You're a startup in the midst of fundraising, whether it's your debut or you've traveled this path before. The question is, where do you seek financial backing? Venture capitalists (VCs), angel investors, or non-governmental organizations (NGOs)?
Before we delve into this question, I would urge you to think, really think, if you need funding at the stage you are at, and where you are trying to get to. Take some time to challenge yourself and discuss it with people close to you that you trust. Think about creative ways to find alternatives.
Let's begin with a fundamental principle: If you stumble upon funding that doesn't require you to relinquish ownership (non-dilutable funding), grab it! It's essentially free money.
Now, consider VCs. In the former Yugoslavia region, nearly a dozen VC firms are committed to nurturing the startup ecosystem. Except for Silicon Gardens in Slovenia, these firms predominantly derive their funds from the European Union (EU) or other governmental and NGO sources. Without this financial influx, the ecosystem could languish for want of capital, thwarting countless startups from even taking their first steps. In essence, this symbiotic relationship kickstarts the investment landscape, drawing in private capital. That's a good thing!
What about private investors? They come in two forms: individual angels and organized angel groups. Some possess valuable experience in launching and investing in companies, while others may lack this expertise but possess financial resources. However, the degree of their involvement and commitment doesn't necessarily correlate with the extent of their investment. This discrepancy could be due to varying levels of interest, experience, or networking capabilities.
The crux of the matter lies in the fact that not all funding is created equal. If you are a startup in this region, you are probably best of taking funds from individuals or groups who invest their personal wealth and offer the know-how and connections to propel your company forward. You may also consider offering a lower valuation to these investors (i.e give them a better deal) because the assumption is that their investment, coupled with their support, will drive your business further—a concept often referred to as "smart money."
However, it's important to acknowledge that most companies don't have the luxury of being selective in their funding sources. Raising capital is a demanding endeavor, leaving little room for pickiness.
What's the rationale behind this perspective? Well, it hinges on the ownership mindset. When something truly belongs to you, you naturally care more about it. Conversely, if you're an employee at an EU institution responsible for disbursing funds, it might be just a job. Your primary focus could be job security or striving for a promotion and a raise. If you're unhappy, you might seek alternative employment, leading to a cycle of bureaucratic turnover. There's likely a process involving committees that decide how much funding each country and each project receives.
Now, if you transition into the role of a fund manager overseeing the distribution of these funds, your attitude will largely depend on your incentives. While we might not have a comprehensive view of these incentives, it's reasonable to assume they encompass a salary and potential bonuses or profit sharing tied to fund performance. The crucial question pertains to the extent of influence and oversight held by EU bureaucrats overseeing these funds. Are there incentives in place, and if so, what are they? Unfortunately, these answers remain elusive.
From a startup's perspective, one of the most formidable challenges is securing that crucial first (pilot) customer. An investor who can facilitate this milestone is invaluable. The question then arises: How effective can local VCs be in helping startups, particularly in gaining entry to larger markets like the EU or North America?
In conclusion, I believe that the preference should lean toward "smart money" from private investors, unless, of course, a startup reaches a stage where securing VC funding from a reputable U.S.-based firm becomes a viable option.