Investment Archives | Angel Investment Network Blog

Sixty Second Startups – FastWater Dispenser

We caught up with Wayne Edward Clarke, Founder of Fast Water Dispensers, who explains how he is revolutionising water dispensers in the Philippines.

What does your company do?

We manufacture a revolutionary new kind of water dispenser for refillable blue 5 gallon water bottles.

Fast Water Dispensers Product Demo

Why did you set up this company?

I come from Calgary, Canada, where the tap water is top quality drinking water. When I moved to the Philippines I wasn’t used to using refillable water bottles for drinking water, as everyone does here. The long amount of time it took to draw a coffeepot full of water from a standard water dispenser to make coffee every morning became more frustrating until it was intolerable.

I searched the stores and online retailers for a faster water dispenser, and found that there were none available.

It took a few days of research, design, and fabrication to produce the item that I now consider to be my proof-of-concept prototype, and I used it successfully for months. I realized that there must be millions of other people who are as frustrated with their water dispensers as I had been, and I recognized that this was an opportunity that was too good to let slip away.

The key to our success will be:

-A product design that’s a disruptive improvement over all the existing competitors
-A tough, quality, environmentally friendly product that should last a lifetime for a price that’s competitive with cheap plastic Chinese dispensers
-The very low cost of labor in the Philippines
-0% taxes for 6 years and zero import/export fees in the Philippines Special Economic Zones
-Utilizing the training techniques of elite athletic teams to achieve world-class employee performance -A manufacturing process that achieves an unbeatable investment-to-production ratio by utilizing very ingenious jigs and simple machines but no complex or expensive machines.

Our most effective marketing channel will be:

-Online retail sites such as Amazon, Lazada, Alibaba Express, etc.

What we look for when recruiting:

Bright, adaptable, fast learners. This applies to our office workers and to our factory workers, who will also need good hand and tool skills. At the pace we’ll be working we’ll need to rotate the assembly line teams from station to station fairly often to avoid repetitive motion injuries and employee burnout and to keep morale high, so they’ll each have to learn every task in the factory.

Once we reach sales of about 2 million FastWater Dispensers per year in it will be worth transitioning to a completely automated robotic assembly line. We’ll then use our highly trained and integrated manual manufacturing teams to build and operate the assembly line for our next ingenious product design, of which I have many, and the entire cycle should repeat about every three years.

The biggest mistake that I’ve made is:

Not researching Alibaba and the Chinese suppliers represented there sufficiently before researching my costs for equipment and materials. I’d prefer to buy from local Philippines suppliers, but there’s only a few of them and they’re hard to find and communicate with compared to the crowds of companies on Alibaba. The Chinese companies can be challenging to communicate with because of language and cultural issues, and I wish I’d learned more about that before I started. Having dealt with many of them to cost out my business plans, it’ll be a lot easier when I start purchasing.

We worked with AIN because:

AIN seemed like the method of raising financing that was most likely to get results. There seems to be a lot of fundraising services that specialize in online and high-tech businesses, and a few who cater to emerging market businesses like the guy who wants to upgrade his small pineapple farm, while AIN represents a much broader spectrum of what I think of as ‘normal businesses’, like mine.

How has coronavirus impacted your business and your fundraising plans?

-In-person networking has gone from being the most important part of any fundraising strategy to being almost impossible. I’m not sure if we’ll be able to reach our fundraising goals without it, but we’re giving it our best shot!

How are you coping with lockdown, and what is your strategy for it?

I’m doing pretty well, thanks. I already worked online from home, so my life hasn’t changed much. It would be very hard if I were single, but luckily I have a fulfilling relationship so we can keep each other company. I’m a mask and face shield guy, I take every precaution, because I’m 57 so I’m in a moderately high-risk group, and I’m not taking any chances.

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.

Digesting 2020

In many ways there were two sides to 2020. On the one-side, there has been a monumental personal loss to so many families, we’ve all been taking the strain mentally due to our daily lives being uprooted, even if we have yet to admit it to ourselves, and many good businesses have been torn apart by COVID.

But though searching for positives might seem futile, there have been some, and they are noteworthy.

Change = business opportunity

When people have a problem that needs solving, that is often when there is an opportunity for a new business to emerge.

When life is stable, people incur major problems relatively infrequently; most people’s problems have been solved, and there are less opportunities for businesses to be created.

When COVID happened, simultaneously putting the population at risk, disrupting the supply chain and dampening demand for many products and services, suddenly there were a lot of problems that needed solving.

For prospective entrepreneurs this is actually a good thing – people needed to:

Keep safe whilst out and about during Covid
Communicate effectively with their team whilst WFH
Make childcare work when nurseries and schools were closed.

These new problems and others are creating opportunities for the businesses of tomorrow to emerge.

Talent

This might sounds counterintuitive, but in the good times it’s hard to create a great business. Why? A lot of the top talent gets sucked into corporates, and consumers are less inclined to change their behaviour, because, well, they don’t need to.

