The quality of the technopreneur and their team is by far the most important factor in both investment selection and in the success or failure of the investment, according to a comprehensive survey* that casts new light upon the opaque world of European VC practices.

It has always been hard to raise investment at any stage, with the average investor receiving 851 investment proposals a year. In order to be in the 6% of those that receive investment, you have to be an exceptional team.

Team is an important factor for 93%, and the most important factor for 53% of investors, in comparison with the next most important factors: the offering/value proposition and the size of the addressable market, each of which 11% of  investors think is the most important factor in making an investment.

So what is it about the team that investors look for? Your ability, competence and knowledge of your area (75% of investors) and commitment and passion (73% of investors) goes  a long way to build investor conviction.

A first time entrepreneur might have more difficulty in gaining an investor’s confidence.  Entrepreneurial experience is important to 66% of investors. This is consistent with our article Technopreneurs do get better with age! from September 2018.

It is good to finally get a solid view on the importance of industry experience (64% of investors) which confirms the conclusions in our article  Should a technopreneur be an industry insider? from November 2021.

It is “Team, Team, and Team” when it comes to the factors behind a successful or unsuccessful investment, according to investors. Some 96% of investors believe that the team is a factor behind successful investments and 95% believe that they are a factor behind unsuccessful investments.

Contrast this with the investors themselves being a factor. Only 12% of investors believe that they were a factor behind a successful investment (so not too many take any credit), whilst even less (4%) believe they were a factor in unsuccessful investments (not surprisingly).

Funnily enough, investors believe success (or lack thereof) is more a question of luck than their own contribution! Some 33% believe that good luck is a factor behind a successful investment, and 21% believe that bad luck is a factor behind an unsuccessful investment.

Speaking of which, 45% of investments are considered failures by investors – meaning that the investor got less than 2x money back (and presumably zero back in many cases).

The average IRR that investors achieved on exit is 13%, which we believe is rather on the low side, and think that it should be closer to 20%.

A few other useful facts for technopreneurs from the survey:

Valuation: 71% of investors use comparable companies’ market valuations, 62% derive valuation as a result of their target stake and amount to be invested, whilst only 19% use NPV (which is not well suited to early stage valuations with little financial history). Investors typically use more than one method.

Target ownership: Some 63% of investors target stakes of 10-20%

Most popular investor protection clauses: Pro-rata rights (80%), Anti-dilution (68%) and Liquidation preference (65% of investors).

Investment Syndication: 64% of investments are syndicated. The most common reason is to gain complimentary expertise (78%), followed by capital constraints (57%), whilst surprisingly only 28% of investors syndicate for risk sharing.

* Practices of European Venture Capitalists April 2023. Based on a survey by leading European business schools and universities of 885 European VCs across Europe. It includes independent VCs, corporate VCs, family offices and governmental VCs, across all investment stages, with a median fund size of €60 million.