Opportunity amongst uncertainty
3 August 2020
What has it been like setting up a New Company in the middle of a pandemic?
The last few months have been a happy blur of excitement and hard work, if not a little unusual launching a business remotely. Our first face-to-face team meeting was actually two months into the business, and we’ve had to delay our launch party…
Our biggest challenge has been keeping up with the number of direct inbounds. We’ve already had more than 500 emails from companies and funds looking for support in the last couple of months and we’ve tried to reply to all of them. We decided to run a series of free fundraising workshops to be able to capture an even wider audience, which have gone down very well. However, those of you who have talked at a screen for an hour or more will know that workshops have seen better days. It also took us some time to get regulated given the current situation, but we hit that milestone recently.
What made you leave a secure role at PwC to set up Mountside Ventures?
Good question, lots of people have asked the same thing!
I was having a great time and had met some amazing people, including my two co-founders. By the end of last year, we’d built two new startup propositions and had expanded them to other countries, but working as part of a massive global organisation with a turnover of over £30 billion always brings certain challenges. (This Sifted article provides some insights into intrapreneurship, for those interested). I also wanted to better service the startup ecosystem by working somewhere where this world was a top priority, and be part of a leaner and more agile team. We’re not the only ones to have this idea… a couple of friends and former colleagues spun out of the firm in July, to continue running their corporate accelerator and SME business services.
I couldn’t be doing it with two better co-founders. Jon helped me build the fundraising proposition at PwC, specialising in sourcing and diligencing 1000’s of companies. Alex expanded the early-stage propositions into Europe so brings a wealth of European experience (it’s done slightly differently over there), as well as a great personal network.
I haven’t looked back since!
What is your vision for Mountside Ventures over the coming 12-18months?
We formed the company to support the flow of venture capital into the European ecosystem and to optimise the fundraising process between European startups and investors. Our vision is to be the first point of call for the most ambitious entrepreneurs looking to raise their next round of funding, and for venture capital funds to source their best deals.
Tell us how Mountside Ventures will seek to add value to entrepreneurs?
First of all, we’re not brokers, and we’re not placement agents.
Many founders have had bad experiences with individuals or organisations who charge a fee for just making an email introduction to a potential investor. As well as unregulated brokers risking criminal liability (The FCA is rather clear on what is and what isn’t regulated ), we don’t believe it’s the right way to work with startups.
For entrepreneurs, the value we provide is split into 4 areas, and they’re all complementary. First, we give them a clear understanding of the fundraising process, what’s involved, who the key players are and how to succeed. Second, we critique and challenge them on their documents, ensuring they are fit-for-purpose and work with them on articulating their value and investor propositions. Third, we introduce them to relevant investors who have the cash to deploy and where we believe there is a good fit. Finally, we empower them to close their rounds on terms that are right for them, walk them through the implications of what they’re signing up to, and leverage our knowledge of what is the market standard.
Instead of charging a retainer or upfront fee, we defer the payment for our services until the round is closed. If we only worked with companies who were able to pay for support now, we’d lose out on working with some of the best entrepreneurs. Although the introduction is one piece of the puzzle, the feedback we’ve received indicates it’s certainly not where the most value is gained.
A minority of investors seem to think that when entrepreneurs do everything themselves it shows they have what it takes to grow a business. We disagree. The opportunity cost of the very best founders becoming professional fundraisers for 6 to 9 months certainly isn’t the best use of their time. When we partner with a company, success for us is if an entrepreneur can shave a couple of months off their fundraising process by eliminating investor meetings where it’s clear there’s no fit from the outset, get terms that are right for their business, and focus more on building the company.
In any case, those who go it alone often have to make internal hires to help them through the process, perhaps an interim FD who feels more comfortable in excel, than one who’s spent time focusing on building a network of potential funds to approach, understands the market and can negotiate the nuances of a term sheet. Salaries also need to be paid before the money is raised of course.
And what value do you add to investors?
It’s a simple value prop for investors. They are introduced to companies who have gone through our Next Round programme, who have a comprehensive suite of investor documents, and who match their investment criteria.
