Laser-like focus on return on capital? A revamped project selection procedure
The SME Instrument is a highly competitive programme with a limited budget. Convincing the experts evaluators about your idea is a very demanding task (only a few percent of projects receive a grant). This bar will be raised even higher by introducing one more evaluation stage – a Dragons Den`s type interview with project proponents.
The Commission follows this proven method of evaluation inviting investors and experienced entrepreneurs to the SME Instrument evaluation process with the purpose of helping SME Instrument winners to enter the market faster and achieve a positive cash flow sooner. The highest scored proposal`s teams will be interviewed by experts in private equity, angel investments, crowd funding, seed and venture capital. They are supposed to bring their know-how to the selection panel taking part both in the remote evaluation as well as the face-to-face interviews in Brussels.
What drives investors?
What does this mean for participating SMEs? What inspires angels and VCs to invest? The answer seems to be obvious: strong business orientation with a laser-like focus on return on capital. The technology is often a “black box” for them, they want to see the market potential and return of capital (ROI). Prior to investing, they want to be able to determine if (after Mr. Payne) the “dogs will eat the dog food”1) meaning “will customers buy this product at a price sufficient to enable high growth?”. Demanding venture capitalists require hard data, supported by facts and figures. This should be delivered in a way that will allow for a quick evaluation (viable financial forecasts backed with adequate justification and reasonable assumptions). This will allow applicants in the preparatory phase to look at their business models closely and verify their business potential in a more conservative way.
Do I have a pitching talent?
Investors like “businesses that will scale”2) and teams and entrepreneurs who are highly-motivated, experienced in business and capable of making impressive presentations to investors, partners and customers.
This “pitching ability” with the purpose of making a memorable impression for project`s amazing business idea must be demonstrated. Your passion for the innovation will be the cornerstone and should be supported by addressing the marketplace problem you’re solving. This stage may be treated as another mentoring/coaching session, enabling proposals with high potential to prepare better for the exciting journey of building successful businesses.
Any experience is precious
If your project has already attracted some money from private investors or via crowdfunding – good for you. You may also have some experience with making a pitch. Having a professional memorandum for investors is also a strong point. Also the business model, pricing strategy and financial projections should be in place and well understood. If there is no such “background” – time to start looking at your proposal in that way.
You may also use the innovation business coaching option (3 days in Phase 1) to increase your “investor oriented capabilities” and better prepare for the “high stake” fight for Phase 2 money. You may also start attending VCs and angel´s events and “practice pitching”. Maybe you will find investors by chance? You can also verify your idea on the crowdfunding platform or at least see how the best “money makers” prepare their offers.
Constant change is the only rule
As change has accelerated, and competitive advantage has become less durable - quick adaptation, adequate addressing of challenges, risk mitigation measures, constant looking for new opportunities are an entrepreneur’s everyday reality. Gathering some new skills will be challenging, but also refreshing and inspiring. Another “pair of eyes”, especially from the world of big money, is a chance to verify and strengthen the business models portfolio, including concepts, in-market prototypes, and later-stage, scalable models to create, deliver, and capture value earlier than competition. This experience will also be priceless in your subsequent funding rounds that may become reality earlier than you think…
Adriana Łysiak, Innovation Business Expert
GAEU Horizon Centre of Excellence
1) William H. Payne „The Definitive Guide to Raising Money from Angels”
2) William H. Payne „The Definitive Guide to Raising Money from Angels”