Mentor Masterclass – getting your hands on the cash with Michael Gifford
Indigo& co-founder and Chief Operating Officer Michael Gifford has valuable experience that can help SMEs grow. Last week, he shared his tips to make startups and spinouts investment ready in an instructive addition to Future Worlds’ Mentor Masterclass series.
Watch his full talk in the video panel above or read on for Jon Nurse’s blog from the event. This article’s quotes have been generated using the Synote University spinout transcription tool.
“How do you get the money?” Michael Gifford asked as he settled into the bright surroundings of the University of Southampton’s Mountbatten complex. It is – quite literally – the million dollar question for many Southampton startups and fledgling businesses’ sporadic success in this area only serves to prove that there is no simple answer.
“For a start, you need to get away from the natural inclination – particularly in engineers – to downplay your achievements,” Michael continued. “Otherwise, you’re not going to be noticed among the crowd. Don’t be modest. You have to sell yourself, even if that doesn’t feel comfortable.”
Michael may be modest about his own achievements, but he is undoubtedly a top authority on dealing with venture capitalists (VCs). His experience in the area spans well beyond his current venture Indigo& and includes managing the growth of businesses in the science, technology and engineering sector.
“What are the investors actually after?” he asked. “You will have to have a business plan – and they can be a horrible thing to write – but they don’t have to be entirely your own work. You can borrow ideas from potential competitors. You’d actually be crazy not to because a lot of people will have been thinking about parallel problems for a long time.”
Setting out a full business plan to potential investors will include outlining your business model, marketing plan, risk log, client profile, product roadmap, projections, unique selling points as well as your exit strategy – though Michael wouldn’t recommend spending too much time on the latter. “Don’t worry about the exit strategy,” he added. “If you’ve got a viable business then there are plenty of ways to get out of it and the investors will have their own thoughts on that.”
Some vital advice for future startup founders is to make sure that other people review your business plan before it goes to VCs and be willing to invest a little in its design to get it looking as professional as possible.
Once a startup has its proficient business plan, the next hurdle is to work out how to get it in front of an investor. “There are lists for VCs around the country but if you try phoning them up they probably won’t answer, you definitely won’t get in front of them,” Michael advised. “I wouldn’t bother with cold contact – save your stamps. Pitching events can be good and are positive practice, but they don’t necessarily work.
“Another possible route is to go direct to your customers. If your product is going to change a customer’s way of working then there’s a good chance they’ll invest in you if they’ve got the money. A lot of big companies have their own venture funds.”
According to Michael, the best way to meet a VC is to be introduced to them. The key is to find someone that knows them personally, so all serious entrepreneurs should value the importance of networking.
“Of course, you could also try to travel first class on aeroplanes,” Michael joked. “You’ve then got them stuck there for eight hours. That is expensive, so maybe travelling first class from London to Southampton by train might work better in terms of your wallet.”
The next element to consider is what investors will be looking for.
“They’re looking for something they can understand,” Michael said. “They don’t have to understand it in a deep way, but they’re not going to give you any money if it doesn’t make sense to them. VCs normally work within certain areas and outside of that, forget about it, don’t waste your time. Don’t expect them to go even slightly outside of their comfort zone.”
Investors want to see passion, they want to know how intellectual property will be managed, but most of all they want to be excited. “Offer them something they can boast about having invested in,” Michael explained.
It’s also worth entrepreneurs considering what they are looking for from a VC before entering into discussions that could kick start their business. Many attributes will be the same – such as passion for the idea – but a startup founder will also be looking for someone that has good contacts and has deep enough pockets that they could support the business well beyond the initial round of funding. “You want to find someone you can trust,” Michael said. “It’s absolutely fine to do due diligence on a VC. Ask them to send a list of five people they’ve invested in and demand at least one that has gone wrong.”
Masterclass quote – How do you get your hands on the money?
“The first piece is seduction. You’ve got to go out there and persuade them to love you. There’s a delicate balancing act to be done because you’ve got be realistic, when due diligence arrives they can’t discover that you don’t have something you’ve implied you have.
“The other way to look at it would be as fishing – you’ll spend a lot of time casting. You might have a great idea and have spent lots of time targeting particular VCs, but it could still be 40 to 50 before you have a couple that are biting.
“You also have to kiss a lot of frogs. They might like making you jump through stupid hoops because – while there are a lot of really nice investors – it is an industry that can attract slightly arrogant people.”
Michael presented a useful process that entrepreneurs can employ when speaking to different VCs to secure investment. “You prepare, you pitch, you get feedback, and you repeat,” he said. “Don’t be afraid to spend a bit of money getting your pitch deck right. Practice with professionals – you have the Future Worlds team that can help you with that.”
There will be the negotiation, due diligence and legal debate to be had before any deal can be done and entrepreneurs need to be especially careful during this stage. “Don’t change the fundamentals of what you think is really important in order to land the catch,” Michael advised. “You have to know what you’re willing to accept in the negotiation and also think about what’s fair.” One tip that could be invaluable prior this stage is to seek the views of another VC to find out what is normal during the negotiation. Their impartial advice will help set expectations before any difficult talks have started.
Beyond the traditional route of VC funding, there are other alternatives that Michael would encourage startups to consider. These include funding bodies like Innovate UK, the Small Business Research Initiative and even charitable funds for social enterprises.
Securing initial funding is a crucial step on every startup’s dream of “hockey stick” growth, and with the expert support of Future Worlds Mentors such as Michael hopefully more University ventures will cross this demanding hurdle on their road to sustained success.
Listen to the full talk via the Future Worlds podcast, available here.
Check out the Engage section for more events and funding opportunities that are looking to support University entrepreneurs.