Investing with your Heart and Mind: Meet investor Sam Simpson

During this week’s interview, we meet Angel Investor and Decksender member Sam Simpson

This week we are delighted to speak with Sam Simpson. After 20 years working in the tech sector and setting up businesses, he applied this knowledge to Angel Investing. His business accelerator, EH3, works with aspiring entrepreneurs and business owners to build and grow great businesses and today, we speak about his path to investment, what makes him notice a pitch and invest, and the UK startup landscape going forward.

The start of his investing journey and what to invest in

After building his way up from junior engineer to lead consultant and technical director, then project and programme management at one company, it closed. Sam went on to set up Roc Technologies with colleague Mike Hockey. Roc was was hugely successful and rapidly grew in 3.5 years, being named the second fastest growing company in the UK in 2017. 

After exiting Roc, Sam and Mike began investing – partly to have something to do, partly to meet new people, and partly for the tax benefits. Finding the right opportunity to invest in is a numbers game – in the past couple of years, Sam has seen around 300 pitches and only made 15 investments. He sees Decksender as a great way to see lots of decks direct to his inbox without having to have a meeting.

When Sam started out, he invested in everything from an underpants company to a custom furniture company! Since then, he has refined his approach. He is currently investing in five companies that leverage AI, such as Skin Analytics – a company committed to helping more people survive cancer. This investment has a special place in Sam’s heart after his friend and investment partner, Mike, passed away from contracting melanoma last year. Investing in startups and new technologies can ensure early detection and other societal gains, other than simply financial.

What to look for when investing

There are a number of things that need to fall into place to make an investment. It’s all too easy to leave a pitch and get infused but the potential for the market or the potential for exit are low, so Sam uses an evaluation matrix in order to be more objective:

  • Do we love the founder and can we work with them?
  • Is it unique and does it need to be?
  • How close is the founder to proof point? 
  • What does the competitive landscape look like?
  • What does a reasonable valuation look like?
  • What tax break does it fit into – SEIS or EIS or none?
  • Flexibility within the paperwork?

Decksender allows Sam to test a number of those elements in just a few minutes and encourages every Founder to attend a Decksender event to ensure they know exactly what to include in their pitch deck – this will make or break whether he takes the conversation further.

The future of investing in the UK

SEIS and EIS tax relief have been transformative in the UK to support investors. He hopes these won’t change as it encourages innovation in the UK: ‘So many startups can get funded to create a thriving startup economy which is essential with the UK leaving Europe’.

Many businesses he invests in have an international element and it is vital to come to an agreement post-Brexit that doesn’t put UK businesses at a disadvantage.

Current investments

Over the past 3 years, Sam has embraced the Angel Investor world and has learnt a lot about it. In his next venture he is putting this to use and launching a product that will help founders with their startup administration. In time, they will further harness technology to assist with all the operational support tasks a Founder will need, such as providing a platform to support HR so they can focus on building an excellent business.

Details

You can get in touch with Sam at:
Decksender
LinkedIn

Want access to great investments?.

The more-news-than-you-can -chuck-a-stick at news update.

Featured image: Photo by Jason Rosewell on Unsplash

It’s been ages since we did a public news blurt – usually we save the juicy bits for our users and start-up community.

The short n sweet

  • We are organising a summit around funding for minority led startups in the UK and Europe and additionally how we can help get more funding for African startups.
  • We’ve onboarded 700 more investors in the last 2 weeks and getting up to a sweet cadence of 150 a day. More investors = more opportunities for startups to get funded
  • Cool features coming – autosend on high auto matches, equity crowd funding readiness prep in collaboration with our partner – CrowdCube.
  • Community is the big focus, more events, more collaborations and more partners to bring value to the the community.

The scenic route

A summit on funding for minority led startups in the UK and Europe.

Given the momentum of the moment with the Black Lives Matter movement, we feel it is overdue to lead an exploration of how we can make a material impact to black and minority communities in the UK and Europe.

We know startups and funding and the startup ecosystem and so we are starting there.

So in early July – date to be confirmed – we will get together with black and other minortiy founders, investors who already invest and others who have never investor before but feel that now is the time. We will look at the the hurdles and opportunities and the necessary groundwork to remove bias from the system.

The goal is to leave with a compelling vision to change the story of minority funding and a plan for what we will do next.

If you feel you can add value to the conversation – please get in touch with Mike for an invite.

700 new investors onboarded and more coming – upto 150 a day!

I think the record for not doing something when being nagged relentlessly by one’s co-founder stands at 1 year and 3 months.

I beat that. Doug has been on to me nigh on 2 years to get more investors loaded and I’m delighted to say that we now have exactly that mechanism to load and verify their details to make sure we have relevant investors available to startups on the platform.

Steady as a rock and then boom!

With this new capability we will be adding verified investors at around 150 a day and I’ll be looking to make this even better. There are 100k more to go!

Cool features coming …

Photo by Oleksii Khodakivskiy on Unsplash

There are loads of things happening all the time on the Decksender product – we are a small team and keeping things break neck without breaking our necks is a fine art.

We decided to manage things a bit with the speed of development and try and get out output to 1 feature a week, starting on Friday.

Next Friday (26th June) we are releasing Autosend and beyond that we have a whole thing around preparing startups to crowdfund via CrowdCube – our equity crowdfunding partner.

Autosend is basically a fire and forget feature that lets startups flag one of their uploaded decks as their ‘autosend’ deck. So when we add new investors, or existing investor criterias change – we automatically re-run the matching algorithm. We’ll then send the ‘autosend’ deck to the new high match investors. This gives founders and even easier experience without compromising the effectiveness. We’re good like that 🙂

Next, we’ll work on the crowdfunding track feature – this is much more involved than simply code – so will likely take a couple of weeks rather than one. It is about automatically identifying startups that suit a crowdfunding model and putting them on a path to get enough audience, cornerstone investors etc to then launch a successful campaign on CrowdCube.

