As a young entrepreneur, I’ve heard many opinions about investment.
That equity investment is a last resort. That no entrepreneur really wants to do it. That investors are often seen as negative forces in the system. Or a means to an end that is statistically doomed for failure. And finally, that to see investors as necessary forces to grow your business, can mean bowing down to their terms and conditions.
This is the mantra you hear among startup founders. Not many people I’ve spoken to so far in the ecosystem sees Scotland as a good source for funding. They believe investors undervalue opportunities and they’re not too helpful in the growth of the company.
From these conversations, I’ve grown an opinion that investors often don’t do enough on their end to ensure that both founders and investors get to an agreement where there is a win-win, mutual benefit, sum-sum outcome. They don’t pull their weight enough.
But, this original mindset was challenged during this event’s conversation. It made me see things in Scotland differently.
On the 11th March 2020, AGORA hosted an event with a discussion on the fundraising landscape of Scotland and the opportunities it brings.
Three key players in the Edinburgh ecosystem were brought together:
Here are some of the key highlights of the event that might challenge your perceptions on investors.
The Investor View
From the start, it was obvious that competition or rivalry didn’t exist among our guest speakers. The three speakers and their respective companies focussed on startups at different times in their journey. They were all synchronous with each other and spoke in a way that hinted at an abundance of opportunity in Scotland.
McKenzie emphasised that the people at Archangels, as well as their investors, love being intellectually challenged. They want to hear and learn about new technology, new ways of doing things and add value to companies by leveraging their high quality experience and highly vetted networks.
Hogarth made it clear that when Techstart moved across the Irish Sea, it wasn’t done with the intention to compete but instead add further value alongside existing solutions as well as to find new deals that weren’t being funded or otherwise wouldn’t have been funded.
Andrew reiterated ADV’s motto: they back companies that solve generation-defining problems, at scale. And so, they look for companies that set out to become not only great, but generation-defining. Often this is the kind of company that creates new categories in the market or redefines existing ones (and as such will also likely be a company that is innovative about their business model).
But one thing is clear that McKenzie, Hogath and Sloane all agreed on, it is not the job of investors to identify the emerging problems. While they will support you, it’s the job of the startups to come up with a product or service as a solution to an existing or emerging problem. Only then will an investor give you the funding you need.
Why Scotland is ripe for investment opportunities
You could argue that Scotland’s and Scottish Universities’ efforts in the late 1700s ignited the modern economy. The progression and innovations from these same universities is still going on today.
McKenzie stressed that universities are churning out fantastic technological innovations - at an impressive rate. They just keep on advancing, despite the global competition. And every day, institutions such as the University of Edinburgh, Heriot-Watt University, and the University of Strathclyde keep on surprising the team at Archangels. They bring out technology that excites them and makes them feel optimistic about the future of Scotland.
And to support this new technology, there is a growing risk appetite in Scotland.
While the money available for investments in all of Scotland is considerably lower than that of London, investors still seek risky ventures.
All three speakers also felt strongly about Scotland’s talent pool. They all agreed that it acts as a cornerstone to the entrepreneurial system.
So, not only does Scotland offer some great technical innovations to invest in and a great talent pool to fuel the growth of young companies, but when compared to London the entrepreneurial system it has a cost-effective and lean approach to business.
One example is Scotland’s culture itself, creating an environment for a higher level of staff loyalty and a lower staff turn rate.
Entrepreneurs in London are generally bolder with greater ambition. All investors often see London-based and Scottish-based projects of similar quality. But the difference is that we in Scotland do not articulate as large a vision.
It’s not rare for investors from Scotland to travel to London, only to find something that’s almost exactly the same already being done in Edinburgh, just at a larger scale or a larger vision for the startup.
It seems that in Scotland, startups are not thinking large enough and this perhaps begins as early as the conceptual stages of a business. If this lack of ambition and hunger for scaling is a consequence of the environment up north, then something must be done about it.
The Key Takeaways
Throughout the discussion, all investors shared pieces of advice and recommendations. Here are just some of the key points they mentioned.
Here’s a list of advice given:
Don’t be shy about asking for help. That’s how community is built, how innovation happens, and how the economy flourishes.
Your relationship with an investor can last for a decade or more. It is a serious commitment. So, you must know your investors inside out and choose them with this in mind. Research them and get a solid understanding of what their culture and philosophy is.
Think of venture capitalists as co-owners of your business. And so, you must audition investors as such. Do your due diligence with a high level of intensity - you must ensure that you match the investor to you and your needs.
You must have humility and self-awareness. You must know where your gaps are and you must be able to ask for help where you need it.
You have to create options for funding. It’s encouraged that you go to London and meet with investors from there. Use all the tools available to you.
Equity investment is just one type of funding and it isn't the right choice for all companies. Make sure you understand why you've chosen this path and don't assume that all companies that go through accelerators or incubators are appropriate or ready for equity investment.
If you are thinking of raising, make sure you’re doing it for the right reasons. And make sure to start the process 9 to 12 months before you expect to get the money. That gives you time to build a relationship with investors and organically learn the process.
Clearly understand the incentives of investors. Don’t be afraid to challenge them. Make sure to find out exactly what they can deliver for you and your business.
Timing is important. Your business should, ideally, address an emerging market opportunity; but a market that will grow to larger scale into the near to mid term future.
You must have a super high conviction of your product and company. You must be pursuing something that you really believe in. And, ideally, it is something that overlaps with your life experience.
As a founder, you need to understand the investor business model. Only then are you able to target and ultimately make the best "match" with an investor.
All investors in the panel were very open and clear about how they felt about the current state of affairs. It was obvious that all three love supporting fresh and exciting ventures.
From this event, it is clear that we need to think bigger in Scotland. We need to aim higher. We need to have greater, bolder visions.
But we don’t need to be pessimistic. We already have great things going for us. And these must be built upon. We must bring all of our resources together to fuel this generation of great ventures. If we don’t, we’ll have a case of fragmentation where our country’s resources are being spread thin and we’re marching towards very different directions.
Perhaps it is time for us to unite under the same banner. Perhaps it is time for us to find a direction and vision in common.