Venture Capital

I recently hosted a Tablecrowd dinner with speaker, Simon Menashy from MMC Ventures… and boy did I learn a lot!

Here are my favourite remarks about the fantastic world of venture:

  • Remember that VC’s also have to fundraise for their fund
  • Venture Capital is not right for every founder and business.
  • The fund has to return profit to investors despite the majority of start-ups in the portfolio failing, so VCs are on the look for companies that are:
    • SCALABLE: Can increase it’s business without increasing the operational costs
    • ACCELERATABLE: If the VC puts $1 mil into the business, it should grow faster and deliver more return than if the $1 million investment wasn’t there.
    • 10x RETURN – VCs are looking for exits that sell the company for 10x the original evaluation (a few need to reach the potential to support all the failures)
  • This stuck with me the most: Every time you take capital, you are limiting your options. For example, Simon mentioned that if you take money from him at a $5-15 million evaluation, you are agreeing to ONLY build a $100million company (no smaller growth or earlier exits).
  • Always plan and alight your current funding round and evaluation with future rounds and evaluations. As in, what can you realistically achieve with this money? And then, what are you going to need and look like?
  • VCs want to see what guidance founders will need in the future and if the founder has mapped out the journey ahead.
  • Series A is a larger fundraising round and later in the company lifecycle. Simon mentioned a huge gap between seed and Series A in the UK marketplace at the moment.
  • Series A investors are looking for: tenacious founders, solid teams, consumer traction, revenue growth, and ROI from their companies.

I’m slowly learning more and more about the funding side of start-ups (whereas I mainly work with their advertising and product development). A great resource if you haven’t discovered it yet is the podcast 20-minute VC! Each podcast interview today’s most successful and inspiring venture capitalists, delving inside the funding game in an easily digestible audio format. I must admit, I’m a little bit in love with its founder Harry Stebbings.   

Mr. Stebbings also started a blog recently, so if you’d prefer to read over listen, check out Mojito VC.

And now, I’m off for a white Christmas in Bulgaria! X

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TableCrowd Dinner – learning from DN Capital Investor

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:
  1. 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?)  
  2. What is the best source to raise money from?
There are many different groups to go after when raising money:
  1. Family and Friends
  2. Angel Investors
  3. Family offices that diversify from their main industry.
  4. Accelerators and incubators – who are used to helping start-ups
  5. Crowdfunding – good idea if you need user acquisition and have brand advocates
  6. Strategic Pots of Money – VCs within multinational corporations (like Unilever)
  7. Grants – R&D credits, government funds, etc.
Ways to think about each group:
  1. Amount they can give you varies (frame who you go after otherwise you’re wasting 95% of your time)
  2. Due diligence process is different for each group
  3. Terms – shareholding, join the board, have veto rights, etc.
  4. Value added. Crowdfunding adds marketing scale, VCs add more strategic vision and various business connections
  5. Time – how much can your investor commit to you? What if an angel investor has 200 companies?
  6. Speed – corporate and crowdfunding takes longer than a couple of months
  7. 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?
Another interesting dinner from Tablecrowd… if you’re in London, you should check us out! Who knows – I might be your host :)