Did you know that start-up business plans are not worth the paper they are written on, but merely “an exercise in mental masturbation”? Were you aware that investors may trick you into meeting with them simply because you represent their real investment’s competition? Perhaps you hadn’t considered the fact that entrepreneurs like you are overgrown babies obsessed with self-gratification. Oh and a word to the wise; when raising funding, expect people to deliberately waste your time because they want to watch your company fail.
Introducing the panel at last Tuesday’s “Raising Finance” event, sponsored by and held at Kings College London! I’m not saying they were candid, but to describe serial investor Jon Moulton, Co-founder of Seedcamp Carlos Eduardo, Head of Ariadne Capital, Julie Meyer MBE, and Nigel Verdon, founder of Currency Cloud, as blunter than a bearded Lady’s razor, would be cutting it fine. So to speak. It was hugely enjoyable, the crowd were transfixed, like Roman citizens at the colloseum waiting for the thumb to go down. Something was certainly sacrificed to a savage god that night. What we witnessed was a brutal cull of the optimistic. Of course I am being ironic. It was a privilege to hear of the great characters of the funding and entrepreneurial worlds. And behind all the cynicism, I even detected an undercurrent of, whisper it, sentimentality?
Let’s hear from each of them and see if you can match the opinion to the speech.
So much human flotsam and jetsam, so little time! Jon founded Better Capital in 2010, his biggest deal to date being the purchase, along with RBS, of Oundle based yacht manufacturer Fairline Boats from 3i, for the sum of £35m. In his career he has been involved in over 100 deals, describing his return as “decent overall”. Jon’s talk was a whistle stop tour of start-up investing’s don’ts, and “definitely don’ts you fool, do you want to lose everything!” Some of the highlights below:
Process: When you decline an investment opportunity, never give a refutable argument! Or if you do, expect the founder to constantly be bothering you with the case against you. Give an honest answer, and quickly.
Poor practise: Enterprise Investment Schemes (EIS), the tax efficient wrappers for small business investors, can be good and bad. Remember, not every investor will be entitled to the break, which may make them feel disadvantaged. Don’t tolerate weak agreements, or “measly” warranties and controls, these are the legal covenants that “lying b*stards” hide behind. Look out for preferred shares, they are not quite what they are cracked up to be.
People: gaps in CVs = fraudsters! Beware “promoters”, neither managers nor investors. Marital status can be revealing. A three times divorcee is unlikely to be concentrating on what you want them to focus on! Failure to change bad people quickly can lead to long term failure. Equally, reward good structures and teams often.
Monitoring: be patient, never fail to follow up and use contacts properly!
Off target deals: They may be tempting, but you will be dealing with unknown industries and jurisdictions; often these kind of deals will be too small, or have little long term potential. Ignore them, even the ones that look “juicy”!
Angels, Jon says, rarely perform well. Ignore projections, they are almost always wrong. Don’t screw people over, they’ll never invest with you again. Ignore the “celebrity” investors, just because they are invested it does not guarantee a project’s success. And one final piece of advice: “the future belongs to the survivors, not the optimists!”
After such a brutally honest assessment of the fundraising landscape it was up to Carlos, Partner at Seedcamp, to scatter some crumbs of comfort amongst the audience. As such, his speech began promisingly, talking about fundraising as a journey, and Seedcamp’s role as Europe’s finest when it comes to creating “product market fit” for their investees, i.e. helping to make the product saleable, and attractive to the marketplace.
Seedcamp has been around since 2007, and their lingo is very much the kind of encouraging, if slightly vague pyscho-babble that start-ups are used to hearing: establishing a “mind-set”, “connecting” with investors, and “changing the world”, however, Carlos too wasn’t pulling any punches, delivering a downbeat assessment of an investors prospects of striking it lucky with the right investor; here are some of the warnings he dished out:
- Investors will doubt your ability to execute;
- Investors will meet with no plans of investing in you, but solely because you represent another company’s competitor;
- Some investors will not have cash to invest, but they will meet with you so they appear to be active;
- Others will demand a five year plan and expect you to stick with it which is entirely unrealistic;
- Some investors will not understand what you do, but may want to invest anyway and will have all sorts of opinions on how the Company should be run; avoid them!
