The best way forward to successful venture capital funding in Europe

So, you’ve decided on European venture capital to scale your SaaS.

For some European SaaS founders, self-financing and bootstrapping give them the capital they need to scale their operations. Take Hotjar, for example, a website analytics platform that received no outside funding and hit $25M (€23.5M) in revenue before Contentsquare acquired it in 2021.

However, for most early and seed-stage SaaS founders in the EU, VC-backed funding streamlines their path to an IPO or successful exit—but it’s not always easy to acquire. European VCs play a vital role in supporting founders on this journey by sharing local market insights and identifying opportunities for growth throughout the EU. If you have your sights set on taking the VC route, here’s what you need to know.

How to acquire VC funding in Europe

With all of the above information in mind, here are the steps SaaS founders should take to acquire VC funding in the EU.

Make a VC shortlist

An early-stage, European-founded startup will likely be seeking a European-based VC to lead its early funding rounds because they better understand the challenges of building fast-growth startups in Europe, can devote more time to startups in the same time zone, and offer more opportunities for networking across the EU tech landscape.

As you evaluate your funding options, take the following variables into account:

1. Funding stage: What stage of funding is the firm focused on? If you’re an early-stage company or startup, you’ll want to partner with a VC firm that’s equipped to guide you through your beginning market stages and help you grow.

 

1. Industry focus: While many serious VC funds make efforts to diversify their portfolio, you should ensure your prospective VC partner understands the nuances of your specific industry and how your SaaS fits into the marketplace.

 

1. Past deals: A proven track record of successful exits, IPOs, and overall growth is a must when searching for a VC partner. Is it transparent about the types of investments it makes? How has it helped companies similar to yours? If you want more personal insights, consider reaching out to founders from its listed portfolio companies and ask how their experience has been working with their current VC partner.

 

1. Connections: The VC-founder relationship doesn’t begin and end with a round of funding—having a built-in network of industry professionals is equally important. A well-connected VC firm can bridge the gap between securing future funding, hiring talent, and raising awareness about your SaaS in the marketplace.

 

1. Location: “Out of sight and out of mind” isn’t just a clever turn of phrase. Most VC firms like to invest locally, so European startups should search for VC partners that are located in a similar time zone. Being able to reach your investors quickly, conduct quarterly meetings face-to-face, and work on the same schedule will ensure that your company stays front-of-mind.

 

1. Shared vision: Alignment between your VC partners and your executive team should be non-negotiable. Before signing a terms agreement and cashing the check, ask yourself the following questions:

• How hands-on do you want your VC partner to be in your operations?
• Do you have a similar vision for your company’s product roadmap, or are there forks in the road?
• Do you want to take a conservative or an aggressive approach to growth?
• How vested do you think your potential VC will be in your company’s success?

Get your financial records and SaaS metrics in order

Inaccurate financial and SaaS metrics reports are major red flags for VC firms. Without a verifiable history of their company’s performance, SaaS founders have no way to validate their story and prove the ROI of their company to potential investors.

To keep your financial records up-to-date, try treating your monthly finances like a software release. At the end of every month, you should:

1. Go into  your CRM and run a report for what you should have booked.
2. Reference your financial spreadsheet and ensure that the bookings listed in your CRM match what your finance department has accounted for in its general ledger.
3. Go into your GL and ensure all those bookings are set. Even if you’re off by €50, find it and fix it.

Performing this process monthly gives SaaS companies accurate insights into their current financial and business health. The only glaring issue is that this process is not easily scalable. As your company begins to grow, you’ll need to make additional finance hires, perform regular spreadsheet maintenance, and ensure that bookings, revenue changes, and company expenses are being updated 24/7.

Eventually, you’ll need to swap your spreadsheets for a FinOps tool that removes all the manual steps listed above. Investing in a dedicated financial operations platform that sits between your CRM and GL ensures that all your financial records remain up-to-date.

Identify VC firms interested in long-term partnerships

In your attempts to raise capital, don’t fall prey to VC firms that are looking for a quick cash grab. Unfortunately, many venture capital funds keep early-stage companies on bait n’ hook by issuing a meaningless terms sheet to feign exclusivity. Until you’ve gone through the legal process and had its money wired to you, you are not beholden to any VC partner.

Keep in mind that venture capital isn’t just about raising funds—it’s a partnership. Along with the money, you should ensure that the firm you choose will help you with legal, talent, sales, marketing, and product counsel if necessary.

Making the VC pitch

At some point in your VC journey, it’ll come time to make your pitch. And while a thoughtfully designed sales deck and founder story are helpful, VC partners want to know that an investment in your company will ultimately turn a profit.

To help you validate your company’s performance, SaaSOptics has created this specifically for SaaS founders. The checklist includes actionable templates to help you implement consistency in your financial operations, so you can breeze through audits, make smarter business decisions, and develop trust with potential investors.