Simply, we decide on a closing en seed or an early stage according to the business plan, the investment ticket and of the pre-money valuation of the company, taking into account the goodwill. And of course, before signing the term sheet, we will make the ratchet clauses, the tag along clauses, the drag along clauses; we will ask for a progressive vesting in case of good leaver, for the bad leaver we will buy back to the nominal amount. Without forgetting that the fund can also ask for a preferential liquidation clause, and anti-dilution rights and first refusal rights, all this is very normal. We will also implement clawback mecanisms in case of the gap being activated, all this will be discussed at the board. Let's start from the beginning. Concretely, what will motivate a fund to invest in a startup developing a breakthrough technology? Investment funds receive between 500 and 2000 files a year, only 1 % of these projects will be the subject of an investment. This shows that our selection criteria are draconian. In this video, we are going to see the 10 assertions we hear the most often from entrepreneurs and on which will be based the decision to invest. Statement number 1 : we are the first ones to put this product on the market. It is less the fact to be the first ones on the market that to be the best ones, with a product which is different from the ones on offer at the moment, and this is what matters. The first one on the market which does not yet exist does not attract a fund, because a fund do not wish to finance ther the evangelization of a market. having the best product to answer an inexistant need does not attract either a fund which does not look to finance fundamental research. Let's take the example of Let It Wave, the company had developed algorithms to improve the quality of images for high definition televisions. There were other solutions on the market to improve the images but which did not work as well and especially which did not respond correctly to the evolution problems of the standard television towards the high definition television. Let It Wave came up with a more efficient solution than the existing ones to answer to an immediate need from the part of the distributors and the makers of TV sets. The solution they had in place was based on a very highly successful mathematical approach, different from the one former competitors had, and that it was not possible to copy without falling into the patents already held by the company. Statement number 2 : the size of our market is of 500 million euros. If the market-target is of 500 million euros, it is reasonable to think that other companies are already settled there. The startup must divide up its market-target in order to define a niche on which its product will thrive, even the only one to answer to some specific needs. This niche is the one which needs to be measured, and it must be growing to support the development of the startup. In the case of Let It Wave, the first application niche related to the video encoding tools through television channels. And the second niche related to a component directly integrated into the large plasma screens and LCD. This is this second niche which has become a mass market. Statement number 3 : we do not have competitors. Not having competitors, this means that there is no market, or that the entrepreneur does not know his market. A fund will invest in the team he considers to be the best on a given market but which will not work without competitors. A variance, is saying that our only competitor is Microsoft. A fund will not finance a Microsoft competitor. Statement number 4 : we sell our product live with a sale cycle between 3 and 6 months. The distribution method depends on the number and the nature of the clients. Even if the first sales are generally made live, la variety of the number of clients and the distribution models, especially the online distribution models, require indirect distribution to be organised with sale cycles which prove to be usually a lot longer than anticipated. In the case of Let It Wave, the algorithms had to, first of all, be supported by the startup on electronic components, then the electronic components had to be sold to the makers of display panels. The manufacture of display panels was an oligopoly, with three makers who had to be commercially approached live. Then the display panels had to be assembled in TV sets which had to be distributed to consumers with the help of specialised shops. And the commercial cycle was rather ranging from 12 to 18 months. Statement number 5 : our financial projections are cautious. The entrepreneurs are optimistic by nature. A fund will analyse the financial projections in order to understand the logic. We need to understand the logic of the business model and the growth potential of the company. One must know that for companies at an early stage, young, the figures which are presented are very far from what the company will realise effectively. In the case of Let It Wave, the company planned to realise its turnover with its high definition television component after 6 months. Two years later, the company was bought back while it was not doing business. Statement number 6: we have just signed a contract with a large client. The fund's investment process is long. It is therefore important to be sure of what of what we are saying while discussint the fund. It is necessary to be sure that the contract is properly signed and is going to generate business fast. Otherwise, the credibility will be lost. Do not talk about things that have been accomplished well and will be definitely realised at 100% Naturally, signing a contract is a favorable factor, it is the validation by the market of the relevance of the product. However when the company is just starting up and the product is not yet on the market, we look even more at the ability of the product to differentiate and to stay ahead, the size and the maturity of the market-target and the team's ability to support the growth of the startup. Statement number 7 : the best team was put together to lead this project to success. It is possibly the best team for the moment but is the actual competition complementary? And which profile is needed to support the future development of the company? The entrepreneur must be able to attract new talents and accept to recruit better than himself with created functions, which will appear throughout the development of the company. In the case of Let It Wave, the founders teams came exclusively from a research environment in applied mathematics. They had built the former company based on a service delivery model. This team had a strong bond and Stéphane Mallat was the legitimate leader in the eyes of everyone. With the development in high definition televisions, the team was reinforced with the skills from other backgrounds and bringing a know-how in electronic components. And that was the key. Statement number 8 : I will make way for an new CEO if it is for the good of the company. It is clear that if an invested fund in the project, it is because he believes in his team in place. If it seems necessary to recruit a new CEO, it is essential for the actual CEO to accept to give up a part of his leadership. Indeed, the entrepreneur cannot treat his startup as his baby, but he must consider it as a company with several shareholders. For Let It Wave, we have recruited a CEO one year after our investment. The recruitment process was long and delicate as it was necessary to find a profile which combines an experience in general management, technical skills and a good chemistry with the founders. Statement number 9 : your investment is refunded in 4 years. The vici model is to realise a plus-value on its investment at the time of the sale of 100 % of the startup. A fund is not lender like a banker for example, who looks for an interest rate for his loan. A vici becomes the company co-shareholder, in any case he goes bankrupt but has great hope to earn in case of success. In the case of investment in a breakthrough technology, the hope to earn is very high, of 5 times or 10 times, in front of a new level or risks very important in the development of the company. Let It Wave had received offers to be bought two years after our investment. The sale did take place, taking into account the offered price for shareholders, means put in place for the industrialisation of the products and good operational perspectives for the employees. Statment number 10: we think that your fund would be a good partner. As well the fund operate a selection of files which it finances, the entrepreneur must first target certain funds. He must ask himself the question, beyond the financial support, what can this fund bring me? Some entrepreneurs apply the rule of the 3 C : chemistry, capability, connections. Chemistry, it is the chemistry with the investment director who will lead the administration council of the company for several years. Capability of the funds to share its startup development expertise. And finally, the connections with the ecosystem players and the provision of its network. A fund will decide to invest in a breakthrough technology also because he will have clearly identified the added value, apart from money, that it will bring to the entrepreneur.