Job done – only differently.

If we get time in between all this – we’ll add hyper localisation for investors. Some have given us feedback that they have very specific locations that they invest in e.g. New York city or North West England. We didn’t get that granular and it often results in too many decks that aren’t exactly matching that location criteria. We’ve figured a simple fix and will be applying it in the next few weeks too.

Community is the focus

Photo by Elena Taranenko on Unsplash

We’ve built loads of cool tech. Funnels, services, APIs. We’ve used AI and all the trendy things.

But it always comes back to community.

So that is where we are now focusing most of our time – finding things of value for our community of startups and investors to help them achieve their goals. Our community site is https://community.decksender.com and is open to all users of Decksender. It has loads of community content on how real people are solving real problems, expert topics and conversation and deals that we are negotiating with loads of companies we use and respect like Hubspot, Stripe and others.

We’re connecting them to each other and to partners that share our mission. Creating events – we call them ‘mingles’ – that bring learning, fun and collaboration together.

Done. Have a lovely until-next-time.

The easy way to get this news is to sign-up for Decksender

The First Decksender Community Drinks and Mingle

This was the very first community event for Decksender – I was excited!!

It had taken me over a year to get out of the garage and into the field and meet Decksender users – startup founders and investors and everyone in between.

The first one? Really??

We’ve had gatherings before – but they were more like office hours and drop-ins than dedicated meetups. There was a different vibe to this one. My intention was that it would be an open space for ideas and engagement and I wasn’t disappointed.

The idea was to just have some finger food, a few drinks and let people chat, discover something interesting about each other and see what emerges.

Within 2 hours of sending out the Eventbrite invitation, the 18 places I had planned to fill were booked and had to release 12 more standby tickets. All free, of course. These too disappeared within a really short time. There was an interesting mix of founders, investors and 3rd party service providers in the sign up.

Very exciting.

The Backroom at The Craft Beer Co.

It was wet and cold on the evening of February 19th when we had our mingle and the The Craft Beer Co pub in Islington was a welcome haven from the elements.

With its 24 keg lines and gourmet burgers and range of BBQ and/or Buffalo chicken wings – it was well placed to meet our needs.

And a low minimum spend of £100 was perfect!

“Community, whoever comes are the right people”

As the evening progressed, it became clear that the large number of initial sign ups were not all going to show up. In the end there were 10 of us at the peak and after an initial round of introductions, we got to chatting about what we each wanted from the event. I asked everyone to take a few minutes to write down their responses to 3 questions….

  1. What are the top 3 problems you are trying to solve
  2. What do need (apart from money)
  3. What do are you willing to share (including money)

Even in such a small group of people – I was astounded at the diversity of backgrounds and startups (yes – all the people who finally showed up were founders).

We had someone disrupting fashionTech, a professional inventor (with patents and stuff!), someone trying to help companies offer spare team capacity to a wider market, 3 edTech startups – similar but distinctly different.

Never mind their personal stories and incredible journeys!

“Whatever happened is the only thing that could”

I spent far too long sharing what was in the pipeline for Decksender (they were all users after all) and got some brilliant feedback on the onboarding process (thanks Charlotte!)

We chatted about…

  • Why it was hard to raise money for education tech
  • Ways to get people to come to meetups 🙂
  • More peer reviews of decks, plans would be a good thing
  • Getting more similar startups to work together
  • How we might increase empathy in the ecosystem – startups for investors and investors for startups.

What happened next…

We agreed to collaborate more and will start with sharing emails and possibly all get on a Slack channel.

Everyone who came said they found value in the event and would come again, so the next one in March already has committed attendees and will have a slightly different structure – featuring a speaker and then some networking.

At the next event, we’ll hear about a ‘A Year and Day in the Life of a VC‘ to us all understand life from the other side and build some empathy.

What did happen to that minimum spend, I hear you ask – well, a few of us stayed behind to polish it off on marmalade vodka and chicken wings!

Until next time.

The Roles And Responsibilities of Your Startup Board of Directors

If you run your own small business, there’s a good chance that you don’t want it to stay small forever. Yet, in its early days, a business has a very simple management and organisational structure. It’s only as it grows in terms of scope, cash flow and propensity for capital investment that the running of a business becomes more of a conversation and less one founder’s vision. If you are currently your business’ CEO you probably have complete autonomy over all strategic decisions your business makes from how your company is branded to which suppliers you use. But as your business grows, and more investors develop an interest in its operations, you can expect them to want to make their voices heard. At the very least they might expect more structure in your company’s governance or demand a clear and coherent vision from you.

This is where it may be both helpful and pertinent to appoint a board of directors. But if this is your first business and / or your operation has remained small for a while, you may never have considered appointing a board of directors.

You may not know how a board functions, whom to appoint or what the roles of its constituent members are. Don’t worry, we’re here to explain it all in no-nonsense terms.

Let’s start at the beginning… What is a board of directors?

A board of directors is a group of people who share the responsibility of protecting the best interests of a company and their shareholders. As much as entrepreneurs may value their autonomy, being able to rely on a strong board with experienced and knowledgeable advisors is highly advantageous founders as they can provide advice and assistance on a range of issues for the betterment of the company.

