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Answered With Insight – ‘When’s the Best Time to Invest in a Start-Up?’

Expert investors and entrepreneurs reveal to THE STAND the sweet spot of start-ups.

Devin KohliDevin Kohli: “choose investments that solve a problem”
Head of digital client coverage, principal investing and advisory, Investec. Advised dozens of start-up clients in fundraisings totalling over US$1bn. Now leading seed investment in firms.
“You need to ask three questions. Is the team backable, committed to working 25 hours every 24 hours to make a success? Are they solving a problem? Is the market big enough to scale the business? If you get three answers of ‘Yes’, then you’re reached the starting point. Investec is a leading bank and so we look at fintech firms. We might even guinea-pig technology internally. Two of our fintech businesses are Curve – all your cards on one card – and Monese, which opens bank accounts in 120 seconds. Neither of them had met, for example, PayPal or AliPay. We were able to facilitate that. Fintech has been a darling of the start-up sector, but top VCs are focussing their attention on AI and machine learning. Wearables is also an area that is being looked at increasingly – beyond activity trackers to what can drive the Internet of Things.”

04Jenny Tooth OBE: “get in really early and co-create the business”
Angel investor. Co-founder Angel Capital Group. Chief executive of the UK Business Angels Association, a trade body representing and connecting over 15,000 early-stage investors.
“Angel investors look at start-ups at the proof of concept stage, hoping to see a business that has really bootstrapped. That could mean they’ve been to the bank of mum and dad, maxed credit cards, accessed R&D grants, put in sweat equity. With a demonstrable product or service you can understand the potential, and signs of revenue show how the business model can be scaled to make money. Right now, angels continue to be interested in healthcare, just because it’s such a major challenge for us in society. Digital health, especially monitoring and prevention. Other strong areas of interest are AI, cybersecurity and augmented reality. Co-creation is becoming quite strong, especially among those who truly know their sectors. Going in really early with a small amount of money and working hand in hand with the entrepreneur, building a business and bringing a lot more value and acceleration.”

Just your knowledge, skills and connections could result in a sizeable bit of equity

Michael Acton-Smith

Michael Acton-Smith: “the best entrepreneurs hustle and hack”
Three successful start-ups – retailer Firebox, games company Mind Candy (Moshi Monsters, Perplex City) and Calm.com – and an OBE for services to the creative industries.
“It’s the point when it looks like the concept has traction, even if only the first tantalising glimmer. Traction could be a growing number of passionate users (far better to have a handful of users that LOVE a product than thousands that quite like it). Traction could also be growing revenue from happily paying customers. Without traction, the concept is just an idea and there are too many of those floating around. The best entrepreneurs are the ones that can hustle and hack their way to a simple product with very limited resources. If that simple product shows early promise, then that’s the sweet spot to invest. Leave it too late and the start-up will be flying and much more expensive to invest in. Take a punt too early and the risk is too great that it’ll crash and burn.”

David HicksonDavid Hickson: “you could back two guys with a PowerPoint”
Head of corporate development at Founders Factory, which plans to accelerate or incubate 200 start-ups in the five years to March 2020. Five years a director Lastminute.com. Entrepreneur with two companies and almost £20m raised.
“One of our most successful start-ups is a data visualisation platform and they were two guys with a PowerPoint, who went on to secure funding from Founder Collective, one of the de-facto top three seed funds in the world. We invest in businesses 0-3 years’ old, and the sine qua non with start-ups is team. You have to feel that the team are going after it with passion, can demonstrate resilience when times are tough, are smart and understand the sector they’re attacking. Once you have a feeling for these three things, there is very little else in the way of data that’s going to convince yourself to invest. At the early stage, the metrics and the data just aren’t often there. The best investors understand that you simply can’t tell, and therefore you have to take the portfolio approach. Some are going to be massive, most are going to fail.”

02Kathryn Parsons: “why not go on the journey too?”
CEO of tech education company Decoded. Winner of many entrepreneur and business awards. Non-exec board member at the UK’s Department for Business, Energy and Industrial Strategy.
“Investors bring added value. If you are on the ground, seeing the talent face-to-face as part of an incubator or you’re just part of the scene, then you can get in really early for little or no investment. Just your knowledge, skills and connections could result in a sizeable bit of equity. Those kinds of investors get a gut feel for an idea, or a team. If you are more disconnected from the scene, you look for traction – whether the business is scaling quickly, and so you’ve got to get in fast – or how you might help it get traction by making changes. And why not go on the journey, too? That’s part of the fun of it. Choose a business you are passionate about, then you’re more likely to enjoy the process.”