28/05/2024
Investability is, in the simplest terms, the absence of a “corpse in the closet,” i.e. problems that may prevent you from investing in your business. As of February 2024, VC funds, current or future, can apply for funds under the new PFR Ventures programs. In the coming years. A total of as much as PLN 2 billion from EU funds and PLN 1.1 billion from private investors is to go to approx. 40 funds. As early as this fall, as many as a dozen funds with allocations of several hundred million zlotys may be on the market looking for early-stage startup projects.
Thus, the floodgates will open for new startups and ideas. But does every company have an equal chance of getting investment? Not necessarily. VC funds will only invest in companies that meet certain requirements. Startups that know these criteria are far more likely to succeed.
Investors want to understand what the potential risks are and how the startup plans to minimize them. The risk assessment covers various aspects, such as market, regulatory and competition-related risks. Let’s discuss the selected criteria:
Financial stability is fundamental. You need to show that you can manage your finances and have realistic projections for the future. Investors evaluate the startup’s revenue model, market potential and cost effectiveness. If a company is losing money left and right, as seen in its performance metrics, it will be considered a “loser in advance” and overlooked, or receive a much lower valuation than you would expect.
In the case of funds from funds backed by the PFR or NCBiR, it is also not insignificant whether your company, if it has been in existence for more than three years, is not in the so-called “financial crisis”. difficult situation. Such a situation will occur when the company’s equity, or in simple terms what the company has after subtracting liabilities, is less than half of its share capital for the last two years. What does this mean? That the company has very little of its own money compared to what was invested at the beginning.
Structural transformations, such as demergers, mergers, or the acquisition of the operations of another enterprise, can be an obstacle to obtaining funds in the nature of public support.
The decision to do so should have a real business rationale, such as improving operational efficiency, increasing competitiveness, or expanding into new markets, and take into account its implications in terms of being considered a qualified enterprise.
What else are VC investors paying attention to? For the duration of the company’s existence. Startups that have survived for several years have a distinct advantage. Such companies are proving their ability to survive difficult beginnings and adapt to changing market conditions. Even a dozen months of operations can inspire confidence in investors, showing that you have a solid foundation and prospects for long-term growth.
VC investors analyze many aspects before deciding to invest in a startup. Minimizing legal and operational risks is key, as it gives investors confidence that the company is well-managed and has a solid foundation for future growth. Here are some key actions that can increase your chances of attracting investment.
Scrutinize the contracts and templates that are used in your company. Pay particular attention to whether the contracts have been validly executed (e.g., whether the company’s representation is correct in them) and whether intellectual property (IP) clauses ensure that the works created by your team pass to the company. Ensure that contracts protect the company’s interests and comply with applicable laws.
Why is this important?
In the early stages, the greatest value of your business is the people and intellectual property you create together. Properly structuring contracts and including correct intellectual property transfer clauses in them protects the company’s key assets and reassures investors that as a founder you are thinking long term and can safeguard the interests of your venture.
Secure your company’s key intellectual property from competitors. Register your logo and company name to protect your brand from illegal use. Whenever the other party can access valuable information about your business, enter into NDAs to protect trade secrets and confidential information. Use open source licenses with caution and pay attention to their nature, with special attention to “viral” licenses.
Why is this important?
If you don’t secure intellectual property rights, the investor will certainly see the risk and may pull out of the funding round.
If the IP deficiencies are of a correctable nature, there is a good chance that they will not completely derail the chance of obtaining financing, but they will most likely lead to a lower valuation of the company.
If your company operates on the basis of an in-kind contribution that you or any of your partners made to the company, make sure that it was properly transferred to the company and properly documented by agreement. Such an agreement should specify the subject of the contribution and its value and confirm the transfer of ownership to the company.
Why is this important?
Very often, shareholders make the mistake of simply submitting a declaration in the form of a notarial deed that they will take up the shares taken up in exchange for the in-kind contribution, while an additional agreement transferring its ownership to the company is necessary to effectively make the in-kind contribution.
Explain what your roles, accomplishments and challenges encountered were and how you dealt with them. Gather references from people who have worked with you in the past. These may include former co-founders, key employees or business partners.
Why is this important?
Interviews with former associates and clients provide investors with a complete picture of your skills, work style and reputation. Investors will be particularly interested in what lessons you’ve learned from your previous activities and what you’ve learned in the process.
The road to winning VC fund investment requires meticulous preparation and attention to every aspect of the company’s operations. Securing intellectual property, orderly documentation, transparent management, a strong team, and detailed information about previous ventures are key elements that increase your chances of success. Taking care of these elements will help you convince them that it is your startup that is worth their attention and support.
12/04/2024
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