With a half-year record for venture capital investment in 2019 of £3.8 billion, and the UK tech sector growing 2.6 times faster than the rest of the economy, it is a good time to be seeking investment.
However, with an increasing number of companies fighting for the attention of the same investors, being able to stand out from the competition has never been so important. With the odds of successfully securing investment set low, businesses need to ensure that they are presenting an opportunity which is difficult to turn down.
One top London-based, early-stage venture capital firm noted that, of the opportunities it sees, only 0.2 per cent are offered terms. Interestingly, 32 per cent of opportunities the company is presented with are rejected because they fail to differentiate their offering to what already exists.
Being able to demonstrate that the business model is differentiated as a whole – rather than offering tweaks to existing solutions – will increase the odds of success when approaching funders.
Importantly, businesses need to demonstrate that their offering presents a significant market opportunity, with many being rejected if they are seen to be operating in small or overly competitive areas.
Investors will be assessing opportunities with the level of potential returns in mind. Tech companies operating in larger and proven markets will significantly increase the odds of an investment, securing higher returns.
Strong management team
It will come as no surprise to many that surrounding yourself with a strong management team is essential when growing an early-stage business.
Weak founding teams are considered one of the most common reasons that funders reject an investment opportunity.
In the early stages of development, evidence of market traction can be low, therefore the quality of a business’ management team may often be the key factor on which investors will base their ultimate decision.
For businesses looking to raise growth capital, it has become increasingly complicated with the myriad of funding sources available. Being able to identify the right type of funder suitable to your business focus area and stage of development will save you from spending considerable time and effort trying to speak to the wrong people.
An easy place to start is to take a look at investors’ websites, as they will typically outline their investment criteria and how to get in touch.
Also, researching their investment portfolio is a quick way to understand whether an investor has a track record of supporting businesses operating in a similar sector or with a similar business model.
With funders experiencing high levels of deal flow, being able to go through a trusted referral partner can often increase the chances of getting that first meeting.
However, don’t be afraid to cold contact an individual at a fund, but in such a scenario be sure you are contacting the person tasked with managing inbound deal flow, which will typically be the associate or analyst.
AAB’s dedicated tech advisory team includes experts in equity funding, tax, strategy, and cloud accounting. Visit https://aab.uk/services/corporate-finance to find out how we can support your business.
By Philip McGrath, Corporate finance manager at Anderson Anderson & Brown