There are a variety of ways to finance your business. Raising venture capital is one of the most reliable ways to accelerate growth and gain industry guidance.
However, raising capital can be a significant challenge and can take up to six months to obtain, and much longer to be informed of a refusal. The last thing you would want to do is ignore expanding your company and spend all your time and resources on getting a VC, just to hear ‘no’ and see your company go under.
Understanding the best practices is essential. In this post, we will include advice on how to secure investor meetings as well as on how to create the perfect pitch to help you attract capital investment.
Seed Funding vs Venture Capital?
Seed funding and venture capital are also private equity investments. However, when collecting seed money, you are calling for a considerably smaller monetary sum compared to venture capital — tens to hundreds of thousands of pounds vs millions, respectively.
Therefore, though seed funding comes under the risk capital umbrella, consider it the first step by many to pursue funding in return for equity.
Seed funding is designed to help get your company off the ground or keep it floating, whereas venture capital is meant to accelerate growth. Seed investors are mostly individuals, whereas risk capital typically comes from corporations.
In the end, seed funding lets you raise funds to perform market research, recruit a team and create products or services, while venture capitalists help you expand your scope.
Pre-seed Investment still occurs, although this informal investment round is also not in return for equity. Pre-seed funding is intended to add to your initial out-of-pocket funding (if you want to bootstrap your new business) and to the pre-seed funder’s target of offering comprehensive guidance and support.
With that said, pre-seed venture capital is starting to become more popular, with companies like Seedcamp willing to invest in what they see as winning ideas.
For example, Seedcamp provides £150-180K usually in return for 6.5 percent ownership of your company in what is known as a pre-seed round and will “provide you with all you need to get off the ground.” Pre-seed VCs are involved in working with possible future unicorns before someone else has a chance to get on a bandwagon.
Here’s Some Examples of Pre-Seed & Seed Funding Opportunities
Friends & Family Investors
Before searching for venture capital, you should ask your family and friends network if they want to help fund your company. Friends or family members generally invest between £ 10,000 and £150,000 of their personal finances in your company without taking any equity. Although this method is less structured than everything else and considered to be pre-seeded, you should also carefully record each Investment to help you remain organised and retain clarity.
Incubators & Accelerators
Incubators are useful when you have a brilliant idea but don’t really have an established business plan yet. Incubators will assist your start-up with mentorship, experience and an atmosphere that helps your company expand on the market. Accelerators come into play after you have proved your business model, but they also need to help you get to the market effectively and rapidly. Incubators often do not have investment funding, whereas accelerators often do so in return for Investment.
Are often very high net worth individuals, syndicates or corporate companies offering financial support to entrepreneurs or new small businesses. Angels also invest between £ 100,000 and £ 2 million in early-stage businesses. Usually, angels can ask for equity in the business in return for their contribution. Since it is risky, angels also demand a higher rate of return than late-stage investors. Angel investors will also provide mentoring support as they invest in helping you grow. Angel investors fall into the group of “early VC.”
Early-stage Venture Capitalists
These are investors who are involved in supporting world-class opportunities before everyone else knows who you are. Typically, early-stage VCs are only interested in future unicorns or the next big thing.
What’s Series A, B & C Funding?
There are successive rounds of funding that take place on the basis of seed funding. The label of the series refers to the class of preferred stock sold.
Although these rounds always take place in order, some of them can be bypassed if you have a genius idea that attracts significant attention. For example, ‘unicorns’ or start-ups with a valuation of more than 1 billion frequently miss conventional investment rounds because of their high valuation is so early on in their start-up journey.
In the United Kingdom, 2019 was a record year for unicorns and ranks # 1 in Europe for most unicorns.
But, most businesses are going through these rounds in order. It is also not necessary to complete all of these rounds — if you collect enough capital to expand steadily after seed funding or Series A rounds, you can stop. And, you can also go beyond Series C to Series D or E, but that’s rare as most businesses typically collect what they need by the end of Series C.
One of the main differences between these rounds is the valuation of the company. Valuations are determined by looking at your established track record, market size, management experience, maturity level and growth prospects.
You need to determine how much money you want to raise and/or how much of your business you’re willing to sell before you can work out your valuation. If you prefer the former, you should expect to raise enough to last about 12-18 months until you either need to raise more or receive enough money to keep afloat. If you prefer the latter, founders usually sell 10 % to 20% of their equity in seed or early-stage rounds.
