Startups, nowadays, are on the lookout for funds, and with the investors also seeking the right investment to make profits from their money, we spoke with Dirk Röthig, a German investment specialist. We discussed his vision, the chances for startups and investors, and what startups should do to get the right investor for their business.
How hard is raising money in 2018? And is a shift a possibility shortly?
Right from time, raising money has never been easy. As expected, raising money depends on the idea, the business, the region, the risks associated and several related potential deal breakers. Looking at the other side, one will discover that there is a lot of liquidity presently in the market and using this, and I was able to find the money needed to fund most projects I accepted.
What grave mistakes do startups and companies make when raising money?
Most startups and businesses think in the wrong direction. They tend to pay more attention to “What the investor wants,” instead of thinking about what they can offer. Finding out about the thoughts of investors can be difficult, if not impossible. However, the more conviction your investment story holds, the more interesting it is for investors.
When raising money from a Venture Capitalist, how long does it take?
On the average, it takes about six to nine months. This is due to the associated long due diligence, long decision and contract drafting procedures associated with it, making it a very long lasting target. Because not every idea is made for VCs, it is not the quickest way of raising cash for startups.
How best can one introduce himself to a potential investor, before meeting them?
Being real is important. You can test yourself with close individuals or investors before meeting the real investor. Also, being flexible is important, make compromises, but do not give up idea or identity. Present a concise story while making it understandable for everyone. As such, you should be able to tell your investment story in two minutes in the elevator.
Even with a great idea, an investor might still decide not to invest in you, if they do not like you as a person.
What is your advice on giving a great first impression at the first meeting?
Again, I will advise being real. Do not try to fit the investor. No matter your plots, once the investor fails to like you, he will not invest anyways. If the investor gets to like you because you played a role, he might like you for the moment, but in the end, he still has to face you. This would not end well because the investor would not want the real you.
Apparently, only money does not solve all the problems of a startup. What are the mistakes companies make even after raising money?
Most times, money is not the only requirement for a successful startup. Knowledge, experience, right contacts, and the right people are also important. Hence, apart from the investor, there also needs to be proper management or business management on board.
Some companies are of the opinion that they are trading the grip on their company for investor’s money. What can be done to avoid that?
This only arises due to a typical conflict of interest between the startups and their investors. While it is not an easy task, the best solution remains seeking an experienced advisor who is capable of introducing more robust methods and contractual possibilities. In the end, having 49% from something is better than having 100% from nothing.
How do Companies value their investment before the investor’s contribution?
Majority of today’s entrepreneurs do overvalue their company. You can employ the common valuation methods, but remember that without the investor’s contribution, the company will either go bankrupt or develop at a very slow rate. Hence, investors usually have very strong positions in cases like these.
It is usually said that it is easier to raise 50 million euro compared to 100k euro, why is that?
It is the same as saying “To make the first million is the most difficult.” If your company is large enough for huge institutional money and it needs 50 million, then you are already successful. This amount of money equals a lot of liquidity in the institutional money market. Pension funds, insurances, and related companies are all very interested in getting new valuable investments. Hence, with the right contact, finding 50 million is easier than 100k.
With several financing methods available to companies, do you think the role of the traditional banks as loan givers has ended?
The banks come into play when you want a working capital in the normal course of business. Banks do not take risks, and they do not want equity risk in your company. Personally, I haven’t seen one company that was able to successfully finance its growth without seeking bank loans in the space of the last 15 years.
With investments going global, and the possibility of getting it all over the world, it is important, especially for smaller companies, to stay close to their roots and stick with local financing. What do you think about this?
Pecunia non olet. I am not interested in the source of the money, except of course political risks are involved; say Chinese or Russian money. Hence, it might be less difficult for the founder to generate funds in their own country. But if he can get the money, I would take the same, irrespective of where it comes from, so far no burden is attached.
Some investors dislike your financial position, your city, country of residence and juridical status as your company, and hence, would not invest. What do you advice? Should entrepreneurs be more open-minded about these things, even if it means moving to another country?
I will say yes. The vital point is the idea and that the business continues to increase. It does not matter if the growth is happening in the US, France or Germany. If the reasons of the investor are considerable and reasonable, then there is no point staying.
What would your last words be to a company planning to get financing?
Search for an experienced Fundraiser and Advisor; someone who has been involved in the business for long and has a proven track record. Such individual must also have the right contacts and the required knowledge.
Mr. Dirk Röthig was the Chief Executive Officer and Managing Partner at Mayflower Finance AG. Before establishing Mayflower Finance, he worked from 2001 to 2006 at IKB Deutsche Industriebank (IKB) where he held the position as the Managing Director Global Head of Securitisation and Co-Head of Treasu.