What can you tell us about White Star Capital and your role there?
White Star Capital (WSC) is a transatlantic venture capital (VC) fund. I’m a managing partner there.
Before WSC I was at Facebook for four years. My job was to convince European tech companies to build on top of the Facebook platform and use the platform for distribution. During that time I saw a lot of the European start-up ecosystem. Many of the companies we worked with ended up going global. I saw this as a massive opportunity. The European ecosystem was coming of age, but the options for financing were a fraction of what is available in Silicon Valley.
So I started as an angel investor with my partner Eric [Martineau-Fortin], under the WSC banner. In 2013 we decided to quit our day jobs and build it into a proper VC fund, at scale, with external money.
At WSC we invest at seed [very early investment for initial development of a business idea] and series A levels [a company's first significant round of VC financing].
What are the challenges that face European tech start-ups when it comes to VC funding?
The stat is that venture capitalists say “no” to 99pc of what they see. It’s a numbers game.
Take companies that raise seed round money and then go on to successfully raise series A funding. According to our research, in North America, 12pc of companies went on to raise series A funding after successfully raising at the seed round. In Europe that figure was 6pc, so you can see there’s quite an acute series A “crunch” in Europe.
How do entrepreneurs pitch to WSC – and what’s the best way to get in touch?
We get deals through a number of sources: first is pure in-bound (people sending their ideas in), which happens a lot but there’s far less likelihood of getting any funding this way. The second is through people we know in the ecosystem (angels, entrepreneurs, accelerators, incubators and so on). The third is us proactively going out and looking at where we think there are opportunities.
My advice to any entrepreneur is this: don't email me cold. I’m pretty sure we will share at least one point of contact on social media, so find someone who can validate and vouch for you. That’s likely to get a higher visibility in my inbox. I get about 5,500 emails per month, 75pc of which are external, with the most common phrases being “please meet” and “raise £1m”.
You’ve said before that VC is a bit like dating – how so?
It is similar, but the timing is completely out of whack. Fundraising is like Tinder, but the relationship you’re cementing is longer than the average marriage in the US. You decide to raise money, so you meet a load of people and pitch over and over again. One likes you, so they ask you out (for a meeting); then there’s a second date (follow-up meetings); and then they want to meet your parents (they do the due diligence).
That “courting period” is a process that lasts about three months, and then you’re signing a document that basically means you’re married for, on average, between five and seven years. One of the challenges for entrepreneurs in Europe is that opportunities for funding are much slimmer than in the US, so sometimes you’ll date a person you really don’t like, but he or she is the one with the money.
Something I highly recommend entrepreneurs do is, given that I’m doing due diligence on you, exercise your right to do due diligence on me. Ask me for access to CEOs I’ve backed – both the successful ones and the ones where things haven’t gone so well.
There should be a process where the entrepreneur is getting comfortable about the relationship they’re about to cement, because you may have “fallen in love” over the course of three months, but you’re about to be married for a lot longer.
What did you learn at Facebook?
The one big lesson I learned at Facebook was the “anti-list”. There were objectives that Mark Zuckerberg wanted to achieve in that year, but there was also a very specific list of things that we were not going to do, which were on the anti-list. It helped narrow out the noise.
What are your top tips for entrepreneurs thinking about pitching for VC money?
First, figure out what you’re pitching. A real challenge for us as VC investors is when the entrepreneur is still very hazy about what their offering is. They paint such a broad picture in terms of what they want to achieve that they get confused and lost in how they’re going to achieve it all with only £2m. So yes, you can paint a vision of where you’re going, but focus on what you are, what you do and what you want to achieve in the short term.
That said, you also need to consider flexibility. You might have to pivot in those early months, so think about how you might incorporate flexibility.
My other big tip is raise for your ambition. In Europe, because funding options are lacking, we’re a bit shy – entrepreneurs ask for too little. I see this a lot with e-commerce companies, which try to raise £500,000, when, realistically, that should be your marketing budget for year one.
If your business plan requires £3m and you have a very specific proof plan for how and why you need that money, ask for £3m. It’s not a game of valuation or amount – it’s a game of this is what your business needs to succeed and achieve its ambition.
Christian Hernandez Gallardo is managing partner of White Star Capital
Source : www.telegraph.co.uk/