Is your tech company considering venture capital investment?
This insight is part of our series of interviews with tech industry leaders giving their view of developments and opportunities in the tech sector. Here, we explore what venture capital (VC) firms are looking for, how the successful fast-growing tech companies are attracting attention and what is the next big hot topic in the tech space.
Ryan Day, Head of Tech at Moore Kingston Smith, takes time out to chat to Paul Lehair, Partner at AlbionVC. Paul has a background in banking, then worked for a tech start-up himself before moving into the VC space and has just been made partner at AlbionVC.
RD: Having made the transition from VC-backed CFO to VC investor, what do you wish you had known back in your days of funds hunting?
PL: VCs get pitched to all the time. The competition for tech start-ups is tough, so perseverance is key. It’s vital to understand how the VC manages its pipeline. It’s about being tenacious and catching them at the right time. If they are busy with a deal, they might not be able to focus on the pitched business properly.
Tech start-ups need to stand out in their pitch to a VC. Certainly, include the essential metrics but speak the VC’s language to make it easy for them to share the case with their wider team. It’s not just one person they need to convince.
Something else to be aware of is that VCs talk to each other. They don’t all have the same investment criteria, so opportunities might sometimes be shared and recommended to peers.
RD: There are so many metrics and KPIs out there. What do you look for?
PL: Storytelling is key. Companies need to show they have true passion and energy and really believe in the company. Share the vision and explain things simply, especially if it’s tackling a space that is little known or highly specialist. Apart from a great product or service, it’s important to have established go-to-market channels.
The VC job is a combination of both art and science. In all honesty, we also rely on our intuition. Obviously, a company needs to know the current structure of the market and present independently inspected figures. The founder must be on top of every single aspect of the business.
RD: Beyond the importance of the founder telling their story, how do you go about examining the details and checking out the team involved?
PL: We speak to the executive team and the relevant departmental heads as well as any cofounders. Seeing who they have recruited so far and how strong they are as a cohesive team can tell us a lot. It lays bare the company’s ability to attract talent.
We have a talent specialist who uses a framework to evaluate the company’s people, their tech knowledge and expertise. What we want to know is: Is it a team that has the ability to build a large company and can we see ourselves supporting them?
RD: The companies you invest in often use the funding to make key strategic hires, so how much do you get involved in that recruitment process?
PL: Top talent is always difficult to find. It gets competitive and expensive. Incentives are key, such as equity options, to attract those interested in working for a new tech start-up.
We don’t run the recruitment process for companies but we get involved by helping identify key gaps in the team and supporting the hiring process in the background after we have invested in the company. We can for instance make introductions to relevant firms and consultants. Ultimately it is down to the company to manage the recruitment, as it is their business.
RD: How is the growing focus on ESG reporting affecting the tech start-up space?
PL: ESG reporting due diligence is a big focus for us and our investors. We need to be able to show the reporting and it is one of the top metrics requested by investors in VC funds. Early-stage start-ups are certainly more conscious of it and environmentally aware, even though the law does not require them to report on it. Without even fundamental ESG tracking, it is difficult to raise funds.
RD: What areas of tech do you see emerging that will be important in the future?
PL: New themes are always emerging. Climate tech is an area that is currently booming. Some 40% of the investments we did last year were in climate tech. Defence tech has been on the rise and we are also looking at a lot of vertical AI opportunities.
RD: To sum up, for the CFO of a tech start-up working with their accountant, what do they need to get right before approaching Albion VC for funds?
PL:
- Number 1 is always ARR and annual growth for a B2B software start-up.
- Next, is a broader sense of the business as well as the management accounts.
- As important is presenting the data concisely, grouped in logical sub-categories and key KPIs (such as churn and retention, sales efficiency, burn multiple, etc).
How Moore Kingston Smith can prepare your tech start-up for raising finance
If you are a fast-growth tech company considering venture capital investment, our multi-disciplinary approach can help you:
- create a clear picture of your financial situation;
- articulate your investment position;
- manage the pre-investment diligence phase including vendor assistance;
- meet tax, R&D and ESG reporting requirements;
- implement management incentives and share schemes.
