Written by Scott Haughton, COO, Envestors
The fundraising landscape has come a long way since Hammurabi engraved the first set of investment rules in 1700 BCE. The one constant, however, is that it’s always been difficult for entrepreneurs to access investors and – therefore – the required funds.
Traditional fundraising methods – from the genesis of the modern landscape in the early 1600s, to the founding of the first venture capital firm in 1946, to today’s investment networks, family offices and crowdfunding sites – one thing has been constant: the middleman.
Crowdfunding has drastically changed the landscape – though it’s by no means a new phenomenon: one of its earliest examples is the tale of Mozart, lacking the assets to perform three new concertos at a Viennese concert hall, appealed for funds and was rewarded by a ‘crowd’ of 176 backers. While digital crowdfunding has made the pool larger by turning customers, families and friends into investors, it’s also raised the number of companies seeking funding, thereby making it much more competitive. Crowdfunding facilitators have opened up these pools, but – fundamentally – it’s these middlemen who are still in control of the fundraise, not the scaleup itself.
Digital technology will provide a solution to this problem. A personalised platform, within an FCA regulated space, that includes an investor relations portal and the freedom to fundraise all day, every day, will grant the entrepreneur the tools to control their fundraise, under their own terms. We have identified the four future trends enabled by these technologies – all which return the reins to the scaleup:
‘Always On’, the end of the finite fundraising campaign.
Old-fashioned fundraising rounds – lasting on average 30 – 60 days – will soon be a thing of the past. Using the new breed of owned funding platforms, companies will be open for funding throughout their entire growth phase – from seed to maturity or exit. Mirroring listed companies, we expect scale-ups to feature Investor Relations portals on their websites in the near future. The benefits of ‘always on’ are myriad.
Smart scale ups understand what it really takes to make a funding round truly successful: it takes time. This gives the company the best chance to find the right investor and the investor the best chance to do their due diligence and find the perfect deal. This ‘always on’ function also allows a company to capitalise on any unplanned wins: a big contract, an unexpected piece of news, a prestigious hire… anything that creates a buzz is an opportunity to showcase the success of your business and attract to investors.
Zap&Go, are a perfect example. A feature about their superfast charging technology on BBC Click created a new buzz about the business; using the Envestry for Scale-ups funding platform, they capitalised on this and extended their funding round by six months and subsequently raised an additional £500,000.
Investor Relations: a must-have skillset for CMOs
If the fundraising is always on, so too must be the mindset. Intense, finite funding rounds create is a risk that investors will be forgotten or neglected after this sharp stretch of activity. To support the always on mentality, CMOs will need to be experts in investor relations. This includes community building – it’s not just about driving sales, it’s creating a level of advocacy and loyalty in customers that would encourage them to support the business beyond ordinary custom. This supports the idea today that customers do not want to buy from the brands they love so much as join them and be a part of them – see the Brewdog ‘Equity for Punks’ strategy – which encourages their drinkers to invest in them and be a part of everything they do – as a perfect example. Investing is a natural extension of that desire to join a brand.
So many companies today raise their funds, say thank you, send off the share certificates and then leave their investors in the dark into the next round. In future, this won’t be the case: we expect CMOs to use these emerging digital tools to keep their investors fully aware of all news about their company – good or bad. Keeping investors warm and happy, makes them far better prepared to deliver the next cash injection. This, in turn, makes finding new investors a less arduous task.
Investors will be multi-market:
Beauhurst reports that 2017 reached a new record for foreign investment into the UK’s high-growth companies. A whopping £6bn was invested from overseas – over the course of the year – and 396 deals involved at least one foreign investor; trends indicate that this figure will continue to rise. The UK is globally recognised as the premiere hub for technology, and certain markets – like China– are actively searching to get a piece of us. In the future, we expect fundraising companies – with the tools provided by geography-agnostic digital platforms – to look beyond their own borders for investment. This suits companies as well as investors as it allows both to spread the potential risks in case of political – a no deal Brexit, for example – or economic change.
The Secondary Market
At the moment, investing in an early growth round is not only high-risk, it also suffers from the lack of a secondary market. This means that investors need to have enough capital to lock their funds in the company’s shares for however long it takes for the business to exit – normally a period of at least six years, before they see any returns. Although there are a few vendors in the sector starting to offer the secondary market today, it’s off to a slow start. It is, however, a concept that investors are warm to and we expect the secondary market – through a controlled portal of reporting, agreements and accounting that allows shareholders to communicate with their fellow investors and thus be able to sell and buy their shares – will become the norm.
2019 is heralding a new age in the fundraising world and it’s all about how digital tools will enable the savvy entrepreneur to take back control of their fundraising.