Michael Acton Smith on fundraising, being an angel, and a Mind Candy IPO

The entrepreneur behind Moshi Monsters talks exclusively about fundraising secrets, start-up investments, and whether he’ll float this year

It’s not easy to build a $200m business without some serious start-up capital. And if like Michael Acton Smith, you’re having a hard time with the banks and lack rich relatives, a great deal of creativity is required when thinking up new ways of scraping together the cash.

Determined to become an entrepreneur Acton Smith, founder of virtual gaming world for children Moshi Monsters even sold his body to science to fund his breakthrough business idea Shot Glass Chess in 1998.

After testing out migraine treatment for £400 with business partner and student friend Tom Boardman, Acton Smith convinced his mum of his determination and eventually managed to secure an extra £1,000 from her to get his business underway.

Since those early days, Acton Smith has secured almost $20m of investment from industry leading venture capital firms including SPARK Ventures, Accel Partners and Index Ventures.

But it takes a lot more than just luck to persuade cynical investors to part with their cash. Speaking to Startups at the London Evening Standard’s Business Connections speaker series, Acton Smith reveals his tips for seeking funding for a business venture.

What is your secret to getting investors excited about your idea?

It is so important to do whatever you can to get something live. Max out credit cards, raise cash from friends and family, do whatever it takes to cobble the cash together. Just get something live.

Then you have to really sell it to them and get them excited about your business.

I meet a lot of entrepreneurs who have nothing but an idea. It makes a huge difference to an investor if they can see you’ve got the hustle to get something live. Plus it’s much easier to sell a real thing than an idea, even if it’s got just a few users.

How much of raising venture capital is about being given a licence to go and find the biggest related opportunity?

I’m very lucky in that my investors believe in my crazy vision.

When you take investment from someone you have to have a strong relationship. It’s like getting married. Things can be wonderful during the rosy times but if you start having problems you need an investor who is going to stand by you and believe in you.   It can be hard, because as an entrepreneur you believe so much in your idea, but you have to be flexible and agile and make those early mistakes so you can adapt your plan and find the idea that works.

I have a good relationship with my investors and they’re not pressuring us to sell. If you feel at all uneasy with the relationship before you take their money, I would say don’t go there.

You’ve started to invest in start-ups yourself. How many start-ups have you backed and what kind of investments have you made?

I’ve backed about eight start-ups so far and I’ve just co-founded a business called Calm.com with Alex Tew, which I’m very excited about. It’s an app to help you relax.

I’ve got a new secret start-up as well, which I’ve been working on with my friend Malcolm Scovil, who’s my housemate. But I can’t give away any details on that*.

I would love to be even more involved with investing in start-ups, but I’m too busy at the moment with Mind Candy.

Where will the next big thing that we see be? What are the most exciting tech companies of the moment?

The biggest opportunity is in mobiles and smartphones at the moment. In the messaging space there are some exciting companies like American firm Snapchat, WeChat in China and KakaoTalk in South Korea.

I think the next big thing we will see is UK start-ups that take advantage of these tools that make messaging really simple and fun.

You’ve been approached by buyers and turned them down. When is the right time to sell a business?

We could just stop with Moshi and sell and sail off into the sunset but we want to keep our chips on the table. We think this is the start of an incredible journey for Mind Candy.

Every entrepreneur is different and people build businesses for different reasons. There’s a huge concentration of power in the West Coast, with giants like LinkedIn, Google, Twitter and Facebook, so I think it’s important to double down and try and create something huge in the UK, rather than selling to the US at the first opportunity.

Is Mind Candy going to float on the Stock Exchange this year?

As we don’t want to sell, floating will be a natural step for Mind Candy. But it will have to be at the right time.

We’re a very profitable business, so there’s no pressure to go public and we don’t want to float too early.

I don’t think it’s going to happen in the short term but when we’re a little bit more mature and older I think we will consider it.

You’ve expanded Moshi Monsters into various different platforms including Moshi Monsters Music, magazines and games cards. What’s next for Moshi Monsters?

Kids love the online game, so we felt it was important to expand into other areas through which they can interact.

We don’t want to over-commercialise. It’s a delicate balance between upsetting parents and creating a world kids love.

One day we would love to have a music tour – maybe one day we will even have theme parks. Our vision for Mind Candy is to create the greatest entertainment company of the digital generation.

* Michael’s venture, co-founded with Malcom Scovil has since launched in beta. Named Daily Spank the app instructs users to take a “fun, creative or cheeky” photograph based on a daily theme.

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