This post attempts to explain how we work at Expon Capital, with the aim to streamline our processes and to answer any questions you might have.
Please comment and leave questions below if I’m not clear enough.
We are a global venture capital firm (established in the summer 2015), with a 20m€+ Luxembourg-focused Digital Tech Fund, and a 60m€+ Expon I global fund. We started investing in 2016 for the DTF and 2017 for Expon I.
We invest mainly in Europe (at least 70% of our monies), but also in Israel and North America. We could potentially also invest anywhere else, but it’s not our focus.
We are stage agnostic. Most of our money however is deployed at later stages, in new money in late stage companies or in refinancing our companies. We keep a pocket for early-stage with the clear aim to deploy much more later.
Check sizes per round are between :
- 500K€ — 1000K€ for early-stage companies (around Series A : post-MVP, post product-market fit stage, usually with some traction demonstrated: 1m€ or more revenue with several contracts if B2B, or hundreds of customers if B2C) ;
- between 2m€ and 5m€ per round for late-stage companies, demonstrating exponential growth (usually series B and beyond). These companies have demonstrated product-market fit, ie. have a much lower risk profile.
We like to keep significant dry-powder to refinance our deals in follow-on rounds. We are lucky to also have many of our LPs (shareholders) who are willing to co-invest with us in later-stage companies, hence we can invest even more significant amounts per round, when relevant, and have already done so a few times through SPVs.
Our team has received over 9000 investment opportunities (we will call them “deals”, although they are just opportunities) since we started, with on average 38 new deals / week in 2020. We expect this number to decrease as we optimize our processes and scout with more focus.
In 2020, 1.978 deal opportunities came from conferences we attended where startups pitched (24.3%), from unsolicited opportunities (36.5%, basically from our website and on social media), from our personal networks sending us recommendations (32,1%), from early-stage databases we reviewed (1.4%), outbound, etc.
However, most of our investments so far have come from our proprietary deal-flow (ie. our personal networks or companies we have reached out to ourselves); a select few were originated at conferences.
You are considerably increasing your chances to get our attention if you come to us through someone we know, who can recommend you, ie. what is called a “warm intro” in our industry (tip #1).
It’s easy, use LinkedIn to connection to us for example.
Each Partner covers a specific geographic zone for deal sourcing and will attend conferences and events in that region regularly (the list of events usually is on each one’s profile page on our website). Hence Alain covers France, the DACH region and Southern Europe; Jérôme covers the Nordics, Baltics, Central & Eastern Europe, and Israel; Marc covers Benelux; and Rodrigo covers North America, UK, Ireland, Spain & Portugal. In addition Owen and Lily cover for us at some other events. We don’t actively source anywhere else (Latam, Africa, Asia or Australia), although we could occasionally invest there. During the COVID-19 pandemic, we keep attending virtual events and pitching events online.
We use a tool to track all deals, that many other VCs use. It’s called Sevanta MyDealFlow, and we have customized it a bit. The main trick here, is that it works with email and this is a central repository where all deals reside. We simply cannot track deals that come from all channels: phone calls, instagram messages, LinkedIn, Facebook, conferences, on the street, on conference message boards, on networking apps at these conferences, etc. Hence, our default answer will always be “send us an email”.
The really BEST way to get in touch with us, is to send us an email WITH a full investment deck AND financial projections, immediately, and in ENGLISH (we still get requests in French, Italian or what have you. We are an international team, and English is our common language). If you are sending a PDF file, please activate the download button (docsend, dropbox, etc.) as we log all files in our central system and this makes it much easier for our team to read the documents when offline or traveling (Sevanta manages local replication for us). Of course, we do not share your documents with third-parties; feel free to watermark your documents if you are concerned : however, this shows early on that you have a trust issue, and we will probably not work together.
Unless you are in stage 5, we will normally never sign an NDA. (tip #2).
Sending a teaser or an email asking whether we want a deck is not efficient either for you and for us, as it adds 2 emails to the flow. Having us ask again for a downloadable deck is also inefficient. Having to ask for your financial projections is also inefficient.
Our emails are readily available on our website (it should take you 10 seconds to find them). You can also apply on our website.
Please do not call or email us 2 days later (someone always does every week) to ask whether we got the email, and if we’re ready to discuss it on the spot, or complain about lack of feedback, or to book a meeting or a video conference before we have reviewed your documents.
We aim to get back to everyone within a few days. Sometimes we just receive too many opportunities at a time and need a bit more time to process each one or are busy on other deals. We are actively providing feedback to our personal contacts to qualify the deals according to our criteria before they send them to us.
Stage 1: all new deals
Actually, behind the scenes, all inbound opportunities are logged at stage 1. Our team logs the information in our system (it takes 15–60 minutes to document each deal… x ~40 on average/week, that’s 10–40 hours, 1–5 days/week!), describing the business opportunity, status of the company, previous funding, location, etc. The more articulate and comprehensive your deck, the better…
Then our analysts and associates will review the documentation and each opportunity and rank the interest of the opportunity and fit to our funds strategies with a ranking from 1–5.
