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
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Ed FrenchInvestment Director, Finance Yorkshire Seedcorn Fund
Ben HookwayCEO Vidiactive
Welcome
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Agenda
• Introductions
• State of the funding market
• Implications and responses
• The good news
• Conclusions
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Ben Hookway
• CEO Vidiactive Ltd
• CEO Next Device (sold to Mentor)
• 6 years in US
• Experience in US, Europe, Asia
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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
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• .
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
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Funding has got tougher
* BVCA Report on Investment Activity 2010
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Typical Fund Lifecycle
Build Portfolio Complete Portfolio
Support Portfolio
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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?
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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!
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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
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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?
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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!
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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
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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
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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
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Finance Yorkshire Seedcorn Fund is managed by Enterprise Ventures Limited. Enterprise Ventures Limited is authorised and regulated by the
Financial Services Authority.
Questions