Blog: Fundraising and Investment Strategies with Tom Allason

ICT KTN Online Business Essential Clinics #6 Fundraising & Investment Strategies

with Tom Allason, 10th November 2011

Tom is founder and CEO of Shutl, a web service that connects retailers with local same-day courier companies, meaning that you can purchase items online and have them delivered in as little as 90 minutes. Before Shutl, Tom was also founder and CEO of eCourier, the online courier company whose purple vans are instantly recognisable around London. Tom served as eCourier’s CEO from 2004 until 2008, overseeing the company’s growth to £7.5m turnover with over 250 staff (including couriers) and raising $16m investment.

Tom is very aware of the trials and tribulations that can befall a start-up and is therefore particularly keen to share his experience with others and offer advice on how best to approach the task. To begin with he took the participants through a brief history of eCourier and then Shutl, outlining their progress through the various stages of development and providing a rationale behind his decision to exit eCourier and begin again with Shutl.

During the second half of his presentation Tom laid out his lesson in fundraising:

Raising investment is all about risk and reward. The investors naturally want to insure themselves against unnecessary risk and therefore will consider a few key factors when you come to pitch your idea:

Is the problem your start-up is attempting to solve big enough and serving a large enough audience to be viable?
Are you able to determine this opportunity or gap accurately? Can you calculate the risk involved in realising that opportunity eg: business costs including cashflow (particularly appropriate to service sectors where payment terms are longer than creditor invoicing terms, meaning there is a distinct gap or lag in your cashflow)?
Do you have the core elements/capacity in place to successfully execute your business plan? That is, do you have a quality team behind you with relevant credibility and experience?
Can you create a product that works in your proposed environment? You don’t have to have a product ready to launch when you go to raise capital but it helps. Investors want to see signs that your idea has the potential to become a profit making business and that people are willing to pay enough for it.

There are various ways and means to raise capital for your idea and they fall under the categories of either equity or debt. Tom’s primary view on raising equity is that it is an option for later, the further you can take a business on and the further you can reduce risk in key areas, the better, as it means less overall risk in the business. This will enable a better valuation and therefore will increase the chances of raising equity. If you can make your business run without raising any external investment then do it!

There as various types of equity investors:

1. The 3 Fs; Friends, Family and Fools! (£100-100K). They may be able to benefit from EIS (only available for ordinary shares, tax efficient for high net worths to invest in start-ups, they can write up a proportion of income tax for their investment, also get preferential treatment for capital gains tax)

2. Angel investors (£10K-500K). They are different from the 3Fs in that they want a business that is a little more established. They are interested in making a return. From Tom’s experience they are successful people who are looking to give something back. As a result they are the sorts of people you want to give fair/good terms to so that they will come in line with your goals and help you attain the best possible deal in the future. They will also want a board seat which again is in your favour as they have the necessary experience and advice.

3. VCs (£1m-10m). VCs will want to get involved in a business that has been taken further along, meaning that they will want to have proof that the fundamental economics of the business are viable. They are capable of investing significant sums of money via an investment fund and it is successful functioning of this which ultimately motivates their decisions. They need to protect and make a return for their own investors.

The VCs prefer to play big to win big, giving large sums of money in the knowledge that it will provide an absolute return. Naturally they will also seek to minimise the negatives and will secure a termsheet that includes a strict exit strategy in their favour and restrictions on what you can do with their capital. They can take a hands on approach, sitting on the board to make sure that if the business isn’t preforming they can act.

4. Seed Funders (£50K-500K). Essentially these are VCs with smaller funds who are willing to invest in earlier stages of development. They also don’t instill as much complexity in the terms of business as it requires a significant amount of time to manage and their smaller funds do not reflect a need for this.

5. Corporate/Strategic Investors (£100K+). They don’t have the same criteria as VCs, not as strict. Come form a perspective of their sector, they will look to see how your

Resources

Blogs

Other

Angel.list: Angel Investors
CrunchBase
Crowdfunding: Kickstarter
Accelerators: Seedcamp, The Difference Engine, Y Combinators

We have a total of seven clinics this series and so if you would like to find out more or to attend please see our programme overview. For any questions relating to this event or the series in general please contact caroline AT metamute.org.

This workshop series will be free to attend thanks to the generous support of our sponsor the ICT Knowledge Transfer Network.