Elon Musk acquired Twitter

Let’s begin with the latest M&A deals in 2022. The word had spread fast; Elon Musk acquired Twitter for $44 billion. The goal of this acquisition may be to put the world’s richest man in charge of one of the world’s most influential social networks. Musk’s deal to buy Twitter sits at the confluence of multiple ongoing societal debates, including about the power and influence of billionaires; the impact of mis- and disinformation; the responsibilities tech platforms owe to their users and society, and what new regulations should back them up. However, we will soon know what this deal will hold for the future of Twitter.

CD&R to Acquire Humana’s Home Hospice and Personal Care Divisions

In one of the recent M&A Deals in 2022, private equity firm Clayton, Dubilier & Rice (CD&R) acquired healthcare services company Humana, Inc. – Home Hospice and Personal Care Divisions from Humana, Inc.

Under the agreement, Humana will divest a 60 per cent interest in KAH Hospice. In return, receive approximately $2.8 billion in cash proceeds. That reflects an enterprise valuation of $3.4 billion. It also involves multiple of roughly 12 times the divisions’ current year forecast. In the forecast are included adjusted earnings before interest, income taxes, depreciation, amortisation, or Adjusted EBITDA. Therefore, the goal is to pursue growth centred on improved access, equity and quality of care across an expanded group of patients.

After they close this transaction, the Hospice and Personal Care divisions will be restructured into a standalone operation. Humana intends to use proceeds from the transaction for the repayment of debt and share repurchases.

Blackstone Property Partners’ acquisition of American Campus Communities

Another M&A deal in 2022 was closed in April; Blackstone Property Partners’ acquisition of American Campus Communities. The deal values the company at about $12.8 billion, indicating the firm expects rents to rise as more college students return to campus.

ACC’s portfolio comprises 166 owned properties in 71 leading university markets. The majority of ACC’s properties are high-quality, purpose-built student housing assets. Student housings are located within walking distance of their respective university campuses. As a condition to the transaction, ACC has agreed to suspend the payment of its quarterly dividend, effective immediately.

TD Bank Group First Horizon Corporation

TD Bank Group announced to acquire of First Horizon Corporation. Toronto-based TD Bank Group announced the $13.4 billion all-cash agreement to obtain Memphis-based First Horizon as part of the group’s plans to accelerate its growth in the United States. The transaction is expected to close by the first quarter of TD Bank Group’s 2023 fiscal year. With this deal, TD Bank wants to offer their clients with a broader product set and advanced technology.

M&A Deal in early 2022 – Microsoft acquired Activation Blizzard

In January 2022, Microsoft acquired Activision Blizzard for $95.00 per share, in an all-cash transaction valued at $68.7 billion. This deal was a significant step toward Microsoft’s entry into the gaming market. That said, Microsoft became the world’s third-largest gaming company by revenue. The acquisition includes iconic franchises from Activision, Blizzard and King studios such as “Warcraft,” “Diablo,” “Overwatch,” “Call of Duty” and “Candy Crush,” in addition to global eSports activities through Major League Gaming.

Looking at the biggest M&A deals of 2022 so far we can clearly see a strong majority of transactions in the gaming and tech sector, showcasing how eager companies are to adapt to the digital environment.

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The critical criteria to make it onto the list are growth, velocity and growth potential, funds raised, growth in employee numbers, geographical distribution, and the ability to impact society positively.

More than 40 per cent of companies listed this year have a “for good” business model.

The most promising scale-ups in various categories will be awarded the Next Unicorn Awards 2022 at VivaTech in Paris in June.

European tech companies are forging ahead in creating new tech unicorns. Europe witnessed the birth of 85 new tech companies with a valuation of $1 billion or more in 2021. Therefore,  registering a unicorn growth rate is more than twice the US.

However, this indicates that the US growth rate was 124% from 2020 versus the EU growth rate of 400%, i.e. 17 new ones in 2020 and 85 in 2021. Also, US investors had a significant role in creating these glittering creatures in Europe. Nearly 50% of the investors in Europe’s unicorn cap tables are non-European, and 77% of those are from North America.

Distribution of venture capital in Europe

Eastern Europe comes last in terms of unicorn headcount but still has some stars and a median valuation of €2.7 billion and 2,000 employees. A snapshot of other European regions shows that Klarna’s €37.4 billion valuations boosted the regional total of €74 billion. The DACH countries of Germany, Austria, and Switzerland have seen the highest job creation, with more than 70,000 people working in unicorns and soon-to-be unicorns.

The first month of the year was good for much good old dealmaking: European technology startups raised just over €12 billion in funding in January 2022 from more than 1,240 investors across 450+ deals. Tiger Global was the most active investor, with 11 deals accounted for.

