Five Counterintuitive Strategies for Founders Outside Silicon Valley

Lessons from my first trip to Romania

“Welcome home.”

I heard it again and again in Timișoara last week. My grandfather was the youngest of thirteen children, and the first in his family to be born in the United States. His family had just arrived from Romania at the turn of the century. This was my first time back, and it was special.

I was there with a delegation of US investors to speak and keynote an event, followed by a day of back-to-back founder meetings with regional entrepreneurs and VC funds.

I have done a lot of work with global entrepreneurs in my ~15 years in venture capital, and six years ago published my first book, Out-Innovate. During my founder coffee chats (tea in my case) I found myself giving the same advice, much of it against the grain of both Silicon Valley and the local ecosystem. I thought I’d share it here.

1. Don’t be born global. At least not yet.

Everyone in Romania looks to UiPath as a North Star. UiPath is indeed Romania’s great startup success story. Daniel Dines and Marius Tîrcă started it in Bucharest in 2005, first offering outsourcing, but scaled it as an early automation player and listed it on the NYSE in 2021 at a valuation of about $29 billion at the IPO price. When I interviewed Daniel for Out-Innovate, we talked about startups that are born global: built from day one with the culture, operations, and talent to scale across borders.

UiPath is both a model and an exception. On stage, I told Romanian founders that I would not have (could not have) invested in UiPath for Fluent’s strategy.

UiPath was unique in its truly global opportunity – global enterprise clients, a product that worked similarly across markets, and a capital base global VC funds supported (and by the way UiPath moved its headquarters eventually to NY).

Most startups look nothing like UiPath. They understand their local market and customers better, and have an edge getting regulated, breaking into the market, accessing local data etc.

I said it bluntly on the panel: “you can dream of going to the US, but for most companies it is just not realistic. The same is true in reverse. It will be much harder for an American company to win on your home turf than for you to win there.”

And by the way, the biggest companies in most ecosystems around the world are regional ones – incidentally local Amazons, Ubers, Nubanks etc – models targeting some of the largest markets in the economy like commerce, transport, and financial services. My favorite example is Kaspi, valued at ~$18b and mostly in Kazakhstan – a financial superapp similar to Toss in Korea, Cashea in Venezuela and WeChat in China.

And if you do want to go global from day one, Zach Coelius, a fellow delegate, named the bar. ElevenLabs, started in 2022 by two friends from Poland, was valued at $11 billion in February. It sold globally from day one. The reason: its product was so much better than anything else available that the world pulled it in.

So: global is great, but for most, start local then regional.

2. Targeting a small market? Don’t pitch a small outcome.

One startup pitched me a €3m TAM for his specific product niche in Romania alone. He was already double digit percentage of the total at seed stage. His math was thoughtful and credible.

I told the founder what I tell everyone: as soon as you give a VC a TAM, assume they will divide it by ten. Nearly every founder pitches massive TAMs, and the reality is that what is addressable – actually addressable – is much smaller. I pushed him in this case to think bigger. If the first product works, what could he do in the medium scenario to scale, by adding similar products in other industries and by targeting modest regional expansion.

The founder’s response was fair. In Romania, local investors trust arithmetic over dreams, and a bottom-up pitch is what works.

Taking my comments on point on in stride, if you are raising VC you need a business whose regional TAM alone is big enough to generate a venture outcome. For us, it is that any single investment could return our fund 1x+ at exit. When you present your company, do so with this in mind.

In this case, the actual TAM adding a few product lines (already on roadmap) and modest regional expansion turned it from millions to nearing a billion.

But when you present this, you need to tell a compelling narrative about why the first product is a wedge. With it, it allows you to do the next thing – the data, or a customer base, or whatever. Elon Musk’s 2006 “Secret Master Plan” for Tesla is case in point. He started by building an expensive novelty sports car for rich people (Roadster), used that money to build a more affordable high end sedan (Model S) to eventually go mass market. Each step de-risked the next.

Ambitious horizons are fine if they come from a credible roadmap, linking the steps.

3. Lower growth but profitable? Lead with the money machine.

Last week ICONIQ published the metrics of its top performing companies. The growth rate was eye watering. This is hard to achieve outside of AI.

Many of the startups I met were growing more slowly than these benchmarks. Yet, they had things the others lacked.

- They were profitable. They had achieved this with very little capital and demonstrated deep resilience. One founder had reached break-even and a large share of the national market on about €50,000 of outside capital.

- They had limited to no competition. This is underrated. In venture there is a power law. The #1 gets the most of the spoils – even in markets with lower network effects. If you’re the only venture funded player, you are the incumbent. The odds of winning the power law are stronger (even if TAM is smaller).

- They have underfunded money machines. I ask Founders how the money machine in their business works: dollars in (e.g. Customer acquisition) to money back (lifetime value * fully loaded margin). Often founders are restricted much more by capital than anything else, and have readily scalable money machines (see first point here).

In Out-Innovate I called these companies camels: built to survive droughts and grow sustainably. Romania is full of them. Too many undersell themselves by apologizing for their growth rate instead of showing off their economics.

4. Raise strategically to bridge Silicon Valley and local VCs

I was shocked to read on my way over that EUR 103m total was invested in Romania last year, and EUR 15.3m at Series A. Only three rounds crossed EUR 10m at any stage. I thought it was probably a typo.

But when one startup told me they would raise $10m seed from Silicon Valley only, I pushed back.

Advice I give founders globally is to think about keeping as much optionality. For example, in Latam, a market I know much better, there are only 3-4 regional funds that can lead a big Series A. Yet, there are multiples more that can do a seed, seed extension or even a Pre-A. Round names are meaningless, but structuring something that doesn’t crowd out local investors and maintains optionality (round size and valuation) for me is key.

Asking for too much crowds out locals, or forces you to speak to a much narrower crowd.

I was impressed here, how the Romanian ecosystem was supporting local capital. Our hosts, regional development agencies were anchoring a new generation of regional funds: in western Romania alone, Vest Ventures launched in February with €16.6 million for pre-seed, and Asternova Vest followed in June with a €37 million target for seed and Series A, €26 million of it public. At the start of this year, western Romania had no regional venture fund.

5. Connectivity is the multiplier

One of my fellow panelists, Scott Hartley, spoke about how human connections are how ideas and capital spread around the world.

Ecosystems grow the same way. The summit brought city hall, the local university, a range of multinationals, local and regional funds and founders from around the region.

I also recommend founders invest in connectivity. Travel to other ecosystems. Meet startups building similar businesses elsewhere. Come to Silicon Valley to understand what trends global investors are seeing here.

Founders building outside Silicon Valley: which of these five would you push back on?

Thank you, Timișoara. It was nice to be home.