How to attract investment

Hailed as the savior of the economy, science start-up success is still a very tricky thing to navigate with many pitfalls along the way. But there are some tricks of the trade that can help you get your science to market...Here we hear from Lynn Shepherd and Eileen Modral on how to attract that all important investment for your start-up

It is widely acknowledged that Britain’s long-term economic recovery and growth is heavily reliant on small and medium-size enterprises (SMEs). One of the key growth areas among new start-ups is the science and high tech sector, with innovation and entrepreneurship gaining momentum across the UK. The high tech sector encompasses a wide field, including life sciences, digital and advanced engineering. Government and other organisations such as Innovate UK and the Knowledge Transfer Network (KTN)recognise that this is a key growth area for the UK and are placing great importance on supporting the high tech sector.

In Oxfordshire, the growth and support of new and small businesses is an industry in itself. Venturefest Oxford provides a year-round networking platform for entrepreneurs and investors, together with mentors and other support services. A large annual conference brings everyone together offering workshops, masterclasses, exhibitions and pitching opportunities at all stages of a business’s journey. Oxford Innovation, a key partner of Venturefest Oxford, runs the Oxford Investment Opportunity Network (OION). OION is one of Europe’s leading business angel networks, matching investor members with innovative companies seeking funding.

While Oxfordshire continues to generate superb investment opportunities in large numbers, thanks to its diverse and world-class research institutions, it is of course not unique. Across the UK, similar environments are developing with such energy and resourcefulness that the future looks very exciting. Healthy new businesses bring growth to the sector, growth to the local community and growth to the UK - It is a win-win situation.

For example, take a snapshot of OION’s success in the last 3 years. Its members invested nearly £3 million in 26 companies enabling the firms to leverage an additional £40 million of funding from other sources. In the last financial year alone, a further 20 companies, through OION, raised over £450,000 of grants for 55 new full-time employment roles matched by over £1.35 million. From the investor perspective, there is a wealth of opportunities. We are also seeing later stage life science companies presenting through OION, enabling investors to come in at a point when the product is closer to market. Venturefest Oxford also holds bi-annual ‘Pitchfest’ events, where brand new companies have the opportunity to pitch their ideas to a wide group of investors willing to invest anything up to £1 million. The Venturefest Oxford model has now gone national, supported by Innovate UK and KTN, so look out in your local area for similar events.

You must have strong story to convey around why you are pursuing the course you are. What is the problem you are solving and is there anyone else who is trying to solve it. Will development take so long that there is a risk new entrants to the marketplace could make your product redundant?

Importantly, is your business a must-have or nice-to-have solution? Be absolutely sure what the unique sales proposition is and most importantly that you can explain it clearly and concisely. Can you make it sound exciting?

Know your market. What is the market, what is the addressable size or sector of that market you are reaching out to? But a word of caution, don’t exaggerate - be sensible in describing the size of the potential market. Factor in how easy it will be to reach potential customers and think about who are likely to be your first customers. Many businesses start off full of confidence and never think realistically about the scale of the market they seeking to penetrate. Remember, you are only small, so don’t think too big – target the right market and the right customers first. Don’t waste time, energy and money on trying to reach everyone.

Ask yourself – does your business idea or product ‘disrupt’ the market? If so, does the market want to be disrupted? Remember it is not easy changing a culture, so ask yourself whether your business idea or product complements the existing market, or can it be retro-fitted, or used alongside existing technology or products? Are you setting your business up in a rising market, or on the downward slope of a saturated market? As you know, technology trends are much faster than they used to be.

Not all competitors are rivals, so make sure you know the difference. There may be potential collaborators out there, so identify the right ones early, build the relationship, as they may provide the next stage of funding or exit for early investors.

What is the business model? Who is going to pay for your product and how will you make money? Where and who will be the first sale? What is the pipeline? As a founder, can you sell your product or service? Will you be the one making the first sales? If not, make sure you have the right people around you to sell the business products and ideas.

Raising funding and securing investment can be a full-time job, so who will run the business whilst you are raising the funding? Picking the right team is very important. Do you have key people on your board that the sector will recognise? In a small business, you need to be sure you all share the same aims and objectives, have an appropriate spread of skills and all get along with one another!

Raise only what funding you need, but ensure it is enough to take you through your milestones to the next stage of funding. When will this be? You should allow for at least an 18-24 months horizon. Work out cash flow and remember everything takes twice as long, or costs twice as much as anticipated – whether it be raising funding, making that first sale, or waiting for the first invoice to be paid. Use grants to your advantage and where it fits with the business plan. However do not become a company that chases grants and forgets its real path to profitability.

Finally, can your investors bring more than just money to the table? Angel funding is patient money, but there still needs to be a timeline, which shows when a return on investment will be made, how and why. Most importantly, don’t forget that there are people around you who have done it all before and can offer invaluable advice and support. Remember too that there are other support services you will need as your business develops – no one is an expert in everything and everyone needs a network to draw on, for example in intellectual property, patents, finance, legal, marketing, PR, and HR.

We hope this hasn’t put you off taking the leap into starting a new business. Entrepreneurship is exciting, exhilarating, exhausting, frustrating, challenging, and demanding, but do it right and it is worthwhile and immensely rewarding. If you can communicate your enthusiasm and passion, and show that you have a commercial head on you, you will achieve the success you seek. Have fun…it really is worth it!

The authors:

Eileen Modral is Investment Network Manager at OION Ltd and Consultant at Oxford Innovation Services. Lynn Shepherd is Executive Chair of Venturefest Oxford.