This page is intended to pass on some helpful advice to early stage high growth companies, particularly those planning to raise finance. If you have any useful links or tips, do let us know and we will include your suggestions here, with due acknowledgment.
YCF has tracked several hundred young companies over the past ten years, and has given detailed reports of more than 700 investment deals. We have listened to presentations by many dozens of young entrepreneurs. Our role of impartial observer on these occasions, rather than investor or adviser, has enabled us to form some views on the subject of raising finance.
Firstly, we favour a selective approach in finding investors - sending a business plan to as many investors as possible wastes their time and yours. It is well worthwhile taking time to research potential investors and find out whether there is any ‘fit’ with what you are looking for. At the very least you should find out:
- How often has the investor made investments, and when was the most recent?
- How much was invested in each deal? Were the deals syndicated (more than one investing organisation), and if so which investor led the deal?
- What sectors has the investor supported, and in what geographic regions?
- For venture capital (VC) firms, which manage investment funds with strict time limits: how much of the funds at the investor’s disposal remain uncommitted, and when is the limit for them to be invested?
Even this level of investigation will help to produce a short list of potential investors, although it has to be said that many investors ‘tick all the boxes’ when describing the market sectors and geographic regions in which they invest, even though their actual investment practice indicates quite clear preferences.
There is no shortage of investors – according to Stuart McKnight of Ascendant (www.ascendant.co.uk) speaking at YCF’s annual conference in September 2008, there were over 280 separate investing organisations (ie not individual business angels) who had invested in young ICT companies in the UK in 2007. This does not make it any easier to secure investment, but does reinforce the desirability of building a shortlist of prospects.
There are a number or sources for finding investors, and we intend to give more information and guidance on this page in due course. For early stage companies in Scotland, the best place to start is with LINC Scotland (www.lincscot.co.uk
), the national association for business angels in Scotland, part of whose remit is to help entrepreneurs and business angels to come together. For later stage businesses, and larger investments, institutional investors such as VCs enter the frame; the BVCA (the British Private Equity and Venture Capital Association, www.bvca.co.uk
), has a list of members, but it costs £150 per year to access the directory, and many of the entries suffer from the ‘tick all the boxes’ syndrome mentioned above.
A useful resource is the Investor Search facility www.investorsearch.info set up by the University of Manchester Intellectual Property Ltd (UMIP); this lets you use R&D or technological terms to find which investors support which technology sectors.
Another is Fundmap (www.fundmap.co.uk), set up by the Electronics and Photonics Knowledge Transfer Networks. This website aims to provide easy navigation to the grants and funding available to businesses in the UK technology sector.
And for those of you who feel that all the cards are in the hands of the investors, take a look at www.TheFunded.com, which gives feedback from investee businesses (chiefly on the US West Coast, but expanding worldwide) about their experiences with investors.
On pitching to potential investors
YCF offers the following advice to young companies faced with making a very short pitch. You obviously have to say something about what the business does, but keep this as short and simple as possible (avoiding technicalities as far as possible), and move on quickly to your customers – what sort of companies they are, and why they will buy your products – and to your competitors – what sort of companies they are, and how you are different. It is easier for investors (and awards judges and other third parties) to understand your business using the ‘compare and contrast’ approach than by starting from first principles.
One eminent business angel in Scotland says he needs to hear four things only from the first pitch by a young company:
What is the product or service?
Why will the customer buy it?
How is it better than anyone else’s?
What margin does it make? (a testing question, assuming a good understanding of both the pricing strategy and the cost base)
This isn’t as easy as it might sound, and requires careful preparation, but like researching your potential investors, the more effort put in up front, the more effective will be the result.