It’s a good idea to see how your rivals have come up with capital and get a better understanding of how to build your own valuation. Sites like Tech Nation and Crunchbase are great tools for finding data on other firms, investors and industries, down to how much they have earned per round and their respective valuations.
No matter what round you’re looking for Investment in, it’s possible and likely that many venture capital firms will invest in your company each time. In all, these successive rounds reflect your growing and mature sector.
Let’s examine each round in detail:
Series A Funding
Businesses are pursuing series A funding or financing because they have already built a customer base and stable sales. Series A funding is designed to help you further expand your user base and product offerings as well as scale your product and bring it to new markets.
Receiving Series A funding is a significant achievement for new companies. Companies can not obtain Series A capital if their minimum viable product (MVP) has not been confirmed, so winning this funding helps further validate the business concept and model.
Businesses in Series A Rounds Typically Raise:
- Anywhere between £2 million and £15 million Investment
- Have a company valuation of between £10M – £40M
- Have a monthly turnover of £100K to £250K
- Prefer and tend to gain investors from traditional venture capital firms. Angel investors or equity crowd funders can also invest in Series A.
Acquiring Series Financing is extremely difficult because businesses are taking a major investment risk before you have completely established your business model.
Series B Funding
Series B financing is structured to help you dramatically extend your business scope. At this point, you’ve proven your business model to make it easier to create trust with investors.
Series B funding lets you grow your staff, recruit seasoned and experienced employees, and scale up your overall business growth efforts. Businesses seeking capital from Series B are able to switch from a well-established business to a dynamic force in their target markets.
Businesses in Series B rounds Typically Raise:
- Between £10 million and £25 million In Investment
- Are valued at £30M to £100M
- Have a monthly turnover of between £350K and £800K
- Gain Investment from traditional venture capital firms, but also attract Investment from firms that focus on late-stage funding.
Acquiring Series B funding is less challenging than Series A because you have already received early-stage funding. This gives you social evidence and proof of concept that helps create trust with VCs.
Series C Funding
Series C financing is intended for established companies seeking to create new products or services or to further grow into new markets.
Series C financing can also be used to buy other businesses, which, in turn, can give you access to new resources and personnel that can help you grow and expand your range. A merger like this will give you the competitive edge that you need to dramatically scale your company.
Businesses in Series C rounds Typically Raise:
- Over £20 million In Investment
- Are valued at more than £100 million
- Have a monthly turnover of £1 million in revenue
- Are more likely to attract investment from hedge funds, private equity groups, investment banks, traditional venture capital firms, and traditional venture capital firms in previous rounds.
You’ve proved your business model by now, so the investment is less risky. It is also reasonably straightforward to receive funding from Series C. Businesses that acquire Series C financing can also aim to increase their valuation prior to the initial public offering ( IPO).
Best Practices To Successfully Raise Venture Capital
The following guidance refers to seed funding as well as to early and late-stage funding. You should follow these best practices to give yourself the best chance of securing funding to drive business growth.
1. Prepare By Identifying Your Needs
Start with the development of a comprehensive business plan. The reason you should start your journey by developing a business plan is that it will help you find out exactly how much money you need and why you need it.
Knowing this is going to give you a clearer sense of how to pitch, how to phrase your pitch, and when you should seek funding.
This isn’t the same as the pitch deck that we’re going to detail below, but bear in mind that parts of your business strategy can be integrated into the pitch deck that you will ultimately create. You should also submit a comprehensive business plan after your pitch to complement your presentation.
As you prepare your business plan, you will be able to fill the holes in your business objectives, target market, target demographic, competitive environment, product concepts and financial forecasts. These are all important things that investors are searching for when evaluating your pitch and deciding on your future success rate.
If you’re looking for late-stage financing, make sure you update your business plan to fit your current figures, forecasts and roadmap.
2. Search Online To Locate Potential Investors
When you have a clear understanding of what your company stands for and how you’re going to make money, it’s time for future VCs to be researched. This will give you a clear idea of who they’re looking to invest, what they’re interested in investing in, what pitches they normally hear, and so on.
Essentially, this study will help you get a better understanding of:
What Are Your Chances of Winning An Investment?
If the Investment offered is consistent with your business objectives.
Ideally, you’ll look to find a list of VC’s that specialises in your target market. This way, you’ll get industry advice from experienced experts who can help you steer your company in the right direction.
