The right kind of help, demystifying investors, and five minimum requirements
Podcast transcription - 8th august 2018
Alan Cowley: Welcome to another Invested Investor Podcast. I'm here with Jessica Dick who is Investment Manager at Synergy Growth, as well as co-founder of Five Years Time. So Jessica, if you could give the listeners a little bit of your background.
Jessica Dick: Hi, so I'm Jess. I initially started sort of in the start-up or investment world about three years ago. I started working at a company called Synergy Energy, which is now called Synergy Growth. We are part of a family office run by an angel investor, and we're essentially a small investment fund investing in clean-technology businesses. Since 2011 we've invested in about 30 different start-ups. We started in clean-technology, sort of more engineering type companies, companies doing some research and development in that space. And then we moved on to more social-impact start-ups, some more commercial ones just B2B or B2C software start-ups. Mainly in the UK, some in the US, and then on the social-impact side, a couple working in Africa as well.
Alan Cowley: Are there any companies that we'll have heard of?
Jessica Dick: On the podcast, yes. We are investors in Advantage Power, which I think we've had on the podcast.
Alan Cowley: Yeah.
Jessica Dick: I think that might be the only one so far, but we have a lot of investments in common with Peter. So one of the original founders of Synergy Growth was a lovely man called Nat Billington. He was very close to Peter and they did a lot of investments together in the early days of Synergy Growth, so there were a few common stories between Peter and Synergy Growth.
Alan Cowley: With Synergy Growth, what sort of percentage are you, successes and failures?
Jessica Dick: We don't really know yet. I think in total we invested in about 30. We've had, I think, about five, probably, close down, but a lot of them are still going. I would say we have five that are probably going to do really well, or look like they're going to do really well at this point. I think we're looking sort of slightly higher than the one-in-ten ratio, but we don't know yet. I think this year will be the first year that we're expecting one of our significant exits, so 2018 is going to be a big year for us, hopefully.
Alan Cowley: A large part of the Invested Investor is to learn from mistakes and failure, as well as success. So can you elaborate on any of these companies that closed down? Any reasons why? Not the actual names of the companies, if you want to leave that out.
Jessica Dick: Yeah, I think the reasons vary quite widely. I think a couple of them got to market too late, or by the time they ... they'd done enough work on the technology, found the right technology and found the right markets, some bigger players had just taken over and it was just too late. As I said, we invest at very early stage. Really, sort of, research and development stage for a lot of the companies, and so sometimes they've just been a little bit slower than other companies, and so that's one of the main reasons.
Jessica Dick: Other reasons I think, you know, just the funding running out, so them not being able to secure further funding. And of course there's always a reason for that. It might be that they haven't commercialized quickly enough, and so they're not able to raise further investment. At a certain point, investors want, you know when you're doing bigger rounds, they want to see real proof of product-market fit and real signs of commercialization, so if that doesn't happen, I think even existing investors will continue investing for so long. I think we've had an interesting time in the last couple of years, where we've had to make that decision. "How much do we follow on in companies that we invested in at an early stage?" You can't follow on in all of them. You want to back the winners, but at the same time you get attached to the entrepreneurs; you want to support them. You always think there might be a way through, so we've had to make quite a lot of decisions around that, which has been quite interesting and definitely learned a lot from that process.
Alan Cowley: Yeah. Do you sit on the board, then?
Jessica Dick: We used to sit on the board, sort of where the director's seat with Nat. We have a couple of observer seats, which I normally take on 30 angels. So, yes, we don't have decision-making at board level, but we're reasonably significant when it comes to shareholder decisions.
Alan Cowley: Okay. So a side from Synergy Growth, what's your passion?
Jessica Dick: As you said, I'm co-founder of a consultancy partnership, and now an online business called Five Years Time, with a lady called Nathalie Tulip, who's not with us today because she's about to have a baby. And really the passion behind that is just to help entrepreneurs even start thinking about this idea of investment and seeking investment.
