As the Lisbon Investment Summit approaches, we spoke with Pedro Faclão, managing partner at LC Ventures about the needs for more pre-seed investment and what every startup should have at the ready when talking with an investor.
Why was LC Ventures created and why is it important to create Portuguese investment funds?
LC Ventures was born on the belief that brilliant teams are creating innovative products that don’t develop due to lack of funding.
Portugal has proven its ability to generate valuable STEM and business talent, capable of building industry-leading companies (Farfetch, Outsystems, Feedzai, Unbabel, et cetera), however starting a company requires early financing – With debt out of reach due to the risky nature of venturing a tech startup, entrepreneurs turn into private capital to support their growth. Portuguese investors majorly share a risk-averse investment profile, thus entrepreneurs face a cumbersome process raising pre-seed (angel) and seed capital (the riskier stages of financing) and often don’t obtain funding – Ideas don’t get prototyped and prototypes don’t get productized.
Angel/Early investing increases the likelihood of success for startups because it brings in required capital matched with valuable mentoring from well-experienced professionals. We believe it is crucial to create (pre-seed and seed) VC funds to abet the Portuguese economy flourish through successful startups able to generate employment and drive innovation.
What did you enjoy more in your experience at LIS?
There were several things: meeting other experienced international investors and analyze co-investment opportunities, to discover promising startups led by serial entrepreneurs and exposing LC Ventures investment thesis and gather leads for LP fundraising.
Why do you think it’s important for investors to get together and share their experiences?
Investors bring in value in three forms: (i) capital available to invest, (ii) extensive network of peer investors, corporate leaders, founders, technologists and public decision-makers and (iii) operational experience. With the opportunity to group at LIS, investors can multiply their value-add by extending their network and knowing first-hand what other VCs are witnessing and how they are operating – Sharing best practices is a potent exercise to improve the VC scene.
From this informal get-together, investors might expect co-investments, strategic affixes to cap tables for their portfolio companies, CXO suggestions for portfolio companies and exposure of the VC fund thesis within the ecosystem.
Why do you think Portuguese startups are so relevant and able to attract foreign investment?
Portugal has proven its ability to generate valuable STEM and business talent, capable of building industry-leading companies (Farfetch, Outsystems, Feedzai, Unbabel, et cetera). The before-mentioned talent results from respectable universities and leading research centres.
Another reason is the hard-to-navigate business environment in Portugal – filled with bureaucratic tailbacks and low purchasing power -. Startups that successfully launch in Portugal will face an easier time selling in more fluid business environments and stronger economies such as Germany, UK, US, Australia, Netherlands, etc. So, success in Portugal is a good validation point to set sail to other markets.
Also, valuations in Lisbon are still small compared with leading entrepreneurial hubs (Berlin, London, Stockholm), thus more attractive to close deals in Lisbon (since they are cheaper). In parallel, Portugal’s government has set appealing tax regimes in order to attract foreign investment in national startups (200M).
What are you looking for in startups when you attend events like LIS?
A capable execution team (ideally with a track record of building companies and shipping to market) and a defensible scalable product (preferably software-only solutions).
What advice do you give startups that will be pitching and looking to meet possible investors?
Dedicate special time for fundraising: Fundraising shouldn’t be a “I just need the money” situation. Through a rich fundraising process founders can develop a valuable network, open commercial doors and improve operations. And know your numbers: make sure your unit economics are well-shown and compelling and clearly articulate how and why your solution beats the status quo. Also, don’t come to investors under stress, things take time (reasonably or not). Oh, and study “VC legals” – everything from drag along, tag along, convertible notes, SAFE – should be in your vocabulary.