Finding and renewing funding can be a bewildering experience for entrepreneurs, but experts at a conference in Cambridge, including two from Cambridge Judge, offer a few simple tips.
Finding and renewing finance is a bewildering experience for many entrepreneurs. But there are a few key routes to “demystifying the funding funnel”, as outlined at a conference held last week at the Guildhall in Cambridge.
The session, held on 6 February as part of the ACM 10th International Conference on Web Search and Data Mining (WSDM), looked at “The Funding Funnel: From University to Unicorn.” Moderated by Jon Reynolds, co-founder and CEO of smartphone app SwiftKey, the panellists were Hanadi Jabado, Executive Director of the Entrepreneurship Centre at Cambridge Judge Business School, which mentors ventures through Accelerate Cambridge and other programmes; Simon Thorpe, angel investor and a Fellow in Entrepreneurship at Cambridge Judge; and Luke Hakes, partner at venture capital firm Octopus Ventures.
Here are edited excerpts of some of the panellists’ advice:
Raise money before you really need it
Simon Thorpe: “The longer you can develop relationships with potential investors before you need the money, the better. The one thing I absolutely hate is when companies only communicate with me when they need money – if they haven’t bothered to keep in touch with me during the year at all, and the next I hear from them is a phone call that says, ‘Simon, I’m raising X amount of money and do you want to participate?'”
Hanadi Jabado: “It’s about building a relationship over time, which really matters. Your bargaining power plunges down when you’re six months away from running out of money; potential investors will inevitably be aware of your cash position because of the due diligence process. If you’re going to VCs today with the hope of raising money in two years’ time, that is perfect timing. If you are hoping for immediate funding, don’t expect a miracle, they will not write a cheque at a day (or at a couple of months) notice.”
Luke Hakes: “We invest in lines, not dots, so what’s really important is seeing progression over time, and being able to say: ‘John came to me two years ago and said he was going to do this, and then in six months showed he did it and in 12 months went a bit further’. That builds confidence about the execution of the business. Essentially, all you’re doing when you make an investment is extrapolating from today to the future, about the degree of confidence in the ability of the management team.”
Jon Reynolds: “It’s easier to raise money when you’re not trying to raise money. Go out and speak to people when you’ve got a year’s funding left. Make sure that if you’re telling them you’re going to do something you are going to do it. If you constantly over-perform over six to 12 months, they’re going to approach you for investment rather than the other way around, and that’s the dynamic you’re looking for.”
It’s all about the team behind the venture
Simon Thorpe: “It starts with the people. The most fantastic team can take a pretty average idea a long way, but average people can’t take the most fantastic idea that far. Passion, domain expertise and a strong narrative are incredibly important in selling the idea.”
Hanadi Jabado: “Values are really important. Even if the technology is great, if people don’t share our values about meaningful tech we probably won’t take it on. We’re also looking for coachability, people who will take advice and act on it, even if it’s not the advice they initially had. It’s a long journey, not an easy journey, so you need a team that not only gels well together but is also resilient. You hear the word ‘no’ a lot, and you need to take on board the advice and comments made before the ‘no’ to improve your chances for a future ‘yes’.”
Think a step or two ahead
Jon Reynolds: “Investment does take up a huge amount of time, and it’s a big question mark as you’re growing a business as to how much money you’ll need. A big part of my role as CEO at SwiftKey is not only thinking about the next investment round, but the next two investment rounds, and make sure the company is well positioned for that. You need to be very strategic about thinking ahead.”
Simon Thorpe: “I’m looking for a big market. A lot of people come to me with a great idea but it’s a tiny marketplace, so it’s really not going to scale. Looking back at 2008-2009, it was clear that smartphones were going to take off and become a huge market, so investors in that sector were looking at whether a team has the capability to grow such a business over the next five to eight years.”
Seek rapport with investors, not just their money
Hanadi Jabado: “We’ve had 130 companies through Accelerate Cambridge over the last three years. My guidance is not to look at who gives you the best valuation, but to look at the terms offered. Observe everything that happens before you get to the stage where they agree to give you the money. If it’s a difficult and painful process, just don’t do it; try instead to find another investor who won’t give you such a big headache. Remember, you might be stuck in a boardroom with your investors for a very long time. Ask yourself: how would that person look and behave after a 24-hour meeting.”
Luke Hakes: “It’s no good having a growth investor at an early stage, they will ask the wrong questions. If it’s early stage in which tech is the principal activity, get an investor who understands tech. Getting the wrong investor at the wrong time is often super damaging to businesses.”
‘Crazy’ or ‘polarising’ ideas can be good ones
Luke Hakes: “We have a collegiate decision-making process, so we try to avoid a situation where everyone agrees. If everyone agrees we’re probably trending toward average stuff, so we’re looking for polarising ideas where we can push people opposed toward the deal. Sometimes it can take a long time, depending on the strength of feeling in the room.”
Hanadi Jabado: “We bring people to the stage when they are ready to go and talk to people like Simon (Thorpe). We don’t always look just for solid tech or blue-ocean innovation, we are attracted to ‘crazy and impossible’, almost to the point to say: ‘the crazier the better’.”