Raising Seed Investment in London


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Presented at London Business School on the 13th November- Panel included UKBAA, Seedrs, #1Seed and Connect Ventures

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Raising Seed Investment in London

  1. 1. Raising Seed Investment .Presented by John Spindler CEO of Capital Enterprise @ London Business School 13th November 2013 @capenterprise 1
  2. 2. Want investment….?Only 2% of those • 60% are rejected after a 30 minute reviewwho submit • 25% are rejected after a 3business hour appraisalplans/applications • 10% are rejected after a full day evaluationto Business Angels • 3% are rejected followingget funded. failed negotiations • 2% succeed in raising funds Source- Envestors. @capenterprise 2
  3. 3. Still want investment….? • Lack of skills/ credibility in the management team- No unfair advantages • No Market opportunity-Business Plans/ “reinvented the wheel”applications to business • No proof of concept.angels are rejected • Business Model Not scalablebecause… • Forecasts based on unproven assumptions • Business Model too complex to execute • Inadequate financial returns ( 10X within 3 years?) • Lack of trust • No clear exit route • Too Early…. But with work… ?? @capenterprise 3
  4. 4. ..then ask for adviceOnly 8% of all But… This 8% ofSME’s ever seek small businessesstrategic advice account for 43%and support of all High Growth businessesSource- Dept of BIS 2011 report on growth companies Potentially those who seek strategic advice have a 18 times greater chance of producing a scalable business. @capenterprise 4
  5. 5. Investors want ….? 1. Skilled and credible management teamInvestors want to find.. 2. BIG Market Opportunity- a big problem for a potential large set of customers that you can solve? 3. The Idea/ Prototype to be proven and market validated. 4. No Technical Risk 5. Evidence that the Business Model is both repeatable and scalable. 6. Business Model ready to execute 7. Road Map & Forecasts based on proven assumptions 8. Adequate financial returns ( 10X within 3 years?) 9. People they can trust/ work with 10. A clear exit route- How will they claim there reward?? @capenterprise 5
  6. 6. Introducing Our Investor PanelJenny Tooth- CEO –UKBBASitar Teli- Managing Partner –Connect VenturesJeff Lynn- Founder- SEEDRSRaj Ramanandi- Founder- #1Seed. @capenterprise 6
  7. 7. The Team is great….?“Jockey Not The Horse… Y-Combinator @capenterprise 7
  8. 8. Our “face fits” because…..? http://lockerz.com/d/10264659 @capenterprise 8
  9. 9. A Good team is often based on … Unfair Advantages @capenterprise 9
  10. 10. The risk is…..? Market Demand Risk = BigTechnical Risk = Big Problem Concern @capenterprise 10
  11. 11. Technical Risk- The Test? @capenterprise
  12. 12. It’s a big market opportunity….?The Market Space Immediate Addressable Market @capenterprise 12
  13. 13. “There is an opportunity gap when the scope for growing income at a very fast rate islimited for those who have too little to invest, but expands dramatically for those who can invest a bit more.”- i.e. to win requires scale Banjaree &Duflo- Poor Economics @capenterprise 13
  14. 14. Problem/ Solution Fit = Demand Problem Solution @capenterprise 14
  15. 15. Observe- Design- Testhttp://www.businessmodelgeneration.com/downloads/value_proposition_designer_draft.pdf @capenterprise 15
  16. 16. Go Lean!!“Lean Start-up is aboutreducing market risk byworking out how to fail fast” @capenterprise 16
  17. 17. Proven Business Model ….?“A business model describes how your company creates,delivers and captures value”Or in English:“A business model describes how your company willmake money”Need a “proven” business model determine Market Risk. @capenterprise 17
  18. 18. @capenterprise 18 http://www.businessmodelgeneration.com/
