Tim Grasby recently joined Midven as an investment manager to develop its relationship with Harwell Capital, targeting investment into UK based technology focused business.
Having developed a University spin-out business which successfully sourced seed funding to get off the ground Tim also has spent time conducting technical due diligence on funding applications. Through this experience Tim is ideally placed to work with businesses with a scientific, technical and academic background through the process of securing funding.
AdvanceSis, the business he co-founded, raised £15m of venture capital and was awarded the Lord Stafford Award for best University spin-out company. Here, he shares some of his experiences and advice from his time establishing AdvanceSis.
For many start-ups in the technology or scientific sector, the path from product development to a working business can be a difficult one. It requires a significant change in mind set and an acceptance of the skills you and your team have vs. the ones you need in establishing a new business.
One of the first things we learnt, and this is particularly relevant for academics, was that the requirements for gaining grants to further your research are extremely different to what venture capital companies and investors are looking for. Very often, research is about achieving the next milestone in the product’s development or pushing the boundaries a bit further, and when obtaining grants, being able to show the work already achieved and what you believe it will go onto achieve, can secure you the next round of funding. Investors need a lot more than that. They want you to demonstrate that you have, or are very close to having a commercial solution, and a clear and researched plan for taking that to market. Understanding exactly what investors are looking for is key.
During the funding process a lack of understanding as to market for the product or the information that investors need can cost you months. Much of this time can be saved by engaging with a venture capital company early in the process. This could be some time before you require the funding, but by getting their advice early on you can quickly understand the commercial, rather than the technical requirements. In addition, developing a relationship with the venture capital company at this stage can be extremely advantageous in establishing the commercial and business relationship which will help drive the success of your new business.
The time frame for your project is important. I mentioned earlier that venture capital companies are looking for a commercial solution with a robust “go to market” plan. It doesn’t mean the product won’t be developed further; in fact it’s much more attractive if it will be, but rather that you are not presenting an investor with a 10 year research plan which will eventually lead to a product. A typical time scale for an exit is within 5-7 years, which means the venture capital company needs to see that your product can be taken to market and produce a return on their investment within this period.
Another area where some organisations get caught out is deliverability. Unsurprisingly we were very keen to secure as much business as possible in the beginning, which while very attractive has to be manageable both from a staffing perspective, but also in terms of cash flow. Venture capital partners are going to want to see prospective or existing customers as part of your plan, but will also want to know how these customers’ requirements will be delivered and the impact that this will have on the business in terms of operational resource and overhead.
It’s worth noting too that if the first venture capital company you talk to is not a good match, that’s not necessarily an issue – most potential investors will be open to these conversations, knowing that not all of them will result in an investment. It is vital that you secure the right funding partner – achieving the full potential of your product is not just about securing the investment. Just as important is the specialist sector knowledge or valuable operational experience that your funding partner can bring, as well as ensuring that your cultures and personalities are compatible for a longer term partnership.