Raising money can be a difficult and daunting experience for any founder. To demystify the complicated fundraising landscape (and give entrepreneurs an opportunity to get their own back on investors!), each year we bring together VCs, angel investor groups, and other funding bodies to take part in ‘Reverse Pitching’.
Here are five key take-aways from our 2018 event, where some of the UK’s leading funders shared their fundraising tips with tech entrepreneurs.
1. What do investors look for in a founding team?
You will often hear investors say that they invest in people as much as they invest in an idea or business plan.
They’re looking for founders that have an edge – whether that’s technical expertise or a track record of solving a problem in their target market before.
It’s unlikely that your founding team will have the perfect balance of technical and commercial expertise. It’s crucial that you demonstrate self-awareness to your potential funder: identify your founding team’s weaknesses, and show how you plan to address these.
Finally, if founders are coachable and receptive to advice, then investors will have more confidence in the team. Investors would like to see that founders are genuinely willing to listen and consider advice.
far should you ‘stretch’ your financial model?
Financial projections can be a juggling act for founders: how do you build a realistic financial model that entices investors without overly-exaggerating your predicted revenues?
Investors will have had their own experience of judging financial models: for every model they receive, they will apply their own assessment, and then decide whether to invest based on their own calculations. Often it is the mechanism behind the financial model that the investors are looking for – they want to see if you can show how you have calculated your prediction, what financial problems you foresee and how you will solve them.
Useful tip: be ambitious, as you are more likely to be penalised for being under-ambitious!
3. How can you demonstrate traction?
Founders can find themselves in a ‘chicken and egg’ situation: investors want to see traction, but how do you get traction without funding?
It’s important to remember that traction can be measured in many ways beyond revenue or customer numbers – testimony from customer interviews or a partnership with a leading brand, for example. Try approach traction as “a mindset”: show what you’re doing and what is working.
Useful tip: Ask investors what ‘traction’ means to them – each investor will have different metrics they are looking for in different companies.
4. How to pitch your deep tech, long-term vision?
At the Enterprise Hub, we work with engineering entrepreneurs who are tackling some of the world’s biggest challenges with their innovations. We know that many engineering innovations require patient support, which is why we have developed our Enterprise Fellowship programme to provide a year-long programme of training and grant funding for technology entrepreneurs, as well as providing later stage support to help navigate the scale-up process through leadership training and development on our six-month SME Leaders programme.
Many tech startups with big visions need long runways – and investors that understand this. Messaging is therefore key. You need to be able to clearly communicate to investors where your company is now, how this links up to your big vision and how you’re going to get there.
Investors will back long-term plans, even when the potential hurdles to overcome are huge if the entrepreneur can convincingly articulate how they plan to get there – and as long as the payday at the end is as big as the challenge!
5. What should startups know before they approach an investor/funder?
It may seem obvious, but it’s still worth mentioning: do your homework.
Finding an investor is often compared to marriage, which is why you need a funder that shares your company’s values and is aligned to your company’s vision.
Consider what kind of money you are looking for and this will your approach – for example, do you need ‘smart money’, investors with the right expertise, to help take your company to the next level? Or if you already have a lead investor and are looking to fill a round, would crowdfunding be suitable? Would an innovation loan be more appropriate than giving up equity? Make sure you are getting the right funding to meet your startup's needs.
We would like to extend our thanks to everyone who took part in the 2018 Reverse Pitching event, and in particular to our speakers: BGF, Syndicate Room, Rainbow Seed Fund, RLC Ventures, Octopus Ventures, Downing Ventures, Cambridge Angels, Newable, Q Ventures, Shell, Saab Technologies, Seedrs, Barclays, Innovate UK, Defence and Security Accelerator and Seed Legals, and our Chair Dr Ian Shott CBE FREng.
The Royal Academy of Engineering’s Enterprise Hub is a national resource for the UK’s most promising engineering entrepreneurs. Find out how we can support you.