Then, as a team (all 4 Partners, our Entrepreneurs in Residence, our analysts/associates/interns), every Monday, based on that information we review each opportunity in our weekly “deal-flow meeting” (1–2 minutes/deal ! x 38 = 1–2 hours meeting/week), from the highest ranking deals to the lowest ranking deals: we decide whether it fits our investment thesis or not, and whether we are interested in reading the deck (ie. pursue the opportunity). A specific partner is assigned collectively to follow up on the opportunity, regardless of who you got in touch with originally. Usually it goes to the partner who is most qualified in the field of your company (check our profiles again to assess our areas of interest), or most available at the time.
To be clear, no deck sent means you are stuck in stage 1. No financials sent means you are stuck in stage 1. Asking for an NDA at this early stage means you are stuck in stage 1. If your documentation is not in ENGLISH, you are stuck in stage 1. If you send an email on Tuesday, your deck will not be assigned and not reviewed at earliest until the following Monday (unless it comes from a warm intro). And if you are stuck there more than 2 weeks in a row, means you will not be considered anymore, and filed. We work with entrepreneurs actively engaging in a dialogue with us.
Our current statistic in 2020, is that we process every opportunity in 4 days on average (this is due to the high volume of some weeks, following events where we are bombarded with opportunities, but also to many inbound emails still with no full investor deck attached). If we pass on the opportunity, you will get a rejection in the next couple of days. 74% of opportunities were discarded in stage 1 in 2020.
I can only suggest to read in detail our website, particularly our manifesto and the types of companies we invest in. We are going to partner with you for a long time, and our philosophy might not suit you, or your company might not fit our investment thesis. In particular, each one of our 2 funds has a different strategy; read about the Digital Tech Fund and about Expon I. (tip #3). You can quickly test your compliance with the exponential genes framework and suitability to our investment thesis by taking this quick ExO Quotient survey (with permission from OpenExo) !
Stage 2: promoted here if one partner is interested
If you don’t get an answer quickly, it means we are reviewing the deck and your financials (stage 2). We might get in touch for more information, to say we pass, or ask for a meeting. Reviewing each opportunity takes 15–60 min depending on the quality of the deck, the website, competition, videos, apps to test, etc. (38 deals x 26% x 30 min, means we spend 5 hours/week as a team on average, if not more, to review your decks !
When we are ready to meet the entrepreneur, we will have read the deck, checked the MISSING information, and will come to a meeting with a list of questions we would like answers to, before we consider moving forward. We understand this is awkward to many entrepreneurs, as they are keen to pitch us their story, think their deck requires voice over (you could send your deck with a video voice over for example with Loom), in-person contact and what not. Actually, keep in mind we see many decks, and that we usually know your market, understand the pain you are trying to solve, etc. We are actually trying to assess whether it’s a good investment for us: fit with our investment thesis, revenue growth, as % of target market, potential exit multiple, risks, current valuation, future dilution, ROIC, etc.
Take the meeting opportunity as a sign that you are on the right track, and that we want to be efficient and not waste your time. Expect a 30–60 minutes meeting at this stage (we currently take 5–10 meetings as a team/week).
68% of remaining deals were discarded in stage 2. Overall, only 160 made it to the next stage (8.1%) or said differently, we discarded already 91.9% of the inbound dealflow.
Stage 3 : promoted here only if one partner sponsors the deal
When the partner in charge thinks he would like to further explore the opportunity with the team because he thinks it’s a good fit (portfolio diversification, strategic fit) and a good potential investment, he promotes it to stage 3, where a second partner gets involved (the “buddy”). Together they will further analyze the market, check the company’s differentiation amont other things. They will also assess the potential return on investment, build a model, and prepare a draft internal term sheet (instrument used, money to be deployed, acceptable valuation range, etc.). You can expect 1 or more calls with the “buddy”, and some reference calls to customers, partners, team members, etc.
Both partners will prepare an internal one-pager for the team, and propose it to the investment committee.
Last year, 0.46% of opportunities (9) made it to the next stage 4.
Stage 4 : promoted here only if two partner approve the deal
A new presentation will be made to the whole team, and requires unanimous consent of all partners. Expect a 30 min presentation and 30 min questions and answers. Both partners involved previously will remain quiet during this call.
If there is an agreement on the investment and the terms, you can expect an answer within the next few days max. The partners will work fast to provide a term sheet.
The deal is promoted to stage 5 only when the term sheet is signed by both parties.
Stage 5 : promoted here only if the investor committee approved the deal and a term sheet was signed by both parties
This is where mandatory legal and financial due diligences are performed. It is also where long form contracts are discussed.
After the round is fully funded usually, a general shareholder’s assembly for the company has to be called for approval.
It is only then that the final documents are signed, and that Expon Capital can wire the money for the round.
Stage P: portfolio company.
Promoted here only if DD was satisfactory, all legal documents signed, and money wired.
On average, we invest in 1 company out of 400.
Overall, we aim to invest in 5–10 new companies every year, not including refinancing of our portfolio (which are deals in themselves, and often require the same amount of work as a new deal).
Said differently, we have a process in place to process the inbound deal-flow as fast as we can, and answer to everyone. Please do not expect us to give a thorough feedback for each company in stage 1 or 2 (tip #4). We will at later stages after stage 3.
Please do not call to ask for an update on your deal (our system actually is configured to send us automatically a reminder for each deal!), because we do review each deal in the funnel every week.
I hope this is useful.