We interviewed Julie Barber, CEO and Founder of Spark Consulting, working with ambitious organisations, from large corporates to innovative startups, who want to grow fast, innovate and transform how they do business.
We asked Julie to shed light on the investment process for tech startups.
So over to the interview with Julie and our founder, James Ker-Reid with the key questions and answers:
- How open are investors in volunteering what they really want to see from those tech companies?
They are far more open than people think they are. This is why it’s really important to start talking to people as early as you can as you can go and have early conversations… ‘we’re thinking about doing a raise in 3 months, we think you might be the right investor for us, but we’d love to know what you are looking for and what are your key metrics, the key things that worry you’. That means you can tailor what you’re doing to what they need. It makes it easier for everybody.
- Do you find that if you were going out to a pool of investors, would you have a scenario where each investor wants something different from the start up?
90% of what all investors want is going to be the same, but then there’ll be a 10% differential where some will be looking for something very specific. That might be dependent on what they want to bring to the party, so they might be looking for a company in a particular situation that needs particular help, if they are an angel investor, for example, and they want to provide their own input, so no point joining in if you’re already at brilliant at sales and they are a sales specialist, there’s no value for them to add, whereas if sales isn’t your strength, that makes good sense to an investor.
- How do you assess the quality of those value adds that the investor might bring?
It’s all about doing your own due diligence – everybody talks about due diligence in the founder process, e.g. the investor checking out the start up, but there’s just as much that needs to happen the other way round. You need to know who they are, what they’ve invested in before, how long they left their money in a company, how much they’ve invested, what kind of relationships they have built with those start ups etc. If they run a company themselves, go and look up the company on Glass Door and see what people say about them as a person who runs that company – that can be very telling. You need to know who you’re talking to before you walk into a room, similarly to how you would go to a job interview, you would find out who you’re going to be interviewed by beforehand.
- Does Glass Door have good ratings for investors? Is there a lot of information available on VCs?
It depends on where they come from. If it’s a VC, they’re not going to be on Glass Door, apart from if someone who has engaged with that VC before, they might have put some stuff on there, but perhaps not necessarily about the particular people you might be engaging with. If investors come from private personal wealth, they won’t be on Glass Door because they don’t have a company. A lot of investors in the start up scene are actually entrepreneurs themselves who have perhaps had an exit and decided to use some of that money to invest in the start up scene – they will often have some kind of profile on Glass Door. That’s not the only source to look them up on, check out all the other social platforms, you can do generalised Google searches on them etc. You’ll be able to build up a picture of them. Equally, if you can’t find out anything about a person, in this day and age, that’s really telling – why is this?
- Where do you see startups wasting most time in the investment process?
Talking to the wrong investors. They often have an approach of talking to as many people as possible with the thought that someone MUST want to invest in them – this is not a good approach and can be a huge waste of time. As a startup founder, the thing that you’re usually most short of is time and money. Talking to investors costs time and money – you have to travel to see them, it costs money to get there, it takes time to get there and prep for it. I’ve spoken to founders who have spoken to 200+ investors – that’s never going to work, it’s not a strategy, it’s a scattergun approach. What you’re much better doing is putting in some time up front to really research, based on the direction you’re going in, the sector, the stage you’re at etc, and finding 10-20 investors that fit that bill. Make sure they haven’t invested in anyone else similar to you recently, also check how recently they have invested in anything else because if they just invested last week a few million in something, they probably aren’t going to invest in something else straight away. Do that research, find that 10-20, go and talk to them. If they all say no, you have gained brilliant feedback telling you that you aren’t doing something right. You need to go back and ask each of them what were the reasons, then that will help you adjust your approach. You would have only spoken to 10-20, not hundreds, before you figure out what you’re doing wrong. You haven’t burned many bridges at that stage. Make sure you prioritise those original 10-20, working out who you would absolutely love to have on board, and ones you’re not too worried about. Start with the ‘oks’ and refine your pitch and proposition as you go up towards the golden investor. Don’t go in at the top as it’s a good way to burn a bridge early on.
- You mention some people deploy a scattergun approach – why are these people not taking time up front and short listing the right investors?
Generally it’s inexperience. As a founder you start a company because you know how to solve a particular problem and you’re good at solving that problem and decided to start a company to help others solve that problem. But that doesn’t mean you have any skills whatsoever in raising money. It’s not a skillset you’re ever taught. People tend to think they need to get a pitch deck together, do that and then think I’ll go out and start talking to people. That doesn’t quite work. Even if you manage to get a decent pitch deck together and manage to get some interest, if you haven’t done the other work or prep that needs to happen beforehand, and you haven’t got a business plan that stands that well behind that, and you’re not prepared for a due diligence exercise, you’re going to fall over on the next step. As soon as an investor is interested and says ‘can I see x y z’, your answer is ‘oh I haven’t written that yet, that’s not ready or I can’t’, then your professionalism and credibility falls straight off a cliff. So doing all of that prep is something that is a skillset you have to learn and get used to. Often those who have passed Series A have done this many times, have nailed their pitch and can reel it off without thinking. It’s pre Series-A where you see a lot more inexperience.
- You mentioned about researching if the investor has recently invested in another company – how recent is recent?
