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Show me the Money

ICON66, November 2009

Fundraising can be daunting for management teams and in this climate it’s tougher than ever. According to the BVCA, the number of deals completed by investors has fallen from 168 investments to only 91 in the same six month period.  Also fewer VC are getting involved in early stage companies, so CEOs who do secure a meeting with a Venture Capitalist have one shot to get it right.    

Carl Francis of P2i and Bryan Keating of Axis Three share their experiences of fundraising at our VC Roundtable, alongside VC investor Stephen Brooke of Swarraton Partners. 

Who’s who at the Round Table:

Carl Francis, P2i

Carl Francis, CEO, P2i Labs

P2i originated as a project within the UK Government’s Defence Science and Technology Lab to make soldiers’ protective clothing more effective against chemical attack. It’s now the world leader in liquid repellent nano coating technology, with applications for footwear, performance textiles, eyewear, consumer electronics, bio consumables such as pipettes and petri dishes, engineered glass and ceramics. Markets also include a diverse range of sectors, from silicon microelectronics, micro-fluidic and micro-engineered items, to industrial lenses and solar cells.

Bryan Keating, Axis Three

Bryan Keating, Chairman, Axis Three

Axis Three has developed 3D medical simulation software by integrating image capture technology developed by Siemens; with its own innovative software.  Current applications target the cosmetic surgery market and are available for the face and breasts. Future applications will target the medical podiatry/orthopedic sectors and 3D gaming animation.


Stephen Brooke

Stephen Brooke, CEO and Co Founder, Swarraton Partners

Stephen is co-founder and Managing Partner of Swarraton Partners, a venture capital firm investing in early and growth stage technology companies based on world class IP. He has spent his career in venture capital, working with companies across numerous industries in the UK, US and South Africa. Prior to founding Swarraton, he worked at IP Group Plc and Columbia University Science and Technology Ventures in New York.

ICON: What was the most daunting aspect of the fundraising process?

Carl: The climate we’re in. We started our fundraising in November and by January the world had changed. We knew it was going to be tough, but funds were extremely tight and VCs were definitely more selective than they have been in the past. They were investing in more developed companies, which presented less risky opportunities.  

Bryan: For us, it was a case of identifying VCs who would have an appetite for our particular offering. Previously, I was involved with a silicon design company and we believed we had a tremendous offering, but it was hard to find investment.  Most of the VCs who invest in our sector are US based and in the West Coast.  But, after a number of pitches in the States, it was clear that money doesn’t travel and we realised our funding would have to come from a VC in the UK.

ICON: What were the reasons that drove you to seek help from an adviser?   

Carl: We needed to look like the world leader we are, so we felt more comfortable engaging a team of professional advisers.   One of the reasons we chose ICON was that we had two of their senior guys through out the process and they became a member of “our” team and we saw that as a big positive.    Also, in terms of chemistry, we liked Alan and James a lot. Our deal hit their sweet spot. We saw they had heavy expertise in our sector and they were also involved in selling businesses as well. This was a big positive for us, as we’ll be needing advice, at some point, for that too.  We felt the need for someone who could work with us now and potentially work with us later, too.   

Bryan:  I’d second that. I’ve have been involved with fundraising with nine different companies over the last 15 years. I’ve done multiple rounds, some with, some without external help, and, there’s no doubt that a professional fundraising team can add immeasurable value.

Carl:  Alan and James knew who to call, and they helped us structure our whole approach, added great value to our business plan, and our whole management presentation.  They accompanied us to VC meetings and provided a buffer between us and the VC when we were in the thick of the negotiations, which was very useful.  

ICON: What is the secret of a good VC meeting?   

Carl: You need to be extremely well prepared.   We had a good story built around our IP. We were commercialising our technology at a rapid rate and gaining traction in huge markets. The technology started as a means of protecting soldiers against chemical and biological attack. Today there are a number of sectors that require super oil and water repellency and those are the ones we are targeting, such as: footwear, consumer electronics, hearing aids, anything with sensitive electronics.    We were lucky, but you know what they say, when preparedness meets opportunity - that’s luck. We were ready and we had a billion dollar management team in anticipation of where we’re going to take P2i  All the VCs we talked to, saw that we were capable of managing the extreme ramp up that a technology like ours most certainly will see.    

