Adapting To A Funding Desert - tips for Entrepreneurs and Investors in early-stage companies

Ed FrenchInvestment Director, Finance Yorkshire Seedcorn Fund

Ben HookwayCEO Vidiactive

Welcome

Agenda

• Introductions

• State of the funding market

• Implications and responses

• The good news

• Conclusions

Ben Hookway

• CEO Vidiactive Ltd

• CEO Next Device (sold to Mentor)

• 6 years in US

• Experience in US, Europe, Asia

Ed French

• Fund Manager for Finance Yorkshire Seedcorn Fund and SYIF Seedcorn Fund

• Investment Director on RisingStars Growth Funds

• Porfolio semiconductors, software, medical devices

• Engineer

• .

Finance Yorkshire Seedcorn Fund

Litecool

• £15m Fund• Up-to £780,000• £50-400,000 typical first

investment• 12 Investments

Completed• Highly active• Wide spread of sector• High risk high growth

potential

Funding has got tougher

* BVCA Report on Investment Activity 2010

Typical Fund Lifecycle

Build Portfolio Complete Portfolio

Support Portfolio

Where is the bar going?

2012

•Product•Team•Users•Revenues

2000

•‘I have an idea’•‘Have some cash’

2006

•Product or prototype•Founder team•Some prospects?•Some users?

Challenge 1: Scarcity of funders

Investors• “Happy Days”?

• Syndicate early or not at all

• Less chance of a safety net

• “Money round the table”

• Pursue exit earlier and for longer

• More trade investors- hazards!

Companies

• Syndicate early or not at all

• Managing expectations: building confidence

• Allow more time…..

• Competition comes from exit not competitive investors

• Take the money!

Challenge 2: Risk aversion

Investors

• Everyone’s focusing on the same deals:

– Revenue

– Management

• Can you counter the cycle?

– Low valuations= better returns?

Companies

• Building out the team

• Build relationship with VCs

• “NRE” revenue or early sales

• “Selling the silver”

• User engagement not just user count

• Customer referencing

Challenge 3: Time to funding

Investors

• Fast response is a big differentiator

– Can you find faster ways to complete deals?

– Avoiding “syndicate lag”

• But?

• Do you really want to be the first to say no?

Companies

• Can you extend your available time?

– NRE Projects- don’t ask don’t get

– Grants (start early)

– Expect to be “resource poor” for longer

– Is your team ready?

Challenge 4: Reaching investors

Investors

• Opportunity to get involved it better deals

• Swamped by low-quality deals

• Use network and other investors to build quality dealflow

Entrepreneurs

• Concerted sales campaign

• C.F. advisor?

• Reaching alternative investors (trade esp.)

• Persistence, patience, thick skin BUT flexible!

Challenge 5: Tyre-kickers

Investors

• Building syndicates and raising follow-on funding is frustrating

• Be honest with entrepreneurs- word gets round faster if you string people along

• Can you bridge fund to get a better position?

Entrepreneurs

• “Qualify” early look carefully at website for signs of new first investments

• Referrals? Appointments?

• Beware shifting threshold

• Partner consensus

The good news!

• Trade investment is up- good for differentiated plays- care needed…

• Hiring is easier- funded companies can pick & choose

• Grants & seed funds highly active

Conclusions

• Tough time to raise funding, but still possible for great propositions

• Take time, work really hard, listen and be resilient

• Loads of help and great people around

Finance Yorkshire Seedcorn Fund is managed by Enterprise Ventures Limited. Enterprise Ventures Limited is authorised and regulated by the

Financial Services Authority.

Questions