RECAP: Crowdfunding, BA or VC?

Many entrepreneurs are interested in securing funding through business angels, venture capitalists, or crowdfunding but aren’t sure which option is best for their business. At The Business Funding Show’s latest event, ‘Crowdfunding, Business Angels or Venture Capitalists: What Is Best for You?’, about 100 entrepreneurs came to WeWork Chancery Lane for an evening of networking and learning about their equity funding options from some of the UK’s top investment firms.

Venture Capitalists — Meriwether Beckwith (Oxford Capital)

In the first talk of the evening, Meriwether Beckwith of Oxford Capital spoke about what venture capitalists (VCs) look for in a business. The three factors he cited as most important are:

1. The stage of the business. Most VCs are only interested in a business past the minimum viable product stage, once it has gained some traction and market interest. They want to see proof of concept, a customer base, and a demonstrated product-market fit.
2. An idea that’s “different in a meaningful way.” Regardless of the business’s sector, VCs look for products that are unique and exciting in some aspect, be it the product itself, the brand, or the business model.
3. Market opportunity for exponential growth. Meriwether identified this as the single most important factor. VCs want to know that the businesses they invest in have the potential to grow 10, 20, 30 times their current size. It’s essential that entrepreneurs address the scalability of their business in their pitch to a VC.

Meriwether also reminded entrepreneurs that working with a VC comes with strings attached — giving up part of the business, working under the pressure to succeed in a given timeframe to meet the VC’s expectations, etc. But despite this ‘Faustian’ partnership element, working with a VC can be a great opportunity to build a world-learning business.

Business Angels — Sam Louis (Angel Investment Network)

Next, Sam Louis of the Angel Investment Network gave insights into the process of partnering with a business angel.

• Angels tend to get involved in a business at an earlier stage than most VCs. It’s not necessary for the business to be making money already, but the concept must be proven.
• Expect a timescale of 6–12 weeks. Angel funding is not a viable option for a business that needs money in a hurry. Angels take the money they invest out of their own pockets and get involved in the running of the business, so they need time to get passionate about the concept.
• Keep your pitch deck ‘light’ and ‘interesting.’ In your documents, give just enough information to convince a potential angel to request a meeting.
• The keys to success in finding an angel are:
• a clear market opportunity
• great execution
• momentum
• hard work

Crowdfunding — Andrew Adcock (Crowd for Angels)

Andrew Adcock of Crowd for Angels, a crowdfunding platform, rounded off the talks with a presentation on the benefits and requirements of seeking debt and equity crowdfunding.

• Crowdfunding is great for very young companies. Crowd for Angels typically works with companies of 20 or fewer people seeking an investment of under £100,000.
• Crowdfunding is ideal for:
• pre-selling products
• financing growth in the early stages
• A crowdfunding campaign can be an excellent marketing tool.
• In a campaign page, include images (photos, diagrams) and clear, easy-to-absorb information about the product and goal. And smile in your profile picture!
• The audience of the platform should match the audience of the product. A product for teenagers in unlikely to get the attention of investors in their 40s.
• When pitching to the crowd, have:
• an up-to-date business plan
• an overview of what you’re looking for
• up-to-date management accounts.
• preparation for a face-to-face or phone conversation. Lenders and investors want to see you and your passion.

Takeaways from the Q&A Session

• Crowdfunding is unsuitable for companies seeking tens of millions and companies in the human services sector.
• Sometimes, angels and VCs look for and approach companies they’re interested in, head-hunter-style. However, once the investor gets in touch, the process is the same as if the entrepreneur made the first move.
• Products fare much better than services with VCs. Services are high-risk and rarely scalable enough to achieve the exponential growth that investors expect. They also generally get excited about tangible investments that they can show off to their families and mates. Service-based businesses are better off with a loan than with equity funding.
• Drawing on a mix of VCs, angels, and crowdfunding is possible. A business might use a combination of an angel and crowdfunding, an angel and a VC, etc. The ideal approach is different for every business.
• When contacting a VC firm, email an associate or investment manager rather than a partner. Partners are often too busy to read all the pitches in their inboxes.

One point that came up again and again during the event was the need for a well-crafted pitch deck. Need help crafting a deck that will wow investors? Check out our free pitch deck guide as well as our guidance package to start your funding journey.

Sorry you missed the event? Attend the next one, ‘Due Diligence 101: What Investors Really Want’, on 17 October at 6–9 p.m., at WeWork Moorgate. Book your ticket here.