Helena Prokhorenko is an investment associate at Highland Europe, a fund aimed at venture and growth-stage companies across Europe and globally. We asked Helena how she’d advise businesses to work with investors. Here’s what she said.
What do you typically look for in a potential investee company?
We look for fast-growing tech companies that address large market opportunities in the internet, mobile, and software spaces, be it for consumers or enterprises. A proven product and a scalable business model with compelling unit economics are key. Our companies generally have a European angle, but with global ambition, and are led by exceptional management teams.
The companies we back are beyond the startup stage, with double-digit run-rate annual revenue. At the time of investment, they are looking to accelerate their growth through the scale-up phase and cement category leadership. Consequently, the funding requirement tends to be larger, with ticket sizes between €10m and €40m.
How should founders approach you?
We’re always keen to hear from teams building brilliant companies. If you can find a mutual connection, be it another entrepreneur, investor, or mutual friend, it’s great to leverage that. However, don’t be shy to reach out cold – all our contact details are on our website. We respond to all inbound enquiries, and appreciate if you have taken the time to understand our criteria, our approach and the most relevant team member.
How far in advance of their next round should they get in touch?
It’s great to get to know a potential investor well in advance of a funding round. Ideally, you’ll have built the relationship over at least a year or two. This enables you to get to know the investor well and assess whether you can see yourself working with them. From the investor’s perspective, it’s helpful to track a company over time, because it helps us build a picture of how the team deliver on their strategy.
Is it generally a good or bad thing if you already have similar companies in your portfolio?
If it’s a direct or potential competitor, then we’ll likely be conflicted.
How important is your relationship with the founders you back?
This is absolutely key for us. We back founders with the view of working with them to help them succeed. A great relationship underpins a collaborative working dynamic. However, the best people to ask about the benefit of these relationships are the founders and entrepreneurs we’ve backed, such as Stan Laurent of PhotoBox (he is now part of our team as Entrepreneur in Residence), Horacio Martos and Andrés Bou of Social Point, Lucas Carné and José-Manuel Villanueva of Privalia, and Kevin Cornils of MyOptique.
How should a founder go about conducting ‘due diligence’ on a potential investor?
Ask our current and previous portfolio companies about what it’s like to work with us. If you have any mutual connections with specific people in our fund, ask them as well. Ask for introductions to potential customers or hires, to test how helpful we can be in your industry. The more data points, the better!
How much money should founders be looking to raise in their growth round? Should it always be as much as possible?
Enough to significantly accelerate growth, but not too much to lose focus. We typically provide €10m to €40m as either lead or co-lead in a round. This capital usually goes towards building out a sales force, but often also towards working capital or M&A, depending on the company’s needs. Secondary capital is sometimes a component of our investments, where the founders or early stage investors find it makes sense to take some risk off the table.
What should founders be looking for apart from the cash?
Finding the cash is easy for a great company. Try and get the most bang for your buck by finding an investor who can complement / augment your strengths. For example – the areas where we help can be broadly categorised into internal and external buckets:
Internally, we help you find the right team to help your company grow, be it at the board, CXO, or VP level. We want to assist in building the right team around you, so that your company can grow without being constrained by itself. We leverage our network and connect you with our portfolio to enable you to learn from industry best practices. We are available around the clock to help you operationally – be it in interim management positions, building your business plan, you name it. As mentioned above, Stan Laurent, who led PhotoBox for ten years up until its sale in 2016, has joined our team as Entrepreneur in Residence and supports our companies.
Externally, we leverage our network to help you win customers and partners, and assist with follow on fundraising and M&A. Given our relationship with Highland Capital Partners, who have a 30-year investing history in the US, we can facilitate US entry and expansion.
How important are investors’ networks and the people they know? E.g. should founders be looking for investors with wide networks?
The network is incredibly important, as it will give you access to potential hires, customers, and advisors.
How much equity should they be prepared to give away? What sort of stakes do you typically look to take in an investment?
We typically look for a significant minority stake when we invest.
Will you always insist on a seat on their board?
Absolutely – this aligns incentives and sets up a good working relationship. Don’t forget that as a board member, our first priority is to your company. We take our responsibilities as board members incredibly seriously. We are motivated to help you succeed and believe that you’ve chosen us as a helpful partner, and not a silent observer.
How demanding should they be over the term sheet?
Do negotiate a good deal for yourself and make sure that you are being treated fairly. On the other hand, it’s easy to get carried away chasing the highest possible valuation, but that’s not always the best way to find a long-term partner, so make sure that the deal makes sense for both sides. Certain structures and terms, such as a liquidation preference, are commonplace in growth stage rounds and not an indication of lack of faith from the investor at all.
Do you have any regrets about investments you passed on? And if so why?
Of course! Though to be candid, we usually pass in those cases because the company is off-strategy for us. Then they grow so quickly, that they are too large at the next round. Frustrating, but being disciplined usually is!