  19. 19. http://www.boardofinnovation.com/business-revenue-model-examples/http://www.slideshare.net/AnnaPietka/e-commerce-new-business-models- 14291829 Examples of the top 10 Business Models in 2011- 2012 @capenterprise 19
  20. 20. Magic Sauce….?Basis of “sustainablecompetitiveadvantage” is……? @capenterprise 20
  21. 21. Growth Driver……? Love = Growth • Viral (Co-efficient of 1)- Customers love you so they get at least one other person to use/ buy i.e. Facebook, Spotify • Customer Acquisition- You pay £££ to market your product and the profit from the customers you gain is greater than the marketing costs??? (N.B. Margins often need to be high) • Stickiness- Customers “love” you so they keeping coming back for more e.g. Apple- MacDonalds. @capenterprise 21
  22. 22. Business- Customer Flow Metrics Motivation/ Want Awareness ( Click-throughs) Search/Measure FindConversion Rates Acquisition No of Enquiries/Visits Activation No of Registrations/ Beta Downloads Distribute/ Deliver Evaluate/ Validate Referral/ Repeat Use Analytics ( Share rates) Revenue Buy ( share rates) Distribute/ Deliver Achieve (Customer Satisfaction) Evaluate/ Validate A Market Validated Business Model is one which is proven to be repeatable and potentially scalable. @capenterprise 22
  23. 23. Proven revenue model is….?How are you going to make money?- Therevenue model.- Traditional- (user = paying customer)- Advertising Model- “The customer is the product”- Split Revenue model- supplier and you split customer fees.- Two Sided model- Customers and suppliers fund ( directly or through advertising)- Multi- facetted model- Many income stream options.- Freemium Model- Free to use up-to a point- Network Model – (Achieve scale & let someone else monetise). @capenterprise 23
  24. 24. Runway Milestones are…? • How much/ little money is needed to achieve the key milestones? • Going to need a Budget, Cashflow/P&L forecast, (Valuation Model & Term Sheet) @capenterprise 24
  25. 25. Proving the Business Model Key Milestones• Human Resources - Hiring key people that will make a huge impact on your organization (not just employees for workload purposes, but like a shit-hot marketing person, for example).• Product – MVP- Beta- First Pivot-Full Launch- On-going Iterations• Market – Market validation. As in, first customers, or first paying customers, etc• Funding – Maybe some money being committed to a round that the investor in question can lead or participate in.Other examples of milestones include*:• Proof that you can work together as a team, usually historical evidence• Proof that you can build something, i.e. working prototype• Proof that it’s useful to someone – first users and clients• Proof that you can talk to investors – every financing round, even small ones• Proof that you can talk to audiences – 100k users or 1M users or 10M users…• Proof that the initial team is able to attract talent –• Proof that ecosystem agrees with your ideas – bringing respected industry advisors partners on board• Proof that there is market – £1M annually/ Proof that the market is big! – £25M annually and beyond• Proof that you can manage your finances – cash-flow positive operation• Proof that you can scale – £10M annually @capenterprise 25
  26. 26. Market Validation PathwayAlpha BETA Full Launch•Closed set of •Open set of customers •Full PR & Marketing customers- usually •Validate the business •Maximising revenue friends models •Building Brand•Agile design •“Smoke Test” •Building Capacity•Falsify the KPI’s •A/ B Test •Pivot @capenterprise 26
  27. 27. My company is worth….? Valuation is dependent on how much you need to raise and how much doyou need to offer the investor to make it an attractive investment @capenterprise 27
