Tips for startups that aim to grow big: a chat with BIH Mentor Simeon Simeonov

How much time do you spend analyzing the thinking pattern of your dream investor? What would you do if you got the chance to understand what it feels like to be on the other side of the top-tier table, listening to pitches instead of presenting your company? 

Today, we are going to introduce you to Simeon Simeonov, serial entrepreneur, investor, and one of the mentors in Bulgaria Innovation Hub’s US go-to-market acceleration program. Throughout his life, Simeonov has had vast startup experience, successfully exiting six of seven companies he's launched as a founder or founding investor. He's operated at all stages: from "two people with an idea" to unicorn private and public companies. His most recent startup venture--the sister companies Swoop and IPM.ai that focus on privacy-preserving health AI--was acquired by the health innovation company Real Chemistry.

Simeonov also co-founded Evidon, the first privacy-compliance advertising platform in the US, and the social media startup Thing Labs, later acquired by AOL. He was Executive in Residence at General Catalyst Partners, Technology Partner at Polaris Venture Partners, and Vice President of Emerging Technologies and Chief Architect at Macromedia (now part of Adobe). 

Fluent in all languages of the startup ecosystem, Simeonov is one of the top-rated TechStars mentors, an advisor to venture funds, a board member and an angel investor, so here are some insights we got from our conversation with him. 

On understanding the importance of connections

From his standpoint, Simeonov believes that one of the biggest challenges for startup founders everywhere is large-scale thinking that lines up well with how top investors evaluate companies. “I see the same problems with Bulgarian startups that I see in the US. The difference is that there are fewer people in the Bulgarian ecosystem with unicorn scaling experience who can mentor companies and fewer large investors whose feedback can spur them forward. Sometimes, all it takes to radically improve a startup's positioning, execution and valuation is a change in perspective brought about by a few key conversations,” the entrepreneur shared. 

The controversy here is that a multi-spectral perspective of the business world usually requires significant experience. Accomplished entrepreneurs have had the chance to mature and understand better the rest of the ecosystem players, including investors. Every mistake has left a scar and the lessons learned can be used as a valuable source of knowledge.

“The real value of the BIH accelerator is that it gathers a world-class mentor team of US-based entrepreneurs and executives who deeply understand the successful patterns of launching in new markets, fundraising and scaling. The program provides valuable connections and perspectives that not only improve the chance of fundraising success, but can also substantially increase valuations,” Simeonov shares.

On winning the best investors in order to scale big

People talk about MVPs as something you need as proof to get going and attract investor interest. That’s necessary, but not sufficient. All investors' cash may be a perfect substitute, but very few investors have the experience and network to help you scale a huge business. 

“One of the things I am teaching the cohorts at BIH is that you need to be aiming not for a minimum viable product (MVP) but minimum viable excellence (MVE). You need to stand out, bе a far outlier in the distribution of an investor's deal flow. Growing 100% Y/Y is not good enough if an investor regularly sees companies growing 200+%,” Simeonov shares. Just as startup owners dive deeply into the needs, habits and motivations of their customers, so they would benefit from investing time to understand how different types of investors--from small angels to top-tier VCs--think about and evaluate companies. Smart startups use this knowledge to raise more money earlier and at higher valuations. In one case, Simeonov helped a company increase its raise by 40% with almost no additional dilution after it had already signed a term sheet with a top VC firm. The firm was excited to provide more capital for the promise of faster growth.

The startup-investor interactions are centered around storytelling, Simeonov explains. “Sharing your story in a compelling way that frames an investor's thinking allows you to significantly influence the fundraising process.” In his own life, Simeonov has raised tens of millions across multiple companies with nothing but a few co-founders and good stories.

More competition than expected

Another aspect is that if the market is not big enough, the business model has poor unit economics or high friction, or you don’t have scalable distribution channels that will enable you to sell fast, then it’d be very difficult to build a big company, even if you have something valuable that generates customer interest and revenue. It’d be difficult to fundraise because investors would prefer to deploy their capital in companies that put more capital to work and generate returns more quickly. You may not get investor interest not because you can’t do it but just because they have better alternatives. Startups often confuse two things - the ultimate value of whatever they’re pitching versus that pitch being competitive with whatever else the investor has in their dealflow. 

Startups are not only competing with the abstract notion of the solutions in their market - they're competing with every other company that is trying to raise from the same investor. You need to show yourselves as way better than the base level of succeeding at what you’re trying to accomplish. 

That's why Minimum Viable Excellence is so important. "Recently, a top-tier VC firm passed on a company targeting a $30+B market and growing 40+% month-over-month, even though one of the founding partners wanted to invest. The stated reason? Concerns about market size. The more likely reason is that that very week the firm passed on more than 60 deals."

A long-term game

Ultimately, startup owners need to keep in mind that they are playing a long game. "One of the biggest mistakes startups CEOs make is to myopically focus on closing the next round of financing at the expense of future rounds and setting up the company for success.”

Very often startups raise too little money and don't have enough resources to accomplish what they promised. Often they do fundraising that screws up the cap table. They agree to terms that will be problematic in future rounds. Terms can be renegotiated, but it is extra effort and signals that the entrepreneur may be inexperienced. Think about the firm that turned down more than sixty companies in a single week: with the best investors, a small "problem" or even a misunderstanding can lead to a rejection.

Money is a perfect substitute. Every investor's capital is the same as everyone else's. What's different is the investor style, brand, experience, network and relationships. The benefit of getting  top investors on board is the follow-on effects. Once in, bigger VCs are far more likely to participate in the next round, so it gets easier and cheaper to fundraise. Further, they want to give companies more money because they have to deploy large funds. When a startup becomes part of a leading VC’s portfolio, this automatically increases the amount of capital available for them as outside investors who want to co-invest with leading VCs come with proposals. Top investors also have a network of executives with extensive scaling experience, people to be hired or join as advisors. These cascading effects are something entrepreneurs with little experience don’t think through. 

“It is not the cash that's unique, but rather the relationships, often fostered over decades,” Simeonov elaborates.