No Funds for Idea-Stage by Szymon Janiak

The post was originally published in Polish on Szymon’s LinkedIn profile. Szymon kindly agreed to republish what we think is of great value to our readers.

If you have a great idea for your first startup, you are highly unlikely to get VC money for it in Poland today, so get to work. This is due to several reasons:

1. 

   Szymon Janiak, Co-Founder and Managing Partner at Czysta3.VC

   There are currently very few funds investing in the idea phase. The lack of dramatic declines in reports about the state of the VC market is due to the activity of foreign vehicles or investments at a later stage – not the stabilization of the sector.

2. Institutions providing public money in the VC sector are the foundation of the Polish market, and they haven’t got a new deal yet. And even when they do, it will be much less than at its peak a few years ago. There will be no revolution.
3. Investors want tangible results today – best reflected in revenues. They don’t want to take the risk of the product not taking hold. They often enter only when traction appears.

VC funds operate according to specific schemes – they are neither gambling nor charity organizations. Everyone has a specific investment policy and model based on which they make decisions about capital entry. The greatest chance for funding at the Pre-Seed stage, i.e. in the concept phase, is for people who have already had success in the startup world.

Others must show some achievement. It can be a growth rate in financial terms or an amazing product that is not yet commercialized, – one thing is certain, it must be unique enough to reach the top 1% of companies in which VCs invest.

So if you are counting on someone to finance your idea and allow you to test whether it makes sense – you will lose your time bitterly. It is you who has to prove this sense, and only then look for capital for development.

The comment section had to add:

I’m not sure there’s less public money than at the peak a few years ago. It’s probably easy to check. The fact is that PFR has a lot of money. That’s one. Secondly, why compare it to that ‘peak a few years ago’ instead of the average value over a longer period of time – in this case, I’m sure there’s more now. Thirdly, the situation is slightly different than it used to be. Currently, there are simply no good ideas. Pitches and business plans that reach analysts are very different from what they were ‘at their peak a few years ago.’ And VCs are fighting for the best projects. 

Leaving aside the absurd, in my opinion, public-private system of operation of most VC funds in Poland along with our local specificity of funds setting themselves impossible financial goals, now is a great time to go on trips for VC money. One just has to know how to play this game, and this is the biggest problem.

In our specifics, a good startup works better, I strongly believe, without funds and subsidies than with these weights.

– Karol Tyszka, Public Relations Manager at Polskie Towarzystwo Gospodarcze

Easy money quickly demoralizes, but it demoralizes both sides of this system, VCs and startups. Of course, in different ways, but the final effect is today’s misery. There is no point in kicking the horse and wasting invaluable time looking for financing in places where you simply cannot smart Pre-Seed money. And it’s a pity, because in this phase, real smart money is worth gold. A great team with an innovative idea on a large market, but with only money without smart will most often – but not always – make as much fuss as a highly motivated perky fly on the Main Square in Warsaw.

– Łukasz Mikołajczyk, Co-Founder and CEO at DESCA

I would argue a bit about point 3. You put it accurately, but the sense of such a course of action is debatable. 

While I understand the narrow analysis of VCs, calculating only the estimation of sales and market absorption, possible return on investment – and here you need to have the initial data, i.e. sales, – I can’t understand such a narrow insight into the actual potential of startups, which can be easily forecast with a little more analytical effort. 

We have specialized investment funds for the Pre-Seed phase all over the world that perform in-depth market analyses. You can easily assess whether a startup has market potential. It includes product development, distribution network, etc., and allows you to forecast sales, and you can do it even in markets that are just emerging. All this can be done on specific data. There are masters of this art, for example, in Scandinavia. Their startups easily raise huge funds in the Pre-Seed phase. You could even say that they have specialized in it. They perfectly understand the importance of good analysis, which is why they excel in bringing startups to market and their quick success. Everything is analyzed and calculated. So, we’re lagging behind… Too bad.

– Eliza Freit, Managing Director at Instytut Promocji Marki Group