What factors determine the success of a start-up?
The founding team largely determines success. We see many business plans come through, about a thousand a month, and look first of all at the quality and composition of the team. For example, an entrepreneurial team should consist of several people and be diverse. An ideal multidisciplinary team consists of a hacker for technology, a hustler for commerce and a hipster for creativity.
Remarkably often, the same new initiatives emerge at the same time. Multiple start-ups around the world are working on the same idea at the same time. As if it were in the air. And yet, not all those start-ups with that plan are successful.
It is the execution power of the team that determines ultimate success. We often see consultants come forward with a great plan. But they have no business and entrepreneurial experience, no executive power. Those often don’t make it.
An ideal team consists of a hacker, a hustler and a hipster.
How to measure execution power? We often test those at the table. We ask the question, “Suppose this happens, what will you do?” Or we ask for a plan to storm the German market, with a request to deliver it the next day. Also, the layout of the company’s data and what they do with it says something about execution capability.
Another important aspect of a successful team is the chemistry between them. Whether there is chemistry between the founders, you soon notice at the table. Red flags are there when they start intercepting each other’s questions, or when they start complementing each other. We also do ask them to give feedback on each other at the table. “What do you think your co-founder is doing all right?” Then you quickly sense whether there is chemistry between the founders or not.
We often do the initial interviews via calls, but somewhere in the process you want to experience people live at the table. Over the past three years, we have made 26 investments. Of these, there is only one whose founders we have not seen live.
Which start-ups are growing fast?
Growth takes the full dedication of the founders. You just can’t set up a business part time. You also want to see that commitment financially. The founders must have put money into it themselves. Some people want to start a business, but at the salary they were used to earning when they worked at a large company. Put that out of your mind. The first few years of a start-up is hard work and little earning.
In addition, what we see is that companies that learn quickly are growing fast. That means a clear focus on data that monitors everything. Also at the forefront of these companies is experimentation, which is all about testing assumptions and building on them. When you combine this with good gutfeeling, you have a rock-solid combination.
Growth takes the full dedication of the founders. You just can't set up a business part time.
Why do so many start-ups fail in the first five years?
There is quite often shit within the entrepreneurial team. Within one year, in 50 percent of cases, the composition of the team changed. When things get tough, which they undoubtedly will, there will be cracks in the relationship. Then disagreements arise about what should be done. At times like that, founders leave or new people are added to the team.
Also at Peak, we are dealing with investments that do not perform as well as we had hoped. Although we haven’t yet experienced an investment that completely stopped. That can be called quite extraordinary.
Similarly, I invested in consultants who were going to start a SaaS business. But that turned out to be totally different cake because they were used to doing custom work for customers. The background and experience of the entrepreneurs appear to be critical to success. The consultants had little knowledge of SaaS.
When we invest in software, marketplace and platform companies, it is very important to have the technology (knowledge) in house. Consumer marketplaces can be set up with third-party technology in the first phase. But if you start a software company, you really need to have in-house developers.
In consumer market propositions, you often see a winner takes it all. Consumers do not readily take out two subscriptions to a similar service. The number one is getting bigger and bigger, pushing competitors out of the market. A major cause of failure.
In consumer market propositions, you often see a winner takes it all.
How do you rate incoming pitch decks? Do you use a model or scorecard?
Yes. We work with the 4-T model. That stands for:
Team (fifty percent of final score)
- Complementary skills (technology and sales)
- Norms and values within the team
- Personal chemistry
Thesis (thirty percent)
- painkiller solutions(plan solves an actual pain point)
- Strong value propositions
- Large markets (in terms of size)
- Strong vision
Traction (ten percent)
- Clear customer demand
- Data-driven decision-making
- Positive unit economics
- Strong go-to-market strategy
Timing (ten percent)
- Clearly why now
- Demonstrable market demand
- Team is ready to scale up
- Clear investment plans
Of all the companies and plans, we keep score. The maximum score is one hundred. I generally see plans of at least 55 to 60 points. We keep scores in our CRM database and adjust them as there are developments at the companies. Currently, we make two investments a month. Twenty percent of that comes from the Netherlands, the rest from the DACH region (Germany, Austria, Switzerland) and the Nordics.
Are you seeing an increasing focus on ESG?
Yes. This trend has been going on for some time. It is also our own desire as VC to make the world a better place. We mostly do “negative screening” – not investing in companies we don’t support. For example, we recently rejected a marketplace because we did not feel senang with this marketplace and the product. ESG is becoming increasingly important in ratings, although it is not the only criterion. You are simply not going to make a return if there is no consideration of sustainability in the investment. In addition, we invest other people’s money. And the target market is increasingly speaking out in favor of sustainability and investment in it.
Do you have any tips for startups looking to raise money?
Make sure you are prepared at the table: which investor are you sitting with, what did they invest in? Well-prepared entrepreneurs turn out to be more successful than those who just happen to come along.
When you begin, first make maximum use of your own available capital. Utilize your own money and that of those around you(friends & family). In addition, it can be very interesting to raise money from your customers, for example by having them pay in advance. Finally, you can take advantage – especially in the Netherlands – of all kinds of subsidy schemes. I would take those opportunities first, before going to an investor.
When you begin, first make maximum use of your own available capital.
When looking for an investor, look carefully for the right investor for the right stage of your business and in the right sector. That can save you a lot of time. VCs and business angels often have their own investment bandwidth(ticket size) and sector in which they invest. In doing so, it often works better if you come in through someone rather than approaching the investor directly.
Finally, raising money can be done anywhere, anytime. For example, the other day I was addressed at a funeral and the entrepreneur began to pitch his plan. In doing so, this person did go very far, but in doing so he also showed tremendous drive. Also kind of hilarious actually. It didn’t turn out to be anything, by the way, but that certainly wasn’t because of where I was approached.
Success factors that emerge
- Team composition
- Ambition and dedication
- Skin in the game
- Domain knowledge and track record
- Market demand and timing
- Unit economics
- Ticket size