InnoRate kicked-off dynamically its second round of investment-readiness series with a webinar on how to build relations with early-stage investors and banks, featuring David Gill, Managing Director of St John’s Innovation Centre.
David run participants through an understanding of the mindset of finance providers for early stage, high potential businesses. He talked about the best time when startups should approach investors and banks (e.g., when they achieve a significant inflection point) and how they should negotiate with them (e.g., knowing their zone of best agreement). David then touched upon the fact that when it comes to equity providers, startups really need to have something that stands-out, emphasizing the importance of having a short executive summary of the project working as an elevator pitch.
According to David, what is also worth understanding is life on the other side of the table: what is driving the investors? As he argues, it is not the technology or the idea that is supreme. What really matters, is what do you do with it, how do you conquer a market and how does a company get an exit. Also, startups should appreciate that investors, too, have their own risks. Out of the 10 investments, typically the 3 will fail, 4 will be walking-wounded, and out of the handful that remains, only 1 or 2 will be successful. Similarly, the reluctance of banks to borrow to early-stage firms has its merits: banks are used to steady growth and cash-flow forecasts as well as a track record, whereas technology firms have high-growth but often initial losses, fluctuating cash needs and business inexperience. Also, the risk of borrowing for banks is not negligible too: it only takes 3.5 out of 100 loans to turn into a bad debt to zero a bank’s profits.
After an appreciation of how investors and banks work, David highlighted that startups should be looking to create a long-lasting relationship with their investors and then moved on to talk about financials before and after funding: projected and actual cashflows and due diligence. Finally, David run participants through how they can best prepare to pitch their idea to investors, including the main elements a pitch should include (i.e., the need, the solution, the market, the model, the competition and others).
David concluded with the Hofstadter’s Law: It always takes longer than you expect, even when you take into account Hofstadter’s Law.
You can watch the full webinar and the Q&A session that followed, as well as any other webinar of the investment-readiness series, by clicking here.