I count it as recent if the company they invested in is still going and they still have a stake in it. The last thing you want is to be the dropout option – ‘I’ll invest in you and also invest in you and see which one works out’. How are they ever going to fully support you as an investor if they are also supporting a direct competitor? Never a good place to be. However, there’s a clear difference when people are investing in people in the same sector where there’s potential crossovers where you could join up with – those are great investors. These companies can be very close to what you do and some minor overlaps sometimes, but as long as it’s not completely the same as what you do, that’s great as it gives the investor an opportunity to join you up and create better value for everyone.
- From your experience, what are the hallmarks of some of the most successful fundraising campaigns you’ve seen of Seed and Series A level?
There are 2 things that really stand out. The first is that they start in plenty of time. Plenty of time to have early conversations, to find out what those investors want. They start in plenty of time to do all the necessary prep and documentation really well and they start in plenty of time to not run out of money in short periods. I get many calls asking to help with raising when they only have 8 weeks left of runway – at that point it’s too late, you’ll have to find an alternative solution. 8 weeks is nothing, particularly if you’re looking at VC or a family office – that can take anywhere from 3-9 months, even a year to get the money through. The ones that start early are the ones that do better.
Secondly, the ones who understand that fundraising is as much about marketing as it is about actually raising money. If you are doing crowdfunding, marketing is obviously massively important to drive the crowd. But even if you’re not doing crowdfunding, showing your power and depth in the market and visibility in the market, and making sure you show this visibility to the investors, is key. The more you do that the better. Understanding that marketing plays as much a part as your numbers and deck is also vital.
- Is there an ideal time to start fundraising?
It’s always a combination of factors – how much money you have left, what big milestones you have coming up. Ideally, I would start thinking about it at least 9 months before you need the money, so you can get out there and start getting conversations by 7 months, which even then could be tight depending on who you’re talking to. So in a totally ideal world, you’d start prepping a year in advance. Often it’s tighter than that as people are so entrenched in the running of their start up, they bring their heads above water and realise they are going to run out of cash and that makes it very stressful. This can lead to people taking on investors they wouldn’t necessarily have done if they had the luxury of time, which could make things stressful later down the line as you have someone involved that you might not ideally want.
- As a tech founder, what do I need to do to prepare for a fundraising campaign?
There are far more things than we can cover in this session – it would take me a whole day! Some key points are that you need to be able to assess your whole company through the eyes of an investor. It’s no good looking at it through your eyes, because you love it and you’re too familiar with it – find the things that might worry an investor and work out how to fix those before you go and talk to anybody. You also need to work out what the right investment route for you is – is it crowdfunding, angel investors, VCs, family offices and why? Be clear with that route so you don’t waste time talking to the wrong people. You need to prepare documentation that people actually want to read; taking the time to get those things right. You’ll need different documentation for which route you decide to take – everyone needs a pitch deck, but angel investors might also need a one pager and a video. Different things depending on the route. It’s about understanding the whole of the investment process and being well prepared for each step. For example, legal steps, due diligence etc and being well prepared for all these stages. A key challenge that founders often find is that they are really struggling because running a raise is essentially a full time job but you’ve still got to keep the company running and investors want to see you’re not missing numbers – balancing this is hard. If you’re co-founders it might be slightly easier as one can be in charge of raising, one can be in charge of the company. But it’s still putting pressure where previously you had 2 of you running the company. The more you can plan upfront and know what you do now that you’ll have to sacrifice later and prepare for that, the better it’ll be managed and can be delegated. How can you reshape your role to be freed up to do the raise? A really important part of the planning.
- How do I assess if I need outside help and if so, what are the options available?
If you have a really clear investment strategy and a small number of investor targets and you know how to assess your company like an investor would, that’s great, you’re probably doing fine and maybe you don’t need the outside help. If you’re looking at any step, e.g. legal, prep, and you’re not really sure or not feeling confident, or even if you don’t have time to do all of this, those can be good points to bring someone else in to help you. That could mean many things – an external marketing/PR agency, bring in lawyers or other routes. It’s assessing your own strength, knowledge and skill set and comparing against what you’ve got to do, working out where the gaps are and when do we need to bring that help in.
- Are there any tools or tips you would give in terms of looking at the investment process, to actually making that decision, whether that’s the data or the reasoning at each of those steps?
You can look at the investment process as 4 steps. Prep step – realistically takes you a couple of months if you do it properly, then the finding and engaging investors step, then you’ve got going through the legal process and getting them signed on, then you’ve got actually getting the money. I used to always say, the last step is the only one that doesn’t hurt – unfortunately, and increasingly, getting the money can also be painful. This can sometimes take 3 months – and can be the point where you’ve run out of cash. Once you’re in the process with an investor, it’s worth asking how long it could take them to provide the money so then you can budget out. Look at those 4 steps, work out where you need help. Legal processes, you should always get help with this, if you don’t have a strong network you might need help with finding investors. The prep takes a very long time and is needed, can you do this by yourself or do you need help?
- If any tech start up wanted to find you to get some help with their fundraising where can they find you?
Find me on LinkedIn as Julie Barber, or you can go to our website which is spark-consulting.co.uk
Over and out from the team at Sales for Startups. We’ll be interviewing other successful CS leaders, Tech Founders and even recruitment leaders to see why we are missing the mark when it comes to growing existing accounts at tech companies.
If you’d like to be interviewed please comment below or feel free to connect with me on LinkedIn or submit a request on our website.