  28. 28. My valuation is based on….• Cost of Runway- what you need to spend until… • Reach Profitability/ Cashflow positive • Proven concept/ market and are ready to raise again.• Opportunity cost- The cost to you or competitor to replicate achievements to date.• Value of present metrics achieved or IP.• Comparisons to similar early stage businesses who have successfully raised in the UK market.• Availability of finance/ tax incentives. Potential Future Return for your investors
  29. 29. SEIS is…… “a game changer”?Seed Enterprise Investment Scheme-SEIS is a tax break launched in April 2012 for UKtax payers to encourage them to buy shares in start-up companies registered in theUKThe Facts:• SEIS investors can input £100,000 in a single tax year rising to a maximum £150,000 over two or more tax years in to a single company• Investors cannot control the company receiving their capital• Investors pick up 50% tax relief in the tax year the investment is made, regardless of their marginal rate.• In the 2012-13 tax year, tax payers can roll any chargeable gain in the tax year in to a SEIS with a full capital gains tax exemption (another 28%)• The business must be a start-up company -registered in the UK within 2 years of claim.• The company must not employ more than 25 workers.• The company must have assets of less than £200,000.• The company has to trade in an approved sector – generally not in finance or investment, for example, a property company raise capital as a SEIS. @capenterprise 29
  30. 30. The “ASK”- invest in us and you can get…?• High Rate of Return ?• Tax breaks? ( SEIS or EIS)• Opportunity to follow on?• Exit in 3- 5 years?• Dividend/ Share buy back option @capenterprise 30
  31. 31. My slide deck is… http://www.slideshare.net/slidesthatrock/how-to-pitch-a-vc-redesignedTen slides. Ten is the optimal number of slides in a PowerPointpresentation because a normal human being cannot comprehendmore than ten concepts in a meeting—and business angels are verynormal. If you must use more than ten slides to explain yourbusiness, you probably don’t have a business. The ten topics that aninvestors cares about are: 1. Summary and call to action/ what do you want? 2. Problem 3. Your solution 4. Business model 5. Underlying magic/technology 6. Marketing and sales 7. Competition 8. Team 9. Projections and milestones 10. Status and timeline @capenterprise 31
  32. 32. What Next….?• Back to the drawing boardorGet Capital Enterprise support to;• Introduce to mentors and advisors.• Apply for funding to make proto-type..• Advice on Slidedecks..• Intros to investors…? @capenterprise 32
  33. 33. Funding OptionsInformation:• Capital Enterprise What’s On in London- www.capitalenterprise.org/whats-on• Business Link - www.businesslink.gov.uk• Start- up Britain - http://www.startupbritain.org• British Library- www.bl.uk/bipc• Bootlaw- http://bootlaw.com/• HMRC Small Company Enterprise Centre- Source of advice and help http://www.hmrc.gov.uk/manuals/vcmmanual/VCM10050.htm• HMRC R& D Tax Credits www.ucl.ac.uk/advances/advances-news/hmrc• HMRC Guide & Support- http://capitalenterprise.org/guide-to-rd-tax-credits• British Business Angel Association: www.bbaa.org.uk• Guide to Early Stage Investment: http://www.paloalto.co.uk/about_us/Early_Stage_Investment_by_Alan_Gleeson.pdf• Start-ups on Air at Google Campus- https://docs.google.com/spreadsheet/viewform?formkey=dEpuYlRFRFJ6SUVDdHVLRms3YmdBcmc6MQ• Hubventurelabs - http://hubwestminster.net/hubventurelabs• Guide to 100 offers for start-ups – www.capitalenterprise.orgAnd if you have not checked them out please look at the latest schedule of advice and training events at :www.ngfc.org.uk . @capenterprise 33
