January 2022

BehindTheRaise with Pantee

Tell us about what got you into startups:

A few years ago when myself (Katie) and my sister (Amanda) learned about the sheer amount of waste produced by the fashion industry, we knew we had to do something about it. So, we came up with the idea to launch Pantee – the world’s first underwear brand made from deadstock t-shirts.

Raised remotely during the pandemic, we began bringing Pantee to life in late 2019 and after a year of research and product development we launched pre-orders on the crowdfunding platform, Kickstarter, in November 2020.

Katie and Amanda McCourt, Co-founders, Pantee

Why did you decide to raise investment?

From day one, we have been on a mission to disrupt the fashion industry and build a brand that pushes the boundaries of what can be achieved with deadstock fabrics and by upcycling. We planned to raise the investment from the beginning, first with a crowdfunding round on Kickstarter and now with an SEIS raise with Angel Investors. We wanted to do this to give us the resources to further amplify our mission and set us up to create a greater impact in the future.

What is your top tip for anyone raising investment for the first time?

I think everyone would say this, but don’t be disheartened by the rejection. As first time founders, we found the process of raising very difficult and we rode extreme highs and lows from start to finish. You’ll hear so many no’s, but it isn’t necessarily a reflection on your business or your idea – you just might not have been speaking to the right person.

What attracted investors to your company?

We were able to prove a strong amount of early traction that Pantee had received within the first few months since launching our D2C eCommerce store.

Within a short time of launching, we had grown an engaged community of over 10,000+ women, were racking up 5* reviews on Trustpilot and had been featured by the likes of Vogue, Stylist Magazine, Drapers, The Observer and named a ‘Top Sustainable Underwear Brand’ by The Independent.

During the raise period, Pantee also received recognition from major global tech companies having been featured on Shopify’s ECommerce Masters Podcast and awarded Klarna’s Small Business Support Package.

This really helped us to prove to investors that the brand was not only resonating with early customers that loved the product, but that it was innovative and newsworthy – building their confidence in our brand awareness capabilities.

My biggest fundraising mistake was…

Don’t underestimate how long you need and celebrate every win, no matter how small.

Raising investment can be a long process. It’s never too early to start building relationships with investors to instill confidence in both you and your idea. Get them excited about your business and take them on the journey with you, the more involved you get people early on the more likely they will invest, in my opinion.

It’s really easy to get bogged down by the no’s which you will get a lot of, in most cases more than the yes’. Don’t let it slow you down – we were given some great advice by a fellow startup founder who advised us to ‘learn to enjoy the rejection’ – once you stop taking it personally it allows you to learn from it – in a productive sense!

Why did you choose to use the Angel Investment Network?

We signed up to the Angel Investment Network halfway through our raise to expand our search away from our own network and connect with new investors from different backgrounds. It was a great decision as it led us to connecting with one of our biggest investors that was instrumental to helping us close the round.

What has the funding enabled?

We have just closed our SEIS raise and have already begun putting in place our strategies to further amplify brand awareness, build a core team, expand upon our lean product range and certify our sustainability efforts with accreditations.

Keen to hear more?

If you would like to see what other companies are up to on Angel Investment Network, or are interested in raising funding yourself, you can find your local network here.

An Investor’s Guide to Key Startup Metrics

Angel investors generally invest early in a startup’s life, meaning that if they identify successful investments, there is potential for huge returns. One of the key steps for angels to assess investment opportunities is looking at metrics and benchmarking against other similar companies.

To be clear, every sector, and indeed every startup, will have different relevant metrics, but these should be of use as a starting point:

Churn rate

A company’s churn rate is the percentage of customers that cancel in a given period. It’s of particular importance, in that acquiring new customers is typically considerably more expensive than acquiring new customers.

Furthermore, if a company has a high churn rate, it can be a sign that there are issues with the product, or potentially that the service does not provide long term value for the customer.

Liquidity on the Balance Sheet

Looking at a company’s balance sheet to determine the spending power of a company gives a number of important insights: how long the company can cover expenses and continue to operate, a company that is overextended, for example, may give cause for concern about their management style, consequently having an impact on whether you wish to invest.

Monthly Recurring Revenue (MRR)

Particularly relevant to subscription businesses that will have new customers signing up, as well as existing customers cancelling (churning). MRR gives you an effective way of evaluating the growth of a company and projecting ahead.

MRR is calculated by multiplying the number of customers on a monthly subscription by Average Revenue Per User.