While the impact of US funds on European uni- and soonicorn cap tables are mostly coherent across regions, Benelux stands out with a share of only 62% of US investors. The most dominant region for US investors in Northern Europe. The increased number of US investors is Klarna, located in Sweden. Moving forward, an increased number of investors in the Benelux region have a strong focus on Future Mobility & Supply Chain.

Southern Europe is home to the youngest soonicorn companies with an average age of 7 years and 8 months. Not surprisingly, they show the lowest average valuation for soonicorns at EUR 183 m but could prove to have the highest unrealized potential within Europe.

Lastly, UK & Ireland produced by far the most valuable companies with an astonishing combined unicorn valuation of EUR 138 bn.

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Corporate knowledge, R&D resources, M&A opportunities and networks are valuable for early-stage companies. That said, established companies and corporations have understood the dangers of not keeping up with the fast-moving world we live in and the opportunities they can unlock by supporting innovative young start-ups. So, how do corporate investments work?

Corporates provide capital and assist with business and product development. Companies can also offer most of their resources and market expertise so that the start-ups can accelerate their growth. According to CBInsights, CVC-backed deals reached a new record in the first half of 2021, with a 133% year-over-year growth. The rise was likely caused by how fast the tech landscape evolved and the start-ups starting to understand the value that a CVC can provide to their business.

What should startups keep in mind when considering Corporate venture capital investments?

Similar to venture capital firms, CVCs tend to invest internationally. However, CVC and venture capital firms have different commercial perspectives. Corporate investors may invest for strategic, synergistic, and financial reasons. Corporate investors could ask for consent rights over the investee company entering into contracts with competitors. These include limits on disclosure of information, the provision of goods or services, or transfers of equity to competitors.

Furthermore, corporate venture capital investments have a longer-term horizon than venture capital investments. As a result, corporates often require additional rights over an exit.

Many corporate venture capital investors require rights over future M&A deal activity. For example, corporates regularly request a right of first refusal, offer and negotiation. A more friendly option is the right of the first offer, as it provides an investor with the right to be offered the shares before any external solicitation takes place. Nevertheless, corporates regularly request a right of first refusal (or ROFR). ROFR provides the investor with a right to be offered any shares being sold by other shareholders in the investee company after the selling shareholder has solicited an offer for their shares from a third party.

In some cases, corporate investors may want a call option to acquire the company. In other cases, corporate investors may require the flexibility to sell their shares in the investee company back to the company or other existing shareholders.

CVCs often require disclosure of a broader range of metrics or key performance indicators (or KPIs). The precise KPIs are generally tailored to the business of the investee company.

Lastly, corporate investors increasingly subject their investee companies to rigorous environmental, social and governance (ESG) standards. These include compliance with anti-money laundering regulations, anti-bribery and corruption, anti-modern slavery and other relevant policies.

What’s next?

We expect CVC activity to continue growing in the long term. Annual CVC volume has grown at about 7% between 2017 and 2020, with value increasing more than tenfold over the past decade. Companies invest in innovations and new business models that will lead them into the future. However, CVCs should also know how to work with startups. If you are looking for a CVC investment, consider all of the factors we mentioned in this article, and if you need a professional financial advisor to help guide you, our team is here to help.

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Typically, whoever is on the board committee, will take part in making decisions. Limited partners and lawyers are also critical players in venture capital.

So, to cover the basics, we described the role of each party in VC.

Venture Capitalist (VC) manages the day-to-day activities of the venture capital firm. They are responsible for identifying and executing potential investment deals. Among hundreds of business pitches they receive, they decide to invest in those who stand out the most.

General Partners (GPs) are at the top of command. They are responsible for raising financing for the fund and managing it, including making final investment decisions, hiring and firing staff, managing expenses, and more. In addition, a general partner has the authority to act on behalf of the business. A partnership also offers a pool of investment for building and maintaining a business on a scale that might be beyond the resources of a single individual.

While on the other hand, in Limited Partners (LPs), only one of the partners will become the general partner, while the others will have limited liability. Where general partners invest in startups, limited partners invest in venture capital funds.

Second in the venture capital chain of command is usually the principal, who is often on the partner track. Principals are the middlemen between associates/analysts and the partners.

The Entrepreneur’s Role in Funding Decisions in VC

The entrepreneur is the most important player in venture capital. Without Facebook’s Mark Zuckerberg, Google’s Sergei Brin and Larry Page, Microsoft’s Bill Gates, and Apple’s Steve Jobs, these companies would not exist. VCs want to look for companies with a global vision and opportunities to scale up.

