1. Team is everything – “we’re looking for A players”
To an investor, the team behind the startup is key – ultimately the success of the business will come down to how the team performs and adapts to the market. The quality of the team plays a large part in informing an investor’s decision on whether to invest. The attributes we look for in teams are:
- Bootstrappers (see point 3): scrappy teams who have built their business capital efficiently and have demonstrated that they can get customers to pay for their product.
- Adaptability: having great insight into the market and a view on how it will evolve is important, but being able to change and adapt the business to the market conditions is key, particularly in high growth companies.
- Experience: Having people in the business who have ‘done it before’ is very valuable. This doesn’t need to be the CEO – a first time founder can add huge credibility to the team by bringing on board executives who have experience growing businesses. It’s worth using equity to get “A players” into the business. This applies equally to executives as well as board members / advisors.
- Likeability: To secure funding, investors need to like the CEO they are considering backing. Firstly, because they will be spending a long time working together. Secondly, if the CEO is very likeable it gives the investor confidence they will be able to get customers and potential new recruits to like them.
2. Big ambitions – Go big, but plan meticulously
We want to invest in companies with a big vision to define a new market or to disrupt an existing one. At the stage we’re talking to companies they have usually done this in one or two geographies, and we’re working with them to go global. To secure investment we want to see:
- Proof points that the sales model works: e.g. we have a model, based on history that shows how productive new sales hires are likely to be. So we know that if, for example, we invest x million in sales and marketing it will generate y in revenues.
- A product / service that is unique or differentiated enough to compete in new markets and that can scale.
A credible financial plan. As growth investors we want all our investments to be successful so don’t want to bet the farm. We want to see expenditure that’s linked to revenues and know that CEO’s can pair back spending if there are delays. Essentially we are very happy to invest aggressively in growth but we want to have visibility on revenues to be generated.
3. Bootstrapping is best
We like companies who have got to be where they are without having raised external investment. Businesses that are bootstrapped are more likely to secure investment because they are usually highly customer focused. They rely on their customers (not their investors) as their source of funding. Investment decisions made by bootstrapped companies are usually less speculative and capital is allocated effectively.
To secure investment, it’s also important for a company in the early stages of development to have the time to determine where they want to play in the market.
Once a company has proven that they have a place in the market and customers are buying we believe that’s the right time to raise capital. For me this point is when a company’s revenues are around £500k a quarter. We also recommend that founders take some secondary (cash out) as part of a transaction in order to have enough cash set aside to feel comfortable taking risks.