You might think that all startups being founded these days have an international outlook from day one. Hate to break it to you — it’s not always the case. However, for us, it’s crucial and one of the most important factors we take into consideration when reviewing a startup. In order to truly make it in today’s ecosystem, where competition is fierce, companies must target very large markets, and have the mindset for doing so from day one. For a European startup, given the small size of the local market, this is especially important. Of course, we aren’t dogmatic, and we can make exceptions when the domestic market is big enough. With the disappearance of frontiers and the rapid deployment of US startups in particular, competition is international by nature, and a factor any entrepreneur needs to take a close look at before setting off to create magic.
Why is this so important for us and what do we mean by it at daphni?
- Market size is king: As a VC, we look for companies taking on (or creating) a large enough market, as it increases the chances of success. Today, there are very few European markets, which are big enough for companies to maintain and sustain their growth over a long period of time. The same holds for companies expanding into very similar markets to the starting one. Two good examples are Nordic companies expanding to other Nordic markets or German companies expanding in the DACH region. Of course, this brings benefits, such as lowered barriers in terms of behaviour, culture, language etc. as well as the opportunity to test your product quickly. However, keep in mind that the real challenge lies in growing your customer base in many different markets. While your initial expansion may have been a good starting point, even these markets won’t be enough for companies reaching for the stars. In other words, prepare your expansion early on.
- The true character of the entrepreneur is shown. International expansion isn’t a walk in the park. Presenting a clear and structured expansion plan shows the entrepreneur’s willingness and ability to go outside her or his comfort zone. Expanding internationally, and demonstrating the ambition and ability to do so at a very early stage means being willing to pivot for new cultures and behaviours, and to grow as a founder. In practise, this means embodying an international mindset to all parts of the business, its technology, product, marketing, hiring and so on and building a company which is agile, yet strong enough, to enter new markets in a strategic manner. We back teams who dare to take on these opportunities!
3. Eat or be eaten. If you don’t go international, international companies will come to you. Just because you’re a local hero for the time being, doesn’t mean that you’ll always stay one. International competitors providing an equally good or even better offering than yours have a great chance of stealing your customers when entering your market. For this reason, it’s a bold bet to think that you’re safe, unless you have the same weapon in your own pocket. You have to grow to keep creating value, generate economies of scale and manage to attract great talent. If not, there is a risk of alteration in your asset value.
4. Plan. Plan. Plan. Many European companies aim at becoming a US success a few years after founding. Even if this might be true in some cases, we value entrepreneurs picking markets suiting their own product. This shows that an entrepreneur knows the company inside out and is aware of the competition. Besides picking the right markets, timing is of high importance. Companies internationalising too late stand the risk of losing out to international competitors (who planned accordingly) as well as building a local culture, which is unattractive for international investors and talent. However, companies expanding too early are also at risk, as the core values can be lost too early. In other words, take risk, but be smart about it.
5. Internationalising = €a$h = internationalising. Internationalising is costly, and in many cases the player with the biggest funding eats the other ones for breakfast. Having a structured and strategic view on expansion means being attractive to international investors at an early stage. In more practical terms, this means hiring international talent at a very early stage and having your corporate language set to English from creation. This hinders you from locking in a local culture, to which international talent cannot adapt at a later stage. When we review companies, we look at their potential attractiveness for upcoming rounds. A very local team without plans on expanding will not raise interest from international investors with deep pockets, which ultimately limits future success substantially.
6. The world needs you. It might sound cliché, but people, and in this case teams, have the power to change the world. At daphni, we strongly believe in tech for good, and we hope that as many people as possible can improve their lives through the solutions of our portfolio companies. Don’t miss out on the opportunity of helping people across the world, it would be a waste.
International is the new normal, and a criteria for us. But our startups aren’t in this alone. Our community and seamless platform are built to help our portfolio companies succeed on the wild, international arena, and grow sustainably into success stories.