Venture capital will likely allow the entrepreneur to scale faster and make necessary hires to grow the business. Another positiveness about venture capital funding is that it opens up resources for an entrepreneur. If you are an entrepreneur who has launched a promising start-up but needs funding to reach the next level, you should consider venture capital. We talked about other options in our previous blog post, How to Raise Money for your Startup.

Moving forward, entrepreneurs play a key role in funding decisions in VC. Your company vision and your team should lead the way in convincing the board committee and VCs that you are the next Mark Zuckerberg.

Finally, entrepreneurs also need help from lawyers. They help entrepreneurs incorporate their businesses, patent their IP, and with any other legalities involved in starting a company. More and more law firms are beginning to catch on to helping startups at their earliest stages. The second way lawyers play a role in venture capital is by representing entrepreneurs in negotiations with VCs. They can also play essential functions in helping VCs raise money.

How Do Venture Capitalists Make Decisions?

To summarise the VCs’ decision-making process, here we explain each stage.

Deal Sourcing

Deal sourcing refers to how VCs attract entrepreneurs and sort through those opportunities to make an investment decision. So, how do they find a potential startup? There are multiple sources. If the potential startup can be generated through a professional network, referred by other investors, inbound from company management, referred from the portfolio company, quantitative sourcing or proactively self-generated.

Once a company is considered at the top of the funnel, the selection process usually consists of: a consideration deal, meeting management, reviewing the proposal with partners, due diligence, term sheet, and finally, closing the deal.

Investment Selection

When considering a deal, VCs will look at the attractiveness of the market, strategy, technology, product/service, customer adoption, competition, deal terms and the quality and experience of the management team. Since venture capitalists invest at high risk, VCs tend to be very selective about placing their money. But, regardless of high risk, VCs give out thousands and millions of dollars to small, untested ventures with the hope that they may eventually evolve into something big. We covered this in more detail in our article What Venture Capitalists Look for in an Investment Opportunity.

Deal Structure and Valuation Tools

Most VCs use financial techniques such as DCFs or NPV to evaluate their investments. However, according to Antoine Buteau’s article on How Do Venture Capitalists Make Decisions?, common metrics used are cash-on-cash return, multiple of invested capital and net IRR.

He also explains how VCs take leverage if entrepreneurs don’t perform, through cash flow rights, control rights, liquidation rights and employment terms. However, VCs are more flexible on option pool, participation rights, investment amount, redemption rights and cumulative dividends provision.

VCs are critical in the professionalization of startups: they will improve governance through strategic guidance, by structuring the boards of directors and by helping in hiring outside managers and directors.

Exit strategy

Each venture capitalist will have an exit strategy in place for their portfolio companies. As CFI explains, exit strategies are plans executed by business owners, investors, traders, or venture capitalists to liquidate their position in a financial asset upon meeting certain criteria. An exit plan is how an investor plans to get out of an investment.

Common types of exit strategies for startups are Initial public offering (IPO), Strategic acquisitions and Management buyouts. The exit plan chosen by the entrepreneur depends on the role they want in the future of the company. For example, a strategic acquisition will relieve the entrepreneur of all roles and responsibilities in his or her founding company as they give up control of it.

To sum up, entrepreneurs and VCs are the key players in funding decisions in VC. However, the decision-making process also goes through the VC committee board, and multiple parties are involved. These include; VCs, GPs, LPs, lawyers, principals and analysts, who also take a role in this process. How VCs make final decisions is a tad bit more complicated to explain. However, from what we covered, VCs devote a great time to this process and resources. A deal source in an activity that helps VCs predict the value of the company. When going through deal selection, VCs focus on team management and business factors, market size, ability to scale up etc. Venture Capitalists help companies succeed through new hires, financing, and connecting with potential customers.

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When you’re new to fundraising, one of the hardest things to know is what you’re supposed to send to an investor, when, and if they will keep your information confidential. So another good question asked is what you should do if your VC is invested in a competitor? In the VC world,  associates are tasked with outreach to see what’s going on in space. As a result, they perform competitive or just broad scale intelligence. That is because VC is about to buy something costly and wants to look at the competition better.

The important thing to bear in mind is if an investor or your competitor wants to find out something about your company,  chances are they will. So, how to prepare for a VC meeting in this scenario? Generally speaking, you shouldn’t worry about this too much. However, you are also not obligated to take every meeting with investors. If that is your choice, come up with a short but effective answer, explaining how you are currently not rising money, or express your concern honestly about your competitor.

Another option is to take the meeting and do the best you can to impress your VC. It’s a competitive market. Sometimes, if the VC firm has over 60 companies in its portfolio, not every individual at the firm will know and understand who each portfolio company’s competitor is.

What should you send before the VC meeting?