Economic shocks mix things up – Thomas Vosper was made redundant at the beginning of the COVID crisis, he’s recently completed an investment round for an innovative new retail concept that he since started – you can read about it in his recent blog.

Efficiency

And whilst COVID undoubtedly has caused huge disruptions, some companies in some industries were quickly able to shift into the ‘new normal’.

Working from home was something that was alway going to happen, probably in a decade or so. When COVID happened, almost everyone had to do it, straight away.

But this had a few benefits that weren’t necessarily foreseen, people by way of being forced to do it – actually became good at using video calls.

Meetings where people would have travelled across town and back, and set up 1 hour meeting to justify the time, suddenly became more efficient half hour Zoom calls. A huge time and efficiency saving.

Investor Outlook

When the pandemic first hit, there were signs that investors were being more cautious – some had taken hits on their portfolio and dropped back on the number of the investments that they made, and pushed harder on valuations.

However, investors have adjusted to the new normal, for each in person meeting they have given up, there are many more Zoom and virtual meeting that they are taking.

Lockdown enforced many people to become savers, as there were so few opportunities to go out and spend money. Investment activity has rapidly obtained new momentum.

The upshot is that we are fortunate to just had our record ever month at Angel Investment Network, and feel well placed and optimistic to enter 2021, despite the continued uncertainty. We’re mindful that it remains a challenging time for many.

Wishing you a happy festive season, even if it’s not what you hoped for, we hope that you at least get the quality downtime that you deserve.

See you in 2021.

Agile Funding can help you raise fast

We are delighted to welcome back Adam Blair, CCO at SeedLegals, for his second guest blog as part of our legal mini-series for start ups:

When funding goes Agile

In our first article we discussed some of the different fundraising methods available to you as a founder, and the impact and benefits of the SEIS / EIS schemes. See How to close your funding round before the end of 2020 if you missed it or need a reminder…

This month we delve deeper into the world of agile fundraising and share some practical advice that can help you raise money for your business before the end of the year.

Making the most of the Christmas rush…

The run up to Christmas is always one of the busiest times of the year in terms of fundraising activity and investment. This can be a great time to look for investment, as many investors are looking to move quickly and close investments before heading off on their well earned break (even if this year that will be at home…).

With less than four weeks until Christmas, there’s not long left if you’re looking to raise investment this year. But all is not lost – agile fundraising enables you to raise investment quickly and flexibly in situations just like this.

What is agile fundraising?

Over the last couple of years at SeedLegals, we’ve observed that many early stage companies are moving away from go-big-or-go-bust funding rounds every 12 to 18 months in favour of agile fundraising where they raise small amounts frequently, taking investment opportunistically (e.g. when you meet someone who wants to invest) and as needed.

We now see the savviest founders use agile fundraising to grow their businesses faster, spend less time holding up the business while they look for investment, and give away less equity than founders relying solely on the traditional go-big-or-go-bust funding rounds.

The two main agile fundraising methods are SeedFAST (Advanced Subscription Agreement) and Instant Investment.

Advanced Subscription Agreement (ASA)

An Advanced Subscription Agreement is the UK equivalent of the SAFE (commonly used in the US) and is SEIS/EIS compatible – great news for you and investors.

An ASA allows investors to give you money now, in exchange for shares in your next funding round. Your ASA investors will receive their shares, generally at a discount compared to other investors in the round, because they invested early, when you close your next funding round.

Instant Investment

Instant Investment allows founders to close an initial funding round like normal, and then top that up anytime, within limits agreed in the initial funding round.

This enables you to raise only what you need or are able to raise right now, and get back to growing your business. Then, as you find additional investors, you can quickly and easily add them, effectively topping up your last round. At SeedLegals, we regularly see founders close a funding round and continue raising using Instant Investment for 12-18 months before doing their next round.

You can read our comprehensive agile fundraising guide here

Is agile fundraising right for me?

There are a number of scenarios where you can use agile fundraising to your advantage, whether you are going out to investors for the first time or have raised multiple rounds of funding already.

Here are a few of the most common use cases we see at SeedLegals:

You’ve found your first investor…

First investor on board – now to find the rest, right? Yes and no…

While one option is to keep your round open as you search for other investors, a better way could be to use ASA to get that money in ASAP, rather than keeping those investors (and their investments!) on hold while you line up all the other investors for your round.

With an ASA you get investment there and then, which can be used to invest in growth or extend your runway, and the investor generally receives a discount on the upcoming round in return.

The fact that one investor has already committed and transferred funds will also typically be viewed positively by other investors you’re speaking to.

You can’t agree on / don’t want to commit to a valuation…

Is my valuation £500k? £1m? £3m? £5m? Agreeing a valuation for an early stage business can be a minefield. Luckily, we’ve written this article about how to think about valuing your startup…

Great! So you’re good to go… But there are still lots of cases where investors and founders simply can’t agree on a valuation or may strategically not want to agree a valuation at that time.

An ASA can help both parties here, giving you up to 6 months to finalise the valuation. As a founder, this not only gives you much needed cash, but also time to grow the valuation to a point where you and your investors are both happy.

