Have you ever wondered what it takes to find and impress investors? Well, who better to ask than leading VCs and angels themselves!
Earlier this week, I had the pleasure of facilitating an insightful panel discussion with four investors and founders at an event hosted by SeedLegals and Samaipata. It was a wonderful opportunity to not only meet face to face (something that I’ll never take for granted again!), but also to tap into the latest thinking from a very experienced panel. I want to share some of the things I heard so that you can take full advantage of their pearls of wisdom as you go on your funding journey.
Before we get into my key takeaways from the discussion, it’s worth explaining who the panellists were:
- Marla Shapiro, HerMesa
HerMesa is an angel syndicate which encourages women investors to back women founders. All the investments made by HerMesa have at least 1 female founder with a minimum of 50% of the equity in their startup. As investors HerMesa also take a seat on the board offering support above and beyond the investment itself.
- Kirill Tashilov, Talis Capital
Talis Capital is a London based VC made up of successful entrepreneurs who want to back up and coming founders. They embrace the unexpected and back founders who see the future differently.
- Arnaud Bakker, Samaipata
Samipate invest across Europe in digital platforms with network effects. Tech that makes the world feel more human.
- Daniel Sawko, Ship Shape
Ship Shape connect VCs and founders based on their interests, rather than their sector or stage of development. What I love about this platform is the granularity of interests you can unearth and identify individuals within a VC firm who share your interests and passion. Ship Shape have already raised £600K through grants and equity investment and are about to launch a £5 million seed round, for which they already have £2.5million in matched funding.
So, let’s get into the learnings from the discussion. I’ve outlined some of the key takeaways I think startups looking for investment should be aware of. But I’m also always happy to speak to founders in more detail at a Funding Strategy Workshop, so if you have any questions, please don’t hesitate to get in touch!
Takeaway #1. How the founding team comes across is important
I asked the panel to think about their most recent investments and what stood out about the startup that compelled them to invest. One of the clearest reasons investors invest is the founding team.
The panel stressed how important it is that the founding team are good at selling, and that the way they communicate their idea, vision and plan is important. They also look for traits in the founder(s) that demonstrate they would be capable of leading a fast growing, scaling business, such as inspiring people with your vision for the future, a willingness to adapt and try things different ways and the ability to lead a team, especially as the business and team grows).
Takeaway #2. Show current, or potential, tangible evidence of traction
Traction is undeniably important and helps evidence that the business is not just a good idea but has built a strong product that customers love. Although investors often talk about “traction”, it can mean different things to different people, so I asked the panel to define what it means to them.
- Marla explained how HerMesa has worked hard to define criteria that make their expectations clear to founders. She explained that for B2B propositions they require the startup to have achieved at least two paying customers, whilst for consumer propositions they look for 1,000 customers before considering an investment.
- The two VCs also agreed revenue is important but recognised it might not be the right criteria for some business models where engagement has to be secured before revenues follow, such as gaming. Instead, they pick a few key metrics and monitor the progress of these metrics over time. They are looking for a performance curve that consistently follows a strong upward trajectory. Engagement metrics like frequency and session length were offered as examples of metrics that, if strong, were likely to lead to revenue.
- All the investors recognised how hard it can be as founder to build strong metrics from a standing start. They recognise it takes time – and a good deal of trial and error – to “find the door handle that gets you out of the cupboard” when it comes to revenue and customer engagement.
If you want to explore what investors mean by traction, this blog explains how traction makes it quicker to raise investment.
Takeaway #3. Be clear and open about the size of the market opportunity
What was also clear from the panel is that the size of your market opportunity also impacts on what type of investor is likely to be attracted to your startup.
The VCs said they use a portfolio approach to investing and require at least two of the businesses in their portfolio to have the ability to deliver a £5-10 billion business in order that the fund delivers the required return. Not all businesses are therefore suitable for VC investment.
Angel investors might invest in smaller opportunities, but they need to be able to see a credible exit, so that they know they can realise a return.
Reflecting on why investors had backed his own startup, Daniel was very clear both the ability to portray the opportunity within the market and to demonstrate the progress you have made “traction” (see takeaway #2!) were both extremely important.
Takeaway #4. Do your research before you reach out
Our discussion touched on how to find and approach investors. There were two key watch words here: Research and Clarity.
All investors – angels and VC – hate it when they are approached by founders who just haven’t done their research and – despite clear investment guidelines on angel syndicate and VC websites – founders apply who just don’t match the stated requirements. It’s a waste of everyone’s time – the investors and the founders. Daniel agreed that doing your research is paramount when looking to build relationships with investors whether for a current or future round. His company, Ship Shape, use long tail search data to reveal the interests of investors within venture capital firms making it much easier to find and then target investors who have a shared interest in what you do
There was also a heartfelt plea from the investors for “clarity” when a founder makes an initial approach to investors.
The nature of the approach is less important than the message. The clear request is “don’t write an essay” but provide a succinct, clear description of the opportunity that anyone can understand. The KISS (Keep It Simple, Stupid) model certainly applies!
If you are not sure what information investors want to know, take a read of the blog the 7 Essentials that unlock equity investment.
Investors have a lot of opportunities pass their desk everyday – Marla vividly explained how hard it can be to keep on top of all the opportunities and how quickly a decision is made on which to explore and which to “pass” on. This mean they make also take time to get back to you and feedback may be limited. Don’t take it personally!
Persistence is key here. If you are sure there is a good fit, you may have to take extreme measures to get the attention of your perfect investor – even if that means camping outside of the investor’s offices in order to secure a conversation (which one member of the panel actually did in order to speak to the person they wanted to reach)!
My final thought
Time with investors, VCs, angels and founders is precious. So, I treat my time speaking with them, especially the panel from this session, as a gift. Hearing from people who back startups is an important way to know what they’re thinking, and how you can tailor what you’re doing to make an impact and maximise your time with them. I encourage you to see it the same, and take as many opportunities as you can to hear from other people and use what they tell you to inform your own approach.
I hope this roundup has been useful and given you some food for thought for your own funding journey.
Don’t forget, if you want to attract and impress investors, focus on
And finally, above everything, fortune favours the brave…and the persistent!