Navigating the UK Investment Landscape: Securing Venture Capital During Lockdown 2.0

Raising investment for a business is a significant undertaking, especially as we head into a financial global recession.

You may think that securing venture capital during a pandemic is a challenging feat, but you’d be surprised that investors are still actively seeking to invest in new businesses whilst in the comfort of their own home.

Jonathan is the Managing Partner of Mountside Ventures, where they help the most ambitious entrepreneurs raise their next round of funding (Seed to Series B). They also connect Venture Capital Fund managers with Limited Partners to promote the flow of capital into Europe.

During our ‘In This Together’ live broadcast, Jonathan shares some of his most important learnings to navigate the UK investing landscape during the pandemic.

Between 2019 and 2020, there was a shortfall of 20% in the investor landscape, dropping from 4.1bn to 3.3bn.

As is to be expected, there are fewer deals being done due to COVID-19, with up to almost 50% drop in some sectors. Uncertainty kills deals, and the more uncertainty there is in the economy, the less likely there is that you’ll get an investment.

The UK fundraising landscape can be broadly split into 7 areas:

• Venture Capital Firms

The important thing to think about with this source of funding is where the money comes from. And in this case, it comes from their limited partners.

Usually, securing funding from Venture Capital Firms takes 2–3 years, so you need to think about the impacts of their investment on their partners when you do decide to go this route.

They need to draw that money down from limited partners, as that’s where the money is sat.

One way to check if it’s a viable route is to see if they have recently closed their fund round, or recently made investments. If they have, they’re likely active as an investor.

• EIS (Enterprise Investment Schemes) and VCT (Venture Capital Trust)

Typically, EIS and VCT funds come from individuals that have a good amount of tax to pay, and who want to offset some of that through investments.

So in order to know if their fund is active, look at whether these individuals are actively investing. With regards to the pandemic, see how impacted their portfolio is.

On the whole, these investors are more likely to pause their investments for 4 to 5 months due to tax purposes. Most of the money gets put into these firms during the end of the tax years, so that’s also worth bearing in mind in terms of timing.

• Corporate Venture Capital

CVC’s make up around 10–15% of the investment market. The money comes from the corporate investor — their parent company. AXA is just one example of a CVC.

Assess whether that company is a competitor to your business. Ask yourself — Will they overtake me in the future? Will this company provide additional value in terms of technologies?

CVC’s are not particularly a good investment route if you want to close the deal in 3–5 months, and when you consider the impact of the pandemic, this could make the cycle very long — so it may take up to a year.

• Family Offices

A single family office are privately held companies that handle investment management for wealthy families that don’t have a funding function. You’ll get a quicker decision, deal with an individual, and it will be more straightforward.

There are also multi family offices, which are much more institutionalised and professional. These mirror the VC type of funding, except it’s their own money.

You can only really access these people through referrals, and you have to know them well to get an introduction. The implications from COVID-19 will depend on the type of investor you’re dealing with.

• Angel Syndicates

An Angel Syndicate is three or more private investors (Angels) working together to invest their own money into a business. Funding usually ranges from 200–500k, depending on the type of angel you go for.

• Government Support

There is the Future Fund and Startup Loans, which you can get up to 50k. Loans obviously need to be paid back, so bear that in mind. With this route of investment, it’s really about the speed in which the capital can be deployed and whether your business meets the eligibility criteria.

• Venture debt

This money comes from banks, so they’re quite hard hit at the moment. Venture debt companies are looking for businesses that are cash positive. They want to know you can pay interest on your loan.

Valuing your business

The consensus across the board is that you should follow the public markets, which are around 30%. Since COVID-19, valuation figures have fallen, especially software businesses. It used to be 3x-8x revenue, now it’s 2x-5x.

As long as you can show that the valuation is based on real data, giving three or four approaches, you’ll be much more likely to secure investment.

The positive side of this is that lower valuations mean they’re more attractive for VC’s.

If investors are worried about their current portfolio, they have a duty to support their existing businesses through this crisis, so also bear that in mind.

How to find investors

Relationship building is the most important thing when it comes to finding an investor.

It’s easy to share a deck and have a Zoom call, especially during these COVID-19 times. You need to show a deck before a meeting, within 24 hours. Follow up with questions, and leave twenty minutes at the end to ask about them and their businesses.

You need a COVID-19 plan to weather the global recession — it’s here, and we don’t know how much of a downturn it will be. So you have to show that your business will be resilient.

Your plan should have 18–24 months of cash runway. Position yourself as a ‘COVID-19’ proof business that has a clear plan of attack.

Overall, if you have a good business, now is still a great time to get investment.

Jonathan is now a resident speaker at SIA and hosts a monthly live event called ‘Fundraising Unplugged’. Join us in the new year for ‘Fundraising Unplugged: Diving into the World of CVC’!