6MS Episode 59 Can you Bank ON the Future?

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Can You Bank TO the Future?

Can you bank to the future?

Can you Bank ON the Future?

Well, in this market, no one can.

However you can Bank TO the Future!

How is this possible?

 

 

Let me introduce the subject with this short video…

Simon Dixon has launched a UK Crowd Funding site – Banktothefuture.com – which is seeking to increase the competition in the UK Banking Sector by making it possible for investors with capital to directly access Entrepreneurs and Early Stage businesses.

The real innovation here is that Investors can invest through both debt and equity, as well as make donations in return for non monetary perks, such as pre-orders of a new product.

What are the challenges?

Banks currently do not lend to small early stage companies.

Early Stage UK Venture Capitalists represent a small part of the market and most will not invest in businesses with less than £1m in revenues (although there are a few rare exceptions).

The Stock Market is not available to very small, early stage enterprises.

The Angel Market is very difficult to access other than through Angel Network Organisations and although they help early stage enterprises with the process, they need to be paid for their work and introductions which can be expensive, especially if a relatively small amount of money is being raised ie less than £100,000.

What is Crowd Funding?

Crowd Funding enables investors to invest small amounts of money in a range of investments, thereby diversifying their risk through a portfolio.

The Crowd Funding Loan enables investors to chose which companies their money is invested in and removes banks from their traditional role of taking in deposits on the one hand and making loans on the other.

It is also possible to donate to Crowd Funds to help create businesses for a non monetary perks and help young businesses get started.

Online platforms enable donors and investors to directly reach entrepreneurs and enable them to invest equity, lend money or support by donating money in return for non monetary “perks”, normally a pre-order of the product being made by the new business.

Other examples of Crowd Funding sites include Kickstarter, AngelList and Investedin.

There are two models. One in which the project has to raise the amount it states it needs within a stated time frame.  If the target is not achieved all monies are returned to the pledging investors.  The second model allows the projects to retain the money even if the target is not met.

Bank to the Future falls into the former category.

So what does Bank to the Future do?

The Online process enables entrepreneurs to initially Crowd Fund the finance required to start their business by raising equity.

There is the opportunity to donate money to projects in return for non monetary perks, such as pre-orders of new products and thereby assist the enterpreneur to start his business in a more socially responsible way.

Donating allows investors to increase their Social Capital through Bank to the Future. (Click to Tweet)

The Crowd Funding approach enables entrepreneurs and investors to work together on terms that all participants accept.  An investor cannot change the terms of a deal at the last minute to his advantage.

Later on as the business develops, the enterpreneur may have a better credit rating and be able to raise crowd funded loans from Bank to the Future Investors without having to surrender further equity.

What is the significance of the Crowd Funding Movement?

Since 2008 the difficulties small businesses have in raising capital or getting access to loans from banks have been widely debated.  At the same time the Government (both Labour and Coalition) have consistently taken the position that the SME sector, which accounts for 67% of jobs in the UK, is vital to the recovery of the economy as it has the potential to create hundreds of thousands of jobs.

While the Small Business Sector has more than pulled its weight, it has continued to struggle to get access to the capital it needs to invest.

The internet has proven to be a highly disruptive force in many industries – think of iTunes and the Music industry and Amazon, initially with books and now just about every other product category in B2C retail market.  There is no reason why financial services should be immune and with the continued development of online, disruptive business models emerging, market inefficiencies and the status quo are constantly being challenged.

So is Bank to the Future the new future of Banking? (Click to Tweet)

Full disclosure: I have no financial arrangements of any kind with Bank to the Future.

What Next?

Take a look at my FREE video Tutorial “How to Turn Your Great Idea into a Business” which is all about Starting a Business and Raising Capital.

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Thank you for joining the Conversation.

10

6MS Can you find me the Right Investor?

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What Next?

Take a look at my FREE video Tutorial “How to Turn Your Great Idea into a Business” which is all about Starting a Business and Raising Capital.

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Can you find me the Right Investor?

“Can you find me the right investor?”

“What are the chances of success?”

“What are the odds of finding an Investor for my Company?”

 

I am asked these questions all of the time as if finding investors for companies was like throwing darts at a dart board; if you hit the bull you get funding, Right?

Well not quite.  In this blog piece and the accompanying video, I will try to share with you some of the complexities in the funding process.  I want to try to demonstrate that building a systematic funnel is much better than throwing darts!