You’ve got your key investor(s) on board…

When fundraising, founders will often have certain investors they really want to get on board. Perhaps they’re writing the biggest cheque, have a great network, or are able to provide unique advice and insights.

You’ve landed your dream investor(s) and have a decent chunk of your target raise committed – now what?

This is a great time to consider closing your round and continuing to raise using Instant Investment. Negotiations around valuation and key terms are likely to be finalised or close to finalised by now, meaning that other investors are likely to be signing up to the same terms.

This approach means you receive funds and can put them to work immediately, whilst continuing to fill and complete your round.

You’re just waiting on the last investor(s) to sign…

Everybody has signed, except one or two investors… One is going on holiday for two weeks and the other is dragging their feet. What do you do?

You could wait until they get back, but this just means more time thinking about fundraising vs. growing your business. Instead, you can let these investors know that you’re going to close the round without them, but (and very importantly) they will be able to invest at the same terms once they’re back, or ready to commit.

This approach can sometimes lead to investors suddenly being available to sign and transfer funds, meaning the round closes as initially planned. Either way the round closes sooner, without losing investors, a win/win.

Summary

If fundraising is dragging on, or you just want to move faster, agile fundraising could be just what you have been waiting for…

SeedLegals

Questions about agile fundraising, or fundraising in general? You can book a call with one of the SeedLegals experts, who will be happy to help.

#Behindtheraise with Occuity

We spoke to Occuity founder and CEO Dan Daly about his revolutionary new device diagnosing chronic health conditions via a patient’s eye, building a winning team and top tips in securing funding from angel investors.

Tell us about Occuity?

Currently, the diagnosis and monitoring of many chronic health conditions is inadequate, leading to people suffering when they don’t need to or even shortening their life expectancy.

Occuity’s mission is to improve this damaging situation through the development of cutting edge technology and production of a range of devices that will enable the non-invasive measurement of these conditions. Our devices simply shine light into the eye and detect changes and markers that indicate the person’s health. The first of the many devices in our development pipeline which will utilise our proprietary technology, is a hand held optical non-contacting pachymeter.

What is your background?

I have always been interested optics and lasers. I started out as a physicist, specialising in micro-optics (very, very small lenses) and measurements using light. It was fascinating how you could see down to the micron level with the right system. However, as I progressed, I moved away from doing the science and became more involved in the commercial side and actually applying these technologies to the real world. It was therefore an obvious next step to combine the two and form a company that utilised the powerful potential of optical measurements.

How did the idea for the device come about?

It started by thinking about what measurements you can do with light. Then a desire to make measurements that were worthwhile, and would make a difference. This led to the interest in healthcare. Building on this, I started to think about situations where people are required to make many, regular measurements. Diabetes is the obvious example. Clearly doing this in a way that is pain free and non-invasive would be a major advantage.

How did you recruit the team?

We have a great team with a huge amount of medical and engineering knowledge, experience and brain power. Having worked in this sector for a number of years, many of the team have worked together in the past. Most of our newer team members have come via personal contacts and recommendations, whilst some have even joined us after hearing about our plans through our website. We’re still growing and it’s exciting to see the team develop, but as our growth increases, it’s important we utilise the right channels to make sure we’re able to recruit the best talent, whether this is directly or through specialists agencies.

How have you overcome challenges during COVID?
We were relatively fortunate that when COVID hit, we were a still a nimble start up and a lot of the engineering was still at the “developed in a garage” stage. This meant we were able to (literally) go back into the garage during lockdown and continue the development unabated.

We are also in the fortuitous position that as our measurements are non-contacting, they are much safer than the existing devices we are seeking to replace, as these devices must physically contact the patient or draw their blood. There is definitely a mood in the healthcare sector that the more you can do remotely, the better. The risk of spreading infections, causing accidental harm or pain is completely removed by our non-contacting devices, which is great news for both the patient and the clinician.

Why did you decide to raise investment?
Due to the length of time it takes to run clinical trials and obtain regulatory approval, medical devices are very expensive to develop and of course you can’t sell them to generate revenues until you’ve successfully completed the regulatory process.

It was therefore necessary for us to raise funds and we will undertake further funding rounds before we get to market.

What are your top tips for anyone raising investment for the first time?
Firstly, don’t push the valuation too high initially. Leave some headroom for future rounds so that those coming in later have a reason to invest.

Secondly, look for investors who bring more than just cash. It can be contacts, market experience or whatever, but once they are championing your company, it adds significant value.

What attracted investors to your company?
It was definitely a combination of factors. A large part of the attraction is the upside potential of Occuity. We have a proprietary technology, protected by nine patents, and an expert team developing products which deliver clear solutions to large and growing markets. The opportunity is tremendous.

Take the glucose monitoring market as an example. This market alone is now worth over $14bn, and that is based on people sticking needles into themselves. It’s widely predicted that the first company with a non-invasive solution will take a large share of that very valuable market.

But the attraction is also the chance to be involved in something that’s doing good and significantly improving the quality of life for hundreds of millions of people.

