Two CEOs and a VC share their experience of the fundraising process including their secrets for a good VC meetings, frustrations during the process and top tips.
ICON: What was the most daunting aspect of the fundraising process?
Carl: The climate we’re in. We knew it was going to be tough, but funds were extremely tight and VCs were definitely more selective than they have been in the past. They were investing in more developed companies, which presented less risky opportunities.
Bryan: For us, it was a case of identifying VCs who would have an appetite for our particular offering. Most of the VCs who invest in our sector are US based but, after a number of pitches in the States, it was clear that money doesn’t travel and we realised our funding would have to come from a VC in the UK.
ICON: What were the reasons that drove you to seek help from an adviser and how did you select one?
Carl: We needed to look like the world leader we are, so we felt more comfortable engaging a team of professional advisers.
One of the reasons we chose ICON was that we had two of their senior guys throughout the process and they became a member of “our” team and we saw that as a big positive. Also, in terms of chemistry, we liked Alan a lot. Our deal hit their sweet spot. We saw they had heavy expertise in our sector and they were also involved in selling businesses as well. This was a big positive for us, as we’ll be needing advice for that too at some point.
Bryan: I’d second that. I’ve been involved with fundraising with nine different companies over the last 15 years. I’ve done multiple rounds, some with; some without external help, and, there’s no doubt that a professional fundraising team can add immeasurable value.
Carl: ICON knew who to call, and they helped us structure our whole approach, added great value to our business plan, and our whole management presentation. They accompanied us to VC meetings and provided a buffer between us and the VC when we were in the thick of the negotiations, which was very useful.
ICON: What do you feel is the secret of a good VC meeting?
Carl: You need to be extremely well prepared. We had a good story built around our IP. We were commercialising our technology at a rapid rate and gaining traction in huge markets.
We were lucky, but you know what they say, when preparedness meets opportunity – that’s luck. We were ready and we had a billion dollar management team in anticipation of where we’re going to take the company. All the VCs we talked to saw that we were capable of managing the extreme ramp up that a technology like ours most certainly will see.
ICON: What was the most frustrating part of the fundraising?
Carl: The huge time commitment for VC meetings. Also, you kiss a lot of frogs; they’re not all going to love you.
Bryan: For us it was probably the ‘slow no’ – it’s most frustrating when a decision doesn’t arrive within a reasonable time scale. VCs don’t invest for love; they want a return on investment and the bigger the better.
ICON: If you were advising a CEO about to embark on a fundraising, what would your top tips be?
Carl: You need a compelling story. It’s very easy to get everyone in the business sucked into the process, so I advise having a dedicated fundraising team. The process will probably take 60% of the CEO’s time, 60% CFO’s time and maybe 40% CTO’s time. We kept everyone else out, to ensure someone was calling on customers, commercialising and optimising the technology and driving the business forward. It’s way too easy for the fundraising process to take on a life of its own. The very thing you are trying to make look successful then starts to struggle as people aren’t focusing on it, and the result is that your financial forecasts don’t meet plan, which in turn can affect your valuation and, in the worst case, give the VC cold feet. So, my advice would be:
1. Start early – however long you think it’s going to take, it’ll take longer. So give it at least six solid months if not more before you need the money.
2. Allow enough time in your schedule – I thought I could fit this around my existing job, but it actually becomes your job.
3. Identify a team for the fundraising and let the rest of your staff get on and deliver on the business plan.
4. Prepare for the process. Get all the housekeeping in order, get all the IP documents properly registered, and all the customer contracts well documented, so that once you get into the process you can hit the ground running. VCs don’t buy into businesses for this stuff, but they may certainly not buy into it if the housekeeping isn’t right. You’ll be competing with a lot of other plans they receive that week, so you need to minimise any potential obstacles on yours.
5. If you’ve got great technology, make sure you’ve got a team that can commercialise it and actually turn it into pound notes. VCs don’t invest for love; they want a return on investment and the bigger the better.
6. Get professional advisers. Emailing your plan to firstname.lastname@example.org will get you nowhere fast.
7. Incentivise your corporate finance advisers financially to get the best possible price from the VCs on the amount of equity you sell.