There are a variety of great websites that can help you find more knowledge about active investors, both in the UK and internationally.
Investor type quest, whether it is a first-time fund, preferred investment level, location and activity background. They even have a matching tool to help you find the right investors for your company.
A source for investors on a global scale, sort by venue, sector, number of employees, total amount of funding and final date of funding. You may also perform market analysis and follow up on emerging profiles and recent news.
The paid version gives you access to a database of more than 40,000 investors and 200,000 data points, while the free edition allows you to dip your toe into a database of 4,000 investors. You can add advanced filtering to your search, similar to the above pages, and even buy their email addresses so you can get in touch as soon as possible.
have a list of venture capital companies working in the United Kingdom. Information is only available to members free of charge, but non-members can buy the directory for £ 125 for one year of access.
Besides online investor directories, you can also easily search Google for the best venture capital firms in the UK. Entrepreneur Handbook has compiled a detailed list of UK VCs with links to some of the top companies to help you get started.
In addition, Crunchbase gathered the most successful seed investors in Europe in 2019, broken down by pre-seed, accelerator, early-and late-stage rounds.
Network To Build Relationships
Creating relationships with venture capital partners, angels, and industry peers can help you to gain insight into who is looking to invest in businesses right now and who isn’t particularly bothered. In addition to investment opportunities, networking helps you create a group of like-minded entrepreneurs and small business owners with whom you can share ideas and work together.
Plus, if you support other entrepreneurs and small business owners with their investment questions and provide advice where you can, you can receive the same free and invaluable advice when you need it.
So, where are you going to meet these investors and peers to shape and develop these relationships? There are a lot of networking events that are taking place across the UK and particularly in London.
Here are some of the best networking activities in the United Kingdom to meet angel investors and early seed investors. (It’s possible that COVID-19 has put a pause on some of these events so make sure to double-check the time and location of the event before committing.)
Capital Enterprise is a specialist company that runs a variety of seed funds. They hold a monthly networking drinks event free of charge, as well as many other activities in between.
The Business Funding Display helps to bridge the funding gap between funding sources and SMEs. They are organising lots of events, including seminars, conferences and an annual flagship show.
Paradigm Talks holds monthly informal meetings to provide a platform for entrepreneurs to set up business for Venture Capitalists and angels.
London Innovators is a private, members-only network of 600 tech entrepreneurs and investors hosting events as a platform for innovative entrepreneurs and investors to connect with each other. Getting in is via invite or referral only, but there’s no charge to join.
The UK Business Angels Association (UKBAA) is a member-only angel and early-stage VC investment network that hosts several activities during the month. It’s open mainly to investors who can apply to participate, but often activities are available to entrepreneurs as well.
Start up bootcamp demo days, run accelerator networking activities for insurance and technology innovators and industrial IoT solutions. Start-ups are subject to a host of seminars and investor-related networking activities.
British Private Equity & VC Association (BVCA) hosts key private equity and venture capital events to facilitate networking that creates long-standing relationships across the industry.
TechHub, a global network of tech entrepreneurs and start-ups, hosts more than 1000 events each year that help entrepreneurs communicate with peers and investors alike.
Hire An Advisor For Expert Insights
If you feel you need more guidance after networking or looking on your own, the consultant will give you advice about where to look for money and how to arrange your pitch. They can also introduce you to their circle of VCs and angel investors who may be interested in hearing your proposal.
In general, the consultants may:
Act as a broker or as an intermediary to help you negotiate the terms of your contract, which is extremely necessary if you collect capital for the first time;
Use their expertise to help speed up the process of raising funding;
Improve the terms and conditions of your agreement by due diligence;
Help you write written papers, such as your marketing plan, your presentation and your term sheet.
However, even if you employ a consultant, don’t rely too much on them doing all the heavy lifting. It is crucial that you understand the basics of fundraising and learn the skills required to prepare for your pitch, and that you appear confident and prepared for to present it as well as engage in any ongoing negotiations.
Staying involved in the process also demonstrates that you are committed to the success of your company, something that investors want to see in a founder.
Choose An Investor In Your Niche
Many investors are providing financing to industry-specific firms. If your style of the company is associated with one of those sectors, look for Investment there first.
These investors would most certainly have invaluable industry expertise that you won’t find elsewhere, and their advice will prove invaluable. And similar to the target audience and clients, many investors often tend to support companies that are associated with their target market.