My biggest fundraising mistake was…
Timing. It always takes longer than you think to run a fundraising campaign and with COVID and lockdown layered on top, we should in hindsight have started earlier.

Why did you choose to use Angel Investment Network?

It is the breadth and experience of the network that adds so much value. Most networks are regional and so draw on a limited pool of angels. The AIN is global and as such we were able to raise funds internationally from people who offer distribution support in countries where we would otherwise have no links. In addition, the team are great to work with and we trusted that they could help us succeed, and they did.

Angel Investment Network reports impressive annual growth

Angel Investment Network (AIN), has announced impressive annual growth, with annual revenues up 5% year on year and the last quarter seeing revenues increasing by 14%.

We now have more than 1.4 million users in total on the platform. In the past twelve months we’ve overseen a record 192,000 new registrations from entrepreneurs. The figure has almost tripled in the past five years with new entrepreneurial hotspots developing across the globe. Encouragingly for the businesses on the platform there is also more investor activity than ever with a record number of connections made despite the unfortunate circumstances this year.

Despite the pandemic, there has been impressive growth across Europe, with Germany seeing a 40% increase in revenue, the Netherlands up 130% and France up 27%. The USA has also seen a rise of 27%. Our performance has received plaudits from several media outlets, being covered by Techround, Growth Business UK, Bdaily, Business Mondays and Angel News.

Alongside the online platform, AIN also runs a successful broking division. Despite the challenging conditions it has seen impressive revenues year on year, despite longer funding rounds in today’s climate. AIN has been involved in several significant high profile raises in the past 12 months for a variety of businesses, including edtech startup BibliU, digital addressing startup OKHi and YouTube karaoke channel Sing King.

Despite the backdrop of the global recession and pandemic, AIN’s results reveal the embedded startup culture both in the UK and internationally. They also highlight the enduring popularity of passion-driven angel investors as a source of early stage funding.

According to AIN co-founder Mike Lebus: “2020 has been a time of unprecedented turbulence for the startup world, as it has for general society. Despite the challenges, we continue to see record numbers of startups look for funding on our platform and angels willing to invest. The solutions to so many of the problems we face are in the minds of startup founders and we are proud of the work we are able to do to help them fund their ambitions.”

He continues: “We continue to see strong international growth with startup communities developing throughout the world. We now have 40 networks extending to 90 different countries. We are also building new partnerships with accelerators and continue to offer tailored offerings in the property sector with BrickTribe and impact investment with SeedTribe.”

What’s in-store for Google’s finest at the Xoogler Demo Day?

Jenny Collins brings her passion & experience for bringing together smart, impactful R&D teams, across Google – to optimize the European start-up eco-system, and in particular connect Xoogler (“ex-Googler”) entrepreneurs with angel & capital investment.

So what can we expect from the Xoogler Demo Day?

This is the annual opportunity for ex-Googlers who have founded their own start-up to connect with investors.

This year, we have 170+ investors lined up and we are selecting 15 of the most credible start-ups from around three times that many applications. We’ll help each of them to create a succinct & delicious elevator pitch, of 2 slides in 2 mins & 2 Q&As, to attract further discussion in the social element of the day.

I’ll be simply there to present the talent: we have keynote speakers, all the major capital & angel investors signed up and we are sponsored by Landscape, which seeks to reward great behaviours in the investment world and Remo.co as our platform.

But it’s not just about funding; it’s about creating an entrepreneurial community, in this locked-down world. It’s a space to connect like-minded people & expertise; to absorb advice, be inspired, to show off, and to express frustration; to laugh.

Are there any common themes for the companies attending?

Companies must have at least one former Google Employee as a founder, be committed enough to the goal to be working on it full time, to have raised initial seed at least from friends & family, right up to series A and be rallying further funds. Companies will need to have an initial MVP to showcase and be able to demonstrate customer traction.

How does Google support Xoogler startups?

We have folks from inside & outside Google who help out; it’s entirely voluntarily – Xooglers tend to be self-reliant and like most things at Google, people help out because they are interested, not because they have to. We may look to syndicate further virtual demos to become more self reliant.

How would you describe the characteristics of a Xoogler?

It’s a terrific blend of folks who are smart & humble enough to get through Google’s interviews, schooled in how to create globally scalable tech, and a desire & determination to now do things themselves.

What type of investors are you expecting?

We have everything from Googlers who are starting to fund early stage ex-colleagues, about 50 seasoned angel investors, right up to companies like Atomico, Sequoia, Seedcamp, etc.

Have there been exciting successes from previous years?

It’s always fantastic when people you know do well, like Ex-Google Engineer Lewis Hemens, co-founder of dataform.co, who pitched in 2017, going on to complete Y Combinator & raise a seed round with a top European VC. The most recent exit is Irish based Pointy for $163m, and then (ironically) acquired by Google in Jan 2020.

How has Covid affected the demo day?

In response to Covid-19, XDD is now virtual, which has brought the future forward suddenly.

This makes it easier for more speculative investors to attend, but also means it’s even more requisite, because those coffee morning conversations and water cooler moments, in real life, are less frequent. Online community is increasingly important to promulgate this sector.

