“A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be” Wayne Gretsky, Ice Hockey Legend
Last Wednesday night saw Law Firm Pinsent Mason play host to Stuart McKnight, Managing Director of Ascendant Corporate Finance. The latest in a series of events organised by Pinsent Mason, known as “BootLaw”, this was an opportunity for an audience sadly decimated by the tube strike, to hear about some of the harsher realities of fund raising for start-ups, from a man with 17 years’ experience in the sector, and fresh from a recent £5m fundraising on behalf of Big Data Pioneers, IntentHQ.
Obtaining funding is of course the goal of almost any start-up that dreams of making it big. Spend time with Tech companies, entrepreneurs, or anyone associated with early stage business opportunities, and the question of funding is never far from anyone’s lips; all too often, however, we fall prey to the idea that a “white knight”, “investment angel”, or government scheme may come riding to the rescue of our promising start-up, providing the necessary cash injection to cover unexpected development costs, new employees, or international expansion.
Stuart’s working title asked the question, regarding funding, of whether it is “Elusive”, or “Exclusive”; and he was at pains to point out that securing funding is simply never as easy as one might hope. In fact, there is far less funding secured annually than you might think.
Last year, in the whole of the UK and Ireland, less than 260 companies raised more than £0.5m in funding, with the 10 biggest deals making up over one third of the total invested.
Stuart was keen to de-mystify some of the folklore that has built up around funding, stressing that it is not a pursuit for the faint hearted, and that, no differently to any other business environment, there are no quick fixes, and it is hard work and dedication that ultimately gets results.
Indeed, since 2008, total annual funding secured has been on something of a downward spiral, although, despite a difficult year overall, just under £1 billion was raised in 2013, from the likes of Octopus, SIB, Index Values, Nolan Capital, Bluebay, MMC Ventures, and others besides.
The year’s largest deal came from a familiar source of investment, (that is if you follow the global soap opera that is football), with Roman Abramovich of Chelsea FC fame bankrolling the global expansion of Truphone by injecting £75 million through his investment vehicle Minden.
That is the kind of sum that brings hope to anyone involved in the fascinating business of helping companies achieve their rightful and deserved place in the global economy by investing judiciously; however to return to Stuart’s theme, this was not simply an instinctive gamble on Company speculation by a billionaire with a taste for philanthropy, and more money than sense.
Truphone had already raised £12.5 million in 2007, and a further £16.5 million in 2008. Far from being a speculative punt, investment in Truphone is the result of years of following the fortunes of a Company founded in 2000 by James Dagg, an entrepreneur with a track record for delivering efficient and effective products, such as the touch screens we now see in ticket offices across the underground.
Neither had Abramovich invested alone, enlisting the help of long-time business partner Alexander Abramov, who, as it happens, already held an 80% stake in the Company himself. Nobody should question the due-diligence behind this deal.
To return to Stuart’s theme, this was an investment that may not have been elusive, but was most certainly exclusive. There can be no doubt that the deal will have turned many investors green with envy, but when a global player like Abramovich starts circling, the opportunity to “discover” a Company such as this is nothing so much as an ephemeral mirage. Many would have known about Truphone’s potential, but only one investor took home the prize, and they represent a worthy winner.
Just as the majority of entrepreneurs may spend years finding an investor with the right kind of profile to make an investment in their Company work, (and would be wise to rule out the chance to work with an oligarch!), so Venture Capitalists likewise find themselves having to dig deeper and deeper, and start at an earlier and earlier stage, to find an appropriate match for their money.
What initially seems straightforward, aligning the interests of entrepreneurs with investors, suddenly begins to take on a more complex nature. Absolutely, Pinsent Mason are doing the right thing by willingly giving people a platform (not to mention free beer and pizza), to mingle, swap ideas and network.
I met several investors with impressively detailed knowledge of their chosen sector, be it Tech start-ups, digital media, communications or early stage innovation; guys who have sacrificed a great deal, maybe even a more stable income and better career prospects, to join the quixotic pursuit of the “next big thing”.
Similarly some of the start-up guys I bumped into spoke of exciting projects, new technology, and the genuine promise of a financial return.
Occasionally it seems that there can be a disconnect between investor and entrepreneur, with one side believing there is too much money chasing too few ideas, and the other side believing just the opposite is true. It possibly explains why the buoyancy of a Shoreditch Town Hall pitching event is harder to replicate at a more rarified meet-up, when the financial reality of an investment, rather than it’s potential to change the fortunes of a serial entrepreneur, is the topic at hand.
All parties are unified in their desire to be successful, and it is only right that the right questions are being asked, the right projects backed, and failure seen as a stepping stone on the path to greater achievement.
Although a little more specifically legal insight might have been welcome, this meet-up can undoubtedly be called a success, and thanks must go to Dhanshuklal Vekaria and Thilo Schneider for welcoming us so warmly to their stunning Liverpool Street Offices. The view from the 15th floor gave a sweeping panorama of London, with Shoreditch and the East of London clearly visible as the sun went down on a balmy summer’s eve. If one can’t spot an opportunity from up here, share its promise, and achieve a return worthy of the name, well, then, the message came loud and clear, we will simply try harder, until we do.
The last word deserves to go to Stuart McKnight, who has managed to stay at the top of his game for so long, wringing every last drop of value from the many deals he has been involved with.
The first quarter of 2014 has been especially buoyant as Digital Media and internet investment has begun to take flight, so take heart! And entrepreneurs, Crowdfunding has shown a lot of promise, and whilst you shouldn’t discount its potential, it may be best to stick to the professionals for the time being. The trick is to love the players, and the game.