Scaling Skyscanner, Part I: Raise or Fold
If you’re thinking of founding a startup, fundraising is likely to be very near the top of your to-do list. Shane Corstorphine was instrumental in Skyscanner’s critical fundraising rounds; here he shares his guide to getting raising right
Skyscanner was founded by three friends who wanted to make it easy for travellers to find the best flights. Sixteen years later, Skyscanner has over twelve hundred employees in offices around the world, and serves eighty million travellers in fifty markets and thirty languages — each month! This post is the first in a series of blogs in which members of Skyscanner’s leadership team share the hard-won insights they’ve gleaned from their experiences — for the benefit of entrepreneurs and would-be entrepreneurs taking their own startup journeys.
The three Fs in funding
It’s crucial to understand the funding landscape in order to identify the types of investors that match the maturity of your business, while at the same time, thinking about what level of investment you require. The smaller end starts with what some people unkindly call ‘the three Fs’ - friends, family and fools. These are the first people many founders talk to when pitching an idea and, as less than one per cent of start-ups succeed in raising venture capital, the three Fs can be a great way to get started.
This is the point in starting up your business where you are trying to build a very early proof of concept as well as having an initial vision for the end state. This may include a business plan that articulates the vision of where you are aiming to get to and a skeleton strategy of how you plan to get there. Alongside deciding whether the vision is correct, any serious investor will also be checking that the broad strategy looks right and if the team has a track record of being able to deliver. Do they understand and align with the vision/opportunity? Do they buy into the strategy to make this vision a reality? Do they believe the team has the capability to execute? After the three Fs, there may be the angel round, or series of angel rounds, where you secure the investment of a wealthy individual(s) who provides capital in exchange for equity or convertible debt. To get any traction here, you need to have a level of product market fit. This then allows you to raise what is referred to as Series A round, where you bring in an institutional investor.
But let’s row back for a second and take a more detailed look at the three aspects of fundraising that most urgently need to be understood:
- The shape of the business you create
- The dating process
- Running the deal/fund raising for growth
The shape of your business
The shape of your business will determine how much leverage you have and the type of partner you can bring on board. The top VCs have access to every deal out there and will be investing in 1% or less of the companies that they see; therefore, it’s obviously hugely important that you make your company highly attractive and memorable.
Important here is the size of opportunity for a VC should you succeed in achieving your vision (the larger the opportunity you are heading for the better). Great vision married with clarity of strategy (and why you will win), plus a proven ability to execute against that strategy (have you a proven track record of hitting budget? Do you understand the lead indicators to drive the financial metrics surrounding your company?) will get the attention of VCs. Never forget that VCs are first and foremost financial investors and so are highly focused on financial metrics as well as the lead product and commercial metrics.
The dating process
I often see companies that I mentor trying to find the right partner only a few months before they need to raise money. They are several months behind where they need to be.
Any deal will take between three and five months to complete. And this is just for completion - the latter stage of the overall funding process. Therefore the ‘dating process’ needs to be taking place a year before you want to actually fundraise. Well before we had any plans to fundraise at Skyscanner, I kept the details of forty partners who worked at VC firms that I had met at various events (do seize the opportunity to go along to relevant events and to research which attendees are interested in businesses of your size and sector) and would mail them a handwritten note quarterly with a printed update on metrics. The physical update was a deliberate decision, for three reasons:
- I knew the VCs I was contacting would want to compare the incoming quarterly update to the last one so they would keep track of it, and even keep it to hand on their desk rather than file it in an inbox. That would keep my brand visible long after they’d read the update
- I didn’t want any confidential information I was sharing to be passed on to competitors - too easily done over email
- This was a great way of managing to keep track of VC comms. By avoiding email chains with requests for more information, I knew who had received what information and when.
Yes, this was a time-consuming process but it was well worth doing and really paid off. I would often get a quick email from VCs, with congratulations on continuing positive performance and I would avoid any requests for more information. By keeping the directors of the VC firm regularly updated on our business, I ensured they became invested in our journey, and an emotional connection developed. Building this stable foundation with an investment director at a VC firm means that they can properly represent you at the VC committee (a crucial internal meeting where prospects are assessed). This all takes time. You will get the best deal for your company if you are not time-pressured to raise money. The more desperate you are, the stronger the negotiating ground for the VC firm.
