Raising investment is never going to be more important than it will be over the coming 12 months, with market conditions very challenging. So it is critical for founders and growing companies to be properly prepared for investment rounds. This session guided businesses in how to keep the process efficient from a time and cost perspective and, critically, from the perspective of keeping investors fully engaged in the deal.
Chair:
- Nathan Guest, Corporate Partner and Head of Technology, VWV, Innovate UK Finance Team representative.
Speakers:
- Steve Lyons, Investment Readiness Champion, Innovate UK EDGE Midlands
- Huw Sparkes, Venture Capital Investor at Midven – part of Future Planet Capital
- Elizabeth Gooch MBE, Investor, Coach & Mentor to startup and scaleup tech companies.
Nathan Guest opened the session with a question to the panel on the topic of what does investor readiness look like, why is it more important than ever, and finally what are investors looking for?
He explained that investment readiness is all about the preparation, which is critical and when done properly can save time and money. In addition, investors are very busy people usually working in small teams. If the process looks like it will take too long investors will look for other things.
Huw Sparkes agreed and noted that at Midven, they are a small team of seven people with a portfolio of 50 companies, that can see over 500 pitches only from the West Midlands. So, there is very little time for people to get to that second meeting. He emphasised that three minutes is the average time an investor will look at a pitch.
He explained that you need to first be clear you are solving a market problem, then find a solution. It is no good to have a solution for a problem nobody has, therefore a solution they don’t need. Also, to focus on finding a solution that is faster, better, and cheaper that alternatives.
Huw recommended starting with the problem slide, and keeping your pitch deck simple, “if you can’t explain to a five-year-old, you can’t explain to an investor”. Also, it’s important to keep in mind that investors are not sector experts, so if you can’t explain what you do clearly and succinctly, then investors will pass you on for being too complex. Huw shared the example of academics not usually being the best salespeople, which it is why it’s important to try and build a team around yourself to maximise success.
Steve Lyons suggested that the first thing is to make sure you, as a founder, are investor ready. The next steps then are:
- A good value proposition. You might have a great product but how does it translate to a value proposition? You need to nail it in three minutes.
- Credibility. What traction do you have to deliver? Who is your team and what stage of development are you? How do all the years of research and development translate into something you can deliver?
He explained how when he sends emails recommending businesses to investors, he usually states four things: (i) here is a company in this space, (ii) they have this much investment, (iii) this is the team, (iv) they have this amount of sales. You need to show you can pull your idea around, that you have the team and sales.
Steve also shared that there are loads of pitches out there, so investors need a pipeline of credible businesses, which is what Innovate UK EDGE does. They can help businesses not only with the pitch deck, process, and planning, but also the non-cosmetic part, such as if you need an Intellectual Property (IP) audit. Furthermore, with a network of 300 advisors, they also offer pitching panels, support on investability relations, and helping businesses move around the country. He noted the importance of taking companies out of the West Midlands to the rest of the UK, as the West Midlands attracts only 2.9% of the UK investment.
Elizabeth Gooch agreed with Huw Sparkes, that if you can’t explain it in three minutes then there is no chance. Elizabeth shared that she started her company with £1, at the time there was no support around, and she had no knowledge of tech. She saw an opportunity and made sure that they made a profit on every sale they made so they could invest back into the business. By the end they were trading in 50 countries including 10 partnerships.
She explained how they raised no money until their Initial Public Offering (IPO). One piece she felt that is sometimes missed, is for founders to think what it will be like after investment. You need to also think about what you want from investment, because you don’t always need to raise investment. This is important, as it will be a different way after investment, you will now be responsible for employees, directors, and shareholders.
She suggested that it is not only about having a business plan but also how you deliver afterwards. The fundamentals of your business need to be there in order to deliver. So not only do you need to be ready to pitch but you also need to be ready for growth afterwards.
Nathan suggested that it’s easier to get out of a marriage than an investment relationship, which is very unlikely to disappear unless you are bought out. And you need to be ready for this as a founder.
He also explained that when trying to raise money there are some things you need to be aware of such as a financial audit. Some investors might even be keen for an advanced assurance by HM Revenue & Customs (HMRC). And as validation is only as good as what you put in it is important to speak with advisors on your needs.
Nathan noted the need to understand, as your company grows, when to bring in advisors for the investment readiness process, such as an audit and due diligence questionnaire. It is ideal to keep the investor process as short as possible. And not all startups do things right, so there is an opportunity to do this before you pitch to investors.
Audience Questions:
What happens if the money disappears?
Steve agrees that this is a real problem and schemes such as Tech Nation do get scrapped. Government funding is nice when you’ve got it, but the opportunity to get it can disappear suddenly. However, IUK EDGE has a long-term commitment, and they can offer not only 30 hours of support a year but can also support businesses from startup to unicorn.
My company was launched in a different country, would this prior work count for investment? And what would we need to get investment in the UK where we have no traction?
Huw noted that it is always a real issue moving to a new country, so doing this needs a lot of planning and support to make sure the market is ready. However, if you can demonstrate sales in another country then that is a good start, as investors can draw parallels. He suggested that when looking at a new market it is important to demonstrate a progression in another market. And that not only the money but also the timing of when to enter can be the most important factor.
Steve suggested that if you already have the fundamentals right, then it is quite easy to repurpose a pitch deck. However, you need to understand what the market demand is, what market you will focus on, and how will you deliver what you need to do.
Is there any innovation in Venture Capital?
Nathan noted that the United States had tried to make it easier to get earlier access to finance for companies with innovations. The problem was that two years later most failed as there was little to no due diligence. So, as it is hard to get around some parts of the process and regulations, investors tend to be more traditional in their process.
From a company perspective he suggests that you can do more collaborative work with universities and accelerators to make sure the business has more knowledge. And to think of how to get to investors in an innovative way.
He also suggested that there are a lot of Venture Capital (VC) investors around the world that are good connectors. So, you should also ask yourself what value can an investor bring to the table in a seven-year partnership, beyond just the money?
Huw noted that there are some things that have been innovated, for example pre-covid there were no investment meetings being done virtually. Now founders no longer need to travel to investors, so it is easier to pitch to more investors.
And finally, he suggested that it is important to remember that investment is as much art as science, it is a personal thing – do I like you? So, if you are getting noes then keep going until you find the right match.
You can access speaker slides here.
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