Jessica Dick: Throughout my time at Synergy, when I got to a point where I knew what I was doing, 'because I'm not from this background so it took me a while to get up to speed and understand it all, and then I got to a point where I was managing the portfolio and that was going quite smoothly. I had a lot of time to do other things, so I started doing quite a lot of mentoring and meeting a lot of entrepreneurs with accelerators and incubators, and I was always quite surprised at how little they understood investors and how investors make decisions, and why they make certain decisions. And potentially there's a bit of a demonization of investors, you know, thinking that they're only looking for one thing and don't really understand the entrepreneur and the founder. So I sort of set out on a mission to introduce entrepreneurs to that, demystify the whole process for investors and really simplify it.
Jessica Dick: Even when I started with Synergy, I was sent into board meetings as a board observer. I didn't always understand what was going on; there was a lot of jargon used. It was a lot of much older guys in suits, and I didn't always quite understand what was going on, all the words being used, and actually a lot of it is quite simple. There's just a whole language that goes with it that you need to start understanding, but once you sort of get over the hurtles of jargon, it's all pretty much basic business concepts that founders completely have the ability to understand. They just need a little bit of an education around that whole space. So that's really my passion, just to make it easier for them to understand and digest, and therefore increase their chances of actually securing investment, wiring an investor.
Jessica Dick: And I think, also, finding the right investor. So I've met a lot of entrepreneurs who consider investment way too late; they take money from the wrong person and that always creates a problem down the line. I've seen what a good board or a good set of investors can do for a company, and I've seen what a disengaged investor or not having investors involved at all can also do, and the benefit of having a really active, supportive investor base can really do wonders for a company. And I think Vantage Power's definitely an example of that for me. I just think they have a really fantastic board.
Jessica Dick: Having seen how much an investor can play that role, helping a company find the right one is actually crucial to their success, I think. So that's also part of what we're trying to do.
Alan Cowley: Do you find that entrepreneurs find it hard to ask for help?
Jessica Dick: I don't think they find it hard to ask for help; they love asking for help, and they'll take help from anyone. But they don't necessarily know what they want help with and why, and so they'll take a lot of help. They'll actually sometimes take quite a lot of people's time, and then they won't be very good at deciding which help to take and not take, and sometimes be quite ungrateful for that help, I've found. And that's not all entrepreneurs. Most of them, I think, do appreciate advice that's given, but I think when you ask for help you need to be very clear on what you want help of.
Jessica Dick: Actually, most people that you ask help from are always happy to help in general. In this space, people love to share. That's why investors invest. They share their network. They open up their experience, their skills, but you need to know what you want and what you want help with, and it's much easier for people to help you if you know what you want help with.
Jessica Dick: I think they find it easy to ask for help, but it's about the right kind of help.
Alan Cowley: What advice would you give to entrepreneurs in that situation? How do they figure out what they actually need help with?
Jessica Dick: I think from a really basic point, it always starts with the team. So at a very early stage, again, we look at very early stage companies, they'll typically have a set of skills or a couple of set of skills that are really missing for their business to have success. Typically the first error where they might want help is within that skillset. That's a good place to start is, what might be missing in the team that your business needs in order to be successful, and that might be the right area you're ready to ask for help. And then I think it's asking the right person for that help, and making sure that they're the right person to provide that.
Jessica Dick: I think what can be difficult for investors, is sometimes entrepreneurs ask for a lot of help and a lot of advice, and then they don't necessarily take on that advice, which is fine. But it can be quite disheartening for advisors, investors, mentors, anyone who's offering a lot of help and a lot of advice, and then seeing their advice always sort of disregarded. I think there's also a little bit of relationship-building now on, perhaps if somebody's given an entrepreneur quite a lot of time and then you've gone against their advice, explaining why you might've actually decided to take someone else's advice and just going back to them on that, it's a big-time investment, and sometimes I've seen entrepreneurs with who it's sort of happened time and time and time again. I think just to manage that. I think people are giving away a lot of their free time, and their skills and their experience, so I think it's good to be appreciative of that.
Alan Cowley: What is it that Five Years Time does? How do you help entrepreneurs?
