The Start-Up Series: Half-term report
Six months into the competition created for start-ups to win seed investment of £150,000, we speak to Worth Capital’s investment team for an update
Last October Startups and Worth Capital launched The Start-Up Series, an unbelievably good competition that will see £1.8m invested in small businesses over the course of the year.
Hundreds of new businesses that qualify for seed enterprise investment scheme (SEIS) funding have since applied to win one of the monthly investments of £150,000 – so following the announcement of RentalStep as the first winner – we thought it was high-time that we shared an update on how the competition is going.
Until this month, you’d have been forgiven for wondering whether any deals have been done. Such is the nature of investment, a period of due diligence typically follows once agreement over valuation and terms has been struck. As RentalStep founder Mike Georgeson told Startups.co.uk, he was “absolutely delighted” to secure £150,000 seed funding. “To win the first one was just unbelievable, as a person and a business.”
“If you imagine Dragons’ Den, it was the very opposite of that,” he revealed in the interview, sharing that he felt the “friendly and constructive” judges were “there to help, not pick holes in business plans”.
And now we’re ready to start making more announcements, so caught up with Worth Capital’s Hayley Etherington and Matthew Cushen to hear more about the first half of the year-long competition.
The Start-Up Series has been running since October. What has the response been like?
Matthew: “Beyond our expectations. We know entrepreneurs often find the most challenging part of starting a business is raising finance – we’ve been there ourselves, as entrepreneurs and angel investors. So we developed and launched the Start-Up Series expecting plenty of interest and applications flooded right in from the word go.
How many entries has the Series had so far?
Hayley: “We average around 100 applications per month, although this has been growing as awareness of the competition builds. After the first stage, which is deliberately easy to enter (just a two-page summary and/or a two-minute video about the business), we’ve then been inviting around 25-30 through to a qualifying stage.
“This is where we ask more of the entrepreneurs. After reading those submissions and some follow-up phone calls, we’ve selected around five or six finalists a month to each spend half a day really digging into the business proposition, strategy, marketing plans and commercial forecasts.
“What’s more important than the quantity of entries is the quality. We’ve been thrilled so far. We generally end up with two or three businesses that we’d be delighted to invest in. There have been some long days of deliberation, and the occasional heated debate. No punches thrown – yet!”
Has there been much variety?
Hayley: “The competition series is for consumer businesses and we made the scope deliberately wide: ‘the products and services we buy and the ways that we buy them’. So we were expecting plenty of variety. Again we’ve been pleased that we have seen a huge variation of sectors and maturity of businesses.
“We’d like to see some more mainstream brand building opportunities – the fast-moving consumer goods businesses of tomorrow – whether that is in food, beverages, gadgets, homewares or wherever.
Matthew: “As investors we don’t tend to go after ‘tech’ businesses specifically. We often find tech solutions are desperately searching around for a problem to solve, and valuations have become unworkable for sensible investors. We have seen a few tech businesses that fall into those traps, but we’ve also been impressed by a few tech solutions that are responding to some compelling new insight and are obsessing over the consumer rather than the product.”
What has stood out for you in terms of the best entries?
Matthew: “The best entries bring their product or service to life in a compelling way, early on in the process. If you immediately want to find out where you can buy a product or how soon you’ll be able to use a service, then that’s a good sign. Of course, not all start-ups will have their product up and running, but even without the real thing it is great to see a prototype, some drawings, even a mood board.
“Like other investors, we respond well when we hear the insight from which the idea was born. We struggled through the written submissions from one of our entrants looking to launch a product in the beauty space, but we thought there was something in the market and idea. Then it really came to life when he talked about his wife and her friends and how he’d seen the opportunity.
Hayley: “It goes without saying that most entrepreneurs have a real belief in and often great passion for their business. However some are able to articulate their idea and bring their brand to life much clearer than others. Our five judging criteria are team/entrepreneur, market, idea, business model and marketing/communication. Early in the process we only need a couple of those to show potential. Later in the process we need to have covered all five.”
What common mistakes have some entrants made?
Hayley: “Without wanting to sound too clichéd, less is most definitely more. At the first stage entry process, we ask for a simple two-page summary and/or a two-minute video explaining the business – and we ask this for two reasons. Partly it’s selfish – with hundreds of applications to review, it’s time consuming having to sift through scores of information to get to the crux of a business.
“More importantly we are putting ourselves in the headspace of a consumer, who will give a business much less time to assess its relevance. It doesn’t bode well for a business if the founder cannot articulate the proposition and the rationale succinctly. So the entrepreneurs who enter 22-page documents, or 10-minute long videos are not doing themselves any favours. It’s unlikely that we, or other investors, will get to the most compelling reasons to think well of a business.”
Why does it take so long to announce the winners?
Matthew: “This has taken longer than we’d hoped and expected. The selection happens quickly. Within six weeks after the close of the competition the winners know they will receive investment and can plan with some certainty.
“However, as the investment comes from a FCA regulated fund, we have to adhere to a strict due diligence process. This has taken longer than we’d planned for the first few winners, but is now getting faster. So like buses, having waited for a while, we’ll announce our first four winners in the next few weeks. Watch this space…”
What can you tell us about the start-ups currently going through due diligence?
Hayley: “Without wanting to spoil the surprise, or tempt fate with the due diligence process, we can’t reveal too much about our next raft of winners. We’re thrilled that all the first winners come from outside of London – RentalStep is from Liverpool, one from Manchester, one in the Midlands and one in the southern home counties. It’s heartening to learn that the Series is able to reach businesses outside of the capital where investment is much more readily available.
Matthew: “We also expect readers will see a good variation – a couple of businesses that have spotted some interesting insight and using tech platforms to create a new market, a fast food restaurant chain and a small electricals product.”
What do you hope to see in the coming months?
Matthew: “We hope that entrants are telling their mates that applying is a good experience and that structuring their entry, particularly through the later stages, helps get their thinking together.
Hayley: “We provide top-line, but not entirely focused feedback to all entry stage applicants. To qualifiers and finalists we give structured, tailored feedback. The response of which has been really positive. We would never expect everyone to agree with our opinion all the time, but entrants seem to value the perspective of our seasoned investors.
“We even had one business who took our feedback and has refocused their idea, already re-entering with a whole new and much stronger proposition.”