Everything you need to know about securing an investment as a startup or scale-up!
Peer Group Meeting # 78 | On Monday September 2, the Peer Group Meeting “Startups / Scaleups & Investor” took place at the office of Holland ConTech & PropTech. Robbert Heekelaar (VP Architecture & Emerging Technologies at Prologis), Daniël Langerveld (Business Analyst at Endeit Investments), and Yvo Velthoen (Technology Analyst at Venture IQ) answered the various financing questions from the entrepreneurs present during a two-hour session.
We have listed some questions and answers in order to inform interested parties who are not present about (part of) the matter discussed.
Which KPIs do investors focus on?
Daniel: Which KPIs an investor focuses on depends on the position of the company on the investment cycle. We focus on companies from € 2 million turnover and this is a strict requirement. As a SaaS company in the SAAS community, you already have serious traction with such a turnover. We therefore see the € 2 mln turnover as a proxy to show that a company knows who its target customers are and how they can best be approached. This turnover level also includes specific KPIs that are aimed at further upscaling growth. Examples are: 1) costs to acquire a customer (eg Google advertisements, sales persons, etc.), 2) KPIs regarding the value of a customer, such as turnover per customer per month (ARPA) and the churn costs per customer per month. With points 1) and 2) you can then determine the relationship between the lifetime value and the customer acquisition costs (LTV / CAC) of a company. With which you determine: what does a customer deliver (LTV) and what does it cost to acquire the customer (CAC). This ratio is most important to us. It shows how much risk can be taken by expanding sales teams, increasing the marketing spend and rolling out abroad. There is of course risk involved, but this is somewhat mitigated because the company already has “proven” traction in the market.
During the initial phase, the so-called “seed funding”, it is more about having a good idea. As a founder, you have invested time in the company, but you still have little traction in the market (solid revenue growth) and you do not know exactly what and to whom you are going to sell. The product, approach and type of customer may change a few more times in the first phase. The start-up is valued differently during this cycle and will do well to find an Angel of seed investor. The latter usually invests smaller amounts. Which also makes sense since the valuation will be lower as there is more risk. After all, there is still “little” traction.
Robbert: We also only invest from the second round. Our investment branch is not our core business, so we do not have the capacity to allow a seed to flourish. For such a first round you can indeed look at Angel investors or a large investment fund that invests in different seeds. If one flies, they are good. Because we look at the applicability in our own sector and potentially also become the company’s first customer, it is useful if the start-up is already somewhat settled. In the second round it is therefore clearer what the company can do for our sector and we can immediately make matches. In addition to making an investment, we can then also propose customers where the product can be implemented.
Yvo: With us, the criteria are determined by our customers (often corporates) who are interested in other forms of cooperation in addition to investing. Our customers are often looking for a specific solution to a problem and would like to see all companies worldwide that can offer a solution. In the first instance, we therefore pay particular attention to the track record that companies have on that specific point. By identifying all companies that offer a possible solution, we provide our customers with a complete picture of the playing field. If our customer wishes to invest, we may still drop all companies that fall outside the turnover bandwidth, but then our customer has a good picture of the competitive field. However, an alternative to a corporate can be to just enter into a partnership, which is often more interesting for all parties involved.
How is a company’s turnover calculated?
Daniel: Of course that depends on the industry. We assess the SaaS companies in which we invest by looking at both actual revenue and run rates. If, for example, € 110K is converted in January and € 160K in July, we could calculate a turnover of € 160K multiplied by 12 months. With such growth rates, however, there is a good chance that the company will continue to grow to € 190K, so then we take welli