European investors are starting to return to their offices and open their mail — and for some VCs, those inboxes are now brimming full, they tell Sifted.
That’s in contrast to the summer — which, for many, was very quiet. This August was the worst month for fundraising in years, with €1.8bn raised, per Sifted data.
It’s not been easy for some startups to secure cheques this year. “Fundraising always was really, really hard,” Jan Miczaika, partner at HV Capital, says of the European ecosystem. Now, post-2021 blip, we’re “trending back” to that normal, tougher environment. Companies managed to raise €27.8bn through the first half of the year — down a bit from the latter half of 2023, but higher than the same period last year, per Sifted H1 data.
“There is a lot of uncertainty in the world right now,” says Philippe Klitzing, partner at Peak Capital, so founders need to “show how your company can thrive despite this economic uncertainty or even benefit from it.”
This autumn “may even be more intense as companies that delayed fundraising earlier in the year are now entering the market,” Sophia Bendz, partner at Cherry Ventures, tells Sifted. “One clear trend I've noticed is that founders are approaching VCs earlier in their fundraising journey, with a greater sense of urgency and proactivity, which is good.”
But the bar is high, and VCs are still being choosy. “There is less tolerance for unprepared fundraises,” says Miczaika.
Jag Singh, managing partner of Angel Invest, says his fund did fewer deals than expected so far this year; meanwhile more than 30 of its companies raised follow-on rounds and five shut down because they weren’t able to raise any more money. “The ones that raised all ran very tight fundraising processes,” having “prepared a list of investors in advance, then gave those investors a two/three week window to meet, discuss, take to investment committee, etc,” he says.
So how can founders prepare? Sifted polled a few VCs who invest from angel cheques to Series A and above for their advice.
1/ Optimise for commercial momentum
Regardless of what type of startup you’re building, timing also matters.
“The fastest rounds are raised around four to six weeks; I typically advise founders to go out at the latest at the beginning of November” in order to get term sheets signed before the holidays, Peter Specht, general partner at Creandum, tells Sifted. Bendz advises founders plan to be fundraising for between three and six months.
VCs like Specht say founders should think about which months tend to be good for sales and time a fundraise to be able to show that short-term growth. “How does your last three months’ growth momentum look like over this period of time, and how does your year-over-year growth look at this time?” he says. For example, if a company typically has strong revenue months in September or October, they should consider going to market in early November, says Specht.
2/ “Where’s the AI?”
For better or worse, it’s an AI world, and founders are just living in it.
“Where’s the AI?” is the first question seed investors ask when being introduced to a new company, says pre-seed investor Singh. “If there isn’t any AI, then it’s, ‘Can they grow revenues 5x within the next year?’”
“If seed founders can’t articulate an investment thesis, or aren’t able to show what category they’re building/tackling, or aren’t able to project serious growth, investment committees are shooting those companies down because they know Series A rounds are far and few between,” says Singh.
Meanwhile Klitzing says that if you are an AI startup, you need to emphasise how you stand out: “I don't think you can differentiate purely on product and tech anymore ([anyone] can build ‘something something AI’); it's all about speed of execution,” he says.
3/ Know what metrics VCs expect
Naturally, the type of metrics and growth investors look for will vary based on what the startup is building and the sector. But founders should be aware of what good looks like: efficiency of growth and good unit economics.
Klitzing says founders should expect deeper due diligence post-summer, particularly on financials and things like customer acquisition costs and runway.
For SaaS companies, for example, Specht says the “classic number” VCs want to see is 3x year-over-year growth for Series A companies. “During years with very strong commercial momentum or hype, funds started to adjust the number slightly up – but I think now we’re [back] at [that] level,” he says.
At minimum, says Specht, a Series A startup will need to show $500k in annual recurring revenue (ARR). But don’t worry about profitability just yet: he says it’s more important for investors to see that a startup is winning “more happy customers” and “finding a path towards an emerging category leader.”
For other sectors like deeptech — which can include biotech and robotics — “the traction metrics are less well-defined,” Miczaika says, considering many of these companies won’t have revenue for a long time while they develop their products.
Instead, he’s looking at things like the size of the potential market and how long it will take the company to develop its product, he says.
More generally, Bendz says investors are looking for good retention metrics (like low churn), which typically shows whether or not you’ve found product-market fit. “Be sure that you come prepared and can answer almost any question on your financials; it does sound obvious but that’s not always the case,” she adds.
4/ Do a pitch dry run
By now, there are numerous templates online that you can use to build a good pitch deck with all the key information (Creandum, for one, has a mock Series A pitch deck available online).
But VCs like Specht say that where some founders are lacking is in storytelling. It’s “an important aspect of selling the mission and rehearsing storytelling and how to pitch yourself and running this by experienced other founders or angels is usually very helpful,” he says.
That’s why he advises founders to use their angel investor friends or VCs to do pitch “dry runs”.
5/ Highlight the talent
If you’re an upstart team pitching your pre-seed startup idea, you’re going to rely heavily on the talent and backgrounds you have in the group. But even at the later stages, demonstrating the ability to attract great hires is a key thing investors look for. That may be particularly the case amid reported talent shortages in areas like deeptech, AI or defence right now.
“A strong founder is able to persuade talent,” which “comes down to a founder being able to pitch his or her vision to persuade someone, maybe, to move internationally, etc. To me, these are very strong signs,” says Miczaika.
“The entrepreneurs I work with who are most successful in hiring see hiring as a CEO task,” he adds. “Founders who do it well have built a database of people they want to work with, for different stages, for different functions [and] continuously engage with the top talent — and over time, assemble a stellar team.”
6/ Look beyond the obvious sources of capital
Venture capital may not always be the best fit for a startup – and the big generalist funds aren’t always the right ones to take a cheque from, either.
Miczaika suggests founders consider different types of investors they might raise from — like sector or stage-specific funds, ESG-focused funds, family offices and angels. “I think people immediately think of HV, Creandum, Northzone, etc,” but “if you have a purpose angle, if you have an ESG angle, suddenly completely new pots of capital open up.”
