Talking in the name of VCs, Jean-Philippe Gendre, investment director at Emertec Venture (Paris, France), explained why it is so challenging to invest in early stage companies. "Life cycle funding might require raising $50 million, and exits above $200 million have become very unusual. This means that expected returns for VCs is limited," Gendre said.
He continued: "Many things can go wrong, and every error is costly and time consuming. In addition, sales cycles are usually long, and you may burn $50 million before you get a product to the market."
Gendre then highlighting some prerequisites for success, and his first tip was to "have an excellent team in terms of execution."
He further explained: "It is important to have a scalable solution so that you can derive several products and draw from this investment. So, it stretches the lifetime of the investment."
Second on the list was strong VC syndicate. "It is key to enlarge the VC syndicate to refinance the company if it makes sense at some point," Gendre noted.
And, third, it is essential to invest on very dynamic and sizable markets as he said "we need to have growth perspectives."
To lower VC risks, Gendre highlighted the need draw the ecosystem. This goes through some support from vendors EDA and foundries so as to adapt pricing to early stage companies and from customers to facilitate the first design wins and share risks. Another way is to find other funding options such as subsidies.