As most tech entrepreneurs will know, fundraising can help you secure market share, grow your business and build a killer product, but it can also be extremely daunting and time consuming.
According to UKTN’s Investment tracker, UK founded technology businesses raised more than £4bn in 2017, with the same data showing that companies in the space have already surpassed the £2bn mark so far this year.
Raising from the right investors, at the right time, on the right terms is key for business success. So, bearing in mind that companies are operating in an extremely competitive market, we partnered with professional services firm Smith & Williamson, to host a panel discussion in a bid to demystify what the fundraising process entails for both founders and investors.
Our expert panel consisted of Diana Krantz, a VC at Draper Esprit; Paul Stricker, head of venture capital at Smith & Williamson; Alicia Navarro, founder of Skimlinks; Hugo Grimston, the CFO of Paddle; and Tom Bradley, the managing partner of Oxford Capital.
The state of the market
Before commenting on what’s required to raise from investors, the panelists spent some time reflecting on the maturity of the UK tech market, the investment landscape and the calibre of entrepreneurship across the country.
Andersen introduces Alexa-integrated voice controlled EV charger
“The round sizes in the UK have increased dramatically over the years,” said Bradley.
“There is more capital in the market and there is capital chasing growth companies. The volume of money going into the market is greater, and the number of deals is growing.”
Navarro agreed, reflecting on the extent to which the UK VC landscape had changed since she closed her £500,000 Seed in 2008. (Navarro would then go on to raise $23m in total over a decade.)
“The size of the rounds has definitely changed and the difference is more noticeable when people want to make the leap to Series A.”
eRDS launches COBie-compliant cloud-based software
Grimston added: “It’s very easy to raise capital at the very early-stages. When it comes to Series A funding, the stakes are higher. Entrepreneurs need to prove much more, and they need to prove they have a sustainable business.”
Stricker agreed, noting the need for more validation in an attempt to minimise risk at the Series A stage.
Speaking from experience in his role as an advisor to businesses looking to raise funds, Stricker said it was important for founders to cater their message when they speak to investors.
FSB report assesses FinTech developments and potential
Entrepreneurs are used to selling to clients, but the conversation with investors is different.
“Companies are probably not going to be profitable at Series A, making this stage of investment high risk.
“It’s important for founders to have a clear idea of how they will move forward and to gel well with the investor as they’re potentially embarking on a long relationship.”
Stricker also touched on the importance of developing relationships with investors.
“Don’t be too greedy in your early rounds. You want the best investors, those who are going to give you the best chance of long-term success,” Stricker said.
Krantz agreed with Stricker. “Know what you need to get to the point you want to get to. Be upfront and about the amount you want to raise and don’t raise more unnecessarily.
“Really research the investor before you contact them. Know what they are looking for, people rarely do this so, when they do, it’s memorable.”
Building a narrative
With so many funds available, pitching to the right investor is crucial, but it’s also important for entrepreneurs to know that they must create a compelling narrative if they want to stir interest.
“Founders are the gravitational force around which the rest of the team orbit,” said Grimston, advising the need for the founder to drive the fundraising conversations and narrative.
Additionally, Grimston urged founders to be fully prepared when their company or product launches.
“You want momentum.”
The perfect deck and pitch
Creating a good investment deck is crucial. Overall, the panelists agreed that founders should avoid being too technical, but not in detriment of detail.
“Don’t assume I know everything about your operating market or proposition,” Krantz said.
Entrepreneurs should expect to justify their numbers and projections.
From personal experience, Navarro advised entrepreneurs to keep two versions of the deck: a more detailed version to share with investors and the other, with less detailed notes, for presentations and pitches.
“Prepare for rejection, have the answers and accept push backs without taking it personally,” added Krantz.
“Demonstrate that you can make a return,” Navarro added.
Although closing a round of funding is often met with euphoria, it’s important for founders to keep focused on their company’s mission and vision.
Not having to worry about cash flow can potentially lead to complacency and poor decision making, Navarro warned.
“We don’t talk about what happens the day after fundraising. The biggest mistakes we, at Skimlinks, made as a company were in the few months after we closed a round.
“The biggest innovations happen when you’re running out of money because you get creative. The biggest mistakes founders make is that they hire too many people, without taking stock and making sure the processes are right for the next stage of growth.”
Stricker also touched on the need for entrepreneurs to think about the direction of their business after a fundraise, bearing in mind all the challenges associated with scaling, but also the promises made to and expectations set with VCs.
“Once you raise a round, you’ve set a new valuation for your business and this is a target you have to meet,” he noted.
Overall, attendees and panelists agreed that fundraising is not something to be taken lightly. It can be a long process, it’s often distracting and giving up equity can be unnerving.
But, if entrepreneurs make conscious decisions, research the market carefully, raise on the right terms, plan carefully and align themselves with established objectives, the time and energy it takes to raise funds becomes worthwhile.
If you’re building a business and are looking to find out more about the tax incentives available to help you scale, download ‘The Essential Guide to Tax Incentives for Fast Growth Businesses‘ produced in association with Smith & Williamson.