Britain is fourth in the entire world for producing unicorns. And let’s face it, whilst the media and business press adores a unicorn and the business person behind it, investors don’t actually need one to get healthy ROI; they just need to curate a portfolio of businesses who are out-perfoming others in their vertical and have the potential to be unicorns.
Ideas and innovation are what keeps a country ahead of the times and if the majority of investors don’t realise that they can switch their attitude to pre-seed, then I’m concerned that many excellent ideas are going to fall by the wayside.
In my view, it’s all about need and mitigating risk.
Does tech still have a lure and impact?
Unequivocally, yes. When you look at the aspect of tech from a consumer mindset – physical tech TVs, laptops, phones, are on the rise and sales of IoT are consistent. From a commercial consumer’s perspective, physical tech is still essential to execute jobs, and any form of communication – be it for commercial or consumer – runs through some form of tech.
My point? Tech is not going anywhere. We consume it, we want ways to streamline our experience of it, it will be a solid vertical in its many forms for many years to come.
Media has got us in a spin about tech companies reporting losses and making redundancies. However, if you dig deeper, you’ll see that in many cases it could be argued that it’s just the business levelling out. No business can sustain such a high upward trajectory forever – the bubble burst, and the tech companies had to reassess whether they needed the staff they took on to service the spike.
It doesn’t mean that tech innovation isn’t still needed – it’s just a levelling out of the past few years. Those talented people are now in the tech hiring pool, which prompts a good opportunity for smaller businesses to get key hires and grow.
Are people right to be so concerned at pre-seed investment?
Pre-seed investment is historically considered to be more risky, and I can see why – but only to a certain extent. I’ve been working with pre-seed founders now for nine years and I can assure you that there are ways to mitigate the risk.
Ask the right questions, gain the right access to dealflow and suddenly you’re curating a really worthy portfolio of tech innovators at a better price, or for more equity. For professional investors, it comes down to consistent access to high quality founders.
If a founder has come along after working for years in an industry and they can spot a niche opening, a gap that would be willingly filled and of great benefit – why wouldn’t you listen?
This is where it all comes back to the founder. Anyone can have an idea, but investors want to believe in the tenacity, determination and prowess of the founder to inspire them with confidence in their ability to lead the business, and their investment, to attain ROI.
What founders can do to help turn the perception around
To protect sanity and the business, founders need to create longer runways for themselves in case investment takes longer than expected. The length of time investment takes is one of the aspects that first-time pre-seed founders are always surprised about.
Whether it’s working a part time job or looking at running the business on an absolute bare minimum to survive, extending the runway until investment is secured – and/or sales – is crucial to ongoing success.
The largest concern with pre-seed funding for investors is mitigating risk. It’s not enough for a founder to mitigate risk in just one aspect of the business: it needs to be executed across every aspect of the business.
Founders should create backup supply chains – if their product relies on being 3D-printed, it would be wise not to have a deal with just one supplier: creating a deal with two or three suppliers ensures that order will still be fulfilled and the business can still thrive if anything happens with the supply chain.
You should also do all of the relevant paperwork to ensure your startup is eligible for UK SEIS/EIS tax relief. This mitigates risks for angel investors whilst showing a savvy head for finance and business.
Also make sure you’re registered on a platform (such as ours) to profile your concept to professional investors who are not turned off by pre-seed but are excited to get in early.
You can also outsource work to freelancers to reduce commitments on monthly payroll.
Show potential investors a strong go-to-market plan and stick to it. Very often companies, from startups to established ones, will cut their marketing budgets at the first hint of a recession; whereas history and past experience have shown us that a recession is the key time to get in front of competitors and either maintain marketing spend or increase it to ensure the company is front of mind to consumers when they go to spend their money.
And, finally, collate as much evidence as possible that your concept is needed. If you can get to MVP stage and have users buying it, testing it with positive feedback, letters of intent from shops… all these help to convince an investor that the concept is worthy of investment.
I’d tell my younger self to view mistakes as opportunities for growth