Time to get serious about Series A
Jonathan Hollis, a founding member of the Raise team at PwC, sets out what it takes to win investment from venture capitalists and how to get your business VC-ready.
In 2017, £1.46bn of venture capital was invested in UK companies at the Series A stage. There are a number of factors to consider if you want to maximise your chances of being included in next year’s statistics.
Raising investor capital means being answerable to other people and losing much of your independence. You need to be prepared to relinquish control over some decision-making impacting your company such as its direction, governance and operation. The style and intrusiveness of investors may lead to further pains down the road, yet, obtaining VC money is also a first step towards an exit or IPO, where you’ll need to deal with much more stringent due diligence and regulatory transparency requirements.
So, are you ready? Consider the following:
- You have proven that what you’ve built works via product-market fit
- You have a compelling growth story to date and an even bigger vision for the future, including a clear international strategy
- A cash injection will generate over 10-20x returns in 3 years
- Your addressable market is > £500m and there is an opportunity to take advantage of it
- You work in an un-crowded space and you can sell your product against real competition (the existence of well-funded competitors is often a reason for rejection)
- You have a committed team who are sufficiently incentivised to make the business a success
Now choose carefully: in most cases, you will be wedded to your investor for at least five years. Founders should therefore spend time researching and getting to know their potential investors, as early as possible, in order to be in the best negotiating position possible.
Specifically, consider the following factors:
- Criteria: Industry sector and investment stage
- Fund details: Size, fund date and available capital left to deploy
- Number of investments per quarter, including recent investments
- Value-add: Many VCs market themselves as providing smart money, but often the ‘value-add’ is overplayed so don’t rely on them to scale your business. You need to do it yourself
- Ability to follow-on in later rounds
Are you pitch perfect?
Before pitching to investors, ensure that you know your numbers and presentation inside out.
- Find a friendly audience and practise your pitch in front of them in plain English.
- Practise the following pitches: your 20 second elevator, your three minute sale and a longer 15 minute presentation.
- Record yourself, replay it and give yourself a mark out of 10 for fluency, impact and enthusiasm.
- Repeat until you reach an eight or above.
Having a business plan, including a one-page executive summary, a pitch deck and a financial model ready in a virtual data room will ensure you’re better prepared and help you review your business through an investors’ eyes so that any issues which are at the bottom of your to do list become a higher priority. You’ll also need a number of due diligence documents.
Know your value
Valuing your company is an art, not a science, and will often depend on the competitive pressures surrounding your raise, i.e. whatever the market will pay, rather than a pre-agreed revenue multiple. Ensure that you only go out to fundraise once you’re comfortable that you’ve done what you can to maximise your present and future value.