There is a lot of discussion on this topic. The first question is, what happens if you don’t send it? You are most likely to lose the narrative. What happens if you do? Your VC may share this information with others, but that does not necessarily mean you should not send it. If well prepared, we believe a short “teaser” pitch deck should be sent.

It should give the reader a path to quickly and visually scan your materials and understand who you are and what you do, what makes you unique, the market potential, and what defensible IP you have built. The presentation should be visually appealing but straightforward. You can make it 8–12 pages, and the Title Page can say “YourCo Teaser Deck” or “YourCo Company Backgrounder”) so that it’s clear this isn’t your full pitch deck if you want.

You want to send just enough to set up the meeting (and, of course, a great deck sells better than a long email) and not so long that you don’t leave a chance to impress the person in your VC meeting.

If you are concerned about confidentiality, add to your pitch deck information you are happy to share with other people. It should not include any detail or secret ingredient that your competitor could take advantage of.

Although we cannot share an example due to confidentiality reasons, here are a couple of things you should include.

Current status: funds raised to date, monthly budget, revenue, team size, team expertise, customers, metrics. It should also include the problem you’re solving, market size and potential, what problem you are solving, competition, go to market strategy, unfair advantage, and the ask (how much you want to raise & why).

What to keep in mind during the meeting

So, how to prepare for a VC meeting? If you prepared a pitch deck and sent one in advance, before the meeting, VC will read your deck and come prepared. If your deck is up to 12 pages, it should have a word about your team, what is the market problem, how your solution will solve it, your progress to date and TAM (market sizing).

Your pitch deck for a meeting will be an extension of your teaser pitch deck. It should have a lengthy description of the market problem, and the unit economics of your solution. Generally speaking, it would be a deeper dive into your company, solution and your progress. You should prepare up to 25 pages in your pitch deck and be able to go through it within your meeting time – usually up to 45 minutes.

And remember, the goal of this presentation is not to show your slides but to have a two-way conversation with investors. This is the most important reason why you need a short meeting deck and separate slides with details.

Follow up after the VC Meeting

If your meeting went well, you should have a basic understanding of your next steps and action. Since you have presented them with the meeting pitch deck, the next step is to send a follow-up email with the attached meeting deck and recommend possible next steps.

If you felt like your meeting got engagement you might ask for a second meeting which could be just with that person or perhaps to meet one of his or her colleagues.

As you move up the fundraising cycle, you will most likely have more follow-up decks. You will want to send more information such as your cohort analysis, unit economics, Retention rates (SaaS), etc. These separate decks are not something you provide in bulk to a VC asking to see your data. These are parts of a sales process designed to get you back in front of the VC and have further engagement.

This isn’t the entire playbook, but just a fragment of potential issues surrounding VCs, investors, and raising capital. However, if you have questions, or need help with raising capital, feel free to contact our team at VX associates.

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The outlook for 2022 was overwhelmingly positive as companies across sectors used M&A to navigate technological change and the growing importance of environmental, social, and governance (ESG) themes. Unprecedented PE fundraising, especially by the most significant funds, lays the foundation for forthcoming M&A activity. However, recent geopolitical tension and inflation have led to lower M&A activity in Q1.

Germany is creating M&A opportunities through digitization and sustainability. In general, deals in transport, infrastructure, healthcare, technology, financial services, aerospace and defence, energy and real estate have played a key role in shaping the M&A landscape in 2021.

Moving forward, there were also interesting cross-border deals in many different sectors. These include apparel and footwear, travel and tourism, consumer goods, oil and gas, food services and mining.

M&A Deals in Europe

What were the drivers of M&A deals in 2021? As Pitchbook states, a perfect mix of strong capital markets, rapid vaccine deployment, easing of pandemic-related restrictions, and persistent accommodative policy were the major factors driving the M&A boom.

According to a Pitchbook report, European M&A value and volume shouted to new annual records in 2021. Approximately 16,352 deals closed, collectively worth $1.8 trillion—marking YoY increases of 56.9% and 57.8%, respectively. 2021 powered past the previous highs of $1.5 trillion set in 2018 and 12,650 deals set in 2015.

In 2022 buyers will want to focus on digitizing their businesses, which will help navigate M&A activity despite macro concerns. Regions in Europe including DACH and the UK & Ireland are expected to see the biggest rises in M&A activity in 2022, according to CMS Law. Meanwhile, the German government is focusing on digitizing and making Germany greener, which should promote more M&A opportunities.

The number of M&A deals in the CEE region rose to 889 in 2021, up 32% from the previous year according to Mazars. The total deal value was also higher, with transactions totalling €67.5bn.

What will 2022 bring for M&A?

