As an entrepreneur, fundraising will probably be one of the hardest things you’ll have to do when trying to get your business off the ground.
Should you be giving away equity to fund your expansion? Is crowdfunding only right for a B2B business? Should your VC get a place on your company’s board? These are all legitimate questions and ones you should be asking yourself before you decide which options are right for you and your business.
At London & Partners, we’re passionate about helping UK scaleups thrive and prosper. In fact, there are now more than 250 SMEs across London being supported by the Mayor’s International Business Programme, which features mentoring, expert advice and real business opportunities for high-growth firms in the technology, life sciences and urban sectors.
Fundraising is tough, but can be done successfully if you follow a few useful tips. In fact, according to our ‘Routes to Finance’ report, high-growth firms in the UK saw record levels of equity investment during the first half of this year. With this in mind, we’ve highlighted how we’ve helped some of the most-well known tech businesses in the UK.
The early stages
Early-stage tech startups are usually bootstrapped, as entrepreneurs typically draw on personal savings and small loans from friends and family to get things going. It’s not unusual for funding options to be quite limited during these early stages, but this should start to change once a company begins to draw in customers and starts to generate some revenue.
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At this point, you can consider debt and equity financing. By venture debt, we’re essentially referring to flexible bank loans – often secured against business assets and repayable over a few years. You may also want to consider growth capital, which is similar to venture debt, but comes with a reduced level of warrant option. Debt and equity aren’t mutually exclusive, though, and you should consider using both as your business evolves.
Demystifying late-stage funding
If things go well, your startup will become a scaleup and it’s at this point that you can consider going for bigger funding rounds (Series A, B, C, etc).
These type of fundraises provide a major cash injection, often come from venture capital funds and see entrepreneurs give up a stake in their business.
Co-founders Simon Hay and Joe Mathewson developed Firefly Learning, an EdTech startup currently on the Mayor’s International Business Programme, while at university and during their investment banking careers. It wasn’t until 2009, after a few schools showed real promise in their product, that they turned Firefly into a full-time venture, though.
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Today, Firefly serves approximately 500 schools and almost half a million pupils in 35 countries and has completed a few successful investment rounds.
“We didn’t need to take equity financing when we did our A-round,” said Hay. “But with technology transforming how schools teach, we saw an opportunity to fast-forward our growth in the UK and abroad. It was time to scale up.”
The startup raised £4.5m from BGF Ventures, who led the round, and growth capital investor Beringea, but finding the right investor took a gruelling six months of conferences, tech industry events and introductory discussions.
“We were looking for patient investors, who shared our vision and values,” Hay explained.
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“There’s a lot of capital in London, and every investor has a different risk appetite, and different expectations of the terms and timescales. You have to kiss a lot of frogs!”
Award winning Bossa Studios is another prime example of how the Mayor’s International Business Programme can help.
Bossa Studios is looking to set to open an office in Seattle, a move it hopes will give it access to a wider pool of creative talent. It’s also eyeing up other Europe-based opportunities and we’re guiding the team through the whole international expansion process; helping to identify the competitive advantages that lie in each territory.
Funding-wise, Bossa’s journey has been somewhat unconventional. The firm has already been through a management buy-out, after one of its early equity backers, Elizabeth Murdoch’s production company Shine TV, merged with Endemol.
Once it regained its independence, Bossa sought out new investment to help “reboot” the firm. “We were determined to maintain our position as a disruptor,” said co-founder Henrique Olifiers. “We needed more strategic brains on the board to help us keep our competitive edge.”
So, Bossa decided to pursue a Series A. “We didn’t need to prove our viability,” Olifiers said. “We’d been successful – and profitable – for a number of years, and our sustainability wasn’t in question.”
What Bossa did do, though, was put together a well-researched list of potential investors. Its approach worked as it managed to close a $10m round led by Atomico.
Going for a Series B
Known as ‘The scaleup round’, a Series B is an integral part of a company’s growth journey and is usually raised by businesses with significant market traction.
We’ve helped many businesses throughout their growth journey, but Yoyo Wallet, which launched in 2013, is a good one to highlight.
Initially bootstrapped, Yoyo raised a £2m Seed and then went on to close a £6m Series A.
The next 18 months were characterised by impressive growth, as Yoyo went from 20 university clients to more than 70; from a few dozen corporate accounts to over 200. All the progress meant revenues grew significantly and as a result, provided the firm with the sustainable income required to justify going for a Series B.
Any entrepreneur will vouch to this: a successful business needs to solve a real-world problem. Some 80% of clinical trials suffer delays due to a lack of patients, but that’s where Antidote comes in.
The startup built a proprietary platform which taps into millions of potential patients by using machine learning. It’s been particularly successful in the US, where the majority of its sales operations are based.
She added: “The programme’s Female Founders mission gave us fantastic exposure and invaluable contacts. Now, wherever we go, the people we speak to have heard of us.” To prove her point, former US Vice-President Joe Biden invited Antidote to be part of the Cancer Breakthroughs 2020 initiative programme’s global network.
Antidote’s Seed and subsequent venture rounds (Series A and B) have totalled $15m. Recently, it raised an additional $11m in a round led by Merck Global Health Innovation Fund and drew the support of existing investors including Smedvig Capital, Amadeus Capital and Octopus Ventures.
Planning for acquisition
Mergers and acquisitions are an integral part of a startup’s journey, regardless of whether they are acquiring or looking to be acquired.
Translate Plus’ journey, though, has been different and not entirely by choice. The language services provider – now one of the top 50 in the world – was founded almost a decade ago and was initially bootstrapped.
“We didn’t go down the classic startup route, taking on debt and developing the business to profitability over several years,” said co-managing director Robert Timms. “We made sure the firm was making money at the outset.”
The London-based firm initially moved into Germany and Denmark, as the founders were familiar with these markets. By 2015, business had expanded to 50 countries.
Timms said the Mayor’s International Business Programme had been key to support his firm’s growth story. “For example, joining Sadiq Kahn’s US trade mission was hugely beneficial,” he added.
Re-investing profits meant the founders were in complete control of the business for the first seven years. It wasn’t until 2015 that they decided to seek external funding and opted to look for a buyer.
“The business reached a point where it was time for a transformative leap,” Timms explained. “While for us as founders, it was time to de-risk, and gain some reward for our hard work.”
While looking at various funding options, they discovered that cross-media marketing production company Prodigious – part of communications giant Publicis Groupe – wanted to add language and adaptation services to its offering.
There’s no denying that setting up a business is hard, but you don’t have to do it alone. The Mayor’s International Business Programme will provide the right amount of mentoring, expertise and real business opportunities for companies to get to where they need to be.
For more information about the programme, click here. Routes to Finance outlines everything you need to know about business finance for startups and scaleups looking at key stages in an SME’s journey through the world of funding, download the report here.