  34. 34. Need less than £10K to start? Grant- www.j4b.co.uk No Funds New Enterprise Unemployed? Allowance Scheme Need Less than £10K to Launch a Self Fund business Community Development Write a simple Finance Institution Borrow Business Plan & 12 month cashflow Bank- Sources of Grants- www.j4b.co.uk- Competition funding £1000 issued to 10+ businesses per month- http://www.shell-livewire.org- Princes Trust http://www.princes-trust.org.uk/need_help/enterprise_programme.aspx- £1000- £10,000 Enterprise Loans for Under 25’s- www.startuploanslondon.co.uk or www.startuploans.com- New Enterprise Allowance Scheme – Check who delivers the scheme in London by e-mailing Capital Enterprise.- Community Development Finance Associations- http://www.cdfa.org.uk - Also check out North London Community Finance- ELSBC Access to Finance – Business Plan support for those looking to raise up to £10K• Soft loans for Creative Businesses- http://www.creativeindustryfinance.org.uk/ @capenterprise 34
  35. 35. Funding Product DevelopmentGrants & Awards General• J4B- Portal for grant finding http://www.j4b.co.uk• Technology Strategy Board ( R&D Funding) - http://www.innovateuk.org - http://www.innovateuk.org/content/competition/grant-for-rd-single-business.ashx• Knowledge Transfer Networks- www.innovateuk.org• London European Enterprise Network- http://www.een-london.co.uk• E Funding for SME R&D - http://www.eurostars-eureka.eu/what.do• EU Funding for R&D collaborations: http://ec.europa.eu/research/participants/portal/page/calls• Knowledge Transfer Partnerships funding support- http://www.ktponline.org.uk/ktp-what-will-it-cost- my-businessTranslation/ Follow on research funds.• www.rdfunding.org.uk/bulletin/queries/Search.asp?TheCloseMonth=July&TheYear=2011.• http://www.rcuk.ac.uk/kei/ktportal/Pages/Followon.aspx• https://ktn.innovateuk.org/web/145175/overview• http://www.ahrc.ac.uk/FundingOpportunities/Pages/BrowseOpportunitiesOld.aspx• http://www.ahrc.ac.uk/Pages/default.aspx• http://www.theculturecapitalexchange.co.uk/ @capenterprise 35
  36. 36. Funding the RunwayAccelerators : Training & Mentoring programmes that provide fast-track to seed funding forScalable new businesses• Lean Start-up : - http://be.foundercentric.com/• Start-Up Weekend: http://london.startupweekend.org• Launch 48: http://launch48.com• Tech Hub : http://www.techhub.com – Google Campus- http://www.campuslondon.com/• FIG- http://www.findinvestgrow.com/• Y-combinator- http://ycombinator.com/• Tech Stars- http://www.techstars.com/• Seed Camp: http://www.seedcamp.com ( Applications open)• Hackfwd: http://hackfwd.com• Emerge Venture Labs- http://www.theemergelab.org• Ignite 100- http://ignite100.com• BBC Worldwide Labs- http://www.bbcworldwide.com/digital/labs.aspx• Springboard- http://springboard.com/ - http://www.f6s.com/profile/1961#programs/ajax-application• Student Start-ups- http://studentupstarts.com• Accelerator Academy- http://acceleratoracademy.com• Fintech Innovation Labs- https://www.fintechinnovationlablondon.co.uk/about.html#4• Wayra- http://wayra.org/en/wayra• Euclid Opportunities- ( Fin Tech Only) http://euclidopportunities.com/• Nreduce- Virtual Y-Combinator- http://nreduce.com/• Innovation Warehouse- http://www.theiw.org• Healthbox- http://www.healthboxaccelerator.com/• Collider12- http://collider12.com/ @capenterprise 36
  37. 37. CrowdfundersCrowd funding Platforms-Reward based Crowdfunding platforms- will help you to raise funding to build a proto-type and market test agreat idea or product.- Great for pre-selling cool tech hardware.• www.kickstarter.com (UK from the 31st Octyober)• www.indiegogo.com (USA)• www.peoplefund.it• www.sponsume.com• www.pleasefund.us• www.wefund.com• www.pozible.com• www.crowdfunder.co.uk @capenterprise 37
