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Just funded: expert interview
A conversation with Jelle Postma, investor/founder
In this series, we interview experts from recently funded companies and financial institutions about their experiences in marketing, sales and customer success and find out how they use tools and data to grow their B2B business. This series of interviews gives you the chance to gain insight into how some of today’s successful and fast-growing B2B companies operate.
Milon is an investment platform that facilitates small ticket investments in private equity and venture capital funds for individuals who would not normally have access to such funds.
Firstly, what does your company do and for whom?
Milon is an investment platform that facilitates investments in private equity and venture capital funds with small check sizes (EUR 5.000). We do that because the middle class is increasingly realising that something has to change if they want to continue to climb the social and economic ladder. Because the income they generate from their regular jobs is no longer enough to sustain a normal middle-class lifestyle.
Think for example of people with good jobs who cannot buy a house in the average city, let alone in a capital city like Amsterdam. In a broader perspective you can look at bank savings: where this used to be a very good way to put away your assets, nowadays the interest is lower than inflation and in the Netherlands itself sometimes even negative. So instead of investing being a nice-to-have in the past, now it is a must-have to maintain your current standard of living.
There is just one problem: the middle class is excluded from investing in private equity and venture capital. This is due to regulatory and capital thresholds; you can only participate in private equity and venture capital from €100,000, €500,000, or a million. With Milon, we are trying to close that gap by bundling the smaller tickets of €5,000 and thus collectively gaining access to the world’s highest-yielding investment category.
This can be very interesting for starters on the labour market who earn reasonably well but are not yet able to buy their own home, and are therefore better off building up their capital in another way. Or people who are halfway through their career and still have a long horizon to add to their pension, or prospective or recently retired people may find it interesting to receive this extra bit of return for a small part of their portfolio.
If you invest €5,000, it goes into our first fund through which we participate in different investment funds. So we choose a number of different funds in which we will participate with a percentage and in this way we spread the capital of our members over different private equity and venture capital funds. These funds will eventually look for companies, innovative start-ups or fast-growing SMEs, to help them with their growth strategy.
What makes venture capital and private equity interesting compared to other investment categories?
Let’s say first of all that anyone who is already investing is already doing well. Whether that is via the bank or via an app or real estate; it is all better than doing nothing. But then the question is, why is private equity and venture capital better than the rest? There is a very simple answer to that: returns. Historically, these funds make much more return than an average stock market portfolio, which does 6-7-8% over longer periods, while private equity does 15%. And that makes quite a difference.
And as a company, what types of funding exist to help stimulate their growth?
Let’s start by looking at private equity and venture capital, there is already a difference in what type of funding that is:
- Venture capital often focuses on startups and scaleups – fast-growing companies with innovative technologies. They invest money in them and use that money to hire people or take other actions to expand the company.
- Private equity often focuses on more established names in which an investment company invests or buys the company. This happens, for example, because the current owner is retiring and there is no successor for the company, then they can sell the company to an investor who will run it together with the management. But it can also be a well-run company that sees opportunities to expand from the Netherlands throughout Europe at once and wants to raise extra capital for that purpose: for example, to take over foreign competitors or to set up branches abroad themselves.
Then there are other forms of investment:
- Crowdfunding can be in loans as well as in equity (shares). This means that instead of dealing with a financial institution, you put your proposition and the amount you want to raise online. By doing so, you try to enthuse small investors to eventually come up with a large loan or to buy a large chunk of your shares. That is an interesting form for companies to look at, not least because it is inclusive: you give people who would normally not have access to these investments the opportunity to buy a piece of your loan or shares.
- Bank financing is still a much more traditional way, so just a bank loan. This can be useful to many different businesses, from young, innovative companies that already have turnover and positive cash flow to established names. The typologies vary widely, but in general it is a good way to obtain capital that enables the growth ambitions of a company.
- Grant opportunities are also always interesting to explore. This is something that many companies overlook, but governments have many different subsidy measures for all sorts of different fields and applications, and it is very interesting to keep an eye on whether there is something among them that your company could qualify for.
