BVCA 2010: Making investment happen

The Making it Happen panel at the BVCA Digital Age conference sought to bring advice from those who have invested in start-up companies, or have received investment, to those that are looking for that next step.

Starting with a straw poll, moderator James Mawson of venture capital firm Global Corporate Venturing asked the audience - an assorted collection of venture capitalists, entrepreneurs, and the occasional franticly-scribbling hack - whether they trusted venture capitalists. While the audience responded with a near-majority 'yes' vote, when asked whether VCs understand the technology behind modern high-tech start-ups, the answer was a clear 'no.'

Looking to share their own experiences from both sides of the table, the panel comprised of (from left to right) John Taysom, chairman and founder of streaming music service We7, Charles Grimsdale, managing partner at investment firm Eden Ventures, Jason Trost, co-founder of on-line betting service Smarkets, and Steve Purdham, serial investor and current CEO of We7.

Purdham explained that investment, for both parties, is "all about the people," and that if there isn't an initial gelling of minds the investment is unlikely to work out. "They [VCs] never say no," Purdham claims, "and that's quite a difficult thing for naive young businessmen - [but] once you learn the differences in languages, [VC investment] can work quite well."

Asked about the difference in language between entrepreneurs and VCs, Taysom claimed that CEO's have differing objectives - "some are keen to be wealthy, some are keen to be famous, and some - ridiculous though it may seem - are keen to be loved, [and] the objectives of seed investors are many and varied - some invest in a seed because there are tax advantages, some invest because they're looking for long-term growth, and some invest in some companies pro-bono because they think that someone should do it." Venture capitalists, on the other hand, have "quite clear" objectives which are "mandated when they raise the fund, and you haven't got to guess what they are - you can get the document which they used, and you can read what their objectives are." This, he claims, makes VCs easier to predict - so long as the entrepreneurs do their homework.

Grimsdale claimed that the investment market is starting to see more specialisation, with "a lot more entrepreneurs turning investors - we're seeing a lot more angel investors, serial angel investors, that are ready to repeatedly invest in narrow verticals," and after "a lot of pretty horrible experiences" with what he joking calls "vulture capitalists" this can only be a good thing.

Trost, who has founded his company without the use of venture capital funds, countered with the claim that VCs often have "a lack of appreciation of the time that goes in to [preparing for meetings]," and that there is a real lack of transparency from the investment side of the table that can leave entrepreneurs hanging in the hope of a cash injection which will never arrive.

For those looking to gain investment - and who want to avoid the issues that Trost has encountered - Grimsdale suggests that entrepreneurs should ask a very important series of questions of the VCs they meet with: "where are you in your fund cycle, how many investments have you made in this fund, how many do you plan to make, and how much are you going to reserve to invest in our particular business?" By checking these points, it's possible to avoid the VCs "wasting a lot of your time," he claims.

One thing that shone through the panel's discussion was that even in the current economic climate, investment is out there for start-up businesses willing to work for it - indeed, a recession can be good for businesses claimed Trost, stating that "I'm all for recessions - recessions are good for small businesses," as it can reduce the costs while global markets shrinking harms the established giants far more than the smaller, more nimble start-ups.

It's certainly not easy being a start-up - but as the panel has proven, it's a very achievable thing even in the current UK markets.