital in London, and a founding team member at M&A boutique Portico Capital's European arm. Magnus’ nFront is interested in investing in early-stage software startups raising between $2M - $10M.
According to Magnus, the venture capital life cycle can be explained in 7 stages, which are:
Strategic M & A
The venture capital life cycle starts with Sourcing. Investment companies go through 2000-3000 companies, after which they only invest in a handful. The selection processes that these investment companies use are ones which allow only very few of the applying companies get picked. If you are looking to get picked by an investment company, it’s advisable to approach team members of the investment company because they do early vetting, you don’t always have to approach the high-ranking officials.
Investment companies use multiple sourcing avenues on purpose to minimize the chance of getting a particular opportunity. Some of these avenues include:
Inbound Direct reach-outs from entrepreneurs. This can be done most likely by emailing your pitch to the investment company. When you do this, just make sure you well about the sector and fund. It’s also very important to do this before you need capital.
Events; such as Startup Istanbul and Startup Turkey are a great way to spark off conversations with team members of investment companies you find attending the events.
Referrals. This works just like the first option above. But you’ll need to know someone within the network of the investment company who can refer you to them.
Universities. Investment companies partner with universities deliberately to find companies early enough.
Outbound. This is where the investment company searches for startups to invest in.
After Sourcing, the next stage in the venture capital life cycle is Due Diligence. This is where the investment company tries to find out everything about your startup, product, and team. This is a process that can take up to 2-3 months in the short term, and 6 months or longer in the long term. One thing you can do as a startup is to get in touch with the venture capital firm long before you need the funding, so the long process can be started early enough.
The next stage after Due Diligence, is the Investment stage. This is where your startup gets the funding. You may think this where you get to relax, but this is where the real work begins. This brings us to the next stage which is the Build stage. Today, it takes an average company 5-7 years to make an exit. So, the Build stage gives you the time you need to expand your business and make the revenue needed to make an exit.