ScotSoft 2013 - Funding Growth

Last week I was invited along to the ScotlandIS ScotSoft 2013 Global Forum. It was a fantastic event with an utterly brilliant line up of speakers including ‘father of the internet’ Vint Cerf, Larry Cable of Salesforce and Heidi Roizen, Venture Partner at DFJ.

The day was split into three sessions:

• First session was on ‘Funding Growth’ with Ann Winblad, MD of Hummer Winblad Venture Partners, Eddie Anderson of Pentech Ventures, and Heidi Roizen.

• Second session was on ‘Scaling Fast’ with Wendy Lea, CEO of Get Satisfaction, John Innes, CEO of Amor Group and Karen White, President & COO of Addepar.

• Thirdly ScotlandIS had Principal Architect, Platform of Salesforce Larry Cable opening up for ‘father of the internet’ Vint Cerf.

The day presented loads of material I’m going to be sharing on RookieOven over the course of the next week or so but first up, here’s what the investors had to say on Funding Growth.

Know your stuff

It seems like common sense but yet the invesotrs felt the need to stress it so I guess a lot of people miss this. Know your stuff! What is the market like – size, competition, routes, hurdles and avenues; what do you need to execute; and what are your forecasts?

Eddie Anderson sized up a deal as 70% objective and 30% subjective (more on that later). The objective part is clear since the investor will want a return and the hard (non-vanity) figures won’t lie.

Deals take time

The notion you can rock up to an investor, show them a couple of slides and walk away with a briefcase of notes is a fallacy. If that’s the basis on which you’ve been building your startup then go back to the drawing board.

All the investors stated that they’re highly unlikely to make an investment on the back of a proposal landing on their desk or a 10 slide deck. Imagine it was your money that you were investing. Would you do so on the back of a flashy slide deck? Of course not and an investor is no different. Their job is to get a return on the money, not simply to give it out. To that end all three members of the panel agreed you must build a relationship.

Over the course of 9-12 months and potentially over 60 meetings you need to build a relationship with the investor. The panellists shared their views on how to do this:

• Can you do it? – Set targets and stick to them. Show an investor before they invest that you can achieve these targets. Set targets on growth, revenue, product features etc. and at least meet them but preferably exceed them in a given timeframe.

• Dangle a carrot – when you meet an investor do something to win the next meeting. This is your goal, not to pitch. Investors are busy folk too, pique their interest and get a date in the diary for the next meeting.

• Keep the deck away and grow excitement – as the process of courting an investor goes on, your aim is to slowly grow their excitement. Once you’ve excited the investor to a point let them lead on when you can pitch. When they make the offer jump at it.

30% subjective

Why is the relationship so important? Well, although undoubtedly important, numbers will only take you so far. There’s the remaining 30% that comes from the gut and feel. This is established over the course of building that relationship. The investor is looking for international growth and scale, the ability to give a return of 10 times or more and to do so in a timely fashion.

The investor will trust their gut and feel for the team’s talent and ability to do so. This is something they can’t glean from a term sheet. They can only do it from a working relationship with the team.

‘But you can’t in the UK’

A lot is made of the state of the UK investment scene and in particular the scene in Scotland. Personally my view is the money will go to where the talent is and in Scotland we currently lack a critical mass of talent to attract the money. Therefore we must flip that notion and those with the ability must go to where the money is.

This is something Sir Jackie Stewart spoke of in his keynote at EIE 2012. Although there has been a global financial crisis there are still plenty of cash-rich countries, companies and individuals. Stocks are volatile and there’s a lack of trust with banks, so where can you grow your wealth? Investment is a real option. Heidi Roizen summed this up with“Go to where the money is”.

I will be posting more thoughts and content from ScotSoft 2013 throughout the week and hope that it’s helpful. A big thank you to ScotlandIS for running an event that was startup friendly and had such great content for young businesses. I look forward to them continuing to engage more with the startup community.