We pursued support from VCs that invest in early-stage technology opportunities because we needed industry guidance. In reality, Eileen Burbidge, who is a partner at Passion Capital, one of the VCs who helped us acquire 14 million pounds in our Series A round, acted as our chair in a crucial period of growth. Her guidance was invaluable as we grew our business.
That’s not to suggest that it’s not worth searching for Investment elsewhere but start with niche investors first, if applicable.
Of course, many investment companies tend to diversify their investments and thus do not specialise in one market over the other. Instead, they think more about the business model and whether it is efficient, repeatable, expandable, consistent and defensible.
They’ll also want to see that you and your team have the enthusiasm, tenacity, creativity, expertise and teamwork they need to get the job done right. If you have a brilliant idea and a strong team to back it up, you do not need to look for the kind of detailed advice you’ll find in a niche investor.
Create A Winning Pitch Deck
Now that you’ve done your homework and have an idea of who you’re going to pitch, it’s time to build a winning pitch deck that’s going to make an opportunity for you.
The most critical concept to extract from this advice is that you can tell a storey in your presentation. Stories help listeners put themselves in the shoes of the people you’re targeting. It also helps engage and captivate your audience as you share your vision and eventually explain why your company needs support and guidance. Here’s some tips on how to plan out your presentation:
Slide 1: Vision and value proposition
Start with a simple one-sentence description of your company and the value you offer to your customers. Keep it short—140 characters or less. It’s meant to be attention-grabbing and quick to understand.
Often businesses equate themselves to other well-known corporations in order to make their value proposition perfectly clear. For, e.g., “We’re the TripAdvisor for Charitable Opportunities” or “We’re the Deliveroo of prescriptions.”
Airbnb used to be called AirBed&Breakfast, back then their value proposition was “Book rooms with locals rather than hotels” in their seed funding pitch sheet.
Slide 2: The problem
Explain the problem that you are trying to solve, and who exactly has the problem. Make it easy for investors to understand and even connect with the issue you’re trying to solve.
Outline how you know this is an issue and incorporate light analysis to back up your point. If appropriate, share a short storey about how you found the issue and why it is of interest to you.
LinkedIn illustrated the issue for their series B round by demonstrating how the current solutions failed.
Here, LinkedIn came up with potential concerns by answering them head-on. Since they had already validated their concept by having an investment in Series A, they didn’t need to show that there was an issue. However, they needed to prove that their solution, if given a chance to evolve, would surpass (and did) any other solution that is still on the market.
Slide 3: Target Market And Opportunity
Go into more depth on who your target customer is and the scale of the market. Explain how you will put your company in this market and how you will stand out from your rivals.
This helps to illustrate the magnitude of the dilemma you’re trying to solve. Be accurate with figures and use your market research.
If you have a variety of business segments with different client persona profiles, share that information as well. This shows that you are mindful of the differences in your target market and understand that people perceive this issue in different ways and for different reasons.
Slide 4: The solution
It’s time to explain the product or service and how customers can use it or them. Think of this slide as the saviour and hero of this story.
You’ve built up a dilemma that resonates with customers, and now you’re explaining how your product or service addresses this pain issue. Use multimedia, such as images or video, to help bring this concept to life.
Make sure you touch on some potential ideas on the market and why your approach is better than the current ones. What makes you unique and special? Concentrate on all features and benefits, but make sure to provide a variety of finished-story advantages as well.
For example, “seamless financial integration” is a feature. “Real-time automatic synchronisation” is a benefit. And the end-story advantage is “free up your precious time so that you can focus on what counts.”
Investors are bombarded with features and incentives day in and out, but the end-story benefit tells the tale and draws a picture. It’s the “why” behind what’s going on in your company.
But here, don’t go too deep into competitive analysis. Focus more on what makes you special and save your competitor review for a slide later.
Slide 6: Validation roadmap
This is one of the most essential slides on your pitch. If you’ve got early adopters or sales, talk about that here. This will also demonstrate that you have proved your business model, established your product, and accrued a customer base.
Nothing is more captivating than an established business model, especially for Series A investors. The sooner you can persuade VCs that your business model is worth their time and resources and does not pose a big danger, the greater chance you have of holding their attention to the rest of the pitch.
Answer the following questions, where applicable:
- How many paying clients have you already had?
- How much revenue do you earn on a monthly and an annual basis?