For those raising capital for their own funds, we go one step further. We connect fund managers to Limited Partners (the organisations and individuals who invest in Venture Capital funds) through our LP conferences and where there’s a fit, through an email introduction.
I’m also super excited about a report we’re publishing soon on the LP-VC ecosystem, alongside our partners who include Allocate, Beauhurst and the BVCA. All of our activities supporting fund managers on their own fundraising are free for both the VC and the LP. We want more capital going into supporting Europe’s best entrepreneurs.
What are some of the biggest lessons you have learned so far during the COVID-19 crisis?
It’s a great time to build relationships, people are generally open to chat, even if they are making fewer long-term business decisions.
Negotiate on everything in order to cut costs where possible.
There are a lot of funds raising at the moment. A lot of family offices are only considering investing in those who have a sufficiently differentiated investment thesis, so make sure you can articulate why you will be able to source the best companies, why your focus is the one to go for, and how you’re going to work with them to an exit. When a VC picks a startup, it typically needs to be a possible fund returner. When an LP picks a VC, the exact same logic applies so 2-3x won’t cut it.
How has the COVID-19 crisis affected investment activities in the UK during 2020?
On average, deal volume has halved in the last two quarters, but valuations have surprisingly stayed relatively stable. From our conversations over the last couple of months, it seems this has been due to a bunch of factors – more convertible loan notes kicking the valuation discussion down the road, COVID-proof companies growing faster than ever raising at higher valuations and existing shareholders supporting their portfolio companies during these difficult times. Some who are raising have also delayed to avoid a downround, although there has been an inevitable increase in downrounds recently.
Things are picking back up now it seems and the majority of investors are open to discuss investment opportunities. At least a dozen UK funds have now done deals 100% remotely, but there is still a lot of dry powder around.
What is your advice for a founder looking to raise funds over the next 12 months?
It’s hard to answer this question in a couple of paragraphs. We have written plenty of articles on this, and you can find out more by visiting our website and hitting the Resources Page.
If I could pick three things…
- Build relationships with potential investors now
- Circle back with your existing investors and see what they can do to support your runway, and don’t go out formally to market if you don’t need to
- Build a strong and specific USP to ensure your company stands out in the market.
Which entrepreneurs do you respect and why?
The most successful businesses often take at least 5 years to build, and so I have a lot of respect for those entrepreneurs who keep going, despite the ups and downs, and potential early acquisition offers where they believe the business hasn’t reached its potential yet. I also admire those who are able to grow their business to a sustainable level and still hold sufficient shares for themselves and their early employees. (I love Monzo, but it was started less than 5 years ago, and the founding team has less than 7%, even before Tom stepped down).
An example of an entrepreneur I really respect is Cris Conde is, who now advises and invests in early-stage companies. We’ve worked with him in the past and his workshops on how to sell to large organisations always receive undivided attention from founders. He co-founded Devon Systems, sold it to SunGard in the 1980s, then grew the new subsidiary to $300m revenue, before taking over as SunGard’s CEO. Later, he then sold the company to a PE firm for more than 10 billion dollars, and stayed on as CEO growing it to a Fortune 500 company.
What would be your predictions for the ecosystem over the next five years?
The best businesses are often built out of recessions. At least that’s what a lot of people are saying. The 08’ recession saw Airbnb, WhatsApp, Uber, Slack and Square, amongst others. I suspect this period will see a new breed of companies who are making people’s lives even easier, and simultaneously targeting one of the key attributes of the next generation; complete and open transparency. We’re starting to see a lot of new companies publish internal memos, working practices and ways of working, and I think this trend is going to continue.
I believe that the Limited Partner and Family Office ecosystem will also become more transparent. I’m often surprised at how little entrepreneurs know of the origin of the capital that goes in their cap table. For example, the biggest source of Capital Behind Venture in Europe is tax-payers’ money! Although we’re now seeing the UK government take direct stakes in companies through the Future Fund, they’ve actually been doing it since 2006 via investing indirectly through VCs with the British Business Bank. We’re doing our bit here. For more information, you can reach Jonathan by email: firstname.lastname@example.org