Don’t let Venture Capital be the bottleneck of your scale-up, neither the goal in itself.
Belgian scale-ups cannot compete with the over capitalised American scale-ups. According to a local financial magazine this would have been the reason why TrendMiner was sold earlier this year to the German public trading SoftwareAG. The true reasoning behind this is in fact quite the opposite; the acquisition of TrendMiner secures our global product and market leadership. This also keeps the employment plans and know-how local. Pushing rocks uphill is never the best long term strategy. So no matter how important capital in itself is, raising capital is not sufficient to scale-up your start-up.
The TrendMiner path leaves us with many lessons learned that technology start-ups and scale-ups can benefit from.
Pace the filling of your cash tank
Some companies raise at high valuations, sometimes too high. This puts an enormous pressure on the organisation and management team to focus on short term performance achievements. Not reaching these goals can make the next funding round almost impossible. I wouldn’t like to be in the shoes of our direct competition.
‘There is being right and getting right… this is how we will get our right!’’
A startup factory in semi-conductors has no choice; raising enough capital is in their nature in order to even have a stake in the market. But raising capital in itself can never become a goal.
For many other starters, an organic growth with smaller steps of raised capital makes much more sense. Compare raising capital with filling up your gas tank with jet fuel; you will go a lot faster but your risk for explosion rises exponentially. For TrendMiner, remaining an independent company, with consecutive funding rounds and the growing valuations and expectations that come along with it, did not prove itself to be the most evident path forward.
Product, timing, distribution: the golden triangle
We were ecstatic with the great features our team had built in the first version of TrendMiner, but the market took its time. Our biggest challenge was finding those early adopters fast. In less than three years time TrendMiner has managed to penetrate in half of the global top50 chemicals of this world. Our next challenge was to build a global sales & marketing machine. In a highly competitive world, surrounded by market giants in the likes of GE, AspenTech, or Cisco, this would have taken way too long. If there is one thing a scale-up cannot afford in a market war, it’s time.
It has been TrendMiner’s ambition from day one to become “the Google for Industry”, and to have our IoT search capabilities being used in all manufacturing environments worldwide. The alliance with SoftwareAG provides us that global distribution channel overnight so we can finally focus on global market leadership. This secured the best possible future for our company in Hasselt.
Mirror mirror on the wall, who has the most revenue of all
Young entrepreneurs like to boast with vanity metrics in their pitches to size their startup successes. They come up with the growth numbers of their team or revenue. But revenue in itself does not say a lot. A growing capital efficiency, or how fast an invested euro is turned around in profit, is worth a lot more as a reliable metric for future venture capital.
In order to calculate your capital efficiency you will need to control all of your metrics. At TrendMiner we faced very long sales cycles. It could sometimes take up to three years to convince a chemical company to roll out TrendMiner globally. But once we were in house, these customers remained extremely loyal. A company like HelloFresh for example would have a lower loyalty rate. How much does it cost to get a customer on board (customer acquisition cost – CAC)? How much does it cost-to-serve one customer? How long can you retain a customer (churn rate)? These are just some of the metrics you will need to control in order to succeed.
Dream big
I do want to leave you with a small nuance. When the acquisition of TrendMiner by SoftwareAG was announced earlier this year, it became – much against our intention – a symbol. A symbol for Flemish technology that is sold prematurely, by entrepreneurs that lack the ambition of dreaming big. This hurt us since “dream big” was exactly the reason behind it. Other technology projects were even more successful without external investors. Some, like in the biotech industry, will need much more than we did. Whether it’s about raising capital or an acquisition, the arguments are way too complex for oneliners and over simplification.
By Bert Baeck, CEO eand co-founder TrendMiner and Matthias Vandepitte, partner at Fortino, a former investor of TrendMiner