Are there any practical takeaways for our entrepreneurs?

Now is the time to get your startup sorted, to be ready to take UK/Europe out of lockdown Spring 2021. It will come quickly and there are plenty of gaps to fill that big corps are too busy scaling and often aren’t agile enough to notice.

What was the biggest thing that you learnt personally whilst working at Google?

Always assume best intent.

Anything else?

If you are an investor interested in attending the event, or a suitable start up, you can apply here.

Founder Market Fit & what it means for early stage planning

In his second guest post for Angel Investment Network, Dan Simmons, CEO of Propelia, explains ‘How understanding the shift from Product Market Fit to Founder Market Fit in the pre-seed space can now help influence your early stage thinking and planning’:

Understanding The Shift

There is a recognisable shift starting to happen in the early stage space. A shift that is important to be aware of and understand whether you are a founder or investor. A shift away from Product Market Fit and towards Founder Market Fit around and for pre-seed investment. This shift essentially means the way certain angel investors are starting to evaluate early stage founders is beginning to change. Change away from the traditional lenses that model and evaluate Product Market Fit towards a new phase where different tools, frameworks and assessment criteria are at play.

We can see this shift clearly by comparing and contrasting the two diagrams below:

We can see from the Product Market Fit diagram, that as you move forward, it essentially at each stage relies on and is informed by tools and lenses like OKRs, YOY, NPS, KPIs, CAC and CLV to chart founder progression and development. A progression that many founders when trying to structure and project the progress of their start up onto find very difficult to navigate. A difficulty that often then causes them to come up with and put forward assumptions and future projections that are essentially best guesses – just to align with Product Market Fit based questioning and be attractive to and try and close their potential investment.

However we can see that by shifting the focus towards Founder Market Fit, the nature of the early stage journey distinctly and meaningfully changes.

Here we can see that different criteria are being used to assess value and progress of the founder, that utilise much more human language and exploratory values when compared to the tools and lenses of Product Market Fit. This is critical as to why this shift is increasingly attractive to and in the interest of early stage pre-seed founders.

Why This Shift Is Occurring Now?

For a long time the tools of Product Market Fit have been the only way to really evaluate an early stage founder and their future start up journey. This often creates an asymmetry and many ensuing systemic problems in the ongoing dynamics between founder and investor. Both parties when evaluating an early stage funding deal, are of course looking to gain comfort that the road ahead is valuable and worth pursuing together. The tools around Product Market Fit have been an attempt to create that comfort and generate that degree of future certainty.

A certainty that was always speculative at best. Ask any founder who has been asked over and over again to create and then endlessly tweak a 3 year spreadsheet of projections and you will be met with the frustrations and self-evident limitations of this methodology and approach in the pre-seed space.

However will market conditions now very much being set to ‘Uncertain’ post-COVID, it is clear that any founder predicting more than 6 months out is simply putting ‘their finger in the air’ and practising some sort of start up fortune telling with no real basis in the reality of events unfolding on the ground. For the first time, both investors and founders can agree that a change is needed to adapt to this underlying uncertainty – particularly around evaluating those first 6 months in the early stage space. This is all important in creating the conditions for the shift from Product Market Fit to Founder Market Fit.

Who Are Some Of The Key Stakeholders Helping Make This Shift Happen?

This shift is being fuelled by various key stakeholders in the early stage space that are sensing the market timing and opportunity to fuel and propel it forward. These range from early stage funds that are realising that updating towards Founder Market Fit is both valuable, viable and attractive as their pre-seed market positioning. Indeed by adopting this approach it could immediately make them more ‘founder friendly’ and differentiate them from their rival funding firms who are still focused on the tools of Product Market Fit and therefore lack this new perspective. Forward Partners and The Fund are good examples of this or early stage firms talking this language.

However there are also additional stakeholders that are worth noting and exploring further. Here’s a few of them worth exploring.

The legal parties that specialise in the early stage space. Companies like SeedLegals offering Agile Funding solutions that enable founders to take on smaller tranches of funding in a much more fluid and ongoing manner than if they were completing a larger round – see here:

The increasing awareness around Founder wellbeing and how applying the lens and pressure of Product Market Fit too early can have adverse effects on mental health. Many founders report the same symptoms and sleepless nights having to prove the projections they previously plucked from the ‘spreadsheet ether’ last quarter at their next investor meeting. See founder peer support groups like Foundrs who are there to ‘help one another break new ground without breaking ourselves’ and Courier’s excellent Founder wellbeing report.

In recent years this shift has been enabled by the application of R&D and Innovation Grants to the early stage space by forward thinking companies such as GrantTree and Data Fox. These companies have been able to reclaim capital spent and invested in innovative new products, services, processes, software or systems and are often willing to be engaged on a no-win, no-fee, no-risk basis. This has provided an alternative route to financing and capital in the early stage and is particularly well orientated to outputs of Founder Market Fit.

