Alex Dunsdon is an entrepreneur and investment director. He founded The Bakery London, an ad-tech accelerator that helps big brands including BMW, Panasonic and Heinz to integrate technology into their marketing strategies.
Alex is also Investment Director at SaatchInvest - a seed fund in London that backs truly great entrepreneurs solving big human problems. SaatchInvest’s portfolio includes CityMapper, Dojo and Ometria amongst others.
How To Ready Your Investments For The VCs with Alex Dunsdon
This excerpt is based on our interview with Alex Dunsdon, Investment Director at SaatchInvest.
As an angel, one of your dominant value-adds other than mere capital is your ability to prepare your investments for the upcoming VC rounds that will inevitably occur if the company is to be successful.
Therefore, you have to mould your investments to the ‘VC fit’. VCs have clearly defined metrics and KPI’s that must be met in order for an investment to be made, it is your job as an angel to ensure that your investments meet these crucial KPI’s. So what are these KPI’s that all VCs look for?
- Management Team
- Market Size
Despite the common belief that the hiring process should be left to the CEO, an angel who has the ability to connect and assist in the hiring and recruitment process of talent, is a significant contribution.
Like most angels, VC's look for a quality founding team. At SaatchInvest we look for "humble learning machines". People who want to learn all the time, who will run through walls to get things done, have great instincts, but at the same time are very humble.
And there is a role to play for angel investors in helping to build up the management team. Despite the common belief that the hiring process should be left to the CEO, an angel who has the ability to connect and assist in the hiring and recruitment process of talent, is a significant contribution.
All VCs require incredible, world changing teams, Mark Suster, partner of Upfront Ventures, goes so far as to require the 1st page of pitch decks to be team bios. So if you can provide these hiring connections you will be providing a real service to your investment.
If you do not have these connections, make them! Vibrant startup ecosystems are springing up all over the world, so there is no reason for you not to attend a meetup or event, where you will undoubtedly have the chance to meet very talented individuals.
If you want to add the most serious value, make connections with extremely talented developers, they are undoubtedly the most in demand and the least in supply. A healthy contacts book of devs will position your startup and you in a good position, prior to approaching VCs.
A lot of angels also believe that they do not have these connections, but look at your existing portfolio, look at whether there are any employees who have left and are looking for work or even investments that have gone wrong, those employees now need a job. That is where you come in. As Alex Dunsdon states, ‘the key to success in this business is relationships’.
At the end of the day, this one is incredibly simple. All VCs care about is investing in companies in big markets.
At a minimum, VCs will look for an investment to be able to return their entire fund at least once. So as an angel investor you need to advise your teams to think big and most importantly never talk about early exits, quick flips, acquisition interests, during the meeting with VCs. This will suggest to the VCs that the investment does not meet their return criteria and is therefore not something that they are willing to invest in. Simple as that, chance gone.
So think big, think £1bn market at the very minimum, because that is what the VC will be thinking. However, you cannot just walk in and say your market is a clear £bn market, you must advise your portfolio companies to have clearly identifiable metrics, to demonstrate why you believe that your market is or is going to be a very substantial market.
How can one measure momentum? Simple. Through comparing the cycle of product development, that is why Alex stated in our interview, ‘fundraising is a full-time job’.
That is why it is crucial for you as angels to promote your companies to network with VCs extremely early, even when they are not ready to take further investment. If a VC witnesses your alpha product made by 2 devs, when the company returns in 9 months with a updated product made by 6 devs, the momentum is clear and apparent.
Hiring and product are not the only signs of momentum in a company, many VCs look very closely at beta signups (advise your companies to go on BetaList), press coverage, pricing plans and much more.
The majority of VCs will accumulate these diverse strands of momentum to calculate an overall growth cycle to the business and decide from there whether it is ready for your investment.
So it is important not to focus on one sole aspect mentioned but work on them all in unison.
This is why we are all here isn’t it? We all want ownership of a company that we believe will provide substantial returns. Well, the VCs are not different I am afraid.
Most VCs are looking to acquire 20-25% of your company at a minimum. Co-investments might reduce this to around 15%, however, you will be very hard pushed to find VCs who are content with 8%. Even if you do this is indicative that they are looking to acquire a larger portion of the company at a later date.
Having seen numerous pitches, it is always very entertaining to see the investment required and equity at stake is always the last slide of the pitch deck. Why? That is why your company is at the meeting. So tell your portfolio companies to be bold, even ask the VCs, ‘do you have a minimum ownership level that you like to hit?’.
The key is to be upfront, confident and completely transparent. If they like your company they will want to help to grow it, if they do not, I am sure your company can locate the emergency exit!
Overall, it can be a tough and arduous process in readying your company for the VC round.
However, the most important takeaway from this article must be the importance of VC relationships. Not many VCs invest in completely new companies, therefore your portfolio companies need to be networking and making contacts with VCs for at least 6-12 months prior to needing investment.
Once you have all this in a pot, pack up the bags, it is time to hit the fundraising road!