Customer Acquisition Cost

Customer acquisition cost (CAC) is the cost to acquire a new customer. Typically for new companies this will be high, as they only have limited insights as to how to target their customer and have yet to fully optimise their conversion funnel.

However as they start to scale, there will be a competing factor, as you start to bid for more traffic in auctions on platforms such as Facebook and Google Ads, it will become more expensive on a per user basis to get more users.

EBITDA

EBITDA is defined as earnings, before interest, tax, depreciation and amortisation are subtracted. EBITDA is a profitability metric that strips out expenses that might obscure how a company is actually performing and therefore gives a cleaner interpretation of how a company is actually performing.

A higher EBITDA margin (EBITDA divided by total revenue) indicates a more financially stable company with lower risk.

Customer Lifetime Value (CLTV)

By measuring customer lifetime value (CLTV) in relation to customer acquisition cost (CAC), you can estimate the length of time it takes to recoup an investment to acquire a new customer.

Customer lifetime value is calculated by taking the average purchase value and multiplying it by the average number of purchases that the company in question obtains.

A predictive customer lifetime value model will take account of the fact that customers’ future behaviour might change, i.e their purchasing may become more frequent in the future due to certain factors.

Break-even

Getting to break-even is the point where total revenue reaches total costs. When a startup reaches break-even point, any money earnt above that is profit. As such, the startup becomes less reliant on raising future investment to keep growing. From an investment perspective, if the company is likely to achieve break even quickly, then it has the effect of de-risking the investment.

Net Promoter Score (NPS)

Net Promoter Score is a measure of the overall customer experience. NPS is calculated by asking ‘On a scale of 0-to-10, how likely is it that you would recommend our service to a friend or colleague?’. Customer that score a 9 or 10 are classified ‘promoters’, those that score 0-6 are classified detractors. NPS is the total number percentage of promoters – the total percentage of detractors.

NPS provides an insight into how happy customers and is therefore a leading metric that can be used to understand the potential for revenue and value capture in the future.

Keen to hear more

As your investment journey continues, you will become more familiar with the investment metrics that you should pay close attention to. If you are looking to learn more about investing, you can read our investing guides here.

Acing Due Diligence: Selecting Startups Like a Pro

Antonis Argyros is the CEO of Vesquad, in this guest post he shares advice about getting Due Diligence right – from setting up processes and using relevant tools, to getting to know the founders. Vesquad support investors by enabling them to provide hands-on support to their portfolio companies through an integrated approach.

As an angel investor, handpicking promising startups that actually do have the potential to succeed is one of the most challenging tasks you’ll have to undertake. Europe in 2021 had one of the best – if not the best- years in terms of startups’ revenue, which possibly exceeded $100 billion in total venture capital investment, according to a report created by Atomico for the investment firm Cambridge Associates. But how can you ensure that you’ll secure a piece of that revenue?

By creating a transparent and objective process of evaluating which ideas and early-stage startups are worth investing in, you’ll be able to identify the most profitable opportunities and increase your revenue through successful exits. Building and implementing such a process allows you to identify a startup’s weak points early on to evaluate which of these can be improved through operational support or which could lead to failure.

For a VC firm with multiple investors, one profitable exit for every ten investments might be an acceptable ratio. For an angel investor, however, a thorough due diligence process is essential in decreasing investment risk as much as possible. Bonus points, providing constructive feedback to the founders of startups that were not selected for funding, gives them the opportunity to improve any weak points and emerge again as a candidate startup with more potential in the future.

However, handling an entire portfolio of companies and at the same time evaluating new investments can be very time-consuming. To make things easier, we’ve gathered the most important steps that will help you during the due diligence process, and the things that you should look out for before investing.

Build a structured process

Before moving on to financials, you probably already have certain basic criteria that a candidate startup needs to meet before investing in it, such as a specific area of focus or a specific market both in terms of technology and geography. If not, make that your number one priority.

Assuming that you have, in order to better examine if those criteria are met, you’ll need to build a structured and transparent process that will ensure there will be a careful evaluation of all the desired parameters before a startup becomes part of your portfolio. The best way to do that is by dividing your process into stages and identifying what you need to examine during each stage. This will help you to quickly eliminate any startups that you don’t think would be a good addition to your portfolio and focus on the ones that seem fit.

Get to know the founding team

We’ll start with the basics, as this is something that is often overlooked, usually due to everyone’s hectic daily schedule or due to the fact that we tend to focus on business and forget about the people. Dedicating some time to grasp a founder’s vision can reveal a lot about the startup they’re trying to build. What their background is, what skills they have and what value they can bring during later stages, what inspired them, and what drives them are all questions that will help you establish a relationship with the people you’ll possibly be in contact with until that much-coveted exit.

