Learnings from the BVCA Series A Forum

On Wednesday 21st November 2018 I was lucky enough to attend the BVCA (British Private Equity and Venture Capital Association) Forum event focused on Series A investment raises because, as their tagline said ‘scaling up is never easy.’

The event was a well-structured mish mash of speakers and panel discussions all designed help founders and leaders of fast growth companies become better equipped to raise a series A round, or ‘first institutional investment’ as many of the speakers described it. One of my main priorities this year is to help improve the investment landscape for businesses in the West of England so it seems all the more fitting that I should capture and share some observations and recommendations from the event.

The event was hosted by the BVCA and the UK Business Angels Association and generously sponsored by TLT Solicitors and Price Bailey Chartered Accountants and opened with a quick 101 on the current investment landscape from Eric Burg, MD at Pitchbook. He went to great lengths to tell us that there’s no data to suggest that Brexit has caused a downturn in investment and then went on to tell us that there has been a steady decline in the number of investments over the last 4 years. He showed us a graph which suggests that number is currently 365 for 2018 (and was 561 in 2017). The other key trend he highlighted was almost a doubling of pharma/biotech investments (from 12% to 23%) in the last 12 months when looking at deal flow by sector – this was also, notably, more significant in regions outside London.

Reverse Pitches

We heard a host of ‘reverse pitches’ from venture capitalists throughout the day – and these were my notes:

  • Episode 1 Ventures - £60M UK based seed fund which makes 8 investments per year at £500k – 1.5M. They’ve invested in BetFair and Zoopla and tend to look at B2B and B2B2C marketplace tech. They offer two platform partners to help their portfolio companies – go to market strategy coaching and people/recruitment/HR support. Their values are ‘fast, frank and dedicated and they look for:
    • Superstar CEO who have a high pain threshold, show good judgement and have charisma.
    • Potential to be huge
    • Timing – is it right, tech that’s more than research, the competitive landscape
    • Team with a unique position to deliver https://www.episode1.com/
  • NVM Venture Capital Trust – an equity investor with £260M under management (VCT). Offers £2-5M for tech investments. They look for a founders ability to recruit/retain great talent (‘recruit people who are better than yourself’ as someone later said) and who can create a culture in parallel. Tim stressed that the investment process should be competitive and that requires a founder to build and cultivate a relationship over time in order to secure the investment and thereafter. http://www.nvm.co.uk/investor-area/nvt/
  • Downing Ventures – James encouraged those seeking investment to start the process early, and to work on the assumption that there will be delays – have everything you might need to hand and ready before it’s asked for. I didn’t catch his pitch for Downing so do check out their website: https://www.downingventures.com/
  • MMC Ventures – 21person firm looking for early stage, high potential founders at Series A (+ follow on // are evergreen) investing £30M/year in fintech, SaaS, consumer and other sectors. They are UK wide and targeting companies with a worldwide view. They invest £1-5M and will lead, or not. Their differentiator is that they have an in-house research team (who produced a state of AI report earlier this year which mapped 2000 AI companies) and who really understand the tech – its implications and its applications. https://www.mmcventures.com/
  • Draper Esprit – VC and public company (who can therefore be more flexible). They have a significant European partner network. Invest at Series A/B from £5 – 25M and follow on. On average complete 12 deals per year with 50/50 split Series A/B and 50% in UK/Ireland. The deal team is 15 people strong and they’ve invested in Graphcore locally in Bristol. They look for a stellar team, disruptive technology and a big market opportunity in enterprise, digital health, deep tech and consumer sectors. They also emphasised the importance of story-telling – particularly what’s your earned secret that no one else knows and why are your customers buying? https://draperesprit.com/
  • Hambro Perks – 4yr old Venture firm which is privately owned – set up by two ex-entrepreneurs. They see themselves as business builders and look to back businesses in the long-term. They have a couple of joint ventures to facilitate this and also offer office space for their portfolio companies to co-habit with the 25-person team. They have 60 shareholders from 23 companies and look for great teams building tech with a global ambition. They invest in fintech, insuretech, health services and media/business services. They’ve backed 43 companies to date from £10k to £5M. https://www.hambroperks.com/
  • AV8 Ventures – a £115M fund investing $1-10M in deep tech including automated vehicles, cyber, AI. https://www.hambroperks.com/
  • Frog Capital – investing in European software companies at series B https://frogcapital.com/
  • Funding London – very early stage London business seed -> Series A equity investment and loans https://fundinglondon.co.uk/
  • Oxford Capital – UK tech at seed or series A https://oxcp.com/
  • Syndicate Room – Series A platform designed to link founders with family offices and VCs. https://www.syndicateroom.com/
  • The early stage panel included:
    • Mustard Seed – who offer £300 – 500k for companies with a social or environmental purpose http://mustardseed.vc/
    • Playfair Capital – a privately funded angel/fund hybrid which looks at B2B/AI/fintech and offers a significant network to facilitate follow on funding http://playfaircapital.com/
    • 24 Haymarket – who offer £500k - £2M and are a group of 34 angels who provide an investor director for all their investments http://www.24haymarket.com/

      What other insights grabbed me during the day?

      All VCs think that they are different to the others – and perhaps they are.

      One of the speakers described them as falling into three camps – those who don’t offer any additional value, those that offer it and deliver very little and those who offer extra value and actually deliver on it in partnership. His view was that the latter category is the minority but the reverse pitches that we heard today would suggest otherwise.

You should interrogate your potential investors in the same way they interrogate you.

Find investors that you can work with come rain or come shine. Think carefully about who you take investment from – do your due diligence/research on investors and ask others they have invested in to understand what to expect and how they work. Collect references on your potential investors.

Don’t be shocked by the levels of governance and reporting required

The early stage panel and speakers throughout the day emphasised that they push those that they invest in to develop effective governance and reporting early on - to get the practices embedded before they are an expectation. They also want to see leaders demonstrate their ability to recruit/retain great talent and build effective culture in tandem.

Top Tips for founders

  1. A business plan should include both a business case and an investment case.
  2. Putting governance principles in place early on is vital if you are to be successful with Series A round.
  3. Test the investors before you do the deal – ask for their help and see whether their approach works for you.
  4. Think of the long-term picture when putting your valuation together.
  5. If there’s misalignment when you’re looking for VCs to invest alongside angels, get them together to talk it through – don’t assume it’s a write off.
  6. Mitigate delays in the deal process by being ready with the information they need, having comprehensive term sheet, start 6 months before you think you should, share the date you plan to start raising with investors early so they’re ready too.
  7. Find the investor that fits your values, ambitions and expectations for the relationship.
  8. Work out your unit economics and be ready to explain/defend it.
  9. Have an option B that's just as good as option A - you might not realise until much later on that the investor you've prioritised actually isn't a great fit for your business so keep some options open.

If you're interested to find out more about the investment landscape in the West of England and what I'm doing to try and invigorate it, check out this page which sums up my latest insights and activities: https://scaleupgenerator.co.uk/investment

And also this 'challenge page' which sums up what I think the issues are in relation to access to investment in the region, and what support exists here too: https://scaleupgenerator.co.uk/challenges

It was great to see TLT colleagues Jon Gill, Nina Searle and Bryan Shaw and Andrew Mulvenna (Cofounder of BrightPearl and now Venture Partner for AV8 Ventures) representing the South West on the stage and a handful of local founders and regional investors in the audience too.

If you're an investor in the West of England and you want to get more active/engaged locally, drop me a line: briony.phillips@engine-shed.co.uk