Adapting To A Funding Desert - tips for Entrepreneurs and Investors in early-stage companies
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Transcript of Adapting To A Funding Desert - tips for Entrepreneurs and Investors in early-stage companies
Ed FrenchInvestment Director, Finance Yorkshire Seedcorn Fund
Ben HookwayCEO Vidiactive
Welcome
Agenda
• Introductions
• State of the funding market
• Implications and responses
• The good news
• Conclusions
Ben Hookway
• CEO Vidiactive Ltd
• CEO Next Device (sold to Mentor)
• 6 years in US
• Experience in US, Europe, Asia
Ed French
• Fund Manager for Finance Yorkshire Seedcorn Fund and SYIF Seedcorn Fund
• Investment Director on RisingStars Growth Funds
• Porfolio semiconductors, software, medical devices
• Engineer
• .
Finance Yorkshire Seedcorn Fund
Litecool
• £15m Fund• Up-to £780,000• £50-400,000 typical first
investment• 12 Investments
Completed• Highly active• Wide spread of sector• High risk high growth
potential
Funding has got tougher
* BVCA Report on Investment Activity 2010
Typical Fund Lifecycle
Build Portfolio Complete Portfolio
Support Portfolio
Where is the bar going?
2012
•Product•Team•Users•Revenues
2000
•‘I have an idea’•‘Have some cash’
2006
•Product or prototype•Founder team•Some prospects?•Some users?
Challenge 1: Scarcity of funders
Investors• “Happy Days”?
• Syndicate early or not at all
• Less chance of a safety net
• “Money round the table”
• Pursue exit earlier and for longer
• More trade investors- hazards!
Companies
• Syndicate early or not at all
• Managing expectations: building confidence
• Allow more time…..
• Competition comes from exit not competitive investors
• Take the money!
Challenge 2: Risk aversion
Investors
• Everyone’s focusing on the same deals:
– Revenue
– Management
• Can you counter the cycle?
– Low valuations= better returns?
Companies
• Building out the team
• Build relationship with VCs
• “NRE” revenue or early sales
• “Selling the silver”
• User engagement not just user count
• Customer referencing
Challenge 3: Time to funding
Investors
• Fast response is a big differentiator
– Can you find faster ways to complete deals?
– Avoiding “syndicate lag”
• But?
• Do you really want to be the first to say no?
Companies
• Can you extend your available time?
– NRE Projects- don’t ask don’t get
– Grants (start early)
– Expect to be “resource poor” for longer
– Is your team ready?
Challenge 4: Reaching investors
Investors
• Opportunity to get involved it better deals
• Swamped by low-quality deals
• Use network and other investors to build quality dealflow
Entrepreneurs
• Concerted sales campaign
• C.F. advisor?
• Reaching alternative investors (trade esp.)
• Persistence, patience, thick skin BUT flexible!
Challenge 5: Tyre-kickers
Investors
• Building syndicates and raising follow-on funding is frustrating
• Be honest with entrepreneurs- word gets round faster if you string people along
• Can you bridge fund to get a better position?
Entrepreneurs
• “Qualify” early look carefully at website for signs of new first investments
• Referrals? Appointments?
• Beware shifting threshold
• Partner consensus
The good news!
• Trade investment is up- good for differentiated plays- care needed…
• Hiring is easier- funded companies can pick & choose
• Grants & seed funds highly active
Conclusions
• Tough time to raise funding, but still possible for great propositions
• Take time, work really hard, listen and be resilient
• Loads of help and great people around
Finance Yorkshire Seedcorn Fund is managed by Enterprise Ventures Limited. Enterprise Ventures Limited is authorised and regulated by the
Financial Services Authority.
Questions