  38. 38. Business Angels Angel Investment - £100-500K Seed Investment• NESTA - www.nesta.org.uk/investments• British Business Angel Association- www.bbaa.org.uk• Capital 4 Enterprise- http://www.capitalforenterprise.gov.uk/portfolio• Angel Co-Fund- http://www.angelcofund.co.uk/ Seed/ Early stage Investment Platforms:- www.crowdcube.com- www.seedrs.com Capital Enterprise top 10 Angel Network in London1. London Business Angels: http://www.lbangels.co.uk2. Oxford Early Investments- http://www.oxei.co.uk/about.php3. Envestors- www.envestors.co.uk4. Finance South East- www.thefsegroup.com5. Angels Den- www.angelsden.com6. Venture Director- www.venturedirector.com- www.boundarycapital.com7. Start-up Funding Club- http://www.startupfundingclub.com/8. E100- London Business School - http://www.london.edu/facultyandresearch/subjectareas/strategyandentrepreneurship/enterprise100.html9. #1 seed- www.number1seed.co.uk10. Ascension Ventures- http://www.ascensionmedia.com/ascension-ventures.phpFor an alternative list check out- http://www.designcity.co.uk/angelnews/edition_94.htm#article1 @capenterprise 38
  39. 39. Early Stage VC’s & Super AngelsAccel Partners: Stage agnostic, see their portfolio here. • ACT: Early to mid-stage, see their portfolio here. • Bloom Equity: Early to mid-stage angel syndicate, seeAnthemis Investment- Stage Agnostic, see portfolio here their portfolio here. • DFJ Esprit: Early to mid-stage, see their portfolio here.Balderton- Stage Agnostic- See there portfolio here • Charlotte St: Early to Mid Stage, see there portfolio hereEden Ventures- Early- mid stage – see there portfolio here • Dawn Capital: Early to mid-stage, see their portfolio here.Index Ventures: Stage agnostic, see their portfolio here. • Notion Capital – • Doughty Hanson- Stage Agnostic, see portfolio herePassion Capital: Early Stage, see their portfolio here. • Seraphim Capital – Early-mid stage see there portfolio here.Delta Partners: Early to mid-stage, see their portfolio • Kernel Capital: Early stage, see their portfolio here.here. • Octopus Ventures: Early to mid-stage, see their portfolio here.Atomico: Stage agnostic, see their portfolio here. • Hoxton Ventures ; Early stage with disruptive tech.Profounders: Early and mid-stage, see their portfolio • EC1 Capital: Early stage, see their portfolio herehere. • Connect Ventures- Early stage and very New.AIB Seed Capital Fund: Managed by two funds which • Pen Tech Ventures- Early Stage to mid- See portfolio Hereinvest under-€250k and over-€250k, see theirportfolio here. Alternatively you can check out Crunch Base / Angel List http://www.crunchbase.com/financial-organizations @capenterprise 39
  40. 40. Active London Angels… • http://bamlondon.blogs pot.co.uk/p/angels_16. html • https://angel.co/ @capenterprise 40
  41. 41. Specialist FundsWomen- Stargate Capital- Trapezia- http://www.stargatecapital.co.uk/trapezia_1.aspx- FSE- Incito- http://thefsegroup.com/investors/business-angels/incito-ventures/- Aspire Fund - http://www.capitalforenterprise.gov.uk/files/Aspire%20Information%20Leaflet%20(v%202)%20Flyer%20brochure.pdfGreen- Bridges Sustainable Fund- http://www.bridgesventures.com/sustainable-growth-funds- Ingenious Media- Cleantech Fund http://www.ingeniousmedia.co.uk/investments/investment- opportunities/clean-energy- Carbon Trust- http://www.carbontrust.com/about-us/our-investments- Low Carbon Accelerator- http://www.lowcarbonaccelerator.com- CT Investment Partners- http://www.ctip.co.uk- Wellington Partners- http://www.wellington-partners.com/wp/index.htmlSocial- Big Society Capital- http://www.bigsocietycapital.com- Sources of Social Finance- http://www.bigsocietycapital.com/finding-the-right-investment- Bridges Venture Fund http://www.bridgesventures.com/social-entrepreneurs-fund- Big Issue Investment- http://www.bigissueinvest.com- Social Finance- http://www.socialfinance.org.uk- Social Investment Fund- http://www.thesocialinvestmentbusiness.org @capenterprise 41
  42. 42. • Panel Q &A @capenterprise 42
  43. 43. The Endwww.capitalenterprise.org @capenterprise 43