Authored by Cecilia Lundborg, VC at daphni ventures

This post originally appeared on the daphni chronicles Medium

This is a two part series on Global VC. Part Two: Investing Internationally is a Full Time Job

You might think all startups being founded these days have an international outlook from day one. I hate to break it to you — this is not always the case. However, for us at daphni ventures, it is crucial that our portfolio companies think this way, and thus, it is one of the most important factors we take into consideration when reviewing a startup.

In order to truly make it in today’s fiercely competitive venture ecosystem, companies must target very large markets and have the mindset for doing so from day one. For a European startup, given the small size of the most local markets in the region, this is especially important. Of course, we are not dogmatic, and can make exceptions when the domestic market is large enough. Still, with the disappearance of frontiers and the rapid deployment of US startups in particular, competition is today international by nature, and therefore a factor any entrepreneur needs to take a close look at before setting off to create magic. 

Why is this so important for us and what do we mean by it at daphni? Here is our advice to ventures who wish to succeed and scale internationally:

Market Size is King

As a VC, we look for companies taking on (or creating) a large enough market, as this increases the probability of success. 

Today, there are very few European markets that are big enough for companies to maintain and sustain growth over a long period of time. The same holds for companies expanding within markets very similar to their existing ones. Two good examples are Nordic companies expanding to other Nordic markets or German companies expanding in the DACH region. 

Of course, expansions like these bring benefits, such as lowered barriers in terms of behavior, culture, language, etc. as well as the opportunity to test a product quickly. However, keep in mind that the real challenge lies in expanding your customer base across different markets. Thus, while a company’s initial expansion may have been a good starting point, even these markets will not be enough for those that are reaching for the stars. In other words, prepare your expansion early on.

The True Character of the Entrepreneur is Shown

Expanding internationally, and demonstrating the ambition and ability to do so, at a very early stage means being willing to pivot for new cultures and behaviors and grow as a founder.

International expansion is anything but a walk in the park. Presenting a clear and structured expansion plan shows the entrepreneur’s willingness and ability to go outside his or her comfort zone. 

Expanding internationally, and demonstrating the ambition and ability to do so at a very early stage means being willing to pivot to adhere to new cultures and behaviors, as well as being able to grow as a founder in general. In practice, this means embodying an international mindset in all parts of the business – meaning in its technology, product, marketing, hiring and so on – and building a company that is agile, yet strong enough to enter new markets in a strategic manner. At daphni we back teams who dare to take on these opportunities!

Eat or be Eaten

If you don’t go international, international companies will come to you (and your target customers). 

Just because you’re a local hero today, does not mean that you’ll stay one. International competitors who provide an equally good or better offering have a chance of stealing your customers when entering your market. For this reason, it is a bold bet to think you are safe, unless you have that same weapon in your own pocket. You have to grow to keep creating value, generate economies of scale, and manage to attract great talent. If not, there is a risk of alteration in your asset value.

Plan. Plan. Plan. 

Many European companies aim at becoming a US success a few years after founding. Even if this might work well as a strategy in some cases, we value entrepreneurs who pick the markets that are best suited for their own product. Doing so shows that an entrepreneur knows the company inside out and is aware of the competition. 

Besides picking the right markets, timing is of the utmost importance. Companies internationalizing too late stand to risk losing out to international competitors (who planned accordingly) and miss building a local culture, which is unattractive for international investors and talent. However, companies expanding too early are also at risk, as their core values can be lost too early. In other words, take risk, but be smart about it.

Internationalizing = €a$h = Internationalizing. 

Internationalizing is costly, and in many cases, the player with the biggest funding eats the other ones for breakfast. 

Having a structured and strategic view on expansion means being attractive to international investors at an early stage. In more practical terms, this means hiring international talent at a very early stage and having your corporate language set to English from creation. This hinders you from locking in a local culture, one which international talent cannot adapt at a later stage. 

When we review companies at daphni, we look at their potential attractiveness for upcoming rounds. A very local team without plans to expand will not raise interest from international investors with deep pockets, something which limits their future success substantially.

The World Needs You

It might sound cliché, but people, and in this case teams, have the power to change the world. At daphni, we strongly believe in tech for good, and we hope that as many people as possible can improve their lives through the solutions our portfolio companies create and provide. Don’t miss out on the opportunity of helping people across the world, it would be a waste.

International is the new normal, and a criteria for us. But our startups aren’t in this alone. Our community and seamless platform are built to help our portfolio companies succeed in the wild, international arena, and grow sustainably into success stories.

More: daphni chronicles | Cecilia Lundborg’s Blog

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