Am I Investable?
I recently attended an event hosted by the British Computing Society Entrepreneurs Specialist Group entitled How Can You Get Funding to Grow Your Start-up?. The first speaker was Russell Dalgleish. His approach was… unique - he stood in front of the audience and asked:
Am I Investable?
He invited the audience to ask him a question.
After each question from the audience he simply repeated his initial query.
What he was doing (very effecitvely) was to get us to think about how much and what sort of information an investor needs before deciding to invest in your idea?
His answer was simple and you’ve probably heard it before, but it bears repeating:
As little as possible, delivered as clearly as possible
There is a good reason why the term elevator pitch was coined. Most potential investors are bombarded with requests from people trying to extract money from them. Should you be lucky enough to get to speak to one directly you’ll probably be given 5 minutes at most to make your pitch. If you can’t explain the essence of your idea in the first 10 seconds you won’t get any further.
This is something that I think about a great deal when working with our startups on the Geovation Programme. One of my responsibilities as a Senior Innovation Engineer and Virtual CTO at Geovation is to interview the candidates for the Geovation Programme together with my colleagues as part of the selection process. In order to do this effectively we required a set of criteria for scoring the applicants against, and this set me thinking about Russell’s presentation.
The criteria we agreed upon, in order of importance, are:
Our first impression of candidates for the Geovation Programme is the information they provide in their application form. I’m always surprised by how poor these applications are given what the candidates expect to receive in return (£20k in funding plus business coaching and access to a professional product development team). We typically receive around 100 applications for 6 places in the Programme and most of them take the same approach - use as many words as possible. It is usually the case that these words don’t actually explain anything, as though the most important thing is the sheer volume of the application.
In part this is our own fault. We now limit the number of words the candidates can use to explain their startup. With nearly 100 applications to review any descriptions longer than a paragraph simply won’t get read as we don’t have the time. If you want to be sure that your application gets read then I’d suggest limiting yourself to 50 words.
If you can’t explain your business idea in 50 words or less then you probably don’t have a business idea
If you manage to pique the interest of your potential investor by clearly and concisely explaining what problem you’re solving your next task is to convince them that your business is the right one to solve it. The requirement here is that you can demonstrate sufficient domain expertise to persuade an investor that you understand the problem inside out and back to front. This, after all, is why they’re giving you money to solve it and not someone else.
Note that the emphasis here is on the problem and not on the solution. There are 1000 solutions for any given problem, but 999 of them will probably be ineffective because they’re not correctly addressing the problem. The only way to have a chance of creating an effective solution (other than accidentally) is to fully understand the problem. You have to be able to show your investor that you and/or your team have the correct level of expertise in your problem domain to have a credible chance of solving it.
Note that your direct team do not necessarily need to be domain experts themselves - it is acceptable to have advisors or board members who are acknowledged domain experts.
You must be able to satisfy an investor that your team are experts in your chosen problem domain, otherwise why would they trust you to provide a solution?
Another speaker at the BCS Entrepreneurs Specialist Group event mentioned above was Simon Glass of Qodeo. Simon presented a report authored by MBA Researcher Akshat Mathur who interviewed Senior Partners one on one in 40 VC and PE firms in UK and India to determine the current trends prevailing in the industry as perceived by its closest stakeholders.
For me, the most interesting trend identified in that report related to the composition of teams. According to Akshat, the most significant considerations for VCs when making investment decisions on startups are: Team; Technology; Potential Market and defensible IP. Of these 4 significant areas, by far the greatest emphasis is given to Team. On average, team composition represents a whopping 68% of VC investment creteria when considering startups. For established companies this falls to an average of 24%.
The reason for this is that individual team members are not so important at scale as, by then, businesses have become self-sufficient entities with processes in place to manage loss and replacement of team members. Even CEOs are expendable in established companies! However, if you are a startup with only have a handful of team members the loss of any one of them can bring the whole enterprise to a grinding halt. It is therefore critical that your startup team communicates and cooperates effectively.
We also find that startups that cooperate well with each other are far more likely to cooperate with us, and there’s little point in us working with startups that don’t want to cooperate with us.
When you’re starting up, cooperation within your team is critical to prevent the loss of any of it’s members
The Bottom Line
If you are thinking of applying to the Geovation Programme (or, indeed, looking for any other kind of startup investment) it is our experience that you will have a far better chance of succeeding if you can demonstrate clarity, credibility and cooperation.