Enrich your inventory with the right tools

To gather all the necessary information that will guide you in the right direction and help you conduct the due diligence in the most effective way, you’ll need a series of different tools for each stage of your process. You could start with simple tools, such as an extended questionnaire with targeted questions that will give you an idea about the basics, such as the vision, the value proposition, the market size, and the KPIs. Keep in mind that the entire process should be guided by a positive attitude since the goal is to find the ideal fit for both the investor and the startup so that there is a win-win situation.

At Vesquad, we’ve developed a series of tools exactly for this purpose, that can help you automate the due diligence process by going past the basics and defining in precision the maturity level of each venture.

Adopt the best negotiation tactic for your personality

When negotiating financing, it is important to aim for a result that will be fair for both sides, keeping everyone content, and that the relationship between everyone involved remains intact. The composition of a legal term sheet that will be beneficial to you and at the same time attractive to the startup’s founders, can be achieved through the right negotiation tactic that matches your personality. These tactics have analogs and can be useful or ineffective in reaching a negotiated agreement. It’s crucial to understand how different styles complement one other, how some conflict, and how some have inherent advantages.

Being prepared in advance of the meeting and having a specific plan is crucial. This will give you the opportunity to be prepared about which terms you will be willing to accept and when to abandon the deal, which if it is left to be decided during the meeting can lead to mistakes and ruin the relationship with the founding team. This is why building a relationship beforehand, as mentioned earlier, is crucial. Knowing the people who will attend the meeting could reveal their strengths, weaknesses, motivators, and insecurities, which can give you valuable insight and ensure a better deal.

After the deal has been sealed, what’s next?

We said that selecting the right startups that will lead to a successful exit is one of the many challenges an investor will face. The next big challenge is everything that takes place during the interval right after the investment is made and during the startup’s exit. Maintaining a close relationship with the founding team is equally important even after the investment has been made. There is more and more data showing that founders expect more than money from all their funding sources. So how can you stand out and satisfy that ever-increasing need?

By offering an added value that goes beyond capital itself and focuses on the operational needs startups and their founding teams have in order to grow. This is exactly the value we offer both to investors and entrepreneurs at Vesquad. We can help you adopt an operational model and provide hands-on support to your portfolio companies in order to accelerate their growth and minimize failure rates. From sourcing new ventures to supporting your existing ones, we’ll connect the dots for you so that you can focus on the cool stuff.

How to become an Angel Investor

2021 saw a record number of investors join Angel Investment Network. We expect to see the trend continue into 2022, with both established investors and new investors joining the platform.

If you are thinking about taking the plunge for the first time and getting involved in backing some of the great businesses of tomorrow, here’s our guide for getting started:

What is an Angel Investor?

An angel investor is an individual who backs one of a startup’s first rounds of funding, investing their own money, rather than a venture capitalist (VC) that invests pooled funds at a later stage.

The term ‘angel’ apparently originally came from Broadway theatre, where wealthy individuals gave money to help bring the theatrical productions to life.

Why should you become an Angel Investor?

Backing startups whilst high risk, opens you up to much higher potential returns than traditional forms of investments. In some countries, governments also provide tax breaks to investors that back startups.

Who can become an Angel Investor?

In the UK, to qualify as an angel investor, you will need to meet the criteria of either a self-certified sophisticated investor or a high net worth investor:

Self-Certified Sophisticated Investors

Self-certified sophisticated investors need to broadly meet at least one of the following criteria:

– Have been a member of an angel network for at least 6 months;

– Made two investments in an unlisted company in the last two years, this could for example include on crowdfunding platforms;

– Work or have worked in the last 2 years in private equity, or providing finance for small and medium enterprises;

– Be a director of a company, or have been in the last 2 years with annual turnover of at least £1 million.

High Net Worth Individual

Achieving high net worth individual status broadly means that you have a salary in excess of £100,000, or net assets excluding property of over £250,000.

US – Accredited Investors

In the US, angel investors are normally (but not always) individuals who have accredited investor status. The Securities and Exchange Commission (SEC) defines an ‘accredited investor’ as one with a new worth of $1million in assets, excluding personal residence, or having earned $200k income for the two previous years, or $300k for married couples.

How much do you need to invest?

Whilst startup ticket size varies hugely, a typical amount that an angel investor might invest is between £10k and £50k in the UK, and $25k to $100k in the US.

Should I diversify?