- Factoring is actually a very old way of financing, which has now been reinvented because of all the companies with subscription business models, especially SaaS companies. There are some very large players in this category, and how it works is that you actually sell your future contracted sales to such a company, and they pay you, say, 95% of the value of those sales. So then you get almost your entire annual turnover in one go, and every month that the turnover comes in, you pay that to the other party. In a subscription-based economy, that is a crazy way of financing, because actually it is a loan forward looking, while a bank is a loan backward looking. The bank looks at your historical figures, but because the people from these factoring parties know the world of SaaS so well, they dare to do forward looking loans.
As an investor, what do you look for when you first get to know a company?
The first question I always ask myself is “do I understand the business?”. For example, it is difficult for me personally to make a good analysis of something with blockchain, crypto, and decentralised finance, so as an investor you shouldn’t start there.
Then you can ask yourself a whole range of questions. You read through the pitch deck and there is always something that sticks in your mind. For example, a remark about the business model or the market being targeted, a certain assumption they have made, or the valuation at the time. If there’s something that doesn’t fit with your own understanding of this business, that’s ultimately what you’re going to dive into. So I’m actually looking for the thing that doesn’t make sense to me in their story.
The metrics of the business are an important point to look at. It depends on each business and on what phase of its development it is in, if and which metrics matter. If it’s a pre-revenue startup, for example, there are few financials to share. But an SME is likely to have several years of historical financials, and you can already tell a lot from that. In a pre-revenue startup, you have to weigh up the combination of the problem, the product, the target group, the go-to-market strategy, and the team behind it. In pre-revenue or early-stage startups, the team is the most important. They need to give you the confidence that they are capable of working out this business idea.
Finally, what advice would you give to a business owner looking to raise capital in the near future?
Start on time, and make sure you have your story, your data, and your vision in order. Fundraising is a full-time job, it’s not just a matter of sending ten emails to ten investors and then five of them roll out the red carpet for coffee, from which three offers come. It is really very difficult. It’s hustling, begging, scraping, and bluffing to finally convince people. You are also closing a sale: the investment. So make sure your story is good and that you can substantiate it, you must have your data in order and your growth plan clear.
The best time to look for funding is when you don’t need it yet. It always takes longer than you think, so you can’t start early enough. This has two advantages: you have more time, and you can have much better conversations with the investor. If you speak to an investor early on, you can explain to them what your plans are and give an indication of how much funding you’re looking to raise. Then they can already start to follow you during the following period and see how your proposed growth trajectory is going. You should not think of a period of two weeks, but at least three to six months, in which you can show that what you have presented will actually come true. In this way, the investor’s confidence in you as an entrepreneur grows: you make your own fundraising a lot easier.
Of course, you have to take into account that you have to have a good plan. You can’t just say: “We need a million dollars, and we’re going to grow with it and get a nice return”. The investors do go deeply into the current starting point, how you want to grow in the long run, and what you can achieve with the money they want to invest at that time. You have to be able to substantiate what you are going to invest in marketing, sales, product development and probably 100 other things. So it’s very important what you’re going to spend that money on, investors want to see that plan and sometimes they will set milestones themselves. They may even invest part of the desired amount first and, based on the achievement of milestones in the subsequent period, only then invest the second part.
Many startups have little choice in which investors are interested in them, because fundraising is very difficult. You will have to find the right party that has the capital, the patience to listen to you, and also shares the same vision or passion with you. So not all startups have a choice in this, but if you do have a choice – even if it’s between two interested parties – you should always do your own research from the startup’s point of view. Research the investors you are dealing with, for example:
- What kind of contribution are they making?
- How do they behave as a shareholder?
- How do they communicate when they get on the board?
- What are their areas of interest?
- What is their own level of expertise?
- Which experts do they work with?
These are all questions you can ask yourself to research the investor interested in your company. It is therefore always advisable to talk to at least one other company in which the investor has already invested. You can then learn a lot from them and get a good idea of what kind of party is entering your business, and what they bring to improve it.