Earlier in the week Pivotal Tribes brought together a panel of experienced startup investors and intermediaries at London’s Google Campus for a Q&A session to discover what they are really looking for when backing a company. The experts gave some great insights into the fundraising process which startups should find invaluable.
The panel consisted of Simon Dixon, CEO of BankToTheFuture.com and director of the UK Crowdfunding Association, Barry Flaherty, Associate at Mediaventura, Ryan Janssen, VP at m8 Capital and Stuart Hillston, CEO of Constellation Capital. The chairperson was Pivotal Tribes’ Jonathan Lea. To review the live Twitter feed for the event see the @jonleanetwork timeline and the #startupfunding tag. Tim Flagg from Go Launch has also published a series of seven videos that cover the entire forum and act as a useful reference for anyone looking to raise finance.
The Q&A session started by considering what investors look for in a startup. All four members of the panel agreed that one of the most important characteristics of the startup is the people behind it. Simon stressed that the character and ability of the entrepreneurs are key to success, and Stuart added that they must be someone capable of executing their idea. Another factor Barry added to any successful startup is the strength of the market sector. Ryan simply professed the success or failure is pinned upon the “team, team, team!” The panel then considered that in a strong team you need at least one person who can build the product, and one who can sell it and that the ideal team would be diverse: everyone should both challenge and complement each other. A strong team must work hard but also convey passion for their product.
Once you know what investors are looking for, the next question should be: when should I approach an investor? The panel agreed that it is never too early to approach potential investors and that the most successful investments are often based on relationships built up over time. Ryan stressed it is important to decide on who the appropriate investor is. Barry built on this idea: different people have different levels of experience and the preparation stage before talking to an investor can take anywhere between 6-12 months. Stuart’s view on timing is that the first investor in your business is you – you are pitching from the moment you start your business. In his view, if you are not in a position to summarise your business within 30 seconds, you are not ready to talk to investors. Simon agreed, but in his opinion there is no harm in forward planning for investment as far ahead as 5/10 years – of course the plan may not be adhered to, but failing to plan is planning to fail.
So how should you pitch? Barry’s view is that you must be thoroughly prepared – you need a business plan, executive summary, pitch deck etc. However, Stuart addressed the fact that early-stage-companies may just have an idea, and so the documentation is not so important at this stage. Whilst it was recognised that creating a business plan is time consuming and expensive, Barry considered embracing the digital age and all resources at your disposal to make the plan as interactive and innovative as possible. The panel agreed that a great short video is now very important to have. The concept of a slide deck was considered. The key idea with slides is to tell a story with them, and grab an investor’s attention by including a demo of your product. This will greatly increase the chances of the investor understanding the product and therefore investing.
— Jonathan Lea Network (@jonleanetwork) August 20, 2013
Ryan was questioned on how best to network with potential investors. He thought the best way of reaching out to people was through a secondary contact who can make a good introduction. Attending events similar to the Pivotal Tribes ones are a great way to meet likeminded people, possible collaborators and potential investors. Stuart stressed that you should do your research and know your investor as each will have their particular area of focus, while Barry added that there is no harm in “being a nuisance” – persistence is key.
Lack of funding in the early stages was an audience concern. Simon agreed in that VC’s like a first funding round under the belt of a startup so they can see how wisely that money is invested. However, the panel agreed that the whole idea of entrepreneurship is about trying to do something with no or limited money and resources so any investor will want to see a good level of development before they will take any entrepreneur or team seriously. The panel also mentioned how the various new forms of crowdfunding offer great opportunities for raising smaller levels of finance, which all startups should consider.
The audience were keen to explore crowdfunding and its long term viability. The panel recognised that there are reservations about crowdfunding, but were quick to praise it. It was described as being great for the market because of its diversity, and Stuart sees it as the modern replacement for angel investment. In Simon’s view, it should not be seen as easy money, and it is important to structure shareholdings accordingly so only certain investors have voting rights. Simon was pressed on the apparent lack of transparency and investor control associated with crowdfunding and stressed that one month is spent ensuring the startup is right for the crowdfunding platform to reduce any risk. However, many decisions are left up to the investor and like any form of early stage investing crowdfunding should ultimately be seen as “high risk, high return.”
Finally, the future of startup companies and the threat posed by San Francisco was considered. The panel view was that we do not need to stop companies ‘jumping ship’ to the USA. We should be proud of what we are good at in the UK: the creative & early stages, and exporting knowledge. The Silicon Roundabout infrastructure is really exciting, and the EIS/SEIS tax reliefs the government offer are of great benefit to UK startups. Ryan believes the UK should not worry as “London will soon be the dominant tech centre of Europe”.