What VCs Want to See Now More Than Ever

14 August, 2020

The COVID-19 pandemic has upended life and business as we know it, and the world of venture capital and startups is now in the process of trying to figure out a successful path forward. Here, Olav Ostin, Managing Partner of TempoCap, shares his views of what he looks for in prospective investments.

Growth

The core of our investment thesis hasn’t changed since March. We are still looking for and excited by, companies that are growing fast. The first criteria we have, when looking at any company, is “Are they still growing?”. Yes, every sector is being challenged in unimaginable ways, but there are still bright spots where you can find those scale-ups that have been able to keep the lights on’ during the pandemic but have shown significant growth. Right now, we are spending time reviewing and engaging with companies that are expanding their market reach and growing their customer base. Despite the current state of the economy, several companies still fit this description across our target markets of the UK, France, Germany, and Switzerland. These are the companies that are really attractive to us.

Trusting your co-investors and management 

This is an extremely important point, yet rarely talked about. Not only are we looking for companies that have attractive growth trajectories, but we’re also considering the other investors on the cap table. As much as we can, we want to ensure that we invest alongside strong syndicates of aligned co-investors; having investors who support a shared vision for the company, is critical.

Outstanding management teams

Even though a startup founder has to be prepared to roll up their sleeves and do everything in the early stages, a successful entrepreneur knows when to delegate, and isn’t afraid to hire smarter, more able people with specific knowledge. Talent drives a business like nothing else – from talent comes innovation, different perspectives, energy, enthusiasm, and output – a study by McKinsey found that ‘in highly complex occupations—the information- and interaction-intensive work of managers, software developers, and the like—high performers are an astounding 800 percent more productive’. Entrepreneurs who can hire and retain a good team are more likely to build the companies we, and other VCs would want to support. 

To this point, we are looking for successful, agile, and innovative management teams. Whatever we all thought 2020 would be – it is not – and we want to support management teams that have quickly adapted to this situation, whether that is to make management decisions rapidly or to modify their operations effectively. We are always on the lookout for teams navigating this challenging environment well and with solid future plans.

Prioritising the sectors that are outperforming

Now, more than ever, we are prioritising the sectors that are performing well in this market, and who will have a strong future. Areas like cybersecurity, machine learning, AI and robotics, digital healthcare, remote & collaboration software and edtech are all sectors that are expected to succeed in this “new normal.” We have significant expertise in cybersecurity, AI, and ML, and diving deeper into the other sectors. I firmly believe these are the verticals that are poised to survive in the current market and see exceptional growth over the coming years.

 

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