One of the most important things for an early stage company that already has a product or market traction and looking to raise capital into their series A or B is to make certain that VCs understand exactly what the company does. This means, not obfuscating their technology with technical lexicon and showing VCs through a visual medium exactly a) how the company will impact at least 1 billion people or b) through an entertaining narrative how people will interact with the product. Every single company that has successfully raised their series A has had a visual narrative- either a short clip or a video that tells you the company story, the product or a story about the founders. Of course, just because you have a great product video doesn't mean you will successfully raise funds either, but it is a necessary step in fundraising. Similarly if you have great technology but your website is a throwback from the 1990s, it's time to update. With website design platforms such as Weebly and WebFlow, there really is no excuse to have a website that looks like it was made from the early days of AOL, tripod and GeoCities, especially if you are a technology or biotech company.
Fintech startup Revolut is one of many currency exchange startups that have launched in London; however, they distinguished themselves early on to target the younger demographic and successfully raised £13.8 million this year in their Series A. Watch video here.
In the U.K., all companies present their ideas with a short one-page summary of their product or financial projections and a very long Information Memorandum (IM). The IM is a long document that is a hybrid of a business plan with detailed information about the company that more closely resembles a Masters thesis. I have seen some IMs that are 100 pages in length, and I have read through every one I have been sent very carefully, but I'll be honest here- in my experience, VCs, angels, and other investors probably don't even look through the first five pages. Instead, they send it to their assistants or associates to read through and give them the summary. This is something similar that also happens in feature film. Producers rarely read through a screenplay. There are some Producers who read every screenplay- such as some of my colleagues at the Producers Guild of America, but it is more likely that the Producers will send the screenplay to their assistants to read and have them write coverage on it and either make a recommendation or a pass. Of course, the IM is important to have, but it is not the most important aspect of successfully raising into the Series A or B simply because most people do not base their investment decisions on the IM. Most investors immediately base their decision on the short clip or video, because it is an easy way to understand the product and the people behind the product. As there has to be a story present in the slide deck, there has to be a story about the company, and it has to be gripping and engaging.
Instead of obfuscating their technology with technical jargon, Lyst created a visual narrative of how their big data mining technology works, making it easy for investors to understand how their startup is different from other startups in the eCommerce space. They successfully raised $14million in Series B and $40million in Series C last year. Watch video here.
Practically no early stage company in the U.K. or U.S. has successfully raised into their Series A or Series B without a 1) engaging product video 2) video about the Founders 3) 10 page slide deck. Of course, there might be some exceptions, especially companies in stealth mode, but most likely they had some sort of internal, non-public short clip or video that probably captivated investors from the start as well; and others who might have an endorsement from a high profile political official or startups that already have a long list of corporate clients might get on very well without a visual narrative. Obviously there are other important aspects in the fundraising process as well, such as due diligence, and fact-checking information in the IM, and any peer-reviewed articles etc., but this is after the initial clip or video has already piqued the investors' interest. In addition, financial projections are so easy to produce nowadays that many startups and early stage companies use free or subscription based online services to produce them. When I spoke with investors located in both the U.S. and the U.K., they were more interested in Customer Acquisition Cost (CAC) and Life Time Value (LTV) calculations than the 5 year financial projections of companies raising their Series A. Depending on the number of assumptions, financial projections can either be completely inaccurate or too conservative in their final analysis. However, CAC and LTV comes more into focus and becomes very integral as capital is raised because investors use this as a basis for growth. If your CAC value is greater than your LTV, then this raises a red flag.
Instead of inundating their site with complex medical research studies, Big Health instead created a series of visual flow charts for investors to understand their health strategy which helps people achieve health without pills or medications. They also used case studies as Sally above to help investors understand how their system works. Big Health raised $12million in their Series B last month. Watch video here.
It is also good to have an endorsement of your product or a case study ready. It goes without saying that if your product or service is being used by a) another famous founder b) or a general famous person, then by all means, mention it. In the U.K., there is this pervasive kind of "downplaying" one's achievements or attempting not to seem like one is bragging or name-dropping and that is good and well; and that is one of the nicest things about people in the U.K., the inherent humility within the population, but with investors, it's better to be forward. When you're raising your series A or B, humility doesn't really factor in and confidence wins. This isn't to say you should be arrogant and not be prone to rationale or be able to take criticism. However, in a series A, millions of pounds are going to be transferred into your company and a founder CEO who is certain of how she or he will be utilising those funds will the ones investors give their money to. This is one of the reasons why one company A and another company B (who produces the same service or product) might raise £1million and £20million respectively, even though their financials might be nearly identical and they have a similar strategy of growth and expansion.
Although medical robotics is a crowded space with many startups launching in this sector, Cambridge Medical Robotics gave a sense of their workspace by introducing their team and workflow through this video a couple of months before successfully raising $20.3million in their Series A this past July. Watch video here.
Of course, it goes without saying that some founders prefer not to raise so much capital so that they will keep control of the shares of the company, and that is probably the wise thing to do as well; but if you plan to raise capital into the millions, then it's best to keep your self-doubt and indecision limited to the services of your therapist and make a point to be consistent, dependable and as open and approachable as possible. Some founders might get tired of going on "investor dates" and answering the same questions over and over, but this is part of the fundraising process. If you're the type who dislikes talking to people, you might consider having a co-founder who actually likes talking to people. Therefore, you can focus on your product or service, while the other founder keeps up client and investor relations. It goes without saying that having an indecisive or impatient and snappy attitude is not going to win anyone over, even if you're a genius.
By Sierra Choi
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