Each board member has a discrete role which brings its own set of responsibilities. Let’s take a look at the responsibilities of each role on the board;

Executive Directors

Executive Directors are appointed by the shareholders to represent their interests in the company and help manage day-to-day affairs. In most cases, business founders are executive directors. While they have a great deal of influence in the decision making processes of day to day operations and strategic decisions, they are not free to act alone.

Under the Companies Act 2006 they also have a personal responsibility to ensure that all the company’s practices are above board. Some of their legal responsibilities include:

  • Act with due care and diligence and within their powers
  • Promoting the success of the company and the security of employees
  • Exercise independent judgment
  • Avoid conflicts of interest
  • Declare any personal interests in business arrangements or transactions
  • Not accept benefits (monetary or otherwise) from third parties

Non Executive Directors (NEDs)

A NED is an impartial advisor who is formally appointed at Companies House. As such they are not involved in the company and have no personal interest in its success or failure.

This can make them invaluable as they can offer an outsider’s perspective while also offering complete impartiality. NEDs can offer valuable insights as they are usually highly experienced professionals with decades of industry experience not to mention a wealth of potentially valuable contacts and connections.

As well respected business leaders, they can also lend credibility to your company and prestige to your brand, making you a more appealing prospect to a broad range of investors. Like Executive Directors, NEDs also have their own similar set of duties and legal obligations.

Investor Directors

Rarely can a business grow sustainably on the strength of its own profits alone. It usually requires investors to bring seed capital to the business to propel its growth. And it stands to reason that many such investors will want to play an active role in how their investment is handled by the company. As such, an investor may request to sit on the board as an Investor Director.

Investor Directors are also formally appointed at Companies House and are also subject to the same duties as EDs and NEDs under the Companies Act 2006. The prospect of an Investor Director may not sit easy with many founders. They may have a vested interest in the company’s success and their goals are generally aligned, but an Investor Director doesn’t always have the requisite experience and knowledge to add value to the board. What’s more, they can be known to push their way onto the board. While founders can (and should) push back against decisions not in the company’s interests, a NED can provide a useful counterbalance to an unruly Investor Director with their sober insights and impartial analyses.

Investor Directors are usually paid an hourly fee, especially if they do not draw a salary from the company. This is usually paid to cover their contributions to meetings without paying an Investor Director more than they’re worth in terms of the value they bring to meetings and strategy.

Chairman

The Chairman is appointed by the board itself, and it is their primary responsibility to ensure that the board’s strategy is implemented both properly and effectively. A Chairman may work full-time or part-time, and has the same duties and responsibilities as directors under the under the Companies Act 2006.

Other duties incumbent upon the Chairman include:

  • Managing the board’s structure
  • Managing board and general meetings- deciding on agendas, steering the conversation, establishing a consensus and condensing meetings into actions that need to be taken.
  • Managing communications with shareholders and stakeholders
  • Representing and promoting the company to the outside world
  • Board Advisor

A Board Advisor attends board meetings and has the opportunity to share their insights and make their voice heard, However, they are not a director and as such are not beholden to a director’s duties. They function in a similar way to a consultant, although unlike a consultant they are not expected to achieve or drive specific outcomes. They just lend advice and expertise when needed and are usually paid an hourly fee.
Board Observer

Finally, a Board Observer is similar to an Investor Director but doesn’t have the same duties, responsibilities or powers. They are usually stakeholders who want to play an active role in the company’s management and governance but are unwilling or unable to serve as Directors. They can attend meetings and make their voices heard but they do not have any voting power on the board.

If you have an investor that wants to get more involved but you don’t feel comfortable making them an Investor Director, this can be an amiable compromise.

How Much Equity Should I Offer To An Advisor

Featured image: Photo by Hugo Aitken on Unsplash

If you’re in the process of building your startup, you could be considering the level of equity to provide advisors.
Typically, startups in the first stages will provide advisors with 1% equity. However, the level is dependant on the expertise of the advisor as well as the role they will take in the company. Startups at a later stage may also provide more to their advisors.

Different Types Of Advisors

Board advisors may be experts in the industry or potential ex-founders. Their support will help form a strategy for the business. They will usually be provided with a seat on the board of directors and aid with crucial decisions.

There are also general advisors. The key difference between general and board advisors is that the former will not sit on the board. Despite this, they could still have a similar level of experience, despite being provided with less say on the direction a company will take. An example of this type of advisor would be a former chief marketing officer who used to operate within a different industry.

Finally, technology advisors will provide advanced knowledge of the tech sector and ensure that the company does use the best practices. This could include coding or even system architecture. Typically, these advisors will work to ensure the longevity of a company. They will put a plan in place that the board can follow or refer to. This provides the CTO with more time to focus on the delivery of the product.
It is worth noting that these different types of advisors will gain different levels of equity due to the influence that they provide.

Should You Compensate With Cash Or Equity

There’s no right answer here and either could be a suitable option. This will come down to personal preferences. However, there are differences in the way that compensation is provided to particular types of advisors.

Tech advisors are most commonly provided with a mixture of both equity and cash as compensation. Board advisors may not receive any compensation and one poll suggested this occurs 36% of the time. The same study suggested that general advisors were the most likely to be compensated with equity rather than cash.
It’s interesting to note that equity is also based on a variety of other factors as well. This includes:

  • Company valuation
  • Days worked through the year
  • Advisor type

The Impact Of Time Commitment

You would expect the level of time commitment to impact the compensation provided. However, what’s interesting here is the level of time commitment that causes a change to compensation. Specifically, if an advisor is working more than 2 days out of the month, they will be providing real value to the startup. In contrast, any time which is less than this, suggests that the individual is taking a figurehead position. This could be to solidify the position of the business in the eyes of investors while failing to provide any actual value.
In contrast, more than 2 days per month suggests a true commitment to providing real value to the business and this is often rewarded with higher levels of compensation.

