Six lessons learned from Squid Game that can be applied to a venture capital fundraising process

1. Red light, green light – when to start looking for investment 

Much like the terrifying red light green light start to the games, the VC raise process can be nerve wracking. A key factor is the point at which you look to make a move. Start a process too early and you may find your IM dismissed out of hand. However move too late and you may find yourself in a perilous cash position and under pressure to rush through a process. We find that many investors typically look for at least £1m annual revenue run rate, sticky revenue (low churn rate) and a product/service which has proven it has a market (and is now ready to scale). It will similarly be a plus point if the company has a controllable cash burn rate and reasonable cash buffer. 

2. Cookie cutter – choose your advisors carefully 

The cookie cutter challenge starts with dubious advice from Seoul National University graduate Sang-woo who fails to guide his childhood friend on the most straightforward (triangle shaped) path to safety. In a VC raise it’s vital to take on board advisers who will give you honest feedback and prepare you for the process in the most robust manner to ensure you have the greatest chance of seeing it through to completion. It’s important to distinguish between honest advisers that are focussed on achieving the best result for you and those that will promise the world but in reality are looking to make some quick commission. 

3. Tug of war – management team 

Gi-hun and co are successful in the tug of war through good strategy and team work – also important in the VC raise process. It will inevitably take up a large amount of your time, and the business will need to continue to operate effectively while some of your attention is taken up elsewhere. Surrounding yourself with a strong management team will allow you to do this and help to ensure business performance doesn’t slip (which could lead to awkward discussions when potential investors are reviewing your actual performance against what you forecasted). 

4. Marbles – negotiation

Nowhere is negotiation more important than in the marble challenge. The villainous Jang Deok-su is able to successfully proceed by robustly negotiating a change in the game at the last minute. In your negotiations with potential investors, you’ll need to be similarly robust. While the best investor/investee partnerships will be based on co-operation and mutual success, there are some VC houses that will be looking to maximise their return at your expense. When reviewing offer letters you should be clear where your red lines are and be prepared to stand firm. Using an adviser to have the tough discussions with the potential investor can be beneficial so that your own relationship with them does not become strained. 

5. Glass bridge – learn lessons from your competitors

The path to success on the glass bridge challenge is to learn lessons from the fellow contestants. In a raise process observing the activity of your competitors is a similarly useful tool. In simplest terms, you can use the EV/EBITDA multiple (or EV/Revenue multiple) that a rival was valued at as a good indication of the ballpark valuation you should aim for. This can provide useful ammunition when negotiating and enable you to set appropriate expectations. Additionally you can use rival success or failure in new geographies or sectors as a guide to inform your own plans when forecasting.

6. Final challenge – in the end, conflict is not the answer

For all the brutality of the Squid Games, at the very end of the final challenge there is a touching reconciliation between Gi-hun and Sang-woo, with Gi-hun unwilling to kill his friend. Though not the same level of outcome at stake, once a raise has been completed, no matter how heated negotiations may have been, it’s important to have a similarly reconciliatory attitude. If all has gone as planned you’ll have acquired a valuable partner who’ll be able to provide knowledge and guidance alongside the investment to help take your business to the next level. 

If you have any questions about carrying out a fundraising process please get in touch. Our corporate finance team provide both sell-side and buy-side support and have a wide network of venture capital and private equity firms.