- What’s your rate of growth?
- Are you successful? If not, where are you going to be?
- Do you have a specific alliance in place?
- Have you got any primary testimonials?
Slide 7: Revenue Model
Once you have them hooked – explain how your product or service is going to make money. If you’re searching for seed funding, use this slide to show that your concept can easily become validated and successful with the money you’re looking for.
Outline how rivals make money and describe how the price strategy compares with other main players (i.e. higher, lower, similar). Explain why you have selected your pricing strategy and the rationale behind it.
Are you providing a recurring subscription plan or a one-time payment option? Will you make money from a client or an advertiser? Are you going to give free trials? If so, what is the conversion rate from free to paying users?
Outline your estimated sales, how much the customer or the customer’s lifetime value (LTV) costs. But don’t just go into the financial forecast — it’s coming in a later slide. The secret to this slide is the cost of sales and acquisition, two main factors that investors most often care about at the start.
Slide 8: Marketing and sales strategy
How do you intend to draw new customers? What have you been doing so far that has succeeded or failed? How did this help you pivot to a new, more effective operation? What’s your business strategy and process? Is this technique similar or different from what your rivals are doing?
Creating a detailed go-to-market plan shows that you have taken time and effort to know just how to draw consumers to your value proposition.
A brilliant idea rarely succeeds without a clearly established marketing strategy, so clarify your plan in more detail here. This involves the platforms that you will concentrate on providing your current resources as well as your competitive distribution and promotion strategy.
Alternatively, if you’ve already started and are in late-stage financing, explain how you’re going to enter the market on the basis of industry data and find potential holes.
Slide 8: Team
Why is your team the best team to do the job? Prospective investors want to be assured that you have the best team to carry out your idea — after all, they’re investing in you and your plan, and a great idea is poor without a great team behind it.
Highlight the key leaders and the experience they bring to the table. What are their respective skills and experience? Where and how did you get together, and what projects did you work on?
If you have a partner, introduce them here as well and explain how their expertise is important to the issue you are trying to solve.
Slide 9: Financials
Here you can give more information about your finances. Borrow from your business plan, but do not include in-depth spreadsheets. Visuals should be easy to read and to understand.
Include your estimate of revenue and cash flow for at least three years, balance sheet and so on. Please mention your revenue-to-date again, if appropriate, to remind them that you are already making sales.
This slide is all about illustrating your progress on the basis of the success you have already achieved or the success of a rival in making your numbers a reality. Investors want to recognise that the predictions are focused on evidence and truth, and not on unreachable hopes and dreams.
At the end of the day, the sales model slides draw investors’ interest, while the financial slide reveals long-term success and growth prospects.
Tip: If you don’t have any sales yet, just skip the slide and concentrate on your financial forecasts.
Slide 10: Competitors
Now is your opportunity to go into more depth about your rivals beyond the brief market analysis set out in slide 3.
This slide is unique to how you’re going to protect yourself against your rivals. What are the main advantages and what is the superiority you have over the competition? Essentially, why do customers prefer you instead of someone else?
Incorporate the strategic visual analysis of your presentation here. Identify the attributes of your rivals and go through the specifics of your advantages. For example, is your device compatible with more hardware or software solutions than is currently available? Is the software open or proprietary?
Show investors how you can reach key consumer segments faster than rivals, and how you expect to convince current consumers to take advantage of your product or service instead.
Slide 11: Use of funds
The ask. Now is the time to apply for Investment and explain precisely how you plan to use the funds. At this point, investors must fully understand what problem you’re trying to solve, how your solution works, and why it’s better than the rest.
This is just what you’ve been working up to. No, you can’t just inquire and put an end to your pitch. You need to enquire and then go into depth about exactly how you’re going to use this Investment to accomplish your goals and bring your vision to life.
Specifically, why do you need the sum of money you’re asking for, and where are you going to invest in your business? Are you going to use it to develop your team? Or would R&D or manufacturing of products be the next step in your growth plan? If you’re searching for late-stage capital, you may need a marketing boost to help you hit new market segments.
Example – “We’re asking for £500k in pre-money valuation to finance our consumer acquisition strategies and a go-to-market strategy. That’ll give us 18-24 months of runaway to replicate and scale up our business model.
If you already have investors on board, list them here at the end and explain why they have chosen to invest. This provides social evidence and helps to justify the concept further.