Lets start by looking at some statistics from Crunchbase.  This free online database lists over 100,000 companies and over 30,000 funding rounds.  Crunchbase also shows us that there have been literally thousands of Seed Rounds, Angel Rounds and Series A, B and C rounds.  Furthermore over 9,000 funding rounds are unattributed.

In our research over the past decade, we have identified over 1,200 investors in the UK and this dataset only has a small number of Angel and High Net Worth investors.  We are predominantly talking about funds, networks and family offices.

So where do you start?

In the video I walk through a series of factors that need to be taken into account when trying to select investors.

These include:

  • Investor Type
  • Sector
  • Stage
  • Funding Round
  • Deal Size
  • Risk
  • Geography
  • VC Portfolio
  • VC Specific Odds
  • Investment Criteria
  • Deal Criteria
  • Process
  • Documentation
  • Term Sheet
  • VC Deal Flow
  • Conflicting Interests

Unfortunately, finding the Right Investor involves kissing a lot of frogs!

I do not believe that there are any short cuts, they take too long!

I hope you find the video useful and if you want to know more or to discuss any issues I bring up, you can email me at jbdcolley[at]aol[dot]com or contact me through the blog.

You can also download the slide deck from Slideshare at http://www.slideshare.net/jbdcolley/can-you-find-me-the-right-investor-5-oct-2012

What Next?

Take a look at my FREE video Tutorial “How to Turn Your Great Idea into a Business” which is all about Starting a Business and Raising Capital.

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Silicon Roundabout – who’s investing in what?

Wired Magazine’s February 2011 edition has an interesting article on Silicon Roundabout.  This nexus of technology and new media startups around  Old Street, just to the North of the City of London, has been attracting increasing attention from the media and investors.  The essential proposition is that this is a mini-silicon valley start-up hub.

This got me thinking…

Using the list from Wired Magazine’s (have a look here) I thought it would be interesting to see who is investing in what types of companies.

The Universe of Companies

I started with the original Wired List of 86 companies and have added another 25 of my own.  This latter group are all based around the centre of London and do not precisely fit the Silicon Roundabout group. I will keep them distinct in my discussion.  We have a total of 112 companies.

Segmentation.

I looked at the activities being carried out by these business and segmented them into 5 Groups – one of which was Cleantech and applied to only one company (not in the original Wired group).

The remainder then fell into four categories

1. Consultancies

This group comprise 56 of the 112 companies (50%) but only 5 funding deals amounting to a total $94m. However one deal for $75m funded EPAM systems (not in the core Silicon Roundabout Group).  Excluding this, the deal count of 4 is worth only $19.2m.  This is revealing.  It tells me that investors are a great deal less interested in early stage businesses where the core assets/value lies in people rather than software/IPR.

2. Online Tools

There were 11 companies which I categorised in the Online Tools segment. All of them are from the Wired Silicon Valley Group.  Of the 11, I have identified six funding deals for a total of $9.5m.  This represents 55% of the group and supports the investment ethos refered to above.  I believe one of the major attractions of this group to investors is potential scalability and global applicability.

3. Social Networks

This category has 33 companies in it,  of which 23 come from the original Silicon Roundabout Group.  The Categorisation is quite broad and I have applied it to any business essentially trying to address a  community or a group online.  In this group I have identified 10 deals worth a total of $17.72m.  The original Wired Silicon Roundabout group represent 7 deals worth $6.38m.  Clearly one third of companies have attracted external funding.  One company had already gone out of business.

4. Software

The Software Group comprises 11 companies, of which 7 are from Silicon Roundabout.  Five deals have been identified for a total of $62.2m.  If  Corvil is removed from the group (non Silicon Roundabout), the remaining 4 deals still r represent $30.7m of investment.  Once again the intellectual property and scalability of software companies is clearly attractive to investors.

Total Funding

I have identified a total of $238m of external funding to 27 of the companies.  The core Silicon Roundabout Group represent 21 of these companies and a total funding value of $65.6m.  For this group that is an average of only $3.45m per company.

Types of Funding Rounds

In total I have identified 8 seed rounds, 9 Angel Rounds, 11 Series A Rounds,  7 Series B Rounds and 5 Series C Rounds.  Clearly some companies have had more than one round of investment, very often with existing investors following their money.