Another reason why it is so important to dedicate good time to the ‘dating process’ is that you have to be sure you are very comfortable with your potential investor taking a seat on your board, which is highly likely to happen. Do you think they will be supportive in the long term and through inevitably challenging periods, in addition to the good times ? You need to be considering this as conversations and meetings play out.
Running the deal
Build a business that can achieve the scale of its vision regardless of funding — but will get there faster if you raise the money. You need to make the decision to invest as easy as possible for your potential investors: make sure that all numbers and models are crystal clear, well presented, logical and tied to a clear document explaining your business. The supporting documentation you provide should be of such high quality that the investment director can copy and paste it into the investment paper that she or he is going to submit to the investment committee. A checklist of likely headings should include: background, business model, management team, market and competition; financials (these should include three years of historic data and a three-year forecast), funding structure, and investment recommendation.
It is also key to understand the maximum investment you would require for each VC you are talking to and make sure you have enough VCs in the process to more than cover your required raise by more than double.
For example, if you need to raise £20m and you are speaking to VCs with a maximum hold of £10m then I would suggest a minimum of 5 VCs in the process, which means, initially, speaking to around 20.
It’s also a balancing act; don’t keep too many in the process too long as it’s very time consuming to the point of unmanageable, plus you are sharing a lot of sensitive data. The multiple conversations/low probability of making the round can also put off the potential investors you really want as they’ll not want to invest the time if they think it could be for nothing.
Finally, a word of caution; be wary of accepting a loss of control with your company shares. This means investors will have either the majority of the shares issued or a portion of the shares big enough to allow them to exert a controlling influence on the decisions made by the firm. Also, be extremely cautious of accepting a request/demand for preference shares. These have become common in an era of high valuations and yet they can be very damaging and may even risk founders’ own returns getting crushed — this is what happened to FanDuel’s Nigel Eccles. It’s well worth settling on a smaller valuation if it helps you avoid the potential loss of control described happening further down the road.
Final thoughts
Building a sustainable business from the beginning will ultimately help with fund raising.
There’s a tendency for businesses to try and manufacture growth artificially through high levels of paid activity which is unsustainable. There are two major issues with this:
- Those spikes of activity mask whether you have really achieved Product Market fit or not.
- Driving artificial growth through paid channels can bring temporary success. However, in addition to point 1, this then also makes sustaining growth Y-o-Y incredibly challenging.
Funding Skyscanner
The founders of Skyscanner, Bonamy Grimes, Barry Smith and Gareth Williams were our ‘three Fs’. After the idea of a search engine capable of comparing the costs of flights across airlines had been determined, a plan was put into place to develop the idea. Both Bonamy and Barry kept working in their day jobs for the next couple of years, putting their salaries towards enabling Gareth to work full time on bringing Skyscanner to life.
Later, our series A round secured us a £3m investment from Scottish Equity Partners. Multiple further rounds of investment followed, including one led by Sequoia Capital and another in which we raised $192m. In November 2016 we were acquired by Ctrip.
In the next blog in this series, we’ll be talking about how we scaled from 12 to 1200 team members — and sharing what we learnt along the way. See you there!
Entrepreneurial mindsets a must
While the Skyscanner team may have grown to include more than 1200 amazing people, we’ve stayed true to our startup roots: we have worked hard to stay fast, agile, and when we fail, we fail forwards. Sixteen years after we were founded we’re still growing — if you’d like to help us soar even higher as we enter the next Skyscanner era, take a look at our open roles and get in touch. Entrepreneurial mindsets a must!
About the author: Shane Corstorphine
Shane Corstorphine is SVP Growth at Skyscanner, the world’s travel search engine. Shane originally joined Skyscanner as Chief Financial Officer, where he was instrumental in multiple investment rounds, before becoming SVP of all regional marketing and playing a crucial role in making Skyscanner a truly global business.
Playing a pivotal role in growing Skyscanner from c.100 to 1,200 employees, Shane is also an advocate of the “fail fast” approach in the workplace and the importance of having a growth mindset. Having been an advisor to online startups for more than 15 years, and continuing to advise and invest in both start-ups and scale-ups, Shane is an enthused speaker on all things digital, including start-ups and scaling businesses for growth. In December 2018, Tech Nation published their new book ‘Upscale: What it takes to scale a startup by the people who have done it’ with journalist and author James Silver interviewing Shane exclusively for a chapter dedicated to overseas expansion.