Jessica Dick: We provide training in investment readiness in lots of different ways, but the key point is that we provide training in a very digestible, easy way for entrepreneurs. We try to explain the investment space, and then give actionable insight so that people can take action directly from the content that they read from us. We do workshops; we have a lot of online training; we have templates, downloadables. We've got some online courses, as well, and the idea is that after they've seen that content, they can directly go and do something with that, whether it's preparing their pitch deck, preparing how they're going to start approaching investors, preparing how they start researching investors. The idea is that we make it very easy to use straight away.
Jessica Dick: Really, it's for entrepreneurs who are typically from a different background. Very technical entrepreneurs typically you see in this space, who just need to know what they need to do quite quickly. So just understand it and then put it into action straight away, and what we found was that a lot of the advice online is done either by accountants or by lawyers. It can be quite heavy. It can be quite jargon-y. It's typically very long written articles, long blogs, which is quite hard to digest when you're on the go or to have time to read. So that's why we're quite video-based and quite sort of bit-sized so that people can absorb the information a little bit quicker and then take action with it. That's very much what we're about.
Alan Cowley: Okay. What's your key advice to be investment-ready?
Jessica Dick: My key advice is make sure you have enough time. Don't start too late. Once you've got time, you can then think about all the rest, but the hardest thing is when you're rushed, when you're running out of cash and you need to get investors quickly, and it's very likely that you're going to choose the wrong investor or get the wrong deal, or even potentially miss some key information and not necessarily be aligned with the investors just because you haven't had the time to really build yourself up, and build the best case for your investment. That would be number one. Make sure you start early enough. Typically, it can take a good six months to raise investment. That's an average; that's not even the longest that it takes, so make sure you have that sort of runway so that you can raise the investment in the best way for your company.
Alan Cowley: What point should an entrepreneur seek investment?
Jessica Dick: First of all, I guess they need to make sure that investment is right for them and for the type of company that they built. Investment's not right for anyone, and it's definitely for companies that can grow quite quickly into a very big size. But at the point at which they think they might need investment, typically they need to be at a certain point in their journey.
Jessica Dick: We typically look at what we call "the five minimum requirements". There's five things that you should have in place in your company before you go out to raise investment. You might not have all five, but if you have a good combination of three of them, you can then race around to achieve the other two. Those five minimum requirements are: number one is a minimum viable product, or an MVP, as we call it in the start-up world. Just a basic version of your product that you've tested and that you've put in the hands of users. Before you spend too much time on it, or spend too much money, you've created a product that has sort of the basic features and the basic functionality of what you're going to be selling. And that essentially shows the investor that, first of all, you're able to build something. You're not just at idea stage, but you can get something off the ground. And it also allows you to get feedback for your product, and to see how people are interacting with it, and how they're using it. That's the first one.
Jessica Dick: The second one is a credible team. Just making sure that you have a team around you. There are sole founders out there. In my experience, especially the angel community, it's quite hard to get funding as a sole founder. They typically like a combination of two or three founders. Again, this is really to do with risk. It's just less risky to invest in more than one individual, and also you'll have a bigger set of skills. Typically they want to see a complimentarity of skills, as well, on the founder team so that not all the team are not effectively the same person, but they have skills in different areas of the business.
Jessica Dick: The third one is a viable business model. Even though they might not be charging for their product yet, but they have an idea how they're going to make money and what their unit economics are, and how they're going to charge for their product, and how much they're going to charge for their product. And does that make sense, and do the numbers stack up?
Jessica Dick: The fourth one is early signs of product-market fit. Typically, product-market fit can take a while. I think a lot of companies potentially don't really achieve it until after their first round, or even their second round. But it's more about showing early signs of traction, essentially, so make sure you have a customer base that have good things to say about your product, that you have partnership in place, and that you can show that some big names are ready to talk to you or want to talk to you, press coverage or anything like that, essentially showing that you're on the right track. And that people are responding well to your product.
Jessica Dick: And then the ... Is that four? Have I done four?
Alan Cowley: Yeah, the fifth one...
Jessica Dick: Yeah. So the fifth one is essentially just a strong plan for your growth so that you know what you're going to do with that money once it hits your bank account, and how you're going to achieve the growth, at least for sort of the next 12 to 24 months. How you will use that money in the best way to essentially grow the value of the business and therefore grow the shareholders' value share.
Alan Cowley: Okay, so I'm an entrepreneur. I've ticked all the five boxes.
