How to raise venture capital for your business: 5 insider tips
Tim Levene’s helped raise $25m and now runs an investment fund himself. Read this before seeking investment
Tim Levene is managing partner at Augmentum Capital, a technology VC backed by RIT Capital, the investment fund founded by Jacob Rothschild. Before becoming a VC, Tim was the founding employee at Flutter.com and Betfair, where among other things he was involved in raising more than $25m from VC investors. Here he shares his top tips on how to appeal to investors based on his experience on both sides of the fence.
Raising money is never easy and, in this market, it’s harder than ever. However, there is plenty of money out there for the right person and the right business idea. The trick is how to optimise your approach to secure the funding you want, at the right valuation and from the right investors.
I get hundreds of pitch documents across my desk every year and, as an entrepreneur, I was involved in fundraising from the other side of fence. While every deal is different, I think there are a few simple rules that anyone can follow to maximise their chance of getting the best investment outcome.
Understand your investor: Before you make a first contact with any investor you need to understand where they sit in the value chain, what their objectives are and what their areas of interest are. At a basic level there are huge differences in dynamic between friends and family investors, angels and venture investors and it’s vital to understand those differences.
Once you’ve pinned down what sort of investment you want, you then need to look at specific investors and see what drives them. Do your homework and work out what the fund you are approaching focuses on. Almost all of them have websites which disclose their portfolio and approach. If you can find some similarity with what they have invested in, what their investment philosophy is and what you are trying to do, then mention that in your initial communication.
Be concise: Never overload a prospective investor with paperwork, you need to communicate your business and the logic behind your funding concisely in order to have a chance of getting the attention of a busy investor.
Prior to a recent meeting, I received three emails with 15 attachments from the founder of a tech business and that resulted in me running a mile. If I can’t work out what a business does from an initial email and an exec summary then we won’t invest. Perhaps that works for some smarter investors, but if the partners at our fund can’t articulate what a business does in a few paragraphs then we pass.
Raise money from a position of strength: You should never look to raise money from a professional investor because you’re short of funds. Raising money, whether you like it or not, will always take longer than you think and your position will only become weaker over time. Not only is desperation a real turn-off for investors it also means that, if you’re lucky enough to get the funding, you’re likely to have a poor negotiating position when it comes to the investment terms.
We recently looked at an interesting technology payment company which had some decent traction but was running short on funds. We had a handful of initial meetings but the founder was becoming increasingly desperate on timing, trying to push us to an unrealistic timetable and eventually started behaving in such an irrational manner that we pulled out. His desperation was clouding his judgement and behaviour which was a shame as the business had potential.
Don’t put all your eggs in one basket: Investors are fickle and the investment process is filled with a myriad of potholes that can scupper a deal. It’s all too common for a deal to progress to the very final stages before, for whatever reason, falling apart at the last moment. It’s therefore prudent to make sure that you have other options in case it all falls down.
We recently spent two to three months building a relationship with a very dynamic online e-commerce business. The CEO was impressive and we spent a fair amount of time helping him think through how he should raise capital. Once he felt the business was ready to raise money and that he had the right strategy put together, he assumed we would step in. When we reluctantly decided that it was not right for us, he was devastated and told us he had not spoken to anyone else as he had decided he wanted us as investors.
The counter point to this is that you should not tout yourself around too widely. The VC community in London is relatively close and interconnected and potential deals often get circulated and talked about. If there is a perception that your business has been circling for funding for some time then investors might steer clear, irrespective of whether that is the case. Do not allow advisors to spread the net too wide. Ensure you have a clear idea of who they are talking to and limit the number of conversations that they can have.
Don’t choose on price alone: The right investor can help transform your business and, while it’s easy to get distracted by the figures on a term sheet, you need to think about the bigger picture. A VC might be offering you better terms, but is he going to help you to build your business most effectively? Has he got experience of some of the difficult decisions you’re going to have to make? Can he open the right doors for you that you can’t access yourself?
With my experience both as an entrepreneur in a VC-backed business and as a VC who works closely with his investments to help grow their companies, I don’t think it’s possible to overstate this point. Money will always help with the expansion of a business but money combined with the right help and advice can help to transform one.