In 2022 venture industry is at a crossroads. M&A and venture industry is facing headwinds including public market volatility, and interest rate hikes as the war in Ukraine shifts VC away from its constant growth trajectory. Deal value totalled $70.7 billion in Q1, the lowest figure since 2020, and IPOs came nearly to a halt.

According to Reuters, the value of global merger and acquisition (M&A) activity took a 29% hit in the first quarter of 2022. Overall deal volumes fell to $1.01 trillion from $1.43 trillion in the first quarter of 2021, according to Dealogic data. Dragged down by a similar 29% drop in crossborder transactions, geopolitical tensions forced large companies to take a pause. Companies had to postpone their pursuit of large strategic buyouts.

European volumes were down 25% to $227.67 billion.

Dealmaking in the technology sector continued to lead the way, even though overall volumes were lower compared to last year. Healthcare activity declined by more than half. Part of the reason is that large pharma companies adopted a more cautious strategic approach. That is due to the market volatility caused by geopolitical tensions.

A number of big companies in tech rushed to exit Russia and decided not to use their cash for large buyouts. In the meantime, activist investors stepped up the pressure on boards to pursue sale processes or break-ups. They want to unlock more value for investors at a time when public market valuations are at lower levels.

However, despite the increased volatility and macro concerns, a new activity is still on the horizon. Experts hope deal activity to pick up again once geopolitical tensions are resolved. Nevertheless, deals are likely to be smaller in size. Also, they will need to factor in their companies’ exposure to gas and commodities prices.

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According to Pitchbook data, 23 companies in Europe became unicorns in 2021, easily beating 2020’s total of eight. Despite the ongoing effects of the pandemic, a record amount of VC capital has continued to flow to European startups. The increase in investment is partly because of US firms that have been actively targeting Europe’s tech startups. European startups tend to have lower valuations than their US counterparts, offering more opportunities for higher growth rates.

Swedish fintech startup Klarna became the continent’s most valuable VC-backed company in March at $31 billion. In addition, German startups have also done particularly well this year for unicorn creation. For example, Berlin-based online grocery delivery startup Gorillas secured unicorn status with a $290 million Series B, according to a PitchBook estimate.

However, as shown in the chart, the UK accounts for the most unicorns. Its new entrants include London-headquartered Blockchain.com, which raised $120 million at a reported $3 billion valuation in February and secured a further $300 million a month later, pushing its value to $5.2 billion.

In addition, fintech and French startups have done particularly well this year. We’ve seen Lendable, Starling, Blockchain.com, PPRO, Bitpanda, Shift Technology, Vestiaire Collective and Alan all reach unicorn status.

We’ve listed a few Europe startup unicorns from 2021. Here we go.

1. Acorns

Acorns, was founded in 2012 with a simple idea to round up people’s spare change from debit or credit card purchases and automatically invest them via the application. A person can make an investment automatically into one to five portfolios, each carrying different levels of risk. It is heavily focused on the millennial market. With easy UI and UX, it appeals to the younger generation of new investors.

2. About you

This Hamburg-based startup is one of the fastest-growing e-commerce companies in Europe, offering a personalized shopping experience on your smartphone. As a subsidiary of the Otto Group, the platform tailors to each customer’s individual style, and with its selection of over 150,000 products from more than 1,000 brands, there is something for everyone. Valued at $1 billion after raising $300 million in 2018.

3. Gorillas

The grocery delivery app launched at the beginning of lockdown in March 2020. Perfect timing with demand for online grocery shopping at its peak. However, Gorillas is not the only app on the market. Berlin-based Gorillas is going up against competitors like Flink, Getir, Weezy, Dija and Zapp which are also expanding fast across the continent. Gorillas hit unicorn status at its $290m Series B round in March 2021.

4. Alan

In 2016 French startup Alan won a French insurance licence. Alan started providing health insurance for employees of small companies, differentiating itself from the century-old industry giants such as Generali. Currently, Alan covers more than 76,000 members, and has grown its team to 200 people.

It became a unicorn in April 2021 after a €185m fundraise led by Coatue, with participation from Dragoneer, Exor, Index Ventures, Ribbit Capital and Temasek.

4. Epidemic Sound

Epidemic Sound is a Swedish soundtrack company that achieved unicorn status when it raised $450m of equity from Blackstone and the EQT Group in March 2021. It’s also backed by Creandum, Kichi Invest, DS Asset Management and SEB.

YouTube videos that use music from Epidemic’s library of 32k music tracks and 60k sound effects are played an exceptional 1.5bn times a day.

It generates revenue through subscriptions — $15 per month for personal use and $49 for commercial — and it’s through this model that Epidemic is profitable.