Seed Investment Rounds

Silicon Roundabout Seed Investment Rounds

Silicon Roundabout Seed Investment Rounds

The average deal size was $280,000 per deal.

Angel Investment Rounds

Silicon Roundabout Angel Investment Rounds

Silicon Roundabout Angel Investment Rounds

The average deal size was $1.63m but heavily distorted by one investment of $8.5m.  Without this deal the average deal size was $770,000.

Series A Investment Rounds

Silicon Roundabout Series A Investment Rounds

Silicon Roundabout Series A Investment Rounds

The average deal size was $6.4m.  The two largest deals were $21m and $25m.  Without these the average size of the series A rounds was $2.71m.

Series B Investment Rounds

Silicon Roundabout Series B Investment Rounds

Silicon Roundabout Series B Investment Rounds

The average deal size was $10m but again with a distorting outlier of $50m.  Without this the average deal size was $5.85m

Series C Investment Rounds

Silicon Roundabout Series C Investment Rounds

Silicon Roundabout Series C Investment Rounds

The average deal size was $13.2m

The deal sizes show a clear and expected increase in size which reflects the increasing maturity of the business.

Investors

I have identified 18 Angel investors and 48 venture capital/funds investors.  I will focus on the latter as a discussion of Angel investors is a much broader topic.

The key question is where are these companies getting their funds from?

Of the 48 Fund investors, 3 come from Russia, 7 come from Europe (excluding the UK), 20 come from the USA and the remaining 18 are UK based funds.  This is the most encouraging finding of my investigation.  The breadth and wide availability of funds in Silicon VALLEY is frequently documented.  I am delighted to have clearly identified a small group of venture (and by that I mean real risk) taking investors who are based in or have offices in London.

It is interesting to me that of these investors, only 3 have made more than one investment; one fund made 6, one fund 3 and the third 2 investments.

In my own databases of early stage investors I have a total of 167 investors including only 9 of the companies involved in the deals in this study.  While there is clearly a market for early stage deals, the types of companies and their perceived risk clearly affects the willingness of any particular investor to commit.

It is also important to consider that each investor will have his/her own requirements regarding revenues, profits, sectors and sub sectors, stage of investment and that this will lead to a fairly rapid reduction in the number of potential investors.  In addition, investors avoid having competing companies in their portfolios as this leads to conflicts of interest.  Therefore if an investor has just invested in a company similar to that for which you are seeking investment, it is more likely not less likely that that investor will decline the opportunity.

Management

The key factor in an investment decision is the confidence of the investor in the management team.  This analysis clearly has not addressed this and without interviewing the companies involved it is not possible to come to any positive conclusions.  One might reverse the issue and observe that the companies who have successfully raised money clearly have leadership which has impressed the investors.   Those who have not raised money may simply not have needed to raise money and this cannot be taken as a criticism of their management teams.

Valuations

This study does not have any measured metrics for valuations.  Typically at an early stage investors look for between 25%-40% of the company for their investment regardless of its size.  Friends and family rounds can mitigate this dilution at the early stage as the management have more control over the issue price of the shares. In addition, companies try to develop progressive valuations, increasing each round, as milestones are met and progress in the business plan delivered.

Silicon Roundabout Funding

Silicon Roundabout Funding

Conclusions

This analysis allows me to draw a number of business development conclusions.

1.  If you are seeking investment you stand a much better chance if you have a scalable and IPR based offering than if you are an agency or consultancy.

2. There are a core group of UK based investors with an active appetite for early stage investments.  I would generalise and say that I would expect all these funds to expect post-revenue opportunities and not seed investments.

3.  There is clearly some momentum behind Silicon Roundabout, but the size of the investment pool is still very limited compared to the US where there is a wider pool of real risk based investors

4.  If you are seeking institutional funding for a technology opportunity you need to investigate the market in depth and specifically target those investors whose criteria most closely apply to your own circumstances.

5. Angel investors also have their own criteria and often invest in smaller amounts.  This often means that management need to put together syndicates of investors.  Angel Investor Groups exist who take some of this work out of management hands but the individual investment decisions still remain with the investors and so their are no guarantees of funds.

6. Investment rounds are very timely and will absorb a considerable amount of management attention.

Silicon Roundabout Funding Conclusions

Silicon Roundabout Funding Conclusions

I hope this discourse is of interest and I would welcome any feedback or discussion.  Please contact me through email, phone or Twitter – details are on my contact page of my website here.  If you like this please RT.