More than before, startups today are sourcing for capital. Likewise, investors are seeking for the best investment to put money on to achieve a good return. On these backgrounds, we had a chat with Dirk Röthig, a German investment specialist. In the conversation, we talked about his vision, and the chances for startups and investors, as well as success tips for startups in finding the perfect investor for their business?
What is the level of difficulty associated with raising money in 2018? Also, do you predict any change shortly?
Putting money together for a purpose has never been easy. So many influencing factors are involved, including the associated risk, the idea, the business, the region and either potential deal breakers. On the other hand, the current market contains a lot of liquidity, and with this, I was able to raise money for most projects I undertook.
What serious mistakes do start-up and companies make in the course of raising money?
Unproductive thoughts is one; they tend to think “what does the investor want?” However, a more important thought is about what they have to offer. Finding out what the investors want is difficult, but the more enticing a project sounds, the better the chances of finding investors.
How long does it usually take to raise money from a Venture Capitalist?
Getting money from a Venture Capitalist requires at least six to nine months. It becomes a long-lasting target due to long due diligence, long decision and contract drafting procedures involved. Hence, it is not the quickest means of raising money. In fact, not every idea is meant to be presented to a VC.
How best to introduce yourself to a potential investor, before meeting them?
The first thing is being yourself. You can test yourself with close persons or investors, before proceeding to meet the real investor. Be flexible, make compromises, but ensure you do not give up the idea or identity. Ensure your story has been thought-through, and simplify it to aid easy comprehension for everybody. Your investment idea should be something you can present in an elevator within two minutes. Even though you might hold the best idea in the world, once an investor fails to be impressed by your personality, they will never invest in you.
What advice(s) or tips can you give to achieve a great first impression in the first meeting?
Be real. Avoid trying to fit the investor. If the investor does not like you, he will still not invest anyways. But if the investor likes you because you put up a show, the likeness would only last for the moment. In the end, he still has to deal with the real you – and that is the person he would not like.
Even after raising money, what other mistakes do companies make?
While it is a fact that money is not all a startup needs, other factors need to be factored in. There might be inadequate knowledge, experience or lack of the right contacts and people among others. Hence, after an investor, business still needs either a management or a business angel.
Some companies are afraid of the possibility of losing the grip of their companies to investors. What can be done to avoid such?
This arises when there is a conflict of interest between both parties – investors and startups. Though the situation could be difficult, the best way out is seeking an experienced advisor who can introduce more sophisticated methods and contractual options. In the end, it is more convenient to have 49% from something, than a 100% from nothing.
How do companies measure and record their value before the investment?
Most company owners do overvalue their company. While it is common to use the usual valuation methods, it is important to note that in the absence of additional funds, the company will either develop at a very slow rate or go bankrupt. Hence, the position of investors is most times a very strong one.
There is a popular saying that to raise 50 million euros is easier than raising 100k euro. Why is that?
This saying is the same as “To make the first million is the most difficult.” If you are operating a company big enough for huge institutional money, and you are in need of 50 million, then you must have been successful already. That amount is a lot of liquidity in the institutional money market. From pension funds to insurances, there are several companies hungry for new valuable investments. Hence, with the right contacts, raising 50 million is easier than raising 100k.
With the availability of several ways to finance a company, can we say the role of the traditional bank in giving out loans is finished?
No. Instead, the banks come into play when there is the need for working capital in the normal course of business. Banks do not take risks, and they are not interested in equity risks in your company. I haven’t seen one company that has singlehandedly finance their growth using a bank loan in the last one and a half decade.
With the way investments are going global, such that you can get it anywhere in the globe, but especially for smaller companies I would advise, stay close to your roots and look for local financing. What would you say about this?
Pecunia non olet, I am not interested in the source of the money, except there is a political risk involved, like the Russian or Chinese money. Therefore, it might be less stressful for the founder to look for money in their country. But if the founder cannot get money, I would take the money, irrespective of its source, once it does not carry any burden.
Some investors do not only like your financial position but also your city and country of residence, likewise your juridical status as a company. What advice do you have for entrepreneurs who face such? To be more open-minded about that, even when it means moving to another country?
Yes. I believe the most important thing is the idea and the growth of the business. The location where the growth is achieved, whether the UK, Germany, France or the Netherlands is not a problem. If the investor wants a change of location for reasonable reasons, then move!
Your final advice to a company before planning to seek sponsorship?
Look for an experienced Fundraiser and Advisor. Such individual must have a proven track record of winning significant sponsorships and must have the contacts and knowledge required.
Mr. Dirk Röthig is an internationally recognized investment banker. He was the Chief Executive Officer and Managing Partner at Mayflower Finance AG. Before establishing Mayflower Finance, he worked at IKB Deutsche Industriebank where he held the position as the Managing Director Global Head of Securitisation and Co-Head of Treasury.