5. Payhawk

Bulgarian first unicorn Payhawk raised $100m in new funding. Founded in 2018, Payhawk is a B2B platform that provides financial departments with a single place to manage the entire spending lifecycle. The startup claims it can save companies significant amounts of manual work and potential errors.

The fintech platform made it on the list of startup unicorns in Europe in 2021. It has aggressive expansion plans and aims to be a trigger for the local startup ecosystem as a whole.

6. Beamery

Beamery was founded on the premise that regardless of where you live, your background, pedigree, race, or religion, everyone should have the same access to work, and that companies needed to fundamentally transform their hiring process.

The shift to remote working has produced a huge need for digital hiring services. Backed by the Ontario Teachers’ Pension Plan Board, EQT Ventures and Index Ventures. According to Pitchbook, the startup helps companies identify, attract and retain talent. Beamery’s most recent round in June brought in $138 million at a reported $800 million valuation.

7. Mambu

Mambu offers a lean, cloud-based core-banking solution for financial services. As a result, Mambu has revolutionized the banking game. It started as a student project, at Carnegie Mellon University in Pittsburgh, Pennsylvania. After contacting banks in emerging African countries, the trio realized that they were onto something. The operating systems these banks were using turned out to be outdated, non-existent or too complex for simple products.

Within just two years, 100 microfinance organizations in 26 countries worldwide adopted Mambu’s cloud-banking technology. Shortly, Mambu gained unicorn status in 2021 with a $2.1 billion valuation.

We highlighted only a few unicorns in 2021, as the list goes on. Therefore, if you would like to see some other unicorn startups in 2021, feel free to send an email and we’d be happy to include them.

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The path for each startup is somewhat different, as is the timeline for funding. Many businesses spend months or even years in search of funding, while others (particularly those with ideas seen as truly revolutionary or those attached to individuals with a proven track record of success) may bypass some of the rounds of funding and move through the process of building capital more quickly.

The rounds are stepping stones for the startup, and the company receives enough money to grow and meet the goals. Each round of investment can take between 3 to 12 months depending on the entrepreneurs, startup, market. Funding rounds are divided into the following.

Pre-seed

Seed

Series A

Series B

Series C

Initial public offering – IPO

Pre-seed

A Pre-Seed round is a pre-institutional seed round that either has no institutional investors or is a very low amount. Pre-seed funding is the first stage of investment in which the entrepreneurs are trying to build the groundwork for their idea. Although this stage is not very common, it may come up early in the startup’s journey. Most startups skip this stage and go directly to seed.

At a pre-seed stage, startups might have built an MVP and launched a beta. Furthermore, it’s very likely that the startup has identified a significant market opportunity and is testing its hypothesis or conducting research.

In most cases, startup founders, family, and friends will fund startup funders. However, startups raised money with pre-seed funding rounds in particular in Europe. For example, a newly established FOV Ventures targets investments ranging from EUR 250000 to EUR 0.5 million in 25 companies.

Seed

Some startups skip the pre-seed round if they raised money from their friends and family who helped them with their growth. Therefore, for many small businesses startup seed funding round is the first stage of the process. At this stage, you are usually looking to scale up to full market production and product development will be complete. You might have previously had a prototype or limited manufacturing run as proof of concept. The equity in exchange for the seed funding in this stage is usually between 10%-25%.

It is important to note that the seed funding is risky, as the company and its product were not tested in the market. If your startup manages to pull through this stage, your business will most likely make it to the next round.

Series A

At this stage, your startup should have factual data to show for the money invested earlier and has an established user base and revenue coming in. This funding is intended for scaling up your startup and growing potential to new markets. Venture Capital firms will usually back companies at this stage.

According to CFI, series A financing is a type of equity-based financing. This means that a company secures the required capital from investors by selling the company’s shares. However, in most cases, series A financing comes with anti-dilution provisions. Startups usually issue preferred shares that do not provide their owners with voting rights.

Europe’s early-stage investor base (number of active investors) has massively grown in the past few years. Europe has witnessed an increase in the level of investor collaboration. Some of Europe’s series A investors are Idinvest Partners, High-Tech Gründerfonds, Octopus Ventures, Index Ventures and Partech Partners.

Series B

Your company can opt for series B funding after four to five years of operations – when it deems suitable. In many cases, companies don’t opt for series B funding because they tend to become profitable after five years or so. Startups that reach the series B investment level have usually expanded their user base and plan to become enterprises.

For financial services subsectors, a total of 14 U.S. companies closed Series B rounds of $100 million or more in 2021. Financial services saw the largest growth in median round size, which more than doubled year over year.

In Europe startup Accel raised $500 million for Accel London V, a fund focused on Series A and B investments in Europe.

