Of course, this ranking game that reflects a media obsessed with lists and number envy doesn’t necessarily make one company more important than another - or better assure their future. But for founding teams and key investors, the actual numbers represent an important notch on the scoreboard - a step in the direction of a profitable exit.
For those dreamy of the heady heights of such valuations sooner or later with every young business, the issue of funding rears its ugly head. Some entrepreneurs succeed in bootstrapping their firms and achieve growth without resort to banks (that's when they could be bothered to lend to SMEs, of course) or to other forms of external finance.
For most, however, is if you want to get big - and get big quickly - you will most likely need to call on someone else's money, and walking into an early investor meeting can be a brutal confrontation with reality.
You have to realise you are only one of hundreds or thousands of business the typical VC sees in a year. Be assured too they aren't just going to go ga-ga and start writing cheques on the evidence of your big vision or market success, that consists of having picked off all the low hanging fruit in the potential customer base.
Even if you really have come up with Europe's first potentially multi-billion dollar entrepreneurial idea, you are going to get a barrage of penetrating questions thrown your way. Whether you think the questions put to you are relevant, wide-of-the-mark, a bit unfair or down right insulting, it doesn't matter.
For those faced with the task of delivering a decent return on what is actually someone else's moolah, the overriding issue for VCs is what sort of shape are you in for the entrepreneurial journey ahead? So you'd better be prepared to answer convincingly questions about the potential four horsemen of the funding apocalypse – the market, your strategy, your financials and the team.
When sizing an opportunity, VCs often ask why there isn't a major company in the space already. Whilst your inner voice is screaming 'D'uh! That's why we are here - to be that big company you f***wit!', think about it from the VCs point of view. They are trying to put the content of your proposition into context and to get an idea of the market size and timing of your product or service in terms of other developments in the marketplace.
Crucially, they are judging whether you might really be a game changer, merely an important part of an emerging ecosystem or at least 'on the wave' with a fighting chance. So, avoiding crashing and burning at this stage means being able to provide detailed, specific and objective insights about the world you inhabit. Understanding not just technology but societal or economic trends can make or break you as the right company in the right place at the right time.
As part of reality checking, VC firms love to number-crunch. In fact, most have a backroom of eager, freshly-minted MBAs, graduates and interns from the better universities who do nothing else but research markets and populate spread sheets. Because of this, you can be sure the VC will build their own model to predict your company's financial performance and use it to negotiate with you if there are substantial discrepancies between your view of the world and theirs.
Further questions about sales cycles, retention rates and business expansion opportunities are all about your ability to scale steadily and profitably, and to identify the potential funding gaps that will appear as you grow. Whether you can answer these effectively will tell the VC a lot about your business sense too. Investment is ultimately an act of faith they are backing you and your management team as much as the idea itself.
And it's not just about what each member has achieved. Most importantly it's about your relationships as a team: Are you complementary personalities and what skills or attitudes do you think you currently lack? Are these available in the marketplace and in what quantity? Does talent find you or do you have to hunt for it? Other more subtle things may be looked for such as any over-reliance on, or dominance of one individual and the corrosive influence of any over-weaning egos.
Of course no one in their right mind would invest in anything that could be copied or substituted in the marketplace, at least for the time in which substantial returns could be gained. So, be prepared for questions that are going to establish whether someone could move in and quickly eat your lunch via faster innovation, superior market reach or some other competitive advantage.
If the VCs decide to invest you might be stuck together for a long time, so consider too that every time you are tempted to exaggerate or paper over something that you know is weak in your pitch. Due diligence may pick it up, but if it doesn't you'll have plenty of time to reflect on its impact.
Lastly, given the quasi-marital nature of the relationship, you should consider whether the VC is the right fit for you. If you have doubts the best thing to do is to walk away. If you want to be the next Uber you need to sure you've made the right choice.
You have to realise you are only one of hundreds or thousands of business the typical VC sees in a year. Be assured too they aren't just going to go ga-ga and start writing cheques on the evidence of your big vision or market success, that consists of having picked off all the low hanging fruit in the potential customer base.
Even if you really have come up with Europe's first potentially multi-billion dollar entrepreneurial idea, you are going to get a barrage of penetrating questions thrown your way. Whether you think the questions put to you are relevant, wide-of-the-mark, a bit unfair or down right insulting, it doesn't matter.
For those faced with the task of delivering a decent return on what is actually someone else's moolah, the overriding issue for VCs is what sort of shape are you in for the entrepreneurial journey ahead? So you'd better be prepared to answer convincingly questions about the potential four horsemen of the funding apocalypse – the market, your strategy, your financials and the team.
When sizing an opportunity, VCs often ask why there isn't a major company in the space already. Whilst your inner voice is screaming 'D'uh! That's why we are here - to be that big company you f***wit!', think about it from the VCs point of view. They are trying to put the content of your proposition into context and to get an idea of the market size and timing of your product or service in terms of other developments in the marketplace.
Crucially, they are judging whether you might really be a game changer, merely an important part of an emerging ecosystem or at least 'on the wave' with a fighting chance. So, avoiding crashing and burning at this stage means being able to provide detailed, specific and objective insights about the world you inhabit. Understanding not just technology but societal or economic trends can make or break you as the right company in the right place at the right time.
As part of reality checking, VC firms love to number-crunch. In fact, most have a backroom of eager, freshly-minted MBAs, graduates and interns from the better universities who do nothing else but research markets and populate spread sheets. Because of this, you can be sure the VC will build their own model to predict your company's financial performance and use it to negotiate with you if there are substantial discrepancies between your view of the world and theirs.
Further questions about sales cycles, retention rates and business expansion opportunities are all about your ability to scale steadily and profitably, and to identify the potential funding gaps that will appear as you grow. Whether you can answer these effectively will tell the VC a lot about your business sense too. Investment is ultimately an act of faith they are backing you and your management team as much as the idea itself.
And it's not just about what each member has achieved. Most importantly it's about your relationships as a team: Are you complementary personalities and what skills or attitudes do you think you currently lack? Are these available in the marketplace and in what quantity? Does talent find you or do you have to hunt for it? Other more subtle things may be looked for such as any over-reliance on, or dominance of one individual and the corrosive influence of any over-weaning egos.
Of course no one in their right mind would invest in anything that could be copied or substituted in the marketplace, at least for the time in which substantial returns could be gained. So, be prepared for questions that are going to establish whether someone could move in and quickly eat your lunch via faster innovation, superior market reach or some other competitive advantage.
If the VCs decide to invest you might be stuck together for a long time, so consider too that every time you are tempted to exaggerate or paper over something that you know is weak in your pitch. Due diligence may pick it up, but if it doesn't you'll have plenty of time to reflect on its impact.
Lastly, given the quasi-marital nature of the relationship, you should consider whether the VC is the right fit for you. If you have doubts the best thing to do is to walk away. If you want to be the next Uber you need to sure you've made the right choice.
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