So you’ve reached the stage where your business now needs outside financing. Moving into the venture stage, you are going to need to invest some serious time. There are many ways through the maze of VC but here is one approach.
- Interview and select a corporate advisor. You could try to go alone or even bypass VCs all together with crowd funding. I would suggest you use crowd funding at the angel stage, but instruct an advisor.
- Open your business to that advisor, and work with them to prepare an investment deck and three years forecast.
- Instruct a specialist solicitor
- Agree a target list comprised of VCs who are not invested into your sector
- Eat, Sleep, Pitch, Repeat.
I was once told about the 20, 6, 3 rule. It will basically take 20 qualified meetings to obtain 6 expressions of interest and 3 term sheets. A term sheet is basically your goal. It’s a non-binding document that a VC will provide outlining the terms they are prepared, in principle, to invest. If you are fortune enough to get more than one, then you have a chance to create some contention.
I’ve been through a couple of processes and in one I was fortunate enough to get three term sheets; on the other we received one and had to create imaginary contention.
I asked specialist Damian Ryan, digital corporate adviser of Mediaventura.com, to provide some insight from the coal face.
Phil: Damian, what do you think is the most important thing that VCs are looking for in the digital space?
Damian: VCs are looking for teams and individuals they can believe in. There is no magic silver bullet, but if there was the one single thing a VC buys more than any other is confidence.
Is there a minimum amount of revenue that VCs consider?
This depends on the rules set with each fund, but where there is a will there is usually a way too.
What stage should a business reach before it invites you to discuss their potential?
For most VCs the business needs to be post revenue with proven customers and a clear, qualified vision for the future supported by empirical evidence.
What category of corporate advisor do you fall into: the banker, the ex-media guy? or have you always been a digital corporate advisor?
First and foremost I'm a dealmaker – it's what I've done for 30 years. I started selling ads when I was 19 and now I sell companies. I suppose the difference now is the very hands-on nature of the work and that's about understanding the people behind the business first, and their aspirations.
What’s your advice to businesses when planning? How long does it take from the start of the VC process to ‘money in the bank’?
In the UK market, entrepreneurs should allow at least six months – plus or minus two months depending on proposition, preparation, market conditions and determination.
Can you recommend a solicitor who specialises in digital investment rounds?
Yes, Tina Cowen of New Media Law would be my first port of call.
So you have a corporate advisor, an investment deck and specialist solicitor. Now you are ready for the pitch.
The goal is to demonstrate what problem your business solves, how it solves it and what that is likely to look like in the next three years, post-investment.
I have known some entrepreneurs to pitch without a deck. That is fine also, but only as long as you have the ability to communicate a compelling reason for a VC to invest.
And VCs don’t want to invest in average businesses; they want to invest in the next £100m business.
Therefore, there are no points here for thinking anything other than big.
Phil Cooper is founder and CEO of Kippsy.com