THERE’S FINANCIAL VALUE FOR START-UPS IN GOOD NETWORKING AND COMMUNICATION

Entrepreneurs and founders of start-ups who network and take advice both o ered and asked for are more likely to secure investment and become successful than those who don’t.

You can’t be an expert in everything.

So says Richard Cooper, managing director of Oxford Innovation Finance, the home of OION (Oxford Investment Opportunity Network), one of the oldest and largest angel investment networks in the UK, and the Oxford Innovation EIS Growth Fund.

One of the biggest problems, he says, is when entrepreneurs or founders of startups are looking for funding, they don’t always think like an investor.

“There is a definite weakness in fundingraising for the pre-seed phase of a business,” he says.

Pre-seed funding is the investment round which comes when a start-up needs funding to develop their idea into revenuegenerating businesses.

In the past, this round of funding was often achieved through angel investors, family and friends, but in recent years early-stage investors have seized the opportunity to invest. Now, however, such investors are fewer and further between.

“A lot of founders think their technology or science is absolutely brilliant – and so they should. But angel investors in particular are usually generalists and won’t always understand the detail,” said Richard.

Spending a five-minute pitch introducing their technology might seem like time well spent to a founder, but an investor wants to know how the company is going to grow, the capabilities of its management team and the business model.

It’s not all about the detail, give the bigger picture

“While I can totally understand why founders do this – I used to run a software company myself and was so excited about the tech I was developing that I wanted to tell everyone. But a potential investor needs to understand the bigger picture, and that can be quite hard to do. A founder needs to describe how they are going to grow the business and how an investor can exit.”

Oxford Innovation Finance has a large angel investment group of around 670 members. And while Richard admits that investment rounds are taking longer for everyone, thanks to the current di cult economic climate, his organisation hasn’t seen a big downturn in investments because not all angel investors have been a ected.

If others back your technology, it gives investors confidence

What can a start-up do to secure the funding they need to get their ideas o the blocks?

Contacting Innovate UK to apply for a grant is a good first step. And while such grants are not handed out like sweets (this is government funding after all), if a start-up business has a good idea and is willing to put in the time to explain and justify it, they are more likely to be successful.

And if it’s good enough for Innovate UK backing, this will help fuel investor confidence.

Potential investors will need to understand the traction of a business. For instance for a software company, it’s all about revenue. For a bio-tech or health-tech it’s about early trials.

Richard also advises founders to try and raise more than they need, because it’s incredibly time-consuming to have to start fundraising again within six months when they should be focusing on product or technology development.

“You need to raise enough for 18 months so that you have a runway on which to build the business.

“I understand that some founders don’t want to give away equity early on – that approach works in boom times, but not so well in our current economic situation. In the long-term, raising more earlier will work better for the business.”

It’s better to have a growth plan than no plan

The strategically-thinking founder will be planning all equity funding raising rounds from the beginning. “This approach gives an investor confidence,” says Richard. “While an investor understands that a start-up is likely to have to adapt to circumstances and there will be hurdles along the way, at least they will understand about dilution levels – and it’s better to show you have a plan than no plan.”

Richard adds that investors will also look at how a management team copes with inevitable challenges. “New tech can be brilliant, but if it’s really innovative, there are likely to be issues to overcome. How a management team reacts to those is the di erence between a good technology company and a mediocre one.”

When working with a start-up seeking investment, Oxford Innovation Finance will advise them on building the right team, including finding a leader with the right experience to help build the business.

“We usually have a board observer on a company in which we have invested. They will share their industry knowledge and advise on what’s worked before and what hasn’t.”

Oxford Innovation Finance invests in technology and business-to-business and its sweet spot currently is the second and third round of funding, pre-series A. While the business is based in Oxford it does invest nationally.

“We will often get a batch of certain companies in one sector, and it can be very hard to pick and choose, which is why we advise founders to network and find mentors and advisers.

“Start-ups don’t start their business because they love finance and raising money,” said Richard.

“They start their businesses because they are passionate about building a company to meet a real need in the market.

“If they are not educated in how to raise funding, that’s di cult. There is some education going on, and over the last five or six years the quality of companies coming through has improved, but we need to cement that.”

Last year Richard and his team saw a lot of founders presenting technology in the mental health space. This year there is a lot of green-tech.

Innovate UK’s Edge programme is particularly good, he says. “Founders can pitch, and we can give high-level feedback. It’s a really good initial education.”