- Some will tell you that you are “too early”, which means go away and make some money and prove concept and then we’ll talk; be careful they don’t pinch your idea!
- Finally, some investors are sheep and follow the herd, they won’t be the first to back you, but it might be worth returning to them once you’ve persuaded somebody else to come on board.
Carlos compared fundraising to dating; hard work and frustrating at times! It’s a numbers game, connections happen in the least likely places, chemistry matters, and you must be entertaining, not too eager, and, to sum up, you’ll be going on an awful lot of dates before you find “the one”. As many as 80, perhaps, which is the most rejections Carlos has heard about. The Company in question, incidentally, has performed well for its shareholders.
Julie Meyer MBE
Julie Meyer’s answer to the harsh reality of fundraising; create your own future, in fact, Julie has taken it a step further and created her own world! Julie is Chairman and Chief Executive of Ariadne Capital, the investment and advisory firm that works with start-ups, corporates and financiers.
Julie sees 3 possible outcomes based on the current tech landscape: Tech platforms will rule the world, the disruptive “Digital Davids” will take over, or, “David and Goliath must dance”. Julie hails from Palo Alto, her father was an entrepreneur, so she understands their character better than most. They are like overgrown babies, she says, for 2 reasons. They see the inevitable, and they are willing to live abnormal lives to get what they want, or to see their dreams become a reality.
Julie also knows about rejection (although not, one suspects, from first-hand experience). A client of hers had been on the road for 67 nights, away from his family, before finally securing seed investment. Their first call was to Julie, who just happened to be at a cocktail reception in Monaco at the time. Entrepreneurs live for moments like these, she pointed out.
A lesson she learnt at an early age was: “capital follows good ideas, always has, always will. If you’re good enough, the money will find you”. She is a fan of Carlotta Perez, and suggest reading her book on the lifecycle of a Tech revolution, but only after you have read hers! Revolutions start with a small fact, then create big promise, before becoming a significant force. The Economy and social institutions follow such developments, and eventually respond to them.
Being as mad as a box of frogs is clearly part of the genetic make-up of an entrepreneur, and Julie’s philosophy might feel as though it was put together whilst sharing a Parisian roof-top with Jim Morrison and Steve Jobs during a full blown acid-fest (that is pure speculation on my part), were it not for its demonstrable success. She implored the audience to “become citizens of entrepreneur country!” She has created a platform for Ariadne based on this fabled land, where it is good to be underestimated, vulnerability can be shaken off, and, most importantly, real life deals made! Don’t be afraid, but do expect an intellectual interrogation that would make Frederick Nietszche blush.
Finally it was left to Nigel Vernon at Currency Cloud to tell it like it is from an investee’s perspective; some good news, a chance to show how easy fundraising can be? Not on your Nellie!
First of all, don’t be desperate, it’s all about you! Good people get backed, not good ideas! Every plan you put together will eventually be proven wrong, so work on the story. The investor must believe with you, so if you detect cynicism, don’t work with them. Chalk another one up for the dreamers, haters gonna hate!
On a more practical level, qualify out your different / contrasting ideas. Find your product market fit using metrics, and measuring things. Ask yourself why people will use or are using your product. Nigel is as cerebral as the others, it turns out, not a rabbit in the headlights founder by any stretch. People will waste your time, he pointed out, its always hard to find another sympathetic entrepreneur. Lead investors are key, identify who they are, the sheep will follow them into a deal. Meddlers are bad news, make sure it is you who is running the company and making the decisions.
Nigel’s final piece of advice summed up what could have been the takeaway quote from the evening as a whole: “never screw somebody entirely, investing doesn’t work like that. But don’t expect to have everything your own way, and be prepared to enter a new, dynamic, thought provoking and pretty bat sh*t crazy realm of ideas.”
The speakers made this an unmissable evening and a window into the soul of the investment fraternity / sorority. It was fitting it took place in an amphitheatre. Investing is all Greek to this blogger, but I had heard about the word charisma, and now I have a better understanding of what it means.