Jessica Dick: Yeah.
Alan Cowley: What's my ideal investor? Who do I target?
Jessica Dick: Depends on, first of all, what sector your in, I would say. What type of product you've built. And what exactly are you leveraging. Are you leveraging a new business model? Are you entering a new market? Are you building a new technology? All ... Investors come in different shape and sizes. Some investors are really focused on the team and the founders. Some are interested in innovative business models. Some just like really novelty products. Some like exploring new markets. So it really, really depends on where your unique selling point lies, what is your strength, what differentiates you from the crowd of other start-ups fundraising. And then investors will typically have a preference or something that they're really focusing on.
Jessica Dick: Or they'll take a portfolio approach, so they'll typically have a variation. You would see them specialize at a certain stage, or in a certain sector, or in a certain type of product.
Alan Cowley: Do you think that an entrepreneur should try and aim to get an investor that has been within their own industry, on their board, or as a lead investor, anything like that? Do you think that's a requirement?
Jessica Dick: I wouldn't say it's a requirement. I think it ... Again, it depends what the founders' skills are because it's all about complimentarity. So if a founder has solid foundations in that sector themselves, actually it could be quite interesting for them to have a perspective of another sector, because there's always lessons that can be learned. And I think that's when actually some very exciting things have happened in the start-up space, potentially, where you've seen stuff that's been applied for years in a certain industry applied to another.
Jessica Dick: But if the founders are launching in an industry that they really don't understand or that they don't know, then yes, it's absolutely crucial for them to get that as part of the mix. Should almost see, I think, early-stage investors, in terms of skills and experience, as an extension of the founding team at an early stage, and seeing what they can bring that you don't currently have.
Alan Cowley: Okay, so what else are you doing with Five Years Time at the moment?
Jessica Dick: We've just launched our online course, which is "The Basics of Investment Readiness." It's a series of online modules, and accompanied with a lot of templates and downloadables, to help essentially a first-time founder get ready for their first professional fundraise. Introducing them to what raising investment really means, and then how you start preparing for that, both on the investment-pack side and how you start to get your ducks in a row, and then also how you start approaching and speaking to investors, and how do you manage the whole fundraising process. That's really exciting.
Jessica Dick: And then also, we're in discussion with Crowd Cube on becoming one of their partners, and helping their companies get investment-ready so that they're ready to launch on their platform. So that's something else that we're doing at the moment, and then sort of launching a specific course with sort of a Crowd Cube angle.
Alan Cowley: Know now that you're extremely busy with Synergy and with Five Years Time. Is there anything else going on?
Jessica Dick: I've also started work on another project, which is a little bit different but very, very interesting for me with DFID, so the Department for International Development. Originally, actually, my academic life was in development, so I did a Bachelor's degree and a Master's in the field of development, and then went on to work in the private sector. But now I'm working on a project with DFID, called LearnAdapt, which is essentially trying to use lessons from the start-up community and sort of lean start-up methods, and applying that to adaptive programming. To ensure that their programs stay adaptive and adapt to the times, and to changing context. So doing a lot of work with them on that, which they're calling lean impact, so really looking at making them more impactful.
Jessica Dick: And I'm specifically advising on how relationships between early-stage investors and start-ups can translate to relationships between how DFID works with their partners as well. So yeah, it's really, really exciting. Completely new role for me, but it's interesting to see how lessons from this sector can apply to a more public-sector organization, and how that can sort of really help and have impacts on a wider scale.
Alan Cowley: Jess, that's been absolutely brilliant. We've learned a hell of a lot, and I hope all the best for Five Years Time, Synergy, and your new partnership advising for DFID.
Jessica Dick: Thank you so much. Thank you very much for having me on your podcast.
Alan Cowley: Thank you.
Peter Cowley: Thanks for listening to another Invested Investor Podcast. You can subscribe to all future podcasts via our website, InvestedInvestor.com, or via a number of podcast platforms online. Signed pre-orders for our Invested Investor book are now available on our website. And be sure to follow us on Twitter, LinkedIn, and Facebook to get the most up-to-date, interesting, and insightful content from the Invested Investor.
