For this particular investor, the sweet spot for making investments was in series A for UK-based companies that were looking for amounts between 1 and 5 million pounds.
If you’re a start-up looking for an investment, he recommended asking yourself two fundamental questions:
- Do you even need to raise money? (Is there potential to scale? Can you realistically return a profit to your investors? Are you diluting your shares without a necessary purpose?)
- What is the best source to raise money from?
There are many different groups to go after when raising money:
- Family and Friends
- Angel Investors
- Family offices that diversify from their main industry.
- Accelerators and incubators – who are used to helping start-ups
- Crowdfunding – good idea if you need user acquisition and have brand advocates
- Strategic Pots of Money – VCs within multinational corporations (like Unilever)
- Grants – R&D credits, government funds, etc.
Ways to think about each group:
- Amount they can give you varies (frame who you go after otherwise you’re wasting 95% of your time)
- Due diligence process is different for each group
- Terms – shareholding, join the board, have veto rights, etc.
- Value added. Crowdfunding adds marketing scale, VCs add more strategic vision and various business connections
- Time – how much can your investor commit to you? What if an angel investor has 200 companies?
- Speed – corporate and crowdfunding takes longer than a couple of months
- Return/Exit – What does success look like for your investor? Put it into context? How high is their bar?
Our speaker also brought up two very good points:
- Be very aware of the fact that raising and accepting external money sparks behaviour change. Companies typically shift its criteria, vision, scale, and business models when raising capital, which has an impact on the work culture.
- 90% of the decision for Venture Capitalists is the TEAM – how passionate are the founders? Who have they decided to hire? Are they capable of executing their vision? Have they experienced and learned from past failures? Do they understand their product’s marketplace?