In 2022, as CEO of ProofID I went through our first funding round – from bootstrapped start-up to a £15 million investment from Maven Capital. It was akin to a crash course MBA at Harvard Business School, but it’s taken my appreciation of business to a completely new level and provided key skills that I’ll use for the next part of our journey.
Nothing could have prepared me for the investment process, but realising that organic growth could no longer sustain us, I knew the business needed an injection of capital, and there were things I wish I’d known at the outset to make the process easier. As the saying goes, you only get one chance to make a good first impression, and that’s certainly the case when searching for investment.
From factfinding at the outset, to the creation of an information memorandum, looking for potential investors, the process of due diligence and a letter of intent from a potential match, it was an intense six-month journey.
Looking back, we were miles away from where we needed to be at the start of the process. So here I share five core considerations if you’re about to embark on the same journey.
Get the right advisors
Hiring advisors is expensive, and so prior to investment it’s harder to justify. Undoubtedly, you’ll do some of the fundamentals yourself, but you do need some level of sound advice, because understanding what ‘good’ looks like within the process is important from the outset. If you need to prioritise, an adept and knowledgeable financial person who has been through the private equity world and knows what metrics investors look for is vital. If those metrics aren’t in your initial information memorandum, investors may just move on, and opportunities will be lost. You also need a great legal team – someone who knows the negotiation and the terminology every bit as well as the investor does.
Get your ducks in a row
If you’re embarking on this journey for the first time, then its wise to do some homework before you begin in earnest. Some of this is talking to your network of people and if possible, speaking to some of the right people in equity firms too. We probably began this earlier than needed and were having preliminary chats for over 18 months to two years before we moved forward formally. They were useful, put us on the radar and opened doors to the right kinds of conversations to move us into a place of action.
Be prepared to get detailed
I hadn’t fully appreciated the level of detail required to present to a potential investor. From the initial information memorandum containing all the positive aspects of the business and specifying an accurate representation of our work, through the more detailed scrutiny of due diligence. When you’re in start-up mode you’re not thinking about every element of your health & safety or HR policies, but the level of detail, quality, and consistency you need across all your internal systems, processes, management information, accounts, and legal details must be near perfect, and it must be made available in a data room for analysis by an investor. So be prepared.
Make sure you find the right partnership
There’s a sliding scale between total micromanagement and hands-off investors. You must decide where you’re comfortable operating. Do you want an off-the-shelf playbook to follow every step of the process moving forward, or is your industry a bit different and you need more room to manage things? With Maven we found an excellent balance, they are interested, understand, and know the detail but they look to the management team to say, ‘this is what we want to do and how we want to do it’. Find your balance.
Get the fundamentals right
Given the economy, it’s never been more important to get your fundamentals right. Growth is an indicator of underlying business health, and if it’s not there, it’s a red flag. Without a rapid growth trajectory, it will be important to show something else that’s equally as strong – such as recurring revenue for example. You should also be indispensable to your customers, making sure that you’re delivering what they need to help them through their journey. An investor will speak to your customers, so there is no room to hide.
The process was hard work, but it’s been transformational not just for the business, but for me too. We’re in a much better position moving forward and rather than worrying about cashflow, the things that keep me awake are different. They’re related to performance and are more proactive rather than being in that reactive world we were in before investment. I have absolutely no regrets whatsoever, and I’m excited to see what comes next.
‘The team is vital’ – former footballer on growing his startup