A startup’s growth stages
No matter how incipient it might be, any business called startup goes through a series of stages until it reaches maturity. Once I have defined it as a venture initiative looking for a business model, the most natural classification of the stages has to do with the type of financing.
1. Founder’s Resources/Seed Money
It is obvious that the first stage of a startup has to do with an investment of money, work and competence by the founder or founders. However, this stage should not be either anarchical or excessively intuitive. Pasion has its role, but a business plan for each stage is indispensable. It all starts from objectives, which may be related to, for instance, prototyping a product or software and, according to that, the effort is clarified. Firstly, a business plan shows you that for a startup you would need more than money. The assessment of the figures in respect of the work done, in working hours or something similar, clarifies things. As of the time when they cease to be dreams, startups may no longer a leisure activity. Successful entrepreneurs say that it also affects your personal life.
2. Support by the Family and Friends
To us, Romanians, it seems strange to have to ask for money or other types of involvement from family and friends. To me, however, it seems recommendable. It is a serious test for the idea of startup. Firstly, a positive reaction by the people close to us may be a good indicator for a future success. Secondly, it is a test of seriousness for the entrepreneur: involvement by the family obligates you to be something else than a mere fund hunter, that is to be serious and engaged.
3. Angel Investor
You may all have heard of this, but I am humbly taking the liberty of telling more here, as I have a track record of three successful exists, one of them being for Vector Watch. It is in this stage that the startup is not profitable yet, but already has the general features of a proper business. In order for such prototype to turn into a valid product that monetizes, it needs a financing surplus. As different from banks or other financing options, angel investors provide such surplus without too many formal guarantees or interests, in exchange for a share of the future business. A competent angel investor is not only a source of money, but also of advice, as the scope of their business background is usually more complex than the one of the startup’s founder. As they are willing to risk their own funds, they would want to closely monitor the evolution of the startup and, if they are a true angel investors, they would know how to do that without undermining the founder’s prerogatives.
In this respect, some entrepreneurs simply look for mentors able to offer them know-how and connections without any financial contribution. On the other end, the so called venture capitalists differ from angel investors by that they do not provide financing from own equity, but from the equity of others. This makes them more similar, comparatively speaking, to banks, even if there are substantial differences.
4. Venture Capital(ist)
They say about venture capital that “it comes before anything happens”. The Romanian equivalent of this term, “capital de risc”, describes pretty clear what it is about. The business entities that ensure this type of capital are after a high return on investment, involving a matching risk. The investment comes with a pack of a governing proposal jointly agreed with the entrepreneurs, which has the role of generating the profit expected by the investor, when they exit one way or another.
5. Exit and Listing on the Stock Exchange
From all the above, it is obvious that, generally, success does not come easy. Experts say that startups become mature businesses in five to ten years. What happens with the business that has begun to nevertheless generate profit at a steady pace? In the globalized world in which we are living, if the business is not a family kiosk, it will evolve towards exit, mergers or joint ventures.
In principle, there are two main types of exit: towards investment funds, which intend to obtain a safe profit without being necessarily specialized in startups, or towards bigger companies on similar markets, companies which are on a look-out for innovation and assets. This is as far as the recipient is concerned, because in respect of entrepreneurs there are two types that can benefit: the founders of the business and the investors of the initial phases, which have acquired a minority, but strategic position.
At the other end of the cycle, there is an exit towards an investment fund or the listing on stock exchange (an objective that is even more remote). These are more complex operations, which, generally, come after other types of contributions in capital and, in the long run, they are all the more necessary.
Over the last decade, I've built my professional life as an investor, focusing on 3 key areas: financial services, real estate and tech startups. I’ve participated in the setup and development of two major fintechs, and after those two successful exits I’m now directing my resources into building a new enterprise in this area – the Key Way group.
I've started, participated in and developed companies in Romania, as well as Bulgaria, Hungary, Czech Republic, Germany, the UK, Mexico, Dubai and South East Asia. I'm constantly looking for new segments, new markets and new opportunities, and therefore I interact regularly with the regulator institutions and official agencies in various countries and markets.
The most recent example is the GCC area (Gulf Cooperation Council - Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates, and Saudi Arabia). I started to research opportunities in that area at the end of 2018 - more specifically, the United Arab Emirates, which are establishing themselves as one of the most dynamic markets in the world.
The whole experience of working with the official institutions there was a great example of how to attract and encourage investors! ADGM, the Abu Dhabi Global Markets regulator, was established quite recently and I was absolutely impressed with their professionalism.
To start off, I researched the local market regulators online. The information was clear and easily available: I contacted them online, via their website and LinkedIn accounts. They responded promptly, and in only a few days, we set up a series of meetings with the financial markets regulators in both Abu Dhabi and Dubai!
The ADGM gave me full support and very clear, detailed information on what and how I need to do to obtain a trading licence in financial services in the UAE. I met with representatives from both the ADGM registration department (where all new businesses have to register before they acquire a licence for online trading) and from the FSRA (Financial Services Regulatory Authority).
They were very clear on the procedure, steps to follow and criteria we need to meet, which is a fantastic help for an investor on a new, highly regulated financial market.
In a few days I started the onboarding procedure - everything happens online, everything is digital, everything is set up for maximum ease and transparency.
They set investors up for success, but they make sure they vet them thoroughly as well! A "user friendly" approach does not mean lower standards, quite the opposite - they made sure I meet all commercial and business criteria, they assessed my financial, capital and business status and previous experience, and checked references from markets in which I operated previously.
We went through a process of very rigorous assessment and due diligence, and several meetings where I detailed our business plan and long term vision. Professional but friendly - you feel welcome, encouraged and supported as an investor.
Furthermore, their “enthusiasm”, or appetite for new business, equaled mine! They’re happy to welcome new businesses, they work hard to attract them and to set them up for success. I was very impressed that they genuinely appreciate the fact that investors, however big or small, choose their market to set up a company.
I’d love to see this same level of energy, hard work and appetite for business in my home country, Romania.
While other jurisdictions welcome investors and work hard to create the framework for development and success, I often feel that the Romanian regulators, for financial markets and not only, start from a default position of suspicion or, at best, indifference. Investors are regarded with thinly veiled (if at all veiled!) suspicion and distrust and sometimes downright hostility, you almost feel guilty or embarrassed to be successful financially.
I hope to see this mentality change in Romania, because I, as well as most Romanian entrepreneurs I know, really want to make our country a top choice for investments, not just in outsourcing and services. We want to make Romania known for its know how and creativity.
I think Romanian regulators should remember that their whole purpose of existence is to enable business, not hinder it. And as investors, especially once we see best practices from other jurisdictions, we need to remind them of this reality.
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