ICON: What was the most frustrating part of the fundraising?    

Carl: The huge time commitment for VC meetings. Also, you kiss a lot of frogs; they’re not all going to love you.  

Bryan: For us it was probably the ‘slow no’ - it’s most frustrating when a decision doesn’t arrive within a reasonable time scale.

ICON: If you were advising a CEO about to embark on a fundraising, what would your top tips be?   

Carl: It can be a long and difficult process, so you need a compelling story.  It’s very easy to get everyone in the business sucked into the process so I advise having a dedicated fundraising team.  The process will probably take 60% of the CEO’s time, 60% CFO’s time and maybe 40% CTO’s time.  We kept everyone else out, to ensure someone was calling on customers, commercialising and optimising the technology and driving the business forward.  It’s way too easy for the fundraising process  to take on a life of its own. The very thing you are trying to make look successful then starts to struggle as people aren’t focusing on it, and the result is that your financial forecasts don’t meet plan, which in turn can affect your valuation and, in the worst case, give the VC cold feet. So, my advice would be:    

1.  Start early – however long you think its going to take, it’ll take longer. So give it at least six solid months if not more before you need the money 

2.  Allow enough time in your schedule – I thought I could fit this around my existing job, but it actually becomes your job  

3.  Identify a team for the fundraising and let the rest of your staff get on and deliver on the business plan 

4.  Prepare for the process. Get all the housekeeping in order, get all the IP documents properly registered, and all the customer contracts well documented, so that once you get into the process you can hit the ground running.  VCs don’t buy into businesses for this stuff, but they may certainly not buy into it if the housekeeping isn’t right. You’ll be competing with a lot of other plans they receive that week, so you need to minimise any potential obstacles on yours  

5.  If you’ve got great technology, make sure you’ve got a team that can commercialise it and actually turn it into pound notes. VCs don’t invest for love; they want a return on investment and the bigger the better 

6.  Get professional advisers. Emailing your plan to will get you nowhere fast 

7.  Incentivise your corporate finance advisers financially to get the best possible price from the VCs on the amount of equity you sell  

8.  Don’t get discouraged. It is a long hard process and you’ll have some 16hr days and it will be difficult  

Bryan: I would add:

1.  Preparation, preparation, preparation. Do as much homework and planning as possible

2.  Have a clear concise presentation (10 to 12 slides at most) that covers the key elements. Try not to be deflected by questions during your presentation - attempt to steer Q&A to the end 

3.  Pick up on the body language and the responsiveness of your audience to gauge if you’ve hit a ‘hot button’ or worse, if you’ve lost their interest

4.  Be honest. If you don’t know the answer, say so. Otherwise your sins will find you out sooner or later. It’s hard, if not impossible, to rebuild trust once lost

5.  Do a post mortem after every presentation. It’s vital to have an honest assessment of what went well, what didn’t, and what points were raised and need to be addressed for the next presentation.

6.  Keep your morale up. It takes on average 20 presentations to receive one term sheet.  It’s easy to become despondent after eight or nine rejections

Stephen:  When I’m looking to invest in a team, I’m specifically looking for energy, intellect and integrity.  Carl really demonstrated integrity and honesty at one of our earlier meetings. When I scratched the surface on the company history, he was prepared to say: “ we’ve had issues in the past, we didn’t get everything right, but now we’re on the right track”.  I felt he wasn’t hiding any skeletons.   I would also add that, from my perspective, people are key and passion is everything. People who are passionate about their business tend to do well. Carl and the P2i team were very passionate, they really believed in the technology and they demonstrated how it was solving problems in big industries and markets.    

ICON: Presentation do’s and don’ts?   

