During a Recession
5 minutes with Stephen Page, Founder of SFC Capital
Finding investment can be difficult at the best of times. How can founders secure funding now that investors are particularly risk-averse?
It all depends on the stage of investment you are at. For those looking at their first round of funding (Pre seed) they will still find a receptive attitude in the market. This is often their first round where there is a lot of interest in start-ups still. There is money out there despite Covid.
If that is, you raise as much as possible at this stage and ideally around £250k-£500k (SEIS and some EIS). Ensure your offering is presented in a very clear and straightforward way. Investors are looking for a great team with a leader and support. An ideal team is CEO, CTO/COO and someone who is looking after the finances. Also show some form of traction. That includes revenues if possible and/or grants that have been attained. Show interest from an angel or two that are experts in your industry who can join the round. This is good validation of your project. The more third-party validation the better. A good team with third party endorsements should be able to raise.
Follow on rounds may be more difficult at present. Many funds and angels are investing in existing investments as opposed to new ones. But generally, the same rules apply as first timers: Show that you have achieved what you promised to do when you raised the first round. Anyone who shows that they did what they promised (or close to it) will stand a good chance of raising seed or series A.
In short there is money out there for great companies. Show how you fit that criteria.
Based on your experience, what are investors looking for in particular these days?
A great team! This is the number one criterium by far. If you are a sole founder you will stand less chance than a team. If you are the sole founder get a team. Give them equity. Share the load. Investors like that. Show you are willing to listen and that you are not obsessed with retaining control through equity. The best companies have a leader whose shareholding is irrelevant to their management and their control.
As far as sectors are concerned, the obvious ones spring to mind during the pandemic. Anything that improves efficiency and productivity for WFH in all the incarnations. Including medtech which has taken off this year. We are seeing more medtech/remote telemedicine companies than all the previous years put together. However, make sure your start-up has longevity and scalability. Not just a quick win such as providing PPE in the pandemic, which alone is not going to get long term investment.
The usual industry rule breakers also apply. Anything that can potentially disrupt an industry (subset of) is interesting. Sustainability and to be green is a must. New foods and food replacements/ new health and welfare apps and new materials are getting investors interest.
What is your key advice to entrepreneurs in order to keep their businesses afloat during Covid-19?
Cash is king. Conserve as much as possible. Do not overspend. Treat the business as though your life depends on its survival. Borrow at low interest rates such as the BBLS. Use whatever government schemes apply to you.
Be fair to your team. Treat them well and they will reward you with loyalty and hard work to get through this. Hunker down till it passes. Don’t panic. Listen. Talk to your team and your customers. Everyone is in the same boat so they will understand. It will end someday. Make sure you are still in business to take advantage of this when the time comes.