Series C

Startups that have made it this far, now want to expand their reach into new markets or create new products. Expansion to acquiring other companies is also a possibility. The Series C round is the fourth stage of startup financing, and typically the last stage of venture capital financing.

In most cases, startups are looking to take their product into new international markets. In this stage, venture capitalists on angel investors are looking to finance large sums of money into companies that are already winning to allow them to secure their leadership position. Series C is often the last round that a company raises. In rare cases, startups go for even bigger investments in series D, E, or beyond. For example, recently, iPhone refurbisher Swappie raised $124M Series C led by Verdane to scale in Europe.

Some of the key drivers for growth are achieved through honing and perfecting the customer experience, rapidly expanding sales/marketing functions, and hiring key executive talent.

Finally, it’s more common that a Series C round is a final push to prepare a company for its IPO or an acquisition.

Initial public offering – IPO

Many startups use Series C funding to increase their valuation for an IPO, which is the process of opening a private company’s shares to the public. Therefore, an IPO allows a company to raise capital from public investors. The transition from a private to a public company can be an important time for private investors to fully realize gains from their investment. Meanwhile, it also allows public investors to participate in the offering.

In the startup world, this is considered a success. This allows the initial investors such as family, friends, angels, and VCs to sell their startup ownership to retail and corporate investors. A strong pipeline of companies went public either through an IPO in 2021. An example is Affirm, which saw its stock price jump 100 percent on its first day of trading before closing out at $97.24. Affirm is a big player in the increasingly popular “buy now, pay later space,” which also includes companies like AfterPay and Klarna. Since it went public in mid-January, the company’s stock has moved up and down, but overall its trajectory stayed positive.

To Sum Up …

Every startup founder has to go through these stages and startup funding rounds to create a successful business. As mentioned in this blog post, the first round is known as the pre-seed or seed round. In later stages of the startup lifecycle, companies go for Series A, B, C until finally they go public.

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Before you go on your mission, be sure to research taking outside capital. Make a list of pros and cons, and decide the best options for your business. As a first step, understand how much money you will need for your startup, and think about the cost to keep your business on the float. That said, every company has its capital requirements. For example, brick and mortar stores will have insurance and inventory burdens that an online business may not. Finally, once you have a good idea of your costs, you can start preparing to raise money.

Crowdfunding your business

Crowdfunding is quickly becoming a popular way to help fund a startup. We will most likely see more of this type of financing in 2022. In the traditional approach to crowdfunding, you offer a first-run product or some other incentive in exchange for a monetary contribution. Contributors receive no equity and are not entitled to ask for it. Some startups find success through crowdfunding platforms. With crowdfunding, startups can raise money via the internet through different platforms. This type of funding usually requires some basic marketing, as well as a robust network of friends and family in order to succeed.

In Europe, a new ‘Crowdfunding Regulation‘ suggests investors must apply to the service provider for classification as knowledgeable investors. Furthermore, for investor protection, the ECSP Regulation distinguishes between knowledgeable and non-knowledgeable investors.

If you’re interested in equity crowdfunding, carefully review the requirements of the EU Commission.

Accelerators and Incubators

Depending on your industry, you may want to apply for accelerators or incubators to start your business. These programs can support early-stage companies with mentorship, operations, marketing, and access to capital. We have a couple of good incubators in Europe. For example, in Croatian city Varaždin, we have a startup incubator that gives opportunities for young people and a secure environment for growth and development. One of the top incubators in Europe is Founders Factory in the UK. The incubator is a venture studio and startup accelerator.

Startups enter incubator or accelerator programs for a fixed time and often work alongside other emerging brands in their industry. Therefore, it is worth considering if your business is growth-driven and competitive. That way, you will know if this is the right option to raise money for your startup. If you decide to take this opportunity, look for accelerator and incubator programs in your country. There are many across every country in Europe and beyond.

Angel Investors

Angel investors are individuals, groups of people, family, and friends who invest in startups or small business ventures. The funds that angel investors provide may be a one-time investment to help the business get off the ground. But, on the other hand, it can be an ongoing injection to support and carry the company through its difficult early stages.

Angel investors commonly provide more favourable terms than other lenders. This is because they usually invest in the entrepreneur starting the business rather than the viability of the company. Your angel investor will have a say in how the business is run and will also receive a portion of the profits when the business is sold. According to some related articles, diversification of portfolio companies and improvement of investment networks are the main reasons why angel funders are interested in investing in startups. So, what makes a startup attractive to angel investors? Companies with a solid business plan and realistic and attainable projections are very appealing to angel investors and venture capital networks. Another important factor is the charisma, experience, skills and dedication to the profitability of the founder.

