Sales for Startups founder and CEO, James Ker-Reid, talks to Mike Kennedy, a Portfolio Director of Downing Ventures, where they invest venture capital into early and growth-stage technology businesses.
Over to the interview with James asking the key questions and answers:
- Please give us a brief introduction to you and what your role is at Downing Ventures
My role at Downing Ventures is Portfolio Director. We are a venture capital company investing from pre-Series A to Series C+ companies, very much a growth focus on technology-enabled companies with expertise across enterprise tech, consumer, healthcare. We are focused predominantly in the UK and currently have a portfolio of over 70 investors, ranging from early-stage, early revenues all the way through to growth companies operating on a global scale.
- For those that have had funding withdrawal recently, what advice would you give to those founders who have found themselves in that situation?
Always look at what you’re doing, why you’re doing it, why it’s important, why you think it’s going to have that dramatic change you expect. Right now, we’re in an extraordinary time, this situation is so different and bizarre from anything before which is potentially so damaging. But in that, comes huge opportunities, particular for the entrepreneur.
Whilst the large corporates are settling down and hibernating over the COVID-19 winter with large cash reserves, the adaptable, flexible entrepreneur is out there looking for opportunities.
This situation is not about you – that’s the first thing to remember.
You might have to re-size your team to ensure sustainability, but it’s not your failing, it’s not their failing, it’s a bunch of circumstances out of our control. Taking a step back and seeing that everyone is affected by the same thing… Then you can look at why those investors have pulled out, possibly because they have become uncomfortable with the uncertainty, they may feel embarrassed with the valuation that they’ve had, and maybe now don’t want to have that difficult conversation with you.
This is a really good time to have those difficult conversations. And actually accept that the market has changed. You might be able to rekindle those negotiations. You might go back to your current shareholders and say this business has great unit economics now and will do so in the future, so how do we deal with this situation, which is ultimately about survival? A lot of this is about your resilience, resourcefulness and who you know that can help you, but isn’t that the entrepreneurial skillset???
- Do you have any recommendations on what CEOs can do to facilitate discussions with their existing investors as there could be great opportunities right now for them?
Communication is key – communication to your team and making it consistent and regular is expected, it should be the exact same with your shareholders. You don’t know what situation your shareholders are in.
You might have an ultra-high-net-worth individual one minute who feels impoverished the next with many of their portfolio investments calling for cash at the same time and with limited liquidity due to the impact on their sources of wealth and available cash.
However, they also may have solutions for you. You need to get out there and have those conversations and have them fast to ensure you are front of mind! Investors are used to down cycles in general so the question is how do you engage with them and sure up your balance sheet, they won’t be shy doubling down on their best-performing assets. Don’t obsess too much about what you see in the headlines – deals are being done and investors are being incredibly supportive!
- What’s your advice to perhaps first or second-time founders who are fearing one-sided agreements that investors might bring to the table?
The key thing is to get out and explore those conversations and understand clearly the investor appetite across your syndicate and do you need to bring those individuals together for everyone to realise there is significant support? And on what terms?
There is massive downward pressure on pricing in the quoted markets, why would that not translate into the private market? It’s getting out there and having that conversation that’s important. If you’ve managed to prepare and have excellent cashflow or a long cash runway, it puts you in a stronger position and that will likely be reflected in the pricing and how good you perceive the deal to bel. If you’re strapped for cash and pushed into a corner, it’s hard for investors to ignore the nature of the round and the rescue pricing that comes with that perception – risk and uncertainty make for difficult decisions for investors.
- Do you have any thoughts or tips on all these investment options that have recently been released as it seems there are so many options for founders?
It’s definitely not easy to follow or keep track of what’s available as you’re dealing first with political statements on what is on offer from the government which don’t immediately come with the distribution mechanism or the detailed criteria.
When the CBIL loans came out, it wasn’t clear whether it was available to the loss-making SME. Of course, they weren’t as you had to be a normal loan candidate before COVID came into play, therefore not relevant.
The important thing is to use your network to source as much knowledge as quickly as you can which is exactly what founders have been doing.
Furloughing – yes, if you had people who weren’t driving direct revenue or critical R&D, you could furlough them and it’s turning out to be a fantastic scheme, it’s very clear cut, you can see the parameters and is being widely used.
Now we have Future Fund & Innovate R&D – again relatively unclear but should become clear quite quickly.
Like we started our talk about resilience, you need to have a contingency plan so depending on which way it goes, whether it’s around VC future fund or high net worth in your investor space, you need to be ready to strike as it’s limited funds, which will go relatively rapidly, given a large number of innovative companies in the UK.
Most of the actions are in your own control, so if you’re uncomfortable with telling people about their jobs, you’ll have people around you that have done this plenty of times before you can advise you, and support you, so you can get on and do it quickly. Most things that you can do to survive this is within your control as a CEO. Making fixed costs variable, making decisions early – things you’ll never regret and can give you flexibility. The fault will come is with if you don’t deal with and don’t deal with things quickly.
- We have a software industry that is often supported via a partner channel – where do you see opportunities for joint ventures and partnerships and potentially mature into acquisition opportunities for either of the joint venture partners?
Yes in enterprise tech the safest acquisition and often most profitable one is from a partner where you’ve demonstrated value to them and them to you and you’ve gone jointly to market. The risk of an acquisition being the certainty of future cashflows. If they know they have a very strong relationship then that risk is much reduced. Also, it’s an opportunity for competition as you often have a channel where there is a competitive element, thus achieve a better result on the exit.
Communication – who trusts you and who do you trust to go to market in these difficult times, where do you need to innovate and do things differently? The entrepreneur would really miss an opportunity if he or she didn’t realise that they had the greatest tools, ideas and the most flexible way of going to market.
A lot of the larger players are corporate people who find it a lot harder to move during rapid change. These current situations really do rely on the entrepreneur and adaptability – it’s a great time for the entrepreneur. The growth problem in corporates is lack of innovation, inertia and bureaucracy, whether it’s consumer goods company or technology company, both are great at process and scale.
- If people want to know more about Downing Ventures what’s the best place to find you?
Get an intro from your network to the Venture investment team or contact me directly and I’ll connect you with the right investor.
We want to thank Mike Kennedy of Downing Ventures for today’s interview. That is all from us at Sales for Startups today, be sure to tune in soon for more interviews with CEOs and Founders of some great companies that are shedding some light on the current issues we are facing. 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.