8. Don’t get discouraged. It is a long hard process and you’ll have some 16hr days and it will be difficult.
Bryan:I would add:
1. Preparation, preparation, preparation.
Do as much homework and planning as possible. Have a clear concise presentation (10 to 12 slides at most) that cover the key elements.
Try not to be deflected by questions during your presentation – attempt to steer Q&A to the end.
2. Pick up on the body language and the responsiveness of your audience to gauge if you’ve hit a ‘hot button’ or worse, if you’ve lost their interest.
3. Be honest. If you don’t know the answer, say so. Otherwise your sins will find you out sooner or later. It’s hard, if not impossible, to rebuild trust once lost.
4. Do a post mortem after every presentation. It’s vital to have an honest assessment of what went well, what didn’t, and what points were raised and need to be addressed for the next presentation.
5.Keep your morale up. It takes on average 20 presentations to receive one term sheet. It’s easy to become despondent after eight or nine rejections.
Stephen: When I’m looking to invest in a team, I’m specifically looking for energy, intellect and integrity.
Carl really demonstrated integrity and honesty at one of our earlier meetings. When I scratched the surface on the company history, he was prepared to say: “we’ve had issues in the past, we didn’t get everything right, but now we’re on the right track”. I felt he wasn’t hiding any skeletons. I would also add that, people who are passionate about their business tend to do well.
Carl and the team were very passionate, they really believed in the technology and they demonstrated how it was solving problems in big industries and markets.
ICON: Presentation do’s and don’ts?
Stephen: However tempting it is, I’d advise management teams not to say that their forecasts are conservative, because if they were, they’d be zero, and believe me, every plan I look at forecasts £50m of revenue in year five! Secondly, have a really clear idea of what you’re doing.
If a CEO can’t explain in one or two sentences what he’s going to do, he probably doesn’t know. If it takes 30 minutes to explain your business, you haven’t got the clarity or the focus.
So, keep it simple and clear, articulate what problem your technology is solving, how big the opportunity is, how you’re going to address it and show some exciting numbers. It’s important to give your VC a clear idea of what you’ve got and don’t spend ages rambling on about the technology. A CEO’s job when he is presenting to a VC is to get these core points across, as everything else hangs on it. “If it takes 30 minutes to explain your business, you haven’t got the clarity or the focus. So, keep it simple and clear, articulate what problem your technology is solving, how big the opportunity is, how you’re going to address it and show some exciting numbers.”
Carl: A good meeting is all about getting in front of VCs who understand your sector. If they don’t, they’re not going to invest. Plenty of VCs understood our offering intellectually but they couldn’t see the potential or the scale, whereas others saw it immediately. ICON: What are the considerations when choosing your VC? Carl: Almost all VCs say they add value but I’m not convinced, so choose your VC wisely. Our VCs brought contacts, deep pockets and the ability and willingness to invest next time. Importantly, they also moved very quickly – the initial meeting to money in the bank took less than four months. CEOs need to be aware that the longer the process goes on, the more risk is involved and deals can fall over during the final hurdles. We put a lot of value on the fact that Swarraton and Naxos could, would and did move quickly.
ICON: How did the process stack up against your preconceptions?
Carl: I thought the process would be quicker and I wasn’t expecting just how difficult it was. Because I was so close to our business I could see the huge potential, and the fact that not everyone else could see that surprised me.
ICON: Just how competitive is it out there Stephen, how many plans would a VC see in a good year?
Stephen: We receive 300 plans a year, we’ll look at 30 more closely and do three or four a year.
So out of every 100, 10 will get closer inspection and we pick one. I immediately discard anything that’s not in my sweet spot in terms of sector.
Then I look at the quality of the opportunity, quality of the management, the scale, the customer traction, the business model. So advice to CEOs approaching a fundraising would be: make sure you target VCs who understand your sector and importantly make sure they invest at your level, so if you are looking for £1m to £3m don’t approach a VC who only invests in later stage companies, we all have different sector preferences and investment appetites.