Know what you want🔗

The early-stage eco-system is awash with different investors, operating at different cheque sizes, with different specialities, and different funding remits. The first question you need to ask yourself is how much money do you need, and what are you going to use it for?

A lot of this will be dictated by where you are in your current journey and what you need to prove in the immediate to foreseeable future to take your business to the next level.

For example, a business at the pre-seed stage will likely be aiming to validate they have a viable business concept, moving the business from an idea into a reality. To achieve this, they may require £300k, which they would typically raise from angel investors, syndicate groups, accelerators, grant funds, and pre-seed specific venture capitalists.

On the other hand, a company raising a Series B round of £20m will likely have a relatively well-established business and be looking to raise further equity to accelerate growth. At this stage they will be seeking capital from institutions such as later-stage VCs, early-stage private equity firms, and strategic corporate partners.

It’s therefore vital that you are clear on what your own requirements are before you know who to target.

For example, our health-specific fund which invests within the Greater Manchester and Cheshire regions (the GMC Life Sciences Fund By Praetura) receives numerous applications each year for businesses which are neither health-related nor in our target area. Without any indication of satisfying both of these criterions, the application has been a waste of time for applicant and funder.

Having said that, you don’t want to try and force your business into a mould which it doesn’t belong. If an investor doesn’t invest in your sort of business, then they’re not right for you, and you won’t be aligned. There will however be a range of other investors who do invest in exactly your sort of business.

To ensure the highest chance of success, you should therefore research the investors which invest at your funding stage, the type of investments which they each make, and if there are any further criteria required prior to being considered for investment.

You may genuinely just want money and to get on running your business in peace. No input, no board seat, no opinions, just a silent partner who checks in every so often for an update as to how their investment is doing.

Conversely you may want someone who is willing to jump into the hypothetical trenches with you, providing a hands-on approach to help you navigate the ups and downs of being a founder. This may include helping solve complex business problems, helping scale operations, weighing in on situations with their lived expertise, or even providing mentorship support. All in all though, the hands-on funder is a lot more involved in the day-to-day operations of the business than a typical investor would be, and this can be a huge value-add if you think you’d benefit from this approach.

Realistically, a lot of VCs operate on a sliding scale between these two extremes – either being more than happy to let you get on with running your business, if that is your preferred approach, or providing a helping hand where possible. However, in general, they do have their preferences, and it’s important to understand what sort of investor they are to work with, and how they can benefit (or even hinder you) beyond the financing.

Regardless of their background, the majority of VCs will have worked with a variety of businesses in diverse sectors, picking up pearls of wisdom and experience along the way.

For example, if you’re a cyber-security business raising a Series A round, you’re bound to derive value from working with a tech-oriented VC who tends to deploy at Series A stage. Particularly if they’ve made numerous investments in the cyber world.

By choosing an investor which has previous experience in your market, you, as a business, can significantly benefit from their industry knowledge, strategic insights, and general guidance. They may even have a deep network of contacts which you can leverage.

All VCs will also have some sort of funding track record supporting them. Whether this is purely the average returns they’ve provided to shareholders, the motivation as to why the VC was set-up, or the volume of assets under management. Each VC, like every company, has a historic fingerprint of hard-facts supporting their performance to date. You can learn a lot from these figures, and they can provide you with a solid overview of how ‘robust’ the funder may be. This can be particularly relevant when considering your present and future capital requirements. You may want to consider aspects such as the VC’s ability and propensity to follow-on, if they tend to lead deals, what their typical time to exit is, etc. As mentioned previously, this is a partnership and you will be able to learn a lot from how your potential partner has acted in the past.

Tying it together🔗

Ultimately, finding that “perfect partner” is a time consuming and laborious process, but it’s absolutely worth it. Having the right investor on board can be the difference between propelling or hindering your business growth, so I would encourage you to really consider what sort of funding partner you want alongside you to drive your business forward.