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During the Capital Tour XXL as part of Amsterdam Capital Week, VC Ray Quintana from Cottonwood Technology Fund met with founders and provided them with crucial advice. The experienced Venture Capitalist addressed points of improvement for the European startup scene – particularly when it comes to the mindset and mentality of our local founders. Here are the key takeaways of what Ray had to say. “It’s all about capturing the value you create”.
Improve your scope and vision, and do not let a bottom-up approach constrain you
As Cottonwood has a main office in New Mexico and a local office in Enschede, Quintana knows all about the differences between European startups and American ones. He starts off by explaining the main thing he likes about the startup scene in the Netherlands is the vast array of ideas: “There are world class ideas in the Netherlands, which is why we are here”. After this polite start, Quintana starts explaining why Dutch startups should improve their scope and vision: “Founders really need to be helped along in terms of thinking bigger”. Startups should not constrain themselves by thinking in terms of a bottom-up approach, which seems to be happening here all too often.
“Six times the capital at seven times the valuation”
To demonstrate the importance of not being constrained, Quintana presents a case study of Clear Flight Solutions, the first Dutch startup he worked with. “They have a robotic drone which is used for bird control. Birds cause eight billion dollars a year in damage to airplanes, so this is a huge problem”. Although Clear Flight Solutions really had a clear solution for a costly problem, they didn’t think of the potential of their product the way American startups often do. “Their whole strategic focus was constrained by that bottom up approach to the marketplace”, Quintana explains. “They originally didn’t want us to invest, they just wanted us to help them with their termsheet”. Cottonwood decided to do something very different than just offering advice: “We told them: ‘We’ll give you six times the capital at seven times the valuation. They said: ‘Uhhh?… Okay!’”.
Start off big in order to become big
Quintana argues that as a startup, your trajectory is really important from the very beginning. Some important statistics back this up: “The companies that start in the top five percent of revenue generation in their first year have an 80% chance of still being in that top five percent five years later. The ones that start at the bottom have almost no chance to make it into this top five in five years. Everything matters in the early stages: your context, who your partners are, what your vision is, who you speak to”.
“At a minimum your mind should be wrapped around 40 million”
The majority of startups Quintana has met during Capital Week are looking for investments ranging from € 100.000 to € 3 million at most. The experienced VC explains founders should be aiming for much higher figures than that: “At a minimum your mind should be wrapped around 40 million. The average startup that gets an exit has raised 42 million dollars. So if you want to be average you need to think about how you are going to spend 40 million. You need to have a plan around that, and you need to have partners from the beginning. We really need to change the mindset of the European entrepreneurs and get them thinking on that plain”.
More capital means more creativity
Quintana is convinced this mentality can change, as he has seen it happen: “All of our CEO’s started with a very small vision, but as soon as we opened the gates and gave them the opportunity, they took to it like ducks to water”. The VC vehemently disagrees with fellow investors who believes that proving founders with more funding has a counterproductive effect: “I have been at conferences here where VC’s said ‘If we give our startups more money they’ll get lazy’. I was personally offended by that. None of my entrepreneurs are lazy. If you give them more capital they need they’ll create more value with it. Otherwise you’re investing in the wrong people”.
Capture and own your value
Quintana argues that thinking bigger and not feeling constrained can also help startups who are going through a difficult phase: “That whole mindset gets the entrepreneurs to be creative on that large scale. If you’re stuck in the closet, think as big as the room”. If you are convinced your startup can make a difference, then you’d better believe in it: “Your plan should not be constrained if you really want to be successful and create something that is meaningful and relevant on a large scale. It’s all about creating that value, capturing and owning that value, and having the freedom to do it. Value creation doesn’t even have to necessarily translate into money”.
Don’t try to be like the Valley
When asked for the comparisons between Silicon Valley and the Silicon Canals of Amsterdam, Quintana explains there’s no need for European startups to be so obsessed with the Valley: “One of the things they don’t understand here is that you don’t have to go to the Valley; the Valley will come to you if you have a company that has risen to that point. Don’t worry about the Valley, don’t try to emulate the Valley. If you have resources there that you can leverage then great, but don’t try to be like the Valley, as no one is going to be like the Valley”.