I started pitching to investors in September 2018.
Earlier in August that year, whilst on holiday, I devised a spreadsheet of 18 investors. Investors that I researched, investors that I liked the sound of, investors who may like the sound of me and Tutor House. The list was London-based, invested in seed and venture rounds, and were companies that I could personally access and present to, or at worst email/fill in an online form.
At this stage I had not finalised the amount I wanted to pitch for exactly as I was still trying to work out a final valuation for an equity stake. What I did know however was that we were worth a few million based on our turnover and user base.
By October 2018 I’d practised and finalised how and exactly what I was going to pitch to investors. You don’t have to be great at Maths to pitch. Coming from someone who got a D in their GCSE Maths the first time round, I made sure to push the basic topic line, like turnover, gross profit, net profit and volume of tutors/customers (users) and market size.
Of the above points I made market size my main focus. With the UK tuition market size at £3-billion and growing, I knew this was something the investors would be excited by.
I also made sure to emphasise how 4 years after we initially started trading we were making profit and had a successful tutoring marketplace with traction. I then moved to what I needed the investors’ help with: acquisition and growth.
After pitching to 18 investors, I heard back from 6, 4 automatically said no, based on our B2C model as they only invested in B2B, but still, not bad going. I exchanged emails and calls with those 6 investors, 4 progressed to Skype calls and all of them then progressed to in-person pitches.
It’s worth mentioning here that I hounded them. Of the 4 that invited me in, one was never going to fly – ‘come in then, but only if you stop emailing me,’ was one firm’s response.
By the end of November 2018, I’d completed 4 in-person pitches. By mid December I had received 3 offers. They ranged from £250,000-£2milliion. Just before Christmas 2018, I’d decided I wanted to go with Fuel Ventures. Not because of the deal, it wasn’t the best one for me, but because of what Fuel and Mark offered.
For the first time I’d realised that by giving away a larger chunk of the pie, I could get a much bigger return, a bigger investment and more hands on support. All key things, when you’re the only founder and director of a company. Investment offers growth with risk. But without trying something you are stuck in neutral.
Know Your Value
So after celebrating throughout the Christmas break, it was back to the investment. What exactly did I want from the deal? How would the shares be structured? What would the size of the option pool be? What exactly were Articles of Association? Who did we need to hire?
As it turns out the deal was simple, but the legal work was painfully slow. Nevertheless we got there in the end.
The Enterprise Investment Scheme (EIS) investment was something I didn’t know a huge amount about. EIS is a tax-relief scheme created by the government, to get individuals investing in companies, usually start-ups. As an investor in the UK it’s a great way to reduce tax implications and invest in a scaling start-up. As a founder it’s a fantastic way to gain seed investment into your company through high-net-worth individuals, rather than through crowdfunding or VC’s.
What’s important to remember is that you need to know the value of your business to begin with, and there are plenty of ways to work that out. From there you can work out how much equity you’d like to raise and for what percentage. Easiest way to do this, dragons den! “I’m looking for a £50,000 investment for a 10% equity.” So you just do 10 x 50 = £500,000. That’s what you value your business at. There are of course a number of other ways to value your company, including adding your total assets together, using earning multiples and/or business/management team strength.
What’s the Goal?
Coming up with random numbers to squeeze more value and to retain more equity isn’t a good idea. I wouldn’t recommend pitching something like “I’m looking for £52,000 for a 12.5% equity share.” I never did this. Investors want simplicity. “You want to value your company at £500,00 that’s fine, for me it’s worth £250,000.” So suddenly your 12.5% looks out of place. Stick to the basics, in my eyes, it isn’t worth scrupling over details such half a percent.
Have a think about why you are getting investment. For me it was working solidly for 4 years, and deciding that I wanted growth, I was done with a lifestyle business. I wanted a challenge and a new path. The reasons will be different for everyone, but have a reason. Securing an investment isn’t simple, you’ll most likely experience issues along the way, but try to see them as challenges not threats. Don’t be afraid to take risks as without them there can be no growth.