Are these the true secrets to gaining the right funding for your business?
To help readers understand how they can best prepare a funding pitch, Business Leader spoke to a collection of high-profile investors and funders to gain an insight into best practice.
The type of funding you’ll need will differ to when you’re starting a business and to when you’re in scale-up mode. The conversations, funding lever you’ll select and who you’re talking too will change. But the fundamentals of best practice when pitching for funding tend to stay the same.
Firdaus Nagee is an investor, and he is also the Founder of successful scale-up business FCI London.
His tips for approaching an investor are as follows: “The actual numbers and projections are key. Often entrepreneurs can spend too much time on snazzy looking decks but when you get to the nuts and bolts and what is your cost per acquisition, for example, and what is your runway to profit; and what is your CTR and digital marketing plan; then they do not have the answers.
“Rather than just saying it is a £1.5bn market and we are going to do this and then that – I think it pays to be clear and humble about what you are going to do with the funding. You need to be very specific about where every single penny is going to be spent.
“For a final point, you also need to try and work with funders that love what you do and who you are and investors that will cheerlead for you.”
Tips for dealing with Angel Investors
One of the funding options when starting your business is to connect with an angel investor – an individual who will typically invest in multiple businesses.
At this stage of the funding process, which will be the first time that many entrepreneurs have raised, there are some key things to consider.
Sam Simpson is the Founder of Catalyst. He’s also a serial entrepreneur and one of the UK’s leading angel investors.
He says: “Founders only have one shot with an investor, so it is best to engage when they are fully prepared with a polished pitch deck which has been reviewed and polished by some friendly angels, a forecast model and proof of HMRC (S)EIS advance assurance and a proposed term sheet. By being prepared with these four items you remove stop-start from the funding round and dramatically increase your chance of landing investment.
“You also need to understand what you want from your angels – is it just cash, cash-plus industry experience or cash-plus a Non-Executive Director; or event cash- plus routes to market for your product or services. Finding passive investors who ‘invest and forget’ is relatively easy but finding investment capital and one of the other items significantly reduces the number of investors who could invest.”
Sam also says that going out and getting as much experience as possible is important. He explains: “Finding angel investors is a numbers game. It is key to get your pitch deck in front of as many investors as possible and make their experience as positive as possible.
“Lots of angels won’t even look at an investment until advance assurance is in place because 30% or so of advance assurance applications fail, so why would an angel spend time considering your opportunity if there is a one in three chance that you won’t be investable anyway.”
The trends Sam is seeing in the space, aren’t too surprising either.
He says: “Unsurprisingly, many angels are seeking ‘Corona resilient investments, so anything travel, or hospitality related is a tough sell; and blockchain is no longer being forced into every pitch deck, thankfully.
“Artificial intelligence (AI) are still very prevalent but seasoned angels will dig into claims of AI implementations because they will have seen dozens of pitch decks claiming to be an AI play but, they aren’t.”
What do the dragons say?
Whilst not always a depiction of the true reality of investing – and with investments in the thousands not the millions of pounds – the ‘Dragons’ also have some interesting insight when it comes to how to prepare a pitch.
And it’s not surprise that not knowing the numbers is a big no-no.
When asked what puts him off from making investment, Touker Suleyman says: “When somebody does not know their numbers and thinks they can pull the wool over your eyes. You will start to ask questions and it will all unravel quickly, so there is no value in trying to do this. Silly valuations are frustrating too and some of them are crazy. Some of them are picked out from the sky.”
James Caan CBE, who also appeared on Dragons’ Den, says that showing you can execute the idea you want funding for, matters too.
He says: “In business, it can be common for an entrepreneur to think that because they have a good idea, they will become a millionaire. The idea only counts for 5% of the opportunity though and sometimes people can think it is 95%. The real success in business is not an idea, but the ability to execute the idea.
“We all have ideas every day, but they do not come to anything and success happens when you can turn an idea into reality; and I’m looking for somebody who does this. I also look for somebody who demonstrates leadership skills. It is not about you in a business, but who you surround yourself with, and you need to have gravitas and charisma to attract good people.
“Finally, I look for somebody that has a commercial mind. A big reason for a business failing is that it will run out of cash. I am not looking for an accountant but somebody that is commercially savvy.”
Accessing later-stage growth capital
This is all sound advice but what about when you must access growth stage capital and you’re looking for investment in the millions of pounds.
Giovanni Nani from Frog Capital – who specialise in the growth opportunity between venture capital and private equity say: “For entrepreneurs looking to raise an early stage round of funding, there is plenty of good advice available on how to pitch and position a start-up. But, when it comes to pitching a scale-up business to raise later stage growth capital, the resources publicly available to CEOs to help you prepare for that process are somewhat scarce.
“Pitching for late stage funding is different. The company is at a different stage of development, and late stage Investors look for different signs of potential. Understanding the process and getting the pitch right (e.g. the narrative, the metrics, the deck, etc.) is critical. These need to be tailored from stage to stage to factor in the specific audience requirements. That does not mean writing a pitch that over-caters to investors, rather adjusting it to ensure it speaks their language with the appropriate tone of voice and focus on key topics.
“Some elements of a good pitch are universal, but zoom in on the later stage fundraising and you’ll see there are some key pitfalls to avoid. The following considerations will help ensure your pitch resonates with growth investors.”
Giovanni explains: “Ask yourself, ‘How can I make it easy for them to make an investment decision?’
“Growth stage investors will be listening for different things than early stage investors. While their equation for building conviction around an investment may have the same variables (i.e. team, market, traction, etc.), their coefficients are often different. A pitch that reflects the growth stage investor’s mindset will make it easier for that investor to assess the opportunity.
“Often later stage investors have a corporate finance/professional investing background, whereas earlier stage investors are more likely to have operational/start-up experience.
“Their diverse backgrounds will likely influence their expectations and investment mindset.”
Don’t just update a Series A deck
Giovanni continues: “In an interview, Bill Reichert, Managing Director at Garage Technology Ventures, says the fundamental difference between early stage and late-stage pitching is this: selling a dream vs. selling an operating company and your ability to execute your plans.
“The experience gained in raising seed and Series A rounds is certainly valuable, but the differences of what is expected at Series B or later must be well understood.
“The set of numbers, metrics and evidence that a later stage investor will want to see is greater. History and track record are key to demonstrating sustainable growth potential.
“Expect more data driven discussions and more ‘difficult’, forensic questions. Late stage investors will look to be convinced by data at a more granular level, not just by the bigger picture vision.
“Demonstrating a keen handle of KPI monitoring helps create a sense of control. Investors will want to see that you have got the discipline of having a metrics dashboard in place for several quarters and they will expect you to be tracking against specific performance metrics.”
Giovanni concludes by talking about the pitch itself: “If you are raising a later stage funding round, most likely you will have an existing set of investors onboard already. Leverage their knowledge and experience, A/B test with them, get input and feedback.
“For a company at the scale-up phase, you are typically expected to have senior management team in place (or at least an initial form of it). Carefully choose the team around you that will support you in the presentations and will attend meetings. That should typically reflect the way that the company is run day-to-day.”