To find angel investors, look for local angel groups, where like-minded individuals pool resources to make a more sizable investment as a group. Another great opportunity is to join networking events where angel investors are networking to find their unicorns.

Venture Capital for Startup to raise money

Still, wondering how to raise money for a startup? The best bet for some small business owners is to find a venture capitalist to fund their business. Furthermore, venture funds are a short-term cash input to enhance a startup’s growth. Most venture capital firms look for startups with huge market potential, technology that sets them apart from other companies, and incredible management teams. Taking on venture capital means taking on the expectations of VC firms. Therefore, venture capital can help fund early-stage companies if they promise a good return on investment. Before you seek outside money from VCs, you will need to understand your strengths and weaknesses. Think critically about how your business stacks up to the competition, and know your go-to-market strategy.

Moreover, you should prepare a good pitch that walks investors from the original concept to a commercially workable idea with clarity and passion. One of the rules of preparing a pitch is to be specific and convincing. Describe a giant concept that has the potential to earn outsized returns and generate actual wealth for traders.

If you are still wondering how to raise money for your startup, look for a financial advisory firm to help you navigate through these stages. Our team at VX Associates can help you with venture capital funding or financing solutions. Our extensive network in the venture capital industry provides us with a competitive edge in advising companies who are seeking venture capital investments.

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Since venture capitalists invest at high risk, VCs tend to be very selective about placing their money. But, regardless of high risk, VCs give out thousands and millions of dollars to small, untested ventures with the hope that they may eventually evolve into something big. So, what things prompt VCs to drag out their chequebooks?

With so many funding possibilities and start-up pitches, VCs normally have a standard and norms of what they look for and evaluate before making an investment. That said, here are some of the key considerations for venture capitalists when they look for an investment opportunity.

Strong Management and Leadership

One of the first people the venture capitalists meet is the company founder. Therefore, it is no surprise that they look for their role in the management. VCs invest in a management team and its ability to execute the business plan. That is why having strong leadership is crucial to a successful business. VCs want to know if the founder would be able to problem-solve and make adjustments if the business hits roadblocks.

Companies that look for venture capital investments should have a strong team of experienced and qualified people who will play a key role in the company’s development. If your business lacks a talented manager role, you should be willing to outsource someone from the outside. Prepare your team for challenges, and train them to overcome them. Venture capitalists want to see a team that is “all in” from the beginning. If the team is passionate about their product or service, they can get through the “bootstraps” stage of growth. That shows they have the determination to overcome any hurdles team will face in the growth process.

Innovative product or service

Venture capitalists look for a real solution to a problem that has not yet been developed by other competitors. They want to see how your product or service can change current habits and give them the reason for it. What really matters is why would people want to change their habits, or use your products instead of the product they already use. They look for products and services that customers can’t do without because it’s so much better than anything else in the market.

Venture capitalists also look for products or services with fewer competitors. They want their portfolio companies to be able to generate sales and profits before competitors enter the market and reduce profitability. Basically, they want to know how your product is unique and how you differentiate. You are only going to attract their interest if your idea is something that the VC hasn’t been pitched several times already.

Market Size

VCs look for a business that can target a larger market at once. That means a market that can generate 1 billion EUR or more in revenue. As a startup, you need to show that you are targeting as large a market as possible. To receive returns on investments, VCs want to make sure their portfolio companies have a chance and are likely to generate hundreds of millions of euros.

VCs expect that your business plan contains a detailed analysis of the potential market size. Market size should be presented from the “top-down” and from the “bottom-up.” That means providing third-party estimates found in market research reports, but also feedback from potential customers, showing their willingness to buy and pay for the business’s product.

Risk Assessment

As we mentioned in this article, venture capitalists’ job is to take risks. For that reason, they want to gather information, business plan to learn about startup potential. Some of the common assessments include the following:

• Could regulatory or legal issues pop up?
• Is this the right product for today or 10 years from today?
• How much money is there in the fund to fully meet the opportunity?
• Is there an eventual exit from the investment and a chance to see a return?

These are some of the ways VCs measure the risk. Venture capitalists want to see that you can make fast and easy conversions. They want to know what the different consumer segments are and how you can target them. They also want to see that there aren’t too many obstacles in the buying cycle and that there is a fairly uncomplicated process for converting consumers.

To sum up, if you are looking for a venture capital investment, make sure your business is at the right stage and prepared for all the challenges to come. Venture Capitalists want to know if your management team is up to the task, what is your market size and if your product has what it takes. Are you in the process of raising capital or in strategizing for a transaction or exit in the future? Our team of experts in Private Equity and Venture Capital Fund Solutions can help with providing the essential financial tools needed to present to investors, help with fundraising, deal origination, deal structuring, valuation, exit planning and execution.

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