A final stakeholder that has emerged in recent years that helps value this shift differently are firms like Coller IP and Valuation Consulting who are managing to put the softer and intangible assets – like brand, business models, know-how and sweat equity – on the early stage balance so that they can be factored into larger rounds. This starts to assign an actual value to the dynamics of Founder Market Fit that were previously considered to have a marginal worth at best when compared to the more tangible metrics and measures of Product Market Fit.

How This Shift Might Affect Early Stage Funding?

If you are currently engaged in an early stage funding round or indeed considering one, it might be useful to pause and think about the difference in approaches between Product Market Fit and Founder Market Fit. Whilst this shift is visible and happening it is still quite new, even to sophisticated investors who regularly fund founders and their pre-seed start ups.

You should both as founders and investors feel like you have the permission from the outset to discuss and delineate which approach is being taken. They are both very different with different paths with different evaluative criteria and measured outcomes. Critically once you are down one path and everyone is aligned to that approach, it is notoriously hard to reverse out of.

However factored in up front an awareness of the choice around this shift could help fuel a different type of initial conversation between founder and investor that helps from the outset frame and articulate future aims, expectations and values. It could even form part of an early whiteboarding or brainstorming session between founder (and their team) and potential investors.

Just by being aware of the shift and bringing it into the conversation is at the very least a sophisticated early basis for discussion.

How Do You Assess Where You Are On This Shift?

Finally a quick diagram to assess where you are at in relation to this shift. It is suggested that if you are in the pre-seed space then Founder Market Fit may well be the more suitable approach. This may also be the case if you are still in the Seed funding stage.

However it is likely that if you are in the Series A or above that you are further down the line in the territory and terrain of Product Market Fit and its evaluative tools and approach are still more suited to you.

The good news for everyone, is that by being aware of where you are in relationship to this shift, then all conversations and their related lenses, tools and frameworks, can start to hopefully become more ‘fit for purpose’ and ultimately as a result, more valuable for all parties and stakeholders involved.

Dan Simmons – Propelia Founder // dan@propelia.com

Propelia is the UK accelerator navigating the use of Pilot Rounds in the pre-seed space in our post-COVID times. A Pilot Round is designed to rapidly connect early stage founders with aligned investors, to enable them to leverage SEIS capital to fuel, test and iterate uncertain market assumptions and prove Founder Market Fit over the next 6 months. Once completed, this enables them to then evaluate and ideally increase the value of the greenlighting of a subsequent larger round to fund the further launch of their product and operations. All diagrams in this article remain the Copyright of Propelia Limited

7 software due diligence considerations

By Roger Planes, CEO Silicon Rhino

Investing in tech startups can be daunting, especially if you don’t have a tech background. Investing in new ideas, market opportunities and teams can be exciting, and should remain the most important deciding factors when considering an investment. Here are a few points to focus on from a software due diligence perspective.

Documentation

Documentation is hardly at the top of the priority list of many early stage companies. While the tech team may know all the ins and outs of the project by memory, it will be much harder to onboard new developers or take over the tech if the need arises. Projects and quirks in the systems should be well documented.

At the very least, any startup should have a set of documentation to allow someone else to pick up the project if the key people became incapacitated.

Roadmap

Early stage startups usually fall into the trap of prioritising features due to customer feedback or potential deals in the pipeline. Ask for a 12 month roadmap to understand how the product will evolve going forward.

Having a roadmap in place will serve as a general direction, but understand tech startups operate in an agile environment so feature prioritization may change to best achieve market fit.

Resourcing

The convention of a tech startup needs to have a tech team is being challenged. So long as there’s access to reliable resources to build the product, a product can easily go to market whether the team is in-house or not. What matters is how well the company is able to explain the relationship and access of the resource and how these resources are prioritised.

Leveraging third party systems

Early stage startups should focus in building and iterating the core of their product first and foremost. When resources are not widely available the team needs to prioritise what should be built by the company itself versus what third party tools can be integrated into the system. Payment processors like Stripe or Braintree are one the best examples for a product that takes payments but isn’t part of the core offering. Make sure the team is focused sharp in the product USP and integrate other tools to help speed up development.

Customer Data

Another advantage of using third party software is delegating the regulatory requirements and storage of sensitive customer data like credit card and payments. While you shouldn’t expect developers to be experts in data security, the team should be aware of the current laws, their obligations and have plans to improve security in the product roadmap if it’s not as robust as it could be.

Architecture

There are infinite ways to architect a technical product, and all of them have their pros and cons depending on budget, resources available and product availability.

The most important pitfall to look for is the opportunity for a single point of failure. An example of this would be having your whole test stack plus storage in a single server or virtual machine. In case of failure or unavailability (it happens) this would mean the company and their customers wouldn’t access any data while the incident lasts. Distributing the technical stack between different services or microservices will lessen the risk in case of disaster.

Disaster Recovery

Technology can sometimes be unpredictable, so every tech team should have at least a disaster recovery plan in case there are problems with the hosting of the platform or some external services. Asking about backup location and periodicity, how long would it take to relaunch the tech stack in case of failure will give you an understanding about how much the team is thinking about disaster recovery.