The Effect Of Company Valuation

A high evaluation will typically lead to a greater percentage of equity being provided to an advisor. This is perhaps to be expected. However, it’s worth noting that the most popular option is still to provide 1% regardless of the company valuation.,

The Impact Of Role

As mentioned, the role does impact the level of equity advisors gain with general advisors typically receiving the lowest percentage. It’s possible that this is connected to time commitments as tech advisors will need to ensure that they work more days to provide the right level of service necessary. The average is close to 50 days per year. As well as this, board advisors will have a more cemented position within the business and may even be held by legal obligations. General advisors may also be prime candidates for a figurehead position which means they offer little to no value for the startup.‍

Final Thoughts

It’s clear then that while there is a standard of 1%, there are a variety of different factors that impact the level of equity provided to advisors for a startup. Generally, the main consideration should be how much value the advisor is offering to the company and whether they are being fairly compensated for this contribution. It’s important to do this to ensure that advisors do remain at a startup for the long term.

9 Books That Every Startup Founder Should Read

The best entrepreneurs are those that never assume that they know it all. They never stop learning, never stop growing and always seek to expand their field of knowledge and expertise to make them more rounded in their skills. In their (admittedly sparse) downtime, they’re always on standby, seeking out new information and insights which can benefit them and the companies that are their livelihood. As such, they always tend to have a podcast or audiobook playing in the car. They always have a range of insightful documentaries on their streaming watchlists or in their DVD cabinets. And, needless to say, there’s always a big stack of books piled on their bedside tables.

Whether you read them as an electronic or physical copy or whether you prefer to listen to them in audio format, books are a phenomenal resource when launching or growing a business. By learning from the experiences, insights (and indeed mistakes) of those who have come before you, you can ensure that your startup gets the best chance of navigating those turbulent early years and charts a strong path towards sustainable growth.

Here are some of our favourites…

The $100 StartUp

The $100 StartUp by Chris Guillebeau should be considered essential reading for bedroom entrepreneurs who are desperate to make their mark on the business world but aren’t sure how to do so with the modest capital available to them.

It’s an entertaining and easy-to-read tome chock full of inspirational stories of successful entrepreneurs who have made a success of turning their passion into profit without miring themselves in enormous debts. If you’re currently stuck in a job you hate and dream of launching your own small business, this book should be your bible. It will help shake you out of complacency, get you used to thinking in new ways and push you to go beyond (what you think are) your limits.

The Lean Startup

A great read for those whose businesses are already up and running, but who can’t shake the nagging feeling that their products and processes could be more efficient.

The lean startup establishes the premise that that startups can approach the development of their products in a much more efficient and exciting way by treating their startup as an experiment and embracing trial, error and risk taking.

Highly recommended by a range of entrepreneurs including WiseStamp’s co-founder Josh Avnery, it’s a great read no matter where you are in your business journey.

Zero to One

Written by Peter Thiel and Blake Masters, Zero to One is derived from a course about startups that Thiel used to teach at Stanford Business School in 2012. While teaching this course, he met a student Blake Masters who made meticulous notes on every lecture. So impressed was Thiel by these notes that he joined forces with Masters to revise his notes into a book for a wider audience with an interest in starting up their own companies.

Zero to One is all about helping you to think in different ways, challenge yourself and as the difficult questions that will push your startup towards growth and success while helping you stand head and shoulders above competitors.

Recommended by the likes of Elon Musk and Mark Zuckerberg, it’s a great read that could change your life.

Hooked

A business is only ever as good or as bad as its product. A great product can engage your market and make your brand indispensable. Hooked by Nir Eyal is all about the core tenets of building a product that will engage and enchant users. Want to have people queueing up to get their hands on your product?

This book teaches you all about the logical and emotional decisions that drive consumer behaviour and how they can be leveraged to ensure that your startup and its products are a success right out of the gate.

The Checklist Manifesto

No matter how brilliant and innovative your business idea, you can never hope to achieve true success if you don’t strive for operational excellence every day. The words “good enough” are anathema for success in business. That’s what The Checklist Manifesto by Atul Gawande is all about. Told from the point of view of a medical surgeon, it has valuable insights and caveats for all professionals.

Gawande warns of the dangers of ineptitude- something that even education and experience don’t necessarily insulate us from. The book explains how even in today’s technologically advanced and complex world implementing rigorous checklists can greatly improve results.

Well written and very entertaining, Twitter CEO Jack Dorsey considers The Checklist Manifesto essential reading and includes it in a welcome kit given to all new employees.

The Myth Revisited

It’s one thing getting your startup off the ground. It’s another thing ensuring that it grows predictably and sustainably. The E-Myth Revisited by Michael E. Gerber is all about helping startups to grow and develop in their potentially turbulent early years.

It dispels the commonly assumed myths that can cause entrepreneurs to make mistakes and provides useful insights to help you to help your brand through the various stages from infancy to maturity (while also growing and developing yourself).

The Hard Thing About Hard Things

This is essential reading for the procrastinators and those searching for elusive easy fixes. The Hard Thing About Hard Things by Ben Horowitz imparts the simple but unavoidable truth that there are no shortcuts to knowledge. The book details Horowitz’ journey to success as an inventor and businessman, and the struggles he encountered along the way.

This book isn’t about imparting a secret formula for success or doing things quicker and easier. It’s about getting past your own perceptions and the limitations they can place on you. If you’ve read any of Ben Horowitz’ blogs you know that he has a delightfully accessible and engaging writing style and this book is not only a great source of insight, it’s a genuine page turner.