Stephen: However, tempting it is, I’d advise management teams not to say that their forecasts are conservative, because if they were, they’d be zero, and believe me, every plan I look at, forecasts £50m of revenue in year five!    The other thing that CEO’s tend to say is that their company will attack other larger companies in the market that are big, slow and stupid. Entrepreneurs say it because they want to appear aggressive, but they can create the wrong impression with a VC by being apparently naive about the market place they’re in. They assume they will hurt the big company but they never do.  So my advice, be intelligent, never dismiss the big incumbent player, there are powerful reasons why the big guys are big.     Secondly, have a really clear idea of what you’re doing. If a CEO can’t explain in one or two sentences what he’s going to do, he probably doesn’t know. If it takes 30 minutes to explain your business, you haven’t got the clarity or the focus.  So, keep it simple and clear, articulate what problem your technology is solving, how big the opportunity is, how you’re going to address it and show some exciting numbers.    It’s important to give your VC a clear idea of what you’ve got and don’t spend ages rambling on about the technology.  A CEO’s job when he is presenting to a VC is to get these core points across as everything else hangs on it.  Focus on getting your core messages across in your presentation,  then go straight to questions. As soon as you start elaborating and your presentation gets beyond 10 slides you’re overcooking it.   

ICON: Secrets of a good VC Meeting?    

Carl: A good meeting is all about getting in front of VCs who understand your sector. If they don’t, they’re not going to invest.  Plenty of VCs understood our offering intellectually but they couldn’t see the potential or the scale, whereas others saw it immediately.   

ICON: What are the considerations when choosing your VC?    

Carl: There is always going to be a debate about price with a VC but I would also say it’s important to factor in other things too. As a management team we got on very well with our existing investors and we wanted a new investor who could bring the money, but also be able to make positive contributions, and be someone our other shareholders felt positive about.  We chose Swarraton and Naxos because they saw the potential, they were intelligent and could add a lot of value to our business without trying to micro manage us.  They also had a lot of great contacts and they have a lot of good ideas.   Almost all VCs say they add value but I’m not convinced, so choose your VC wisely.  Our VCs brought contacts, deep pockets and the ability and willingness to invest next time.  Importantly, they also moved very quickly - the initial meeting to money in the bank took less than four months. CEOs need to be aware that the longer the process goes on, the more risk is involved and deals can fall over during the final hurdles. We put a lot of value on the fact that Swarraton and Naxos could, would and did move quickly. 

ICON: How did the process stack up against your preconceptions?

Carl: I thought the process would be quicker and I wasn’t expecting just how difficult it was.  Because I was so close to our business I could see the huge potential, and the fact that not everyone else could see that surprised me.    

ICON: Just how competitive is it out there Stephen, how many plans would a VC see in a good year?    

Stephen: We receive 300 plans a year, we’ll look at 30 more closely and do three or four a year. So out of every 100, 10 will get closer inspection and we pick one. I immediately discard anything that’s not in my sweet spot in terms of sector. Then it’s the quality of the opportunity, quality of the management, the scale, the customer traction, the business model.    If it is in the right sector, are they looking for the right weight of money? If they’re looking for £200m then that’s not for us.    So advice to CEOs approaching a fundraising would be: make sure you target VCs who understand your sector and importantly make sure they invest at your level, so if you are looking for £1m to £3m don’t approach a VC who only invests in later stage companies, we all have different sectors preferences and investment appetites.    

ICON: What made P2i leap from the top of the pile?   

Stephen: I like advanced materials, so I was excited as soon as I read the plan but I think what really stood out for me was the business model, I thought, wow, these guys have got something customers really want.    They also had customers, which helped as it took away some of the risk. This was a disruptive technology with strong IP and high barriers to entry, so it would be very difficult for someone to do what they do.

Where did ICON add the most value to the process?

Carl: ICON had the market knowledge and existing relationships, so they got us in front of the right investors. They were able to open doors that we had no access to. They fast tracked the whole process and speeded up the transaction; which ultimately allowed us to focus on hitting our numbers and building our customers. It made for a much better use of our time and allowed us to be much more selective about who we approached, because the ICON guys knew "exactly" who to go to, who'd be interested, who wouldn't, who had an appetite for our sector but couldn't invest because they were fully committed. We had 19 management meetings, and we got seriously engaged with nine VCs before choosing Swarraton Partners as the best.

Stephen: Guys like ICON know the market very well and I know if a deal comes from them, the chances are it's going to be one of the best opportunities I'll see that week. We get a lot of cold calling but most of the quality deals come from our networks, other VCs or a good corporate finance house, as they act as a filter.

Bryan: I was delighted with how the whole process went with ICON. Their preparation work was invaluable and the standing ICON has in the VC community soon became very clear, as VC doors opened to us. We had a very fair hearing at all our presentations and you can't ask for much more than that in this business.


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