by Robert Taylor‍

The landscape of Venture Capital is ever-evolving. What makes an attractive investment is constantly being reshaped by market dynamics, technological advancements, and shifting investor sentiments.

Now that we have our feet firmly planted in 2024, a year poised to be full of promising innovation and disruptions. European investors are keeping founders and their ventures under a microscope, eagle-eyed and on the hunt for resilience, adaptability, and sustainable growth.

But what is it that is going to attract these elusive investors?

Flexibility, Honesty, and Sophistication

It’s got to be more than just a catchphrase in your website copy. The European investors we spoke to assured us they were not easily woo-ed.

Alston Zecha at Eight Roads advocated for flexibility in valuation negotiations and emphasised the importance of honesty in founder-investor relationships:

“Founders need to be more flexible on their valuations and existing investors need to adjust their expectations too, it’s not all on the Founders.”

“We need to see a finance and business plan that matches your ambition but also we are seeking honesty when it comes to product market fit, market size and capital efficiency.”

This sentiment is echoed by Ken Pentimonti at Paladin Capital, who highlights the significance of capital efficiency in an era marked by regulatory scrutiny, particularly in emerging domains such as cybersecurity and AI.

“Something we look for and I would urge all Entrepreneurs to think about is ‘doing more with less’, and taking steps to be more capital efficient.” 

“With governments imposing mandatory requirements and regulations around cyber & AI in the US, UK & EU, those companies that demonstrate how they align with and can be accelerated by these emerging requirements will be most compelling to us,” Pentimonti cautioned.

Visionaries Solving Big Problems

Aneel Lakhani at Crane Venture Partners underscores the imperative for founders to chart bold visions that transcend incremental improvements.

“A few things, one, from the perspective of an investor we’re for the most part, essentially unwilling to invest in incremental changes and small improvements, for example, if your platform improves the workflow of a team of sales reps by 5%, no one is going to buy that. We need to see products that are going to materially change a sector, or some domain and the Founders must have the vision to do that.”

Investors are increasingly drawn to ventures poised to effect substantial change within their respective sectors. Founders must demonstrate a deep understanding of the problems they seek to solve and exhibit a pragmatic approach to realizing their vision.

This sentiment resonates with Morgane Zerath also from Crane Venture Partners, who emphasizes the shift towards monetization-focused founders, signaling the end of an era characterized by product-centric pursuits devoid of commercial viability.

“The party is over, and we’re looking for Founders who are down-to-earth, this is very much something I look for,” Morgane said.

“Founders that show us that they want to monetise, maybe not immediately but at least show they are thinking about it is key, you’ll be surprised how many Founders are just focused on building cool products and problems but not the monetisation of them.”

Efficiency and Sustainable Growth

While rapid expansion was once the primary metric of success, investors now seek ventures with robust unit economics and favourable customer lifetime value-to-acquisition cost ratios. David Klein at One Peak’s take centred around the growing emphasis on operational efficiency and sustainable growth trajectories.

“We are now focused on what founders have a path to profitability as opposed to purely focused on growth now. In the broader venture segment in 2021 and 2022, growth was enough of a reason to override anything else and for some people, that has shifted, and for some that has shifted a little too far. Some theses around only looking at profitability is a little silly and short-sighted.”

Experience vs. Personality

Some investors can be weary of shiny new founders, while others find that old dogs really can’t learn new tricks.

The debate between prior experience and inherent traits takes centre stage as investors like Jacob Key at Luminar Ventures champion serial entrepreneurs, leveraging their seasoned expertise to navigate the challenges of startup growth.

“We are more and more finding ourselves looking for serial entrepreneurs, we have always had this ethos, however Daniel Ek started his company at some point right. So we wouldn’t exclude all new Founders.”

Conversely, Emma Hertin at Bring Ventures places greater emphasis on the personality and adaptability of founders, viewing prior experience as one of many indicators of success.

“We really look at Founders and challenge their adaptability and resilience to change and can they show us they can navigate comfortably in different times”. “Founders don’t need to have had experience in founding companies before, I’m more interested in personality, and this is something that comes to the forefront in the due diligence process for us.”

This divergence underscores the multifaceted nature of founder evaluation, where resilience, agility, and leadership qualities intersect with domain expertise and industry knowledge. You must be the whole package- the sizzle and the steak.

Steady Growth and Commitment

Founders must recalibrate their expectations, recognizing that success may entail a longer journey.

“Despite the cautious market, a lot of VC’s still have capital to deploy,” said Ed Keelan at Octopus Ventures, who emphasizes the need for steady growth and capital efficiency in an increasingly cautious market. “The average opportunities are falling away and the Founders within the attractive opportunities are often surprised with the influx of interest. Ultimately, the realisation that things will take longer in this market has led to a greater focus on growth and capital efficiency, simply ramping up headcount isn’t the right way to go about it.”

Similarly, Martin Rajcan at Kaya VC advocates for a steadfast commitment to founders, prioritizing qualities such as intelligence, intensity, and integrity. In a landscape characterized by uncertainty, enduring relationships between investors and founders emerge as pillars of stability, fostering an environment conducive to long-term success.

“The key qualities and traits of a Founder don’t really change despite fluctuations in the capital market, after all our commitment to the Founders easily exceed a decade.”

“We look for exceptional intelligence, intensity and integrity. Everything can be learned and we would rather adjust our round sizing and structure to avoid fundraising distractions for a longer period of time to enable Founders to reach more solid proof points for their next raise.”

Conclusion: Navigating the Investment Landscape

As we navigate the investment landscape of 2024, founders stand at the intersection of opportunity and challenge, tasked with demonstrating visionary leadership, operational acumen, and unwavering resilience. Investors, in turn, serve as stewards of capital, deploying resources in pursuit of ventures that embody the ethos of innovation, efficiency, and sustainable growth. While the contours of success may evolve with each passing year, the enduring qualities of founders and the enduring principles of investment remain steadfast, guiding the trajectory of entrepreneurship in a dynamic and ever-changing world.

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