#5: Startup Corner: Q&A with Eva Dobrzanska
Gauging startup potential at the pre-seed stage and a lot more insights into the world of startups with Eva Dobrzanska (Investment Manager at Black Dojo, UK)
“Does my startup idea have potential to grow?”
“How do i evaluate my business idea?”
These are possibly some of the most common questions asked by first-time founders as they look to enter the startup ecosystem.
Welcome to another edition of The Startup Corner, where I caught up with Eva Dobrzanska about her experience working with early-stage startups across the startup funding value chain.
Eva is an early stage capital raising expert based in the UK who has been working with founders to help them raise capital better, faster, and more efficiently. With insight into both non-dilutive and dilutive funding options, vast investor network, and experience working with a world-renowned accelerator (Techstars) and currently a tech-intensive incubator (Block Dojo), Eva continues to support founders to help them become more investible.
We talk about evaluating pre-seed investment opportunities, most common blind spots that founders indulge in, and a lot more!
If you’re a founder dabbling in your business idea, this one’s for you!
You can follow Eva on LinkedIn and subscribe to her Substack newsletter here.
Let’s go!
What led you to a career in the startup ecosystem? Can you elaborate on your journey a bit?
My career in the startup ecosystem was kickstarted by working on my Master's thesis back when I lived in Sydney, Australia. I was analyzing the entrepreneurial ecosystem of the city and had a chance to interview a lot of early-stage founders to find various factors that would impact their businesses and future decisions about internationalization.
One of the most interesting insights was that a lot of startups choose to remain SMEs within Australia as for Large Enterprises, the regulatory environment becomes much tighter, and they also do not qualify for some of the help available at early stages (e.g., more generous R&D Tax Credits). It was during the period when I was writing my thesis that I started working for 2 startups at the same time, who were in their earliest stages right after inception.
One of them was an R&D Tax Credits advisory (non-dilutive funding option for startups) and the other was an investment advisor and middlemen introducer (dilutive funding option for startups). Working with them from Day 1 of operations, I got to put myself in the operator chair and help to establish all the new company processes.
What is the thesis and vision that drives your engagements at Block Dojo?
Block Dojo is an early stage startup incubator, where we help aspiring Founders launch their businesses from Day 1, build their first prototype and/or MVP, and get investor-ready to pitch for their first Pre Seed cheques. What drives me here is the opportunity to help founders at the earliest of stages.
Understanding the entirety of your potential capital raising journey and how it might impact you further down the line is crucial in terms of dilution, growth, and strategy.
How do you determine potential in a founder at the pre-seed stage? What are the top areas that lead you to gain conviction in an idea-stage startup?
Pre Seed is the earliest of stages and what comes to the forefront of considerations here is the team itself. Aside from Product-Market Fit, which comes at the next stages (late Seed/ Series A), Pre Seed is all about the right Founder-Market Fit:
How well do you understand your customer and their pain points?
Have you been in their shoes?
Have you got relevant technical expertise in the sector you're in?
Have you spent enough time in the industry to build a relevant network, learn its dynamics, and check out your competitors' products?
Is there a good personality & skills fit? i.e., analytical minds for FinTech/ strategic and organized for Supply Chain/ approachable and talkative for the Consumer sector/ creative for MusicTech.
Also, investors will look at the Team as a whole to see if there are complementary skillsets (e.g. commercial CEO with marketing & sales experience plus a technical CTO).
Pre Seed is all about the right Founder-Market Fit
What are the common blind spots you witness in founders embarking on the 0-1 journey?
At the early stages, one of the biggest blind spots which is often also a red flag to investors is trying to do too many things at once. Too many product features or product lines, or too many revenue streams will often lead to lost focus, diluted data, and inability to allocate resources (which already are scarce at pre-revenue stages).
Similarly, going after too many markets at the same time can be confusing, especially if they are not related to each other (yes, your customers might be in various markets, but this is where you should craft different customer personas and agree on a strategy on which ones to target first). Speaking of a market, going after relatively small markets (e.g. TAM of 100m is tiny) can be a red flag especially to VC funds who will be hoping for substantial returns.
Then, I see a lot of mistakes and blind spots in pitch decks too, e.g.: too many slides, too much information (stick to 3 key points per slide, and ideally, no more than 12 slides); no clear explanation on how the business will monetize; no a clear explanation of what the business is, i.e. ‘Elevator Statement’ (if you cannot explain your business simply, you’re going to have a hard time raising funds); blank statements about the market trends, not enough about the product itself; and no bios on the Team slide.
As startups transition from pre-seed to seed and beyond, business models might be susceptible to change owing to market dynamics, product-market fit, etc. How do you advise founders who navigate this? Does a changed business model change your thesis on the startup?
Being open to adjusting your business model based on market feedback and evolving circumstances is essential. It's important that you regularly reassess what you deem to be your product-market fit, customer needs, and competitive landscape.
For example, Slack initially started as a gaming company but pivoted to become a communication and collaboration tool, or Airbnb's evolution from renting air mattresses to becoming a global hospitality platform. As your product and value proposition changes, it is likely that your business model with change too. A changed business model can be an opportunity to enhance a startup's potential rather than a reason to step back if the fundamentals remain strong.
What are key metrics that a pre-seed founder be prepared with before they approach a VC/investor with their business idea?
At the Pre Seed level, you are pre-revenue and pre-product, which means that there are not that many metrics to go off at. However, those that you should know and understand when pitching to investors are the following:
CAC (Customer Acquisition Cost) and expected CAC Payback Period alongside the LTV (Customer Lifetime Value); then, once you have a working prototype or an MVP, User Engagement Metrics come into play: daily active users, session duration, and user retention rates.
These demonstrate user interest and satisfaction. Specifically associated to raising capital, early stage investors will also scrutinize your runway (how long your existing funds will sustain your operations), as this gives them a sense of your financial stability.
Lastly, the metric that will be analyzed at Pre Seed will be the Total Addressable Market (TAM) you are addressing. Provide a clear understanding of the market size and potential for your product or service. This showcases the opportunity your business addresses.
I hope you gained valuable insights from Eva’s experiences. Drop in any questions you might have for her in the chat!
See you in the next edition of The Startup Corner!