Creativity Inc

A fantastic read both for lovers of animation (who isn’t) and those who want to make money doing the things they find creatively regarding. Creativity Inc. by Ed Catmull with Amy Wallace provides an interesting and insightful look into the world of animation giant Pixar.

Pixar is not a studio that’s known for resting on its laurels and this book provides useful insights that can help any business keep breaking the mould and redefining itself.

The Four Steps to the Epiphany

Finally, The Four Steps to the Epiphany by Steve Blank is a challenging tome that questions the importance of products in the startup process. In fact, Blank even asserts that products are an illusion of startup success and that true success is only found when your brand is completely aligned with the needs and desires of the customer.

For those looking to give their sales and marketing a shot in the arm, this is essential reading!

How To Structure Your Funding Pitch

How to structure your pitch

The leading lights of the business world have got where they are by understanding the needs of their customers. When preparing for a funding pitch, aspiring entrepreneurs need to follow suit, taking care to comprehend exactly what investors want and need to know. Pitches are often thought of as grilling exercises, but a thorough approach is required due to the risk that startups and budding entrepreneurs represent. Angel investors and venture capital firms are searching for potential and the opportunity for growth, but this often comes with risks attached.

As a startup founder, you need to be prepared for your pitch and make the most of the opportunity to impress, but how do you go about doing this? What should you include in your introduction, why do you need money, and what problems are you solving? If you’re gearing up to try and secure funding, here’s a useful guide to help you structure your pitch and maximise your chances of success.

How to structure your funding pitch

Your pitch is a once in a lifetime opportunity to showcase your startup and encourage a panel of investors or a VC firm to back you. Typically, a 20-minute funding pitch should follow this structure:

1) Your introductory slide:

This slide should provide an overview of the presentation with numbered sections and a clear outline of the structure.

2) Identify the problem you’re tackling:

This is your opportunity to highlight the problem or issue you’re solving, show that there’s a gap in the market for the solution, and demonstrate that you have an in-depth understanding of the marketplace in which you plan to trade. Explain how your startup provides a solution, and identify potential for growth and adjustment to cater for changes in the market in the future.

3) Explain your solution:

You’ve highlighted the problem, now explain exactly how you’re going to solve it. Talk about the product or service in detail, making sure that everything you say is relevant to the fundamental problem. Show that your company is different and outline your USPs. Use case studies and facts and figures to back up your points and provide specific details about your target market.

4) Talk about alternative solutions:

At this point, you can cover alternative options and solutions customers could use to approach the same problem. Consider your competitors, review the landscape, and explore other avenues. If you consider a chocolate bar, for example, this is not a novel product, and competition doesn’t just come in the form of other bars or bags of sweets. It also comes in the shape of alternative snacks, for example.

5) Introduce your team:

Every successful business is reliant on an effective team. Take a moment to talk about your team, your vision, and how you plan to work as a unit to achieve objectives. Be prepared to answer questions about recruitment and your role within the business. Would you be prepared to appoint a new CEO to optimise growth, for example?

6) Explain your business model:

Provide a detailed, but succinct description of how your business model has worked up until now, how it will evolve in the future and how you plan to alter the structure if this is applicable. Cover all bases, highlight the most pressing or complex difficulties you face, and show investors how you plan to solve or overcome them.

7) Discuss forecasts and provide numbers:

Discuss forecasts, provide honest projections, and back up what you’re saying with facts and figures. Be realistic, and provide an insight into how much money is needed to take the business to the next level and when investors could expect to see returns.

8) Your valuation and how much money you need:

At this point, you should cover the valuation of your business and how much money you need from the investor to make the venture work. Explain how you calculated the figures and how much cash is needed to take the business to specific points or milestones. It’s also wise to discuss what happens if there is a problem, for example, a product is delayed. Investors will almost certainly have more knowledge about this area than you will, so it’s crucial to seek advice and make sure you’re ready for tough and awkward questions.

Lay out the major milestones and discuss how you’re going to ensure you reach them. This should include plans like hiring extra staff, and also any evidence you have from past achievements, which could further your cause.

9) Outline the exit strategy:

Investors want to make money, and they won’t sign up to anything without having a plan in place to exit. Explain your strategy, showcase the idea in all its glory, and make a final push to persuade the panel that this is the best opportunity out there.

When you’re pitching to investors, it’s vital to remember that people talk. If you make a good impression, this could open doors for you. Take this structure as a guideline, use imagery and clear bullet points to make the information you provide digestible, and highlight your best points first. Be passionate and enthusiastic and really sell your idea.

How NOT to conduct a funding pitch

Just as there are good practice guidelines, there’s also a template to follow to ensure you don’t fall at the first hurdle. Here are some errors to avoid:

  • Not answering key questions: investors will go into a pitch wanting the answers to a handful of crucial questions. At the very least, your pitch should tell them how much you plan to sell your product for, how much it will cost to get the product to market, how long it will take to generate profits, and what kind of competition you face.
  • Not providing accurate or realistic figures: an investor will spot inflated forecasts or fantasy profit margins from a mile off, so don’t try and exaggerate or embellish anything. Use accurate figures and make sure you have a firm grasp of the numbers before you go into a pitch.
  • Not providing context or detail: many startup owners will breeze into a pitch with what they deem to be a great idea, but when it comes down to it, there’s a severe lack of detail and depth. Having a good idea is not enough for an investor. You need to provide a back story, context about the problem and how the solution will work, information about the target market and the competition, and a grasp of the numbers involved.

