Hazel Moore explores the trend of investing in startups, and gives some tips on how startups can gain funding
Corporate investment in startups is on a major growth trend. According to CB Insights, a machine intelligence platform, corporate venture capital rose to over $31bn in nearly 2000 deals in 2017, with the most active investors including the likes of Google, Intel, Qualcomm, Cisco and Salesforce. More and more corporates are getting in on the action, with over 180 new corporates investing in startups for the first time in 2017.
There can be many benefits from getting investment from a strategic investor including credibility (you have successfully proven that a major market player is interested in what you are doing), acceleration of time to market (if you can leverage the investment with a commercial or technical partnership) or even strengthening your links to an eventual buyer. However, it is not necessarily easy to get money from strategic investors. Here are some tips, based on our experience over the years.
Get on their radar
It may seem obvious, but it really helps if the tech giants know who you are before you get in touch with them. As with most investors, the venture capital teams in large corporates are inundated with proposals. Unlike other investors, they will probably have a list of specific themes or strategic priorities generated from their business units, often including the companies who have piqued their interest. If you’re not on that list, it can be time consuming and difficult to go through their internal processes to find a sponsor who is interested in what you do. However, if you have already done some preparation, e.g. connected with the relevant people at conferences and on LinkedIn and built some internal understanding of your value proposition, you’ll be able to move more quickly.
Deborah Magid, Director of Strategy at IBM Venture Capital Group, explains in a video on our website: ‘We go to places where startups hang out. If they give a good pitch, I’ll go up and give them my card. We usually don’t meet startups randomly, we use the community and network that we’ve built up in order to meet companies who look really promising.’
Tell them why they should talk to you
Once you’ve secured a meeting capturing a tech giant’s attention, imagination is key. Having a compelling story, and explaining why they should be interested will help you stand out from the other startups that pitch to them. The tech giants, by definition, are huge and have tens of thousands of people working for them in many different divisions and products. If you can hone in on the specific opportunity that you can open up for them, you will help the people you are meeting to identify where in their own organisation they should look to get sponsorship and buy-in, and help them to sell it internally.
The ‘narrative factor’ is one that is often underestimated, but just as charisma and a personable manner are important traits in individual salespeople, so too the story of your business itself because it provides a powerful vehicle to spark interest and emotional buy-in.
Build a great team around you
Going through any funding round can be very time consuming. Having a good team and enough resources to manage the conversations and take the necessary actions, as well as spending the time you need on your business is essential. The last thing you want is for your company’s performance to suffer because you are spending all your time with potential investors. Not only will this leave you in a difficult situation if the investment falls through, missing your quarterly milestones will also negatively impact the likely deal. Get a great lawyer who’s experienced in these types of deals and a strong advisory team who has the contacts and the experience to help you get the deal done on the right terms.
Hazel Moore is the chairman and co-founder of FirstCapital, an investment bank specialising in advising high growth European tech companies on M&A, private equity and growth capital. In 2017 she was awarded an OBE for services to entrepreneurship and innovation.
