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Comment by nemesisj | Hacker News Reader

What's infuriating is that over here in Europe, the focus on making money early on with a startup is considered the biggest drawback of the VC and investment community.

"VCs are so risk adverse here, they expect you to get some revenue in the FIRST COUPLE OF YEARS! Man, why can't we be more like the Valley?"

I've long said this is a feature, not a bug. It's refreshing to see this article. Maybe some over here will take note.

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Try East Coast (US) VC's and angels. "Risk averse" doesn't even start to describe some of these folks. We have angel investors who want you to have paying customers and then still want to do 6 months of "due diligence" before making a seed investment.

Had this happen to us in Texas. We had paying customers, and customers who wanted to pay that couldn't afford us (needed to nail down pricing), but we weren't profitable quite yet. Angels wanted nothing to do with us until we were profitable, so that sucked.

Why would you need angel investment if you were profitable? It seems like the terminology has shifted a bit or something.

Same reason you raise any type of capital, growth.

Yeah, but is it still angel investing?

Angel investing means that they buy equity but don't have input on decision-making. VCs buy equity but do have input on decision-making (usually sitting on the board). I meant it in that context. If that terminology is different between Texas and the Valley, then I'm not aware of it.

What do you think angel investing means?

I'm not exactly an insider, but I took it to just mean early and small. The idea being that you needed an 'angel' just to get started.

It seems like the terminology has shifted a bit or something.

Exactly. There basically isn't anybody doing seed stage investment out here (where "here" is North Carolina for me)... the angels are basically doing what used to be an "A round" and the "early stage" VC's are either "A" round or later.

Now I understand the desire to minimize risk... we'd all like to minimize risk, surely? But for angel investors and venture capitalists to be this risk averse just seems counter-intuitive. Seed stage investing and venture investing are inherently risky, hence the term "high risk, high reward". But these folks seem to want all the reward and none of the risk.

About the best shot you have here at early funding out here is "friends, fools and family", or hope you get lucky and get into Triangle Startup Factory or get an NC IDEA grant. Otherwise, you just have to self-fund everything, or pursue some sort of "alternative" strategy (customer funding, crowd-funding, or whatever you can think of).

Of course, the flip side is that if you do self-fund and you can get some serious traction going, then you have much more leverage with investors at that stage. When you can honestly say "Hey, we don't really even need your money" then you don't have to accept absurdly unbalanced terms from would-be investors. shrug

Perhaps you should lay out the obvious analysis : Once you're profitable you won't be in a position of needing their cash. Which means that they'll have to make themselves attractive to you, rather than the other way around - they'll understand quickly that much of their negotiating leverage will soon evaporate (assuming you can confidently predict when you'll get to profitability).

Here here. Wish I could double up-vote.

What I dislike about Euro VC is not so much this focus, it is their insistence on risk reduction in the above way coupled with low valuations not properly accounting for said derisking.

Amen. 100% agree. I've been in a few meetings were these VCs play the dumb-I-don't-know-corporate-finance card. These VCs do not create value, but solely profit by buying into a business which is already making serious money, without the "genuine startup risk", with the "genuine startup risk" priced in. This situation has been created thanks to the lack of competition at the investor level.

I can only say that other financing players in Europe are starting to wake up. I've already seen two European startups making serious money go on to raise considerable capital via debt financing, one via a bank syndicate and the other via an institutional investor. Terms are less strict on management, capital cost is a fraction of VC equity, no equity/board seats are given away, avoiding the abusive-VC free ride. On the other hand, debt-finance does require considerable financial discipline (which can be good and bad). As long as you have a clear idea of how that capital is going to be used and how much cash is going to come back to the business, startups with user traction and free cashflow should go the debt financing road.

European VC's are literally worse than Bankers. They have sodomized the "venture" out of "venture capital".

The Valley VCs might point to Google, Salesforce, VMware, Facebook, Amazon, etc. and disagree.

That might be true on the continent, but not in the UK. We've been profitable since month one, grown out revenue and profits by >100% YoY, and VC cash just ain't worth it, as on this side of the pond the best earnings to value multiplier you'll get is about 1.5. Not 15, not 150, 1.5. We net about £.6m/yr, ergo our value is about £.9m, tops.

If you have no revenue - you'll get a 50x multiplier on your theoretical revenue, no problem.

VCs are NOT INTERESTED in profit-making businesses. They just want a white elephant to pump and dump.

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