The perfect formula for a successful pitch

It’s always beneficial to bear in mind that investors hear pitches day in, day out. While this marks a momentous occasion in your life, it’s likely to be just another pitch in the minds of an investor. Your quest is to change their mind, to excite and intrigue them, and ultimately, to encourage them to have trust and faith in you and your business model. Here are some steps you can take to perfect your pitches:

  • Don’t be boastful or arrogant: investors don’t want to hear people ranting and raving about concepts or ideas that are untested and poorly researched. There’s nothing wrong with being confident and passionate, but don’t cross the line and be arrogant. Remember that you’re at the beginning of the journey, rather than in a position where you’ve made millions from an ingenious invention. Don’t sugarcoat the facts or create hype around figures that are based on metrics that don’t exist. It’s much better to be honest than to present graphs or charts that showcase completely unrealistic growth curves, for example.
  • Don’t engage in heated debate or arguments: it can be difficult to listen to an investor criticising you or your idea, but resist the urge to get involved in heated conversations. Keep your cool, think before you speak and try not to get defensive. If flaws are identified, accept that your pitch has holes, and focus on working on them and offering solutions. Try not to get too involved in the idea or take comments personally. It can be beneficial to treat the pitch as though it were somebody else’s baby, rather than your own.
  • Make sure you ask for an appropriate amount of money: all too often, entrepreneurs go into a pitch asking for money that they don’t necessarily need, and this causes investors to question what they’re going to use the cash for. Calculate how much you need and provide a clear outline of where the money is going. You should never go into a pitch asking for £250,000 if you can only explain how you’re going to spend £25,000, for example. Think about how much money you need to achieve your primary objectives, and balance this figure with the portion of equity you’re willing to give away. It might be better for you to ask for less and retain more of your stake.
  • Provide facts, rather than promises: when you’re pitching, you want investors to trust what you’re saying, so avoid making promises, especially if there’s a high risk you won’t be able to deliver on them. Use facts and figures to back up what you’re saying and try and avoid statements like ‘we will do this.’
  • Be true to yourself: it’s very common for people to take on a persona or a role when they’re standing in front of a panel looking for an investment. Try and avoid any kind of metamorphosis, which sees you transform into a caricature. Be true to yourself, tell your story, be honest, and let the people in front of you get to know you. If you suddenly switch off the bravado and become a different person when the pitch is finished, a panel might question how genuine and trustworthy you are. Investors are looking for ground-breaking, interesting ideas, but they’re also keen to invest in people.

Pitching is not a simple task, but it offers a platform to show off your ideas, and try and get a business venture off the ground. To make the most of this opportunity, make sure your presentation has a clear structure, outline your main points at the beginning, and focus on facts and figures. Make your pitch captivating and engaging, provide detailed information, and be honest. Be prepared for questions, take time to listen as well as to speak, and stay true to yourself.

How Venture Capital Works

If you’re thinking of launching a startup, you’re probably looking into potential funding streams, and you may have come across venture capital. Often referred to as VC, venture capital is a funding option, which involves investment from a venture capital firm. These companies, which are driven by individuals looking to capitalise on innovative ideas and entrepreneurial flair, often have an interest in startups, supporting them through the early stages to the point where goods or services become available to the public. If you’re new to venture capital, or you’re unsure whether it’s a viable option for your business, here’s an informative guide to how venture capital works.

How VC Firms Are Structured

Venture capital firms tend to have a structure in place, with individuals taking on clearly defined roles. Analysts are the most junior members of staff, and they are often graduates or college interns. The primary job for an analyst is to sniff out potential opportunities by attending events like conferences. An analyst won’t decide whether or not to invest in a fledgling business, but they can set the wheels in motion. Associates occupy the next rung up. Associates usually have excellent communication skills, and they’re often involved in forming relationships and paving the way for budding entrepreneurs to meet more senior members of the VC firm.

Principals are more senior members of staff. Although they don’t have an integral role to play in determining an overall strategy for investments, they are able to make decisions, and they can have a great deal of influence when it comes to choosing where to invest money. At the top of the tree, you’ll find partners. Partners can specialise in investment or operational decisions, or undertake both roles. While partners are not usually heavily involved in the day to day running of the firm, they have the final say.

Some VC firms also appoint an entrepreneur in residence or an EIR. These individuals tend to take up short-term employment opportunities, analysing deals and attempting to spot successful startup opportunities.

What happens when you get funded by a venture capital firm?

Securing venture capital funding requires you to go through a process, which works as follows:

  • Identify suitable targets: the first step is to identify relevant targets that are investing in areas that are relevant to your startup. There are several tools you can use, for example, Crunchbase and CB Insights. Create a list of potential targets.
  • Identify contacts: once you have a list of firms in front of you, make use of your contacts, and see if you have links with anyone who could get you an introduction.
  • Organise a call: the first point of contact will usually be a call, which will provide an opportunity to speak about the project in more detail, and hopefully, leave the VC wanting to know more. If the call goes well, the next step is a pitch deck, or presentation.
  • Send your presentation: if you’ve been asked to send over a presentation, check it several times before you hit the send button, and make sure it showcases your business in the best light. If the pitch deck impresses, you may be invited to meet a partner face-to-face.
  • Face-to-face meetings: a face-to-face meeting offers a chance for the partner to get to know you better, find out what makes you tick, and discover more about your business. Be prepared to be asked several questions and to be challenged on your ideas.
  • Partners meeting: the final stage is usually a meeting with all the partners. At this point, any final concerns will be raised and discussed, and you may be offered a term sheet. This is not a legally binding agreement, but it’s a very positive sign.
  • Due diligence: if you have a term sheet, the process of due diligence will commence shortly after. This usually takes between 1 and 3 months and should culminate in the release of funds, provided there are no unexpected issues.

Usually, it takes around 6 months to go from an initial introduction to securing VC funding.

