In the dynamic world of startups, the relationship between founders and venture capitalists (VCs) significantly influences the trajectory of emerging ventures. In an endeavour to decode this complex relationship and understand the priorities that guide investment decisions, Atomico, a venture capital firm, conducted an insightful survey and published it in their State of European Tech report. They reached out to startup founders, asking them about their crucial considerations when selecting an investor to lead their next funding round. Simultaneously, they engaged with VCs, asking them what they believed had given them an edge in winning competitive deals over the past year. The results revealed a fascinating dichotomy, underscoring the fact that founders and VCs often operate on different wavelengths when it comes to identifying the “winning factors”' in investment deals.  

 

Through this analysis, we can get a clearer picture of the existing discrepancies and potential solutions that can bridge this gap, fostering more productive partnerships. 

 

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Source: State of European Tech22 Survey 

 

The founders' perspective 

 

The survey results offer profound insights into the complex mindsets of startup founders when selecting an investor for their next funding round. A substantial 57% of founders indicated that their primary consideration is the investor's general understanding of the startup's vision and goals. This result underscores the importance founders place on an investor's ability to grasp and align with the strategic direction of their venture. For these founders, having an investor who comprehends their business vision is crucial, as it enables the formation of a supportive and effective partnership. 

 

Conversely, the survey reveals that traditional factors such as the evaluation of the startup and the brand and reputation of the fund were not as critical in the founders' decision-making process. Brand reputation, often a primary consideration for VCs, only ranked sixth in importance for founders. A mere 17% of founders selected multiple options, including factors like assistance with international market entry, fund reputation, deal flexibility, and evaluation. This suggests a shift in founder priorities, with more emphasis placed on strategic alignment and less on monetary valuation and reputation. 

 

Additionally, only 7% of founders stated they chose a VC they had a longstanding relationship with before the seed round, indicating that the investment of VCs into building relationships prior to funding rounds is undervalued by founders. This divergence in perspective invites VCs to reevaluate their approach, focusing on showcasing their understanding of the startup's vision and fostering a strong initial “chemistry” with founders, instead of primarily focusing on valuation and reputation. 

 

The VC perspective 

 

On the other side of the equation, the perspective of venture capitalists, as gleaned from the survey, provides an interesting contrast to the viewpoints of startup founders. Nearly half (48%) of the VCs surveyed believe that investing in relationship-building with founders was the key to winning a deal. This is in stark contrast to founders, who seemingly undervalue this long-term relationship-building effort. This divergence suggests a potential misalignment in understanding the value of initial relationship-building, with VCs seeing it as crucial and founders generally dismissing its significance. 

 

In addition, 27% of VCs rely on their brand and reputation as a driving factor for winning deals, contrasting with the lower emphasis founders place on this aspect. A quarter of VCs felt that their extensive network was instrumental in securing deals, echoing the sentiment of some founders. Interestingly, alignment on vision and goals, which was the top priority for founders, was only identified as key by 23% of VCs. Furthermore, VCs rated speed of decision-making and closing deals, as well as relevant industry experience, as influential factors in deal-making. These aspects, while acknowledged by founders, were not as paramount in their decision-making process. 

 

Bridging the gap 

 

These discrepancies illustrate the distinct priorities and perceptions that exist in the founder-VC dynamic. It highlights the need for better communication and understanding between these two key players in the startup ecosystem, to ensure both parties are on the same page when it comes to shaping successful investment relationships. 

 

Bridging the gap between founders and VCs necessitates a shift in focus and improved communication. VCs should prioritise understanding and align with founders' visions, demonstrating their value proposition early on, while founders need to appreciate the long-term benefits of relationship-building and partnering with reputable funds. This synchronisation can foster more fruitful partnerships. 

 

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