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In our latest guest blog, Antoine Espinet, Founder and CEO of MicrofluidX, shares his insights on how to build your team, tell your story and secure investors to manage a successful fund raise.
A lot of start-ups have a technical team, experts with very specialised skill sets, who have developed a new technology or concept. While the technical expertise of the team brings a lot of credibility, and is the basis for any technology start-up, I believe that some non-technical skills are essential to fund-raise successfully. Namely, I would say that you need networking skills and basic business acumen.
Networking skills ensure that you will meet, follow-up, and engage with as many people as possible. When we started MicrofluidX, we needed to contact 50 investors to get one meeting, but as our network grew, our hit-rate improved dramatically. This was due to introductions being made through our growing network directly to investors, rather than approaching investors cold. In practice, networking requires you to step out of your comfort zone, go to conferences, talks, and walk up to people that you don’t know with a clear and engaging story to tell.
Having that clear story brings me to the other non-technical skill: basic business acumen. Investors are business people, although they are often able to understand the technical side as well. That means that their objective is return on investment. As a company looking for funding, you have to understand what that means. You need to know which elements of your business will encourage investors to believe that you can provide this return, and how to communicate these effectively.
For example, many pitches fall into the trap of focusing too heavily on the technology. That’s of course an essential part of a good pitch, but a clever technology is not the same as a return on investment. You need to show that you understand who your potential customers are, what problem you are solving for them, is that problem ‘big’ enough in terms of market size, competition, route to market and of course, show how much return on investment you would generate. Alongside this you must also showcase a team that gives the potential investor confidence that you can execute the roadmap you set out. This requires you to understand how to size a market, how to segment customers, how a cap table works and how to make a detailed workplan and budget. The good news is that there are lots of books and material online to get you there. I would recommend Venture Deals, a great book to understand how a cap table works.
In terms of content, for a seed-stage pitch, a pitch deck should be 10 slides or so and you should stick to one topic per slide, namely: 1) the problem you are solving from the customers’ perspective; 2) the market overview-size-growth; 3) an overview of your solution from the customers’ perspective; 4) the technology behind the solution; 5) any IP behind the technology and IP strategy moving forward; 6) the competitive landscape; 7) the route to market with projected sales; 8) the fund raising needs now and moving forward, matched with value inflection points, potential exit points and corresponding returns on investment; 9) main risks and mitigation and finally 10) the team, including advisors.
Beyond content, it’s also important to think about delivery. If you are not proficient in PowerPoint, paying a designer a couple of hundred pounds to ‘beautify’ your presentation might be money well spent. Same with preparing answers to potential questions in advance, or practicing delivering the pitch in a calm and articulate manner.
It’s difficult to give general advice as I have seen many different investment stories: start-ups coming out of a university, start-ups bootstrapping for years before raising investments, amongst others. Overall, if you don’t have immediate access to investors, you need to first establish a relationship with your potential investors before they decide to fund you. This means that you shouldn’t expect the first meeting to lead to an investment decision.
What I personally found to work well is to leave the meeting with actions/next step, do the work on these actions (e.g. more detailed competitive analysis, better market sizing) and then go back to the investors showing that you have done the work with a good level of quality. Also, the little things do matter; send ‘thank you’ emails and follow up promptly on questions from the investors. All this helps build confidence until they are comfortable with investing in you and your company.
In order to pick, you need to be oversubscribed, or be willing to delay starting the project to find other investors. Let’s take the case when you have a choice (which is really a great problem to have!). When choosing an investor, I consider several factors: 1) do I like the investor as a person and as an organisation. A big part of starting a company is to be able to work with people I like, so this is an important consideration; 2) the firepower of the investor, in terms of ability to fund this round and the next round, as well as in terms of network. Depending on how much you are raising, it makes sense to have one or two lead investors (often VC or family office) who invest most of the money and then a few smaller ones to complete the round. You don’t want to end up with a cap table with 20-30 angel investors. Network-wise, I prefer specialised investors (VC or angels) because they can open their network to find great board members, investors and commercial partners.
When building a strong and effective investor-CEO relationship, “personality fit” is of course a key factor. That is why it’s important to choose an investor that you actually like. In terms of business relationship, I think the most important traits are transparency and coachability.
Transparency is a must because you need a good amount of trust on both sides. Initially, you of course want to present the company in the best light. But at some point, sooner rather than later, you also need to be transparent and acknowledge any remaining issues with the investors. The key is to not only present the issue, but also show that you have thought about mitigation strategies. This is also true after the investment as well, when issues arise whilst running the company. Similarly, you should expect the same level of transparency from the investor, such as what stage of the investment decision they are at and what they think the company’s upsides/downsides are.
On coachability, you need to show you are proactively asking for feedback and leveraging it. This starts with taking good notes during meetings and flagging any actionable feedback from the investors. Then, it’s about executing those actions: carrying out an extra analysis, changing the presentation of a slide, brushing up on a topic that the investors cornered you on in the last meeting. Showing that you have taken the feedback on board and followed up on it is the best way to gain trust and incidentally, it will improve your business and your skills!
You won’t always know why an investor didn’t commit. In fact, you will rarely know. When you can it’s important to ask for feedback after each meeting, even if it’s while the investors are walking you back to the reception.
Investors are often not very direct so it’s also smart to get feedback from advisors and other team members to whom you can deliver your pitch in a safe environment. Sometimes, investors won’t follow up for reasons that have nothing to do with you: maybe their fund just got fully allocated, maybe they invested in a company too close to yours and they feel there could be a conflict of interest, maybe the risk/return profile you are proposing doesn’t suit their strategy. Whatever it is, all you can do is try to improve every time by getting feedback and acting on it.
Antoine is the founder of MicrofluidX, developing a break-through bioreactor for large-scale cell culture based on microfluidic technology. He has experience in cell and gene therapy manufacturing and system development. Prior to this, he worked as an engagement manager at McKinsey, in Brussels and Sydney. He graduated in 2012 with PhD in Engineering from Cornell University, USA, as well as from Ecole Centrale Paris in 2009 with a Masters in Engineering.