How do venture capital firms make money?

Venture capital firms are known for giving out money, but how do they boost their profits and generate an income? VCs make money through various channels. Firms charge management fees, which generate capital, and they also benefit from interest. Typically, management fees are set at around 2%, while carried interest rates are usually 20%-25%. Carried interest is a charge on profits.

To receive a carried interest payment, the VC monitors the portfolios of funds that are due to exit. This represents firms that are being acquired or those going through IPO with investors preparing to sell. It usually takes 5-7 years for a business to exit, but timeframes can vary hugely. Most VCs aim to sell within 10 years.

Startups represent a high-risk investment for venture capital firms, as failure rates are alarmingly high. With around 90% folding, VCs tread cautiously with new businesses. Often, VCs will aim to back companies that have the potential to achieve a 10X return to cover losses of other ventures within the portfolio. If you’re launching a startup, and your numbers fall short of this kind of figure, it may be advisable to explore other funding avenues.

Relationships between VCs and companies

If you’re thinking about trying to get an introduction and secure VC funding, it’s natural to wonder how much involvement a venture capital firm will have in your business going forward. Some VCs may have a different approach, but most will want to be actively involved in the company. In most cases, a VC will buy equity worth in the region of 15%-45%. If there is a high stake, which tends to be commonplace when investing in new businesses, the VC will want to be involved in board decisions. There are two levels of board involvement: one relates to taking part in decision-making, and the other is an observatory role. An observer will be free to attend meetings, but they won’t have the power to vote. Despite this, they are still likely to have a great deal of influence around the table.

What are the benefits of working with a VC?

Many aspiring entrepreneurs will hurtle towards a VC dreaming of drafting in a team of individuals, which is capable of catapulting them to the big time. In truth, this is not always what happens, and it is wise to proceed with caution when exploring this option as a funding stream for your startup. While venture capital firms can bring a lot to the table in terms of helping you develop and deliver a strategy, you’ll need to conduct due diligence to ascertain just how helpful they will be in terms of capital and growth.

One of the most significant benefits of VC funding is introductions. It can be tough for new faces in the world of business to get that foot in the door, and the people you meet as you go through the process of trying to secure funding will undoubtedly have an expansive network of contacts. Using these contacts, you could benefit from meeting more people and from introductions that carry more gravitas and weight.

Another potential benefit is the infrastructure that you could possibly gain access to if you receive VC funding. Many firms have established, dedicated departments and teams, which are designed to optimise growth, for example, marketing and recruitment.

Is VC right for you?

To decide if VC funding is right for you, it’s wise to ask a lot of questions and to gather as much information as possible before you make a decision. Look at the track record of the VC, browse the portfolio with an eager eye, and see how many companies reach the next step. If a VC has a record for investing for less than 6 or 12 months, this indicates that they are having difficulty closing the next phase, for example. It’s also useful to raise queries about how the VC works with portfolio firms and to see if you can get an introduction to company owners whose ventures have failed. This will give you an insight from the other side, and provide a more rounded viewpoint. It’s also beneficial to ask questions related to your team and how recruitment will work in the future. If a VC expresses an interest in replacing the existing team, this may make you think twice.

The uptake rate for VCs is very low. Typically, out over every 1,000 companies, a VC will invest in 3 or 4.

What is the difference between VC and private equity?

Venture capitals are different to private equity firms. VCs tend to work with businesses throughout their life cycle, and they usually like to be involved in operations. VCs also take on riskier projects that private equity investors. Private equity firms prefer to take on more established firms and focus on growth.

Venture capital firms invest in new businesses and startups with a view to generating an income through management and carried interest fees. While there are benefits of VC funding for startups, opportunities are sparse, and this is not always the best option for every aspiring entrepreneur.

What is EIS?

Small enterprises often struggle to break into large-scale investment due to their high-risk nature. This can make starting out tough, and it’s something the UK government has attempted to overcome with their 1993 Enterprise Investment Scheme (EIS).

Run through the Small Companies Enterprise Centre (SCEC); this investment-based initiative encourages wealthy business people to consider even small enterprises for investment. It can make a significant difference to start-up and growth funding that could then take small companies further.

The over 27,000 companies who have raised £18bn since the scheme came into play are a testament to its success. But, before you can consider using the EIS to increase your capital, you need to understand what it is.

How does EIS work?

First, let us consider how the scheme works. Obviously, you already understand investment basics, but how does EIS encourage wealthy individuals to take a chance on small enterprises?

Incentives primarily take the form of tax relief, proportionate amounts of which are offered depending on the shares investors purchase through the scheme. Loss relief perks are also in place to ensure investors never lose money if selling shares at a loss.

Admittedly, these perks can be withdrawn at any time if your enterprise doesn’t stay in keeping with the rules for at least three years. If you do your homework, though, an agreement like this should be mutually beneficial for everyone.

Rules around use

Given that 24% of enterprises in this scheme received more than £4m between 2016-2017, you could potentially earn a great deal. Before you get too excited, though, consider that there are rules about how you can and can’t spend those funds.

In loose terms, the government states that proper EIS spending must relate to “qualifying business activity.” Typically, this involves your trade itself, preparations for said trade, and even research into your industry if it aids your business.

Still, these aren’t the only stipulations on your spending. You must also make sure that money raised through your EIS is:

  • Spent within 2 years
  • Used for business growth
  • Not used to buy any part of your business
  • Not posing a risk of lost capital to investors

Failure to operate in keeping with these rules for the first three years could leave those tax relief benefits in jeopardy, and that could see investors withdrawing funding. As such, getting your head around these pointers is vital.

