Tsh masterclass winning the hearts & minds of venture capitalists
• About Octopus: o Growth & early stage focus o Invests £250K-5M o Every Wednesday they run ‘open office’- message Ataylor@octopusventures.com o Looks for companies with: product, route to market, team, ability to validate customer acquisition costs with traction • VC or Angel? o If you have traction and want to fund growth, go for VC funding. Go for angel if you are pre-product or pre-traction. o Choose your initial seed investor wisely. 20-25% for £500K-1M is a good rule of thumb. Be careful that they do not give you too high a valuation that will make it unattractive to the VC in the next round. • Preparing the approach: o Ensure you understand the VC that you are going to meet, and ensure your business is a good fit. Find out what the VC is looking for and do your homework on what value they might be able to add to your business o Your chances of getting an investment: 12K business plans sent each year, see 200 company meetings per year, then make a single deal every 6-8 weeks o Get a referral from someone in their network (one option is through the portfolio companies) • Meet up with the VC o Send presentation in advance o Bring the two execs from your team, but ask first o impress the VC right away with who you are and why you are special o Communicate the business plan in simple terms o If you don’t know answers to the questions, don’t wing it, just say that you will come back to them with the answer • It’s all about the team o This is more important than the product or business plan! o Be proud to talk about what makes you and your team special o Ensure that there is one clear leader o Ensure that there is a blend of complementary skills. If there are gaps, say so and ask the VC for help finding that person • How big can you grow? o At minimum, VCs want a 10x exit o Businesses worth £100M is the minimum o Under promise your investors in terms of returns o Consider getting the money that you need in chunks based on hitting milestones. Milestones could be something like: 1) breakeven 2) get 10% growth per month and 3) get to exit. • Strike Zone o It takes 8-12 weeks to close a deal including negotiating. o Remember that you will sign a warranty that what you told the VC is true about your business • Get married (make the deal) o Most VCs look for an exit after 3-5 years. A corporate finance advisor will be appointed to help sell the business. Know what valuation you want over what time period. VCs do not want lifestyle businesses (i.e. high salaried staff, ongoing low returns) • What we say & what we mean: o “send us a short message” means “keep your deck or email SHORT.” o “we need to see customer validation” means “we’re not sure your solving a market need” o “we need help understanding your market” means :we don’t believe you will get the market traction you forecast” o “we want to talk about valuation” means “we’re interested but be realistic” o “sorry- it’s not for us” means “it’s a no today, but do come back to us in the future.
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Octopus Investments
£2.5bn FUM
Octopus Venture Partners
Invest £250k to £5m
[Always] Open Office](data:image/gif;base64,R0lGODlhAQABAIAAAAAAAP///yH5BAEAAAAALAAAAAABAAEAAAIBRAA7)
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Tsh masterclass winning the hearts & minds of venture capitalists
- 1. Winning the Hearts and Minds of Venture Capitalists Alan Wallace awallace@octopusventures.com
- 2. 2 Octopus Investments £2.5bn FUM Octopus Venture Partners Invest £250k to £5m [Always] Open Office
- 3. Entrepreneurs’ view of VCs?
- 4. WE CAN HEAR YOU Change slide to difernetiation Our challenge
- 5. What makes you special?
- 7. Meeting up
- 8. It’s all about the team
- 9. A blend of complementary skills
- 10. Your advantage in property
- 13. Strike
- 14. …Just for now!
- 15. Means: “Send us a short deck/email” We say: “Send us a short deck/email”
- 16. Means: “We’re not sure you’re solving a market need” We say: “We need to see customer validation”
- 17. Means: “We don’t believe you will get the market traction you forecast” We say: “We need help understanding your market”
- 18. Means: “We’re interested but please be realistic” We say: “We want to talk about valuation”
- 19. Means: “It’s a no today but do come back to us in the future” We say: “Sorry - It’s not for us”
- 20. Means: “We really, really like you!” We say: “We’re excited by the opportunity”
- 21. Thank you Any questions? Alan Wallace awallac e@oc top u ventu res.com 21
Editor's Notes
- History Entrepreneur Venture Partner group Money to invest Entrepreneurs as customer - Open office- every Wednesday
- So why is it that commentary seems to view relationship as this It should be a symbiotic relationship Reality is entrepreneurs for capital light businesses should not need VC For us it’s about providing cash investment to turbo-charge growth
- Now the problem in the market is lots and lots of entrepreneurial businesses But do they all deserve funding (nobody loves their own business more than the founder) But can it actually grow to be a really significant business delivering the rate of return VC’s expect – 5-10x Over the last 3 years we have received about 12k propositions, met 500 companies, invested in 30 or so – we have been very active investors. Most other vc would be at 12-15 So we say no/ not for us an awful lot
- So what is it that is going to have you stand out to us Each VC and investor is different You as entrepreneurs focus on your customers – treat the VC community as a customers TOO Think through the need from their side – fit, size, amount to invest
- So its best to think carefully and target the investors with the best fit with your business Remember the 12k – I guess about 2,000 came through introductions, we invest in very few that come direct The lovefilm ancestry – delivered four businesses because we like working with those that we know The VP group introduced us to 25% of deals we did Find ways of getting to know us – that does not mean hi we met at the conference / will you Linkme In, We hold an Open Office every Wednesday for a reason – come and see us it will give you a good heads up as to realistic likelihood and provides a early sight of your business.
- The meeting at the wolf’s lair/dragons den Remember we want you to be great Now the time available – invariably somebody in the audience will be late Start strong the attention span can be limited Keep it simple and then be drawn into the technical aspects But most importantly its about you and the team
- What do we look for Entrepreneurs with vision and a talented team: To be a big business you will need a team – you cannot do it all yourself – if you say you can we will think less of you Characteristics – Honesty, integrity, passion, leadership, decision maker, communicator and energy to make things happen. Speed is a competitive advantage in fast moving markets. Same as your selecting a great team
- So what are the things we are looking for- a relationship The team should have a blend of functional skills Don’t be afraid of saying we are missing this role – but we know where to find them We are going to be partners start to think how we might help you
- Example Zoopla Alex we had backed before I tend to talk about Alex not the property portal A magnet for talent Executes with total efficiency/ total dedication / knows strengths and weaknesses Would back he and Simon Kain again without hesitation
- Show us who you can be grow to be big Disruptive businesses – create or transform markets Growing not declining markets For instance retail – online sales are up 26% year on year High margins Recurring revenue Loyal customers IP – brand
- Example Graze Unique in food Understanding of customer Subscription commerce High margins Opportunity to expand geographically or into new product lines Has created barriers to entry
- So we love what you are saying and doing - process We want a relationship Raising money is very time heavy Lots of meetings There is a point in the process when we start selling to you Due diligence Remember its a relationship and we are going into a partnership Warranties
- We want a partnership for the moment but we do want to split up We want you to be really really successful Manage expectations don’t over promise or we get disappointed Phases of growth and funding Of course if you want to get remarried and do it again we would be up for it Remember Alex we love serial entrepreneurs
- Some comments you may hear Don’t send us a 250 page document
- We need to see people buy it – revenue cheapest form of capital
- Is it really going to be big – there are lots of good businesses around but unless it is going to be a great one it is unlikely to be for Octopus.
- We see lots of businesses so it would be a huge disappointment if you are miles from the norm
- Its never a no for good
- Oh boy this is great how can we get invested