This is by no means meant to be an exhaustive list but should highlight the common areas you should have a high level view over for potential additions to your portfolio (and potentially reviewing these points on your existing investments). All these areas can be relatively easily overcome in the early stages of a company. If these questions throw up something unexpected that gives concern, please speak to a trusted advisor.

Next Steps

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How to close your funding round before the end of 2020

We’re very excited to announce the first edition in our series of guest articles from our partners SeedLegals. SeedLegals automates the legals to help companies close funding rounds faster, and hire, manage and allocate equity to their team.

CCO Adam Blair explains legal considerations to help you close your fundraise before 2020 is out:

And just like that, it’s almost the end of 2020! We hope you’ve had a successful year up until this point, considering the year it’s been…

At SeedLegals, many founders we speak to are now thinking about how to scale their business in 2021, and beyond. And what’s the best way to scale? Securing funds so your business can grow.

With the end of the year fast approaching, you’ll want to be getting everything sorted before the Christmas break, so here’s what you need to know…

Seasonality in UK fundraising

At SeedLegals, we’ve observed three main spikes in the fundraising calendar:

The first, perhaps unsurprisingly, is the end of the tax year (April 5th), and particularly for SEIS and EIS rounds. The reason for this is investors are keen to get deals closed to ensure that they receive maximum tax relief in the current tax year.

The following is the run-up to the summer holiday season. Traditionally (at least prior to Covid-19), many investors use August to pack up and take some time off. If a deal isn’t done by the end of July it won’t be closed until September (or even later), hence the pre-holiday rush.

And lastly, the run up to Christmas. This can be a frantic time of year for both investors and founders, with lots of fundraising activity and investment. There’s nothing quite like getting a deal closed and all the paperwork done before the festive break!

This is great news for founders, particularly this year as a result of the pandemic. Deal volumes were lower than usual earlier in the year, and we are now seeing a significant uptick in activity from investors to make up for this.

SEIS/EIS

Over 30,000 UK companies have now received investment over £20 billion since the introduction of the EIS Scheme in 1993 (HMRC). In the 18/19 tax year alone, funding via the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) totalled over £1.8bn.

The SEIS/EIS schemes allow investors to claim tax relief on the money they are investing into your company. Investors are able to claim Income Tax relief at 50% for SEIS investments, up to £100,000 each tax year, and 30% for EIS (max £1m).

It’s worth noting that SEIS/EIS allowance can be claimed for both this tax year OR the prior tax year (known as carry-back). If, for example, your investor invested £50,000 SEIS/EIS in this tax year (2020-21 tax year), they can claim income tax relief against their tax payable for this tax year OR they can carry back to the previous tax year (2019-20).

SEIS/EIS Advance Assurance

As a founder, the first step when fundraising is typically to apply for SEIS/EIS Advance Assurance. Many investors will only consider investing in a company that’s received SEIS/EIS Advance Assurance, as this gives them confirmation that they will receive tax relief on any potential investment.

To get approval for your company, you’ll need to line up one or two initial investors to add to your application to demonstrate interest, and then you can apply.

If you’d like to find out more about SEIS/EIS, you can read more here.

The importance of the Term Sheet

Once you have investors interested and committed to investing in your business – you’ll need to send them a summary of investment terms – called a Term Sheet.

Term Sheets are where a large amount of negotiation can happen as they include details on the valuation, but also things like vesting schedules, reporting requirements and even founder salaries.

What we often see at SeedLegals is once a founder has the first signature on the Term Sheet, it’s generally easier to get subsequent investors on board and close the round.

SeedLegals data shows that on average companies close their funding round approximately 30 days after unlocking their term sheet.

Advanced Subscription Agreement

An Advanced Subscription Agreement can be issued to new investors at any time and allows investors to subscribe for shares in an upcoming funding round, in exchange for giving you money now.

In these cases, no valuation is set. Instead, your investors will receive their shares (generally at a discount) when you close your next funding round.

An Advanced Subscription Agreement is a carefully worded, easy to understand document which complies with SEIS and EIS legislation – read all about it here.

Instant Investment

Instant Investment allows you to close a small (or smaller) funding round, raising only what you need or just the investment you’re able to get right now, and then top that up anytime, within limits agreed in the initial funding round.

Let’s say you want to raise £500K but you only have £300K of investors lined up. Rather than spending weeks or months finding the remaining £200K, you can close the round now, but set the deal terms to allow you to top up another £200K anytime within the next 12 months (for example), at the same or higher valuation, with no further investor consents needed.

This enables you to close the commitments that you have now, with the flexibility to continue raising in the new year, or maybe even during the next peak in the fundraising calendar…

So, there are a number of strategies that can be used to allow you to take in investment before the end of the year. Which are you going to choose?

About SeedLegals

We’re the operating system for your company, and we’ve already transformed the way more than 15,000 UK and French startups run their businesses.

Want to find out more? Head to SeedLegals or book a call with one of the SeedLegals experts, who will be happy to walk you through the best option for you.