Eligibility

If you’re tempted so far, you probably want to know about eligibility. In reality, the majority of small trades are eligible for EIS, but it’s worth double-checking before you apply. HMRC will ultimately let you know if you’re declined anyway, but you can save yourself time and effort by checking your chances ahead of time.

Firstly consider that a limited number of trades aren’t eligible for EIS, and they are –

  • Shipbuilding
  • Coal and steel
  • Farming
  • Property development
  • Accountancy

It’s also worth noting that professional, scientific and technical, manufacturing, and wholesale and retail trades make up for around 68% of all EIS investment.

Other eligibility criteria include –

  1. Permanent establishment in the UK
  2. No trade on a recognised stock exchange
  3. No control over another company other than qualifying subsidiaries
  4. No more than 50% of shares owned by another company
  5. No expectations of closure
  6. Fewer than 7 years since your first commercial sale

Application

Applications for EIS must be made through the SCEC themselves. You will need to fill an EIS(AA) form from the gov.uk website, which you’ll send to HMRC for a final decision on eligibility before you continue. If they approve the first stage of your application, you will need to complete an EIS1 form before a final decision as to whether you qualify.

Note that you will need to include varying information for HMRC records, including –

  1. How much money you want to raise
  2. Business plan & financial forecasts
  3. Latest Company Accounts
  4. Which companies will use the investment
  5. Amounts you’ve already received in investment with dates and schemes
  6. Details of trading activities on which you intend to spend investment
  7. A copy of the register of members from application
  8. A signed letter from one of your directors or trustees if you’re allowing an agent to act on your behalf
  9. An up to date copy of the memorandum and articles of association, and details of any changes you expect to make

It’s also possible to apply for EIS through The Start-Up Series. This competition, run on the 1st and 14th of every month, selects one business to win £150,000-£250,000 from a dedicated EIS fund. It could prove an easier way to achieve investment if you’re willing to take the chance.

However you apply for EIS, it can get your start-up off the ground at last. If you’ve been crying out for large-scale investors, then, this could well be the solution you’ve been waiting for.

The Simple SEIS Guide for Startup Founders Looking For Investment

SEIS For Founders Header Image

Startup owners are often on a quest to secure funding to get their venture off the ground. When approaching investors or drawing up pitches, it’s crucial to try and get into the mind of an investor and figure out exactly what is going to make them proceed with a deal, rather than turn down an opportunity. The primary aim for an investor is to see a return on the initial cash injection, and there are various assurances that make investing in certain ventures more appealing than others. In the UK, the Seed Enterprise Investment Scheme (SEIS) offers generous incentives for investors looking to back early-stage ventures. The scheme offers benefits for startups and investors, but what exactly is it, and how does it work? If you’re a new business owner looking for investment, here’s a useful guide to the SEIS.

What exactly is the SEIS?

The SEIS is an extension of the EIS, the Enterprise Investment Scheme, which was introduced in 1994. A modernised, more expansive version, the SEIS was launched in 2012. The primary aim of the scheme is to make it easier for startups to secure funding by providing tax reliefs for investors who buy equity in a fledgling business. In 2014/2015 alone, 2,185 startups raised capital worth £168 million through the SEIS.

The SEIS provides significant benefits for investors, who are able to make multiple SEIS investments within the same tax year. These benefits include:

  • 50% relief on income tax: a £50,000 investment would therefore qualify for tax relief worth £25,000.
  • 50% reinvestment relief on capital gains tax: an investor can claim 50% capital gains tax relief on other investments sold at a profit.
  • Capital gains tax relief on the investment: if the investment thrives, and the investor sells their equity for a profit, they will be able to keep all the profits, with no capital gains tax payable.
  • Loss relief: if an investor sustains losses as a result of the investment failing, they can claim the losses against their current tax bill.
  • Inheritance tax relief: if an investment is passed down in the event of the investor’s death, this will be eligible for 0% inheritance tax. The investment must have been held at the time of death and for a minimum of 2 years beforehand.

Qualifying for the SEIS

The benefits of the SEIS are clear for investors, and this makes startups that qualify for the SEIS an appealing prospect. In order to be eligible for the scheme, startups must comply with the following criteria:

  • Less than 2 years of trading: this timeframe relates to the point when equity is purchased by the investor. It’s also important to note that trading refers to any kind of business-related activity, even selling products on a stall at a village event, for example.
  • Less than £200,000 in assets and fewer than 25 employees: to qualify for the SEIS, a startup must have less than £200,000 in gross assets and fewer than 25 full -time employees (or the equivalent number of part-time staff)
  • Type of trade: most trades are eligible for the SEIS, but there are exceptions. These include financial services and property and land development ventures.

You can check viability and apply for advanced assurance by contacting HM Revenue & Customs and filling in a form. Many investors will want to clarify your SEIS status before deciding whether or not to invest. The application process usually takes up to 4 weeks, but it’s best to give yourself plenty of time, as there may be delays.

The maximum you can raise via the SEIS is £150,000. This sum should be sufficient to get a new business up and running and to demonstrate firm foundations and potential for growth if you do want to approach alternative investors or borrow more money in the future. It is possible, if you do need more cash to develop and expand further down the line, to benefit from the EIS scheme, which provides funds up to the value of £5 million. There are similar tax reliefs in place for investors, but they are not as generous as those afforded by the SEIS.

If you own a startup, and you’re looking for investors, it’s well worth finding out more about the Seed Enterprise Investment Scheme and thinking about how it could benefit you. If you can approach investors with assurances in place, your business will be a more attractive proposition, and you may find it easier to secure the funding you need. You can check eligibility criteria and apply for assurance on HMRC’s website.