It’s safe to say 2020 was a year unlike any other in the world of start-up investment.
More early stage businesses than ever before sought financial support – either to replace revenue lost to the pandemic or to support growth as they worked out how to expand amidst an unpredictable present and an uncertain economic future.
At SeedLegals, we worked with thousands of startups with a wide variety of needs – many required help pivoting to take advantage of new opportunities, while funding was also necessary for others to relieve financial pressure.
After the severe challenges of the spring, UK GDP grew 15.5%between July and September. This was driven in no small part by the revitalisation of start-up businesses – a crucial pillar in the preservation of the national economy.
Fortunately, the UK continues to boast a vibrant angel investment ecosystem, ensuring that entrepreneurs are still equipped with valuable access to investors as well as platforms which support and facilitate funding rounds.
So what’s changed?
Ultimately, the fundamental principles for investors remain much the same. The most sought after founders are still those who are intelligent and zealous in their approach to achieving their bold vision. Of course, there’s a difference between determination and stubbornness – there will undoubtedly be divergence between a founder’s plans for their product and the realities of the market and customer requirements.
Those are just considerations in ‘normal’ times. If you add the adjustments needed to deal with Brexit, as well as the ongoing uncertainty surrounding when employees will be able to safely return to offices, it’s clear the best bet for investors is to look for founders who are savvy and most importantly, who see every challenge as their opportunity.
With vastly increased numbers of businesses seeking support, it’s never been more important to ensure that the legal costs and time required to complete an investment are more efficient than ever.
At SeedLegals, we’ve created a wide variety of tools to make these processes 80% more time and cost-effective, including Deal Manager, which enables investors to generate term sheets and deal documents in minutes, with everything completed and signed online.
What are the investors saying?
I spoke to two investment professionals – Hannah Seal from Index Ventures and Sebastien Debrouwere of Balderton Capital – to find out what has marked out founders who were successful in securing funding over the last year, how to build trust without meeting in person, and the key elements investors look for in a pitch.
Hannah emphasised that the founders who stand out are those who can demonstrate resilience, an ability to cut through the noise and focus on the long term bigger picture. Those who are able to retain that wider perspective, while simultaneously navigating their teams through these tough times, tend to be the most impressive and consequently secure funding.
Sebastien agreed, adding that while it is one thing to have big ambitions, it’s imperative these are backed up by smart planning and clear objectives. “As well as having a thought-out product, founders need to be able to engage with how Covid-19 will impact their business.”
Building trust remotely
Sebastien added that the process of building trust before any agreement needs to involve more than just the founder themselves. The more members of a business an investor can meet virtually and build up a rapport with, the more likely it is there will be an investment at the end.
From the perspective of a founder, the mantra has to be that the more data that can be shared, products demonstrated, and colleagues introduced, the better.
Hannah explained how relationships which may have previously developed naturally now require more deliberate attention.
“It’s about putting in directed time in order to properly get to know the other party. When the regulations permit, socially distanced walks are still a great way to have those personal interactions.”
Putting the time in to build relationships, as well as being able to provide positive references about a founder or business, are more important than ever.
Key elements investors look for
The potential for quick scale-up is of course still a highly valued asset. Sebastien highlighted the importance of businesses operating in global markets being able to demonstrate their potential to grow rapidly. “Having exceptionally talented teams – as well as a thoughtfulness about how to scale in the new normal – can also be useful.”
For Hannah, the fundamentals are just the same as normal times. Businesses with large market opportunities and the right team to execute on it are still the most valuable.
While the world has changed, many of the principles underpinning good investment have remained constant. Founders able to see the big picture, who are completely open with investors, have clear objectives and a business with rapid growth potential still tend to be the most successful in securing funding.