Looking back to help you launch forward

Propelia is a UK accelerator that has worked with early stage founders since 2012, developing the concept of ‘Pilot Rounds’ in the pre-seed space. A Pilot Round that essentially identifies and connects founders with aligned investors, to enable them to quickly leverage SEIS capital to fuel, test and iterate strategic market assumptions over the next 6 months.

It’s a shift towards ‘Founder Market Fit’ which is seeing new tools, frameworks and approaches currently being developed, to enable greater deal flow alignment and fluidity in the early stage space – where ideally everyone wins.

Dan Simmons, Propelia CEO, shares his view of taking a different perspective for early stage fundraising:

Why understanding a founder’s journey through the 3 lenses of Projection > Planning and Proof can help you better evaluate the uncertain market problem now available to navigate and disrupt.

There are very few data points to help successfully plot the course forward if you are a founder or investor trying to launch into an uncertain market sector – particularly in these post-Covid times. This is why start up evaluation often revolves around incorporating and using future facing concepts and lenses like OKRs and NPS.

In truth for both parties this often feels like a ‘finger in the air’ exercise at best. A planning and strategic framework which can just about be used long enough in order to create and gain enough comfort to cross the line, move forward and often then quickly adjust as events invariably change on the ground.

Perhaps instead of looking forwards we need to to more frequently start looking backwards. Back into a better understanding and appreciation of the founder’s journey. Not just how they got from A > B > to their current pitch deck, but towards the consistent patterns of behaviour, exploration and also mistakes that have informed how they have arrived at a point where they wish to try and tackle an uncertain market problem and navigate with the associated risks.

Propelia has taken this approach with its founders since 2012. By doing so we have consistently found that when you truly look at a founder who has a nuanced and ongoing journey into their market sector, you commonly can discern similar signs, patterns and behaviours. These often enable both founder and investor to better assess whether the timing is now right to venture further and essentially invest in each other.

Here’s some tools and tips that over the years we’ve found useful to hopefully better help you with a different kind of looking backwards evaluation:

TIP 1: PROJECTION

Too often when we talk about founders we refer to how they are disrupting the present. Almost every pitch deck in the last 5-10 years has featured commentary, speculation and projection on how their start up will disrupt their sector – often within the next 2-3 years.

However a new key element post-Covid has recently been added to and baked into the mix. That of the uncertain future. Seemingly the only thing that’s now certain is that this new feature of uncertainty will bear relevance and have to be factored in going forward.

This can lead to a form of paralysis between founder and investors as they try and understand, incorporate and navigate this new terrain into their evaluation.

It’s here where introducing a new horizon around the concept of the ‘Almost Now’ can prove to be very useful in breaking this deadlock. The Almost Now becomes like a whitespace of a horizon that can be projected onto and forecasted into that is suspended between the Disrupted Present and the Uncertainty Future. It is essentially saying this is the horizon around which we can now collectively meaningfully explore and evaluate, with the understanding that it will be inflected and affected constantly by changes in market conditions.

Interestingly it is founders whose journey opens up a unique path into this horizon of the Almost Now who find themselves most comfortable working and operating in this liminal space. For investors this is an immediate piece of feedback that if a founder can behave in this way addressing the Almost Now, then they are likely to be more adept and agile to work with when going forward.

TIP 2: PLANNING

Building on the above, any founder that has a journey that justifies them launching into a disrupted market sector should start to demonstrate and embody an understanding around a new framework that places the navigation of uncertainty as the key new function that informs future planning and strategy.

Like with PROJECTION above, founders with a deeper journey and understanding will be more comfortable baking in these two new functions into their plans and pitches. Equally founders without this journey will find this very uncomfortable and may demonstrate signs that they wish to only look forward via more traditional planning and strategy lenses and insights.

This new framework is emerging and impacting across all businesses and represents a real competitive opportunity for those start ups that are ready and agile enough to organise and execute in this way.

TIP 3: PROOF

Finally, there are a couple very simple questions that as a founder you should be ready for and as an investor you can ask instead of things that would represent a traditional elevator pitch. Questions that quickly provide and demonstrate some PROOF that the founder’s journey might currently have relevancy, currency and influence over their market sector.

These questions are:

Question 1

Who could you now send a text to that is recognised as having authority over the market sector you’re looking to launch into that would i) immediately consider your question and ii) likely respond to you with their insight and input within the next 24 hours?

Question 2

Which email conversation in your inbox represents an ongoing dialogue with someone of influence that if it comes to fruition, could add immediate acceleration to your planning and strategy?

The 3 x tips above are just some initial ways to try and reveal insight into a founder that might be far easier to glean and assess by looking backwards, as opposed to consistently when approaching a new founder treating them as if they are essentially a blank slate and asking about future projections that both parties know are guesstimates at best.

Just by being aware that there is this often underexplored terrain in the founder’s journey, that can start to be evaluated by simple lenses like the ones above. might mean that in these uncertain times, we can start better identifying, supporting and backing founders that are genuinely ready to cross the threshold in the unknown of the next stage of their venture.

Dan Simmons // Founder – Propelia – September 2020