Getting Investment Ready: How to take your start-up to the next level
20th May 2021
For start-ups, navigating through the investment journey can feel overwhelming. We regularly see inspiring data on the amount of investment going into the London tech sector but for founders of early-stage start-ups de-mystifying the options out there, from accelerator programmes to Angel Investors and VCs – and making the most of opportunities requires careful consideration.
On the 29th April, Level39 hosted a virtual panel looking at: Getting Investment Ready: How to take your start-up to the next level
Joining us were two leading figures from the investment space; Nic Lenz who is a Level39 Mentor. Nic is a strategic advisor in the technology start-up space and holds a number of non-executive board positions. He currently serves as a business mentor at Barclays Rise and Level39 and has extensive experience in leading business growth for some of the largest financial institutions in the UK.
Joining Nic was Darko Atijas, managing director of True Altitude. A sought-after advisor, Darko consults on growth, commercial acquisition, logistics, capital structuring, networking and introductions, and currently sits on the board of several client and portfolio companies.
At what stage is a start-up ‘investment ready’? – “At the point where an organisation has a really clear and well-defined go to market strategy”, Nic kicked off the discussion stating that a start-up company’s market strategy must appear carefully thought through, well-articulated and easy to grasp for an individual who does not necessarily operate in the same sector.
Nic added how ideally the organisation would have some early product-market proof points, demonstrating how the product is valuable to the market, and whether there has been any early-stage revenue.
The conversation then moved onto pitching for investment, and Darko explained how “simplicity is key”. It is important to keep a pitch brief and punchy – eliminating the risk of investors getting lost in technical language. Both Darko and Nic agreed that less is more but investing in design is also important, “if you under-invest in the pitch deck, it becomes very apparent”.
Darko went on to focus on the cost of customer acquisition and COGS (cost of goods sold) when considering marketing spend. Many businesses don’t investigate product level gross profitability, which should be deemed a priority. Darko advocates incessant testing, requesting feedback and having your story straight.
So, what makes a pitch stand out from the crowd? Nic explained how a common mistake on pitching decks is overcrowding. A pitch should not explain everything, but instead serve as a teaser to an investor of what is to come, keeping your investor engaged. “Imagine you’re in a room of easily distracted five-year olds”, Darko implies that you must focus on keeping your audience’s attention whilst pitching.
Darko also mentioned that digital channels for sales of physical products is a far more effective way of reaching the commanding market, tying back to his earlier point around the importance of COGS.
The discussion then focused on what decisions a start-up founder needs to make and what they need to consider when deciding their best option for growth. Darko highlighted how the founder needs to consider the maturity of the business at the time of raising money and what type of investment is required – is the capital needed for R&D or sales and marketing – or is It a mixture? All these factors change the type of investor required.
Nic went on to highlight the importance of “doing your homework” when deciding the right investor to partner with. Do as much research as possible to understand what each investor is looking for so that business interests line up. “For example, if you wanted to connect with a VC, and you knew an investor who works with a portfolio company – finding out and understanding what the VC is looking for is super important.” Interestingly, a positive to come from COVID-19, is that the communication with VC’s is easier than ever before with the help of online meetings and virtual events.
Darko and Nic stress that as a founder, you’re fully accountable. You become accountable for a third party and must communicate with them effectively and will full transparency. Respecting the investors is key to understanding their motivations for investing, and as a result, your goals are aligned. As with most industries, and sectors, operative communication is indispensable.
When investing, do founders lose an element of control and if so, how can this be managed? Darko explains how this depends on the type of investment taken on and the differences between early versus late stage start-ups. In early-stage start-ups, control from investors is less of an issue. Whereas, later-stage investors tend to demand more control, such as board voting rights or some level of governance. “The balance between value and control is critical”..
Darko commented, “What many founders don’t realise, is the underlying caveats that come with that. Founders may find it challenging when they can’t make decisions without the sign off from investors”… “And secondly, liquidation preferences – meaning the investor gets first dibs on money out”.
Nic and Darko’s advice is to manage the expectations of investors – set clear strategies and instill thorough communications. This leads back to the earlier conversation on ‘value versus control’.
As we well know, the pandemic has changed many aspects of both our living and working lives. The transition to online meetings has changed how we work together and communicate with investors.
Before delving into the virtual meeting side of things, Darko acknowledged the high value of existing relationships with stakeholders. He said, “Think of businesses as organic constructs”. Networks are crucial and not all founders have the luxury of pre-existing networks at scale. The advantage digitally when you have access is great, but when you don’t, many go down the route of directly approaching investors on LinkedIn. Nic and Darko suggested knowing the ins and outs of the person before approaching them, “Make it humble, make it personal, and make it directed at that individual”.
Even when a founder connects virtually with investors, “we lose 90% of verbal communication” – Darko explains that often things can be lost in translation and adds that people are becoming bored and miss the in-person interaction. Contrary to this, the positives of online meetings are time focus, efficient execution and availability.
Something that both Nic and Darko readily agreed on, is the importance and good practice of getting advice from your peers. Darko mentioned, “we have lost the art of simply picking up the phone” – a personal and effective approach.
Moving onto the corporate partnership element – Amy asked the panel how corporate partnerships provide growth opportunity for start-ups?
Nic began by stating the overall, high-level value of corporate partnerships. However, they both suggest delaying these conversations with the big players for much later on. Nic added that the larger incumbents may cost you a lot of money before anything is even signed. But if you do decide to, then be aware that the big players may have specific requirements including security, corporate governance and policies etc.
What about accelerator programmes? Many founders find it difficult to decide which is the best for them. Both Nic and Darko explained how there are a variety of programmes – some more general, whilst others are more industry-specific. For example, in the e-commerce space, Shopify and some of the other big platforms are running accelerators to identify early-stage start-ups which could offer promising future partnerships.
The final topic of the day focused on mentorship, and how it is beneficial for founders. Nic, a mentor himself at Level39, explained how it can help navigate the fundraising journey, fill the gaps where the company is lacking, and share their network of connections. Darko added how being in leadership can also be quite lonely, so it is good to have someone external to talk to as they can provide an outside perspective.
Darko added, that no single person (mentor) has all the answers. “Just because someone is a good mentor in a particular stage in your journey, doesn’t mean they might be the right person to help you scale up”. He emphasized the importance of ensuring the relationship is functional – setting KPI’s and measuring outcomes. Over time these relationships may change and become more formal such as forming advisory boards – this helps set expectations and onus on the business.
In conclusion, the main, high-level take-aways of the event include the importance of good communication, due diligence and having a strong, supportive network. Thank you to our speakers Nic, Darko, and moderator, Amy French, for an incredibly insightful and informative discussion!