by Rupert Cook
Pitching to investors can be a nerve wracking game, even for some of the most seasoned entrepreneurs; competition for funding or just getting time with potential investors is high and investors are savvy when it comes to reviewing the opportunities presented to them. There are many criteria which investors look to tick off when deciding whether they will progress and commit their time and money to a new business.
As an angel investor, I look at the four pillars of value when considering investing in a new technology company:
The first pillar assesses the ‘people’ of a new business.
Starting at the top, it is important to have complete confidence in the CEO and weigh up whether they have the right qualities for success. Beyond the obvious importance of fierce intellect and strong work ethic, I look for three qualities in a technology entrepreneur: fearlessness, charisma and technical ability. Without charisma, fearlessness tends to turn into arrogance or recklessness and without their own technical ability they are unlikely to gain the full respect of their more technical employees, partners and customers. In just about every early stage technology company, everything that could possibly go wrong, does go wrong. Without fearlessness, the CEO is unlikely to be able to weather the inevitable tough times along the journey to success.
Looking at the wider team, I want the company to be regarded as a ‘thought leader’, which means at least one of the senior team is well known in the industry, attends and takes part in talks at events, and has authored research and whitepapers that are recognised in their field. Investors must also be able to see a sufficient balance in the team across vision, technical expertise, sales, marketing and financial management or easily identify how to fill any gaps. In addition to this, the key people must be able to work harmoniously, which often means they will have worked together before. They must also be tied in and incentivised to stay with the growing company, normally through a generous allocation of shares or share options. By ensuring they are tied in, investors know there will be stability amongst the team, which is a key factor for success, and it is much less likely they will be poached with more lucrative offers from larger rivals.
Next, investors will look at the maturity of the product the investee company is offering, specifically whether there is an urgent need for the product and whether customers are willing to pay the full price for it. This includes the acid test: if the product was taken away, would the customer base suffer? Is it best in class? Is its architecture rock solid and scalable? What protection is in place- e.g. is the technology patented? We will then establish whether the product is applicable to a big enough market and whether there is a big enough gap in the chosen market for a substantial business to thrive.
The third pillar of value investors look for is the strength of the company’s customer and partner base. Investors will review whether the company has made inroads into a specific vertical, with an established (or at least referenceable pipeline) customer base, to which products can be sold at full price. It is here where the investee company will also have to show a solid foundation within the channel, by illustrating their contacts and relationships, to show the channel is reliable, and therefore that the company has a strong, dependable route to market.
The fourth pillar is the company’s brand and whether it has successfully established itself. This means assessing its popularity and whether the brand itself resonates with the customer base as well as with partners and employees. Investors will likely take many references, so companies should make sure they’re living and projecting their values, not simply writing them on their websites.
The four pillars of value above can be assessed even before the investee company starts to make any serious revenue. For companies that are beyond the earliest stages, investors will look for the speed of revenue growth, to establish whether there is a strong demand for the product and whether the company has an effective salesforce and/or channel. This is an important element for investors and can be the trickiest for start-ups to manage. Inside sales teams are often expensive and when a business is just beginning its growth journey, can sometimes be unattainable; this is where a company such as Operatix can be hugely beneficial. By outsourcing part of the sales function to an expert in the field, companies in their early stages can really accelerate their growth and build a credible, resilient sales forecast, making them much more appealing to potential investors.
By working on their pillars of value, sourcing the right sales force and generating strong business leads, technology start-ups can get an edge over the ever-increasing competition and make themselves much more lucrative prospects in front of the right people; in this case, potential investors.
About Rupert Cook
Rupert Cook is Chairman of Red Penguin Ventures, an investment and advisory business, and Chairman of the Investment Committee & Non-Executive Director of BSC VCT PLC. He has also been a non-executive director of Operatix, since its inception.
Rupert has experienced technology businesses from every angle over the last 30 years. He was one of the founding team to build up an IT Training and Development business from scratch in the late ’80s, through to sale to a UK PLC eight years later. Since then, he has bought and sold technology businesses, carried out numerous commercial due diligence exercises, run fund-raisings for and sat on the boards of over a dozen innovative technology businesses. Rupert has built up particular experience and knowledge in the security software sector over the last seventeen years, and has more recently made angel investments both in the US and the UK, including six in cybersecurity companies.
Rupert is the author of two published business books and a frequent public speaker on Technology Company Growth and Value Realisation.