Many investors aim to diversify their investments by building a portfolio with 10+ investments, in the hope that a few successes will counter any companies that are unsuccessful, leading to a positive Internal Rate of Return (IRR) on their portfolio.

How do you get started?

On the Angel Investment Network platform you can set preferences for the kind of deals that you are interested in and get relevant opportunities sent to you, or use the search facility to find deals worldwide.

Providing you either meet the criteria of a self certified investor or a high net worth individual, you can sign up as an investor on Angel Investment Network here.

Fundraising New Year’s Resolutions for Startups

Whilst we’ve seen some huge successes in terms of fundraising in the last year, it’s important to remember the companies that have been successful, not only have worked very hard and persisted to get there, they often have clever hacks and systems to help.

As many of you are thinking about new year’s resolutions from a personal perspective, here are some recommendations for hacks, tips and processes that could improve your fundraising in 2022.

Look after yourself to look after your startup

Running a startup means there is always too much to do. Important investor meetings get diarised, exercise and eating healthily, not so much. But if you are not creating the best version of you, are you going to be presenting your start up optimally when you pitch to investors?

Make sure you are looking after your physical and mental health, it will likely pay off with you presenting yourself in the best manner possible, and in the quality of your pitch with investors.

Sleep well – keep your phone out of the bedroom

Avoid blue light – keep your phone out of the bedroom

Now’s the time to start getting some actual quality downtime. If you check your emails in the middle of the night, it can quickly become a self enforcing habit that effects your sleep and alertness.

Lack of sleep has a number of negative effects, including impacting memory – important when recalling key metrics in investor meetings.

Keep your phone out of the bedroom and ideally have a pre-bed curfew to avoid blue light before bedtime. Leave it charging in another room over night to ensure that this doesn’t slip.

Try the Pomodoro Technique

Raising investment whilst balancing the everyday tasks of running a business is an arduous process, it’s easy to get bogged down in the never ending cycle of replying to emails and firefighting tech bugs and customer complaints.

Reclaim your time by planning and blocking out time using the Pomodoro Technique.

With the Pomodoro Technique, you create a list of the key tasks that you need to do.

Break the tasks into 25 minute segments (the optimal amount of time that people can generally concentrate effectively for).

Then fill your day with the appropriate amount of tasks. Set a timer for 25 minutes and get started on the task in hand, ignore the temptation to check your email, or anything else for that matter. When the timer ends, have a scheduled five minute break before jumping into the next segment.

It’s a unique way to stay focused, avoid distractions and obtain a sense of flow when working. Find out more about the Pomodoro Technique here.

Pimp Your Zoom Set Up

The large majority of investor meetings are still happening virtually, and it looks like that might be a lasting legacy of the pandemic, with all but a small minority of later stage meetings likely to take place over video calls.

With so many investor meetings, how can you make sure that you present yourself in the best possible way? Firstly using meeting scheduling software such as Calendly can be useful for sharing gaps in your availability, making it easier to coordinate meeting times with investors – it can also be integrated with Zoom or Google Meet to automatically schedule a video call.

Think about your backdrop – what kind of message do you think a cluttered backdrop sends to investors? You could use a virtual background, but sometimes using a real background will give investors some insight into what you like and help build rapport, whether it’s books you enjoy reading, pictures or some unique memorabilia.

Whilst you can make it work with pretty much any kit for video calls, having an external mic will make your voice feel warmer, like you are there in the room; an external webcam can give you a much clearer image and more of a contrast to get you stand out from the background; and a ring light can help you ensure that you maintain the focal point.

Find more tips here.

Use a CRM

Do you find fundraising dispiriting? You’re not alone. Investors are typically very busy and often looking to invest in something that specifically meets their criteria, meaning that it’s not uncommon for messages to not receive a response.

On the Angel Investment Network platform, you can keep track the stage of investor conversations. You can also use software such as Pipedrive, ForceManager or Trello to categorise your investor conversations by stage.

It means that you can set yourself clear targets: i.e get X number of investor meetings this week, rather than fixating on the goals of raising investment, which can take longer, and you need to focus on getting more people through your funnel to get yourself in a position where they will convert.

CRMs have the advantage of letting you set yourself reminders to follow up with contacts, giving you analytics as to how long it is taking for contacts to get between stages, as well as adding in automation, i.e an email that it sent to investor contacts when they get to a specific point in your funnel.

In Summary

We hope you have had a chance to restore over the festive period and have come back invigorated. If you are about to embark on a fundraising journey, now is the time to think of a few habits and hacks that could go on to pay dividends for you.

Wishing you every success in 2022.

The AIN Team