Exchange Partner Praetura: Funding advice for early-stage tech companies

“Founders are the stars of the show, investors are there to support”

A VC’s funding advice for early-stage tech companies

At some point along their journey, start-up businesses are more than likely to need to seek investor funding to grow their business and get their products or services out into the world. This may be pre-seed investment right at the beginning of the process to get up and running, or Series A, B and C funding rounds later down the line to allow scaling.

The investment space is noisy, with hundreds of entrepreneurs trying to prove what makes them and their business worthy of an investor’s trust, support and money. We caught up with Ben Davies at Praetura Ventures, a partner to Enterprise City’s Exchange start-up support scheme, to talk about how businesses can stand out and secure the investment they need to scale.

What do founders need to know when applying for venture capital funding?

“The first thing that is really important is that entrepreneurs do their research and don’t just apply to any and every investor out there. They need to know who each type of funding structure is for and what it can be invested in. At Praetura Ventures, for example, we give Enterprise Investment Scheme (EIS) funding – we might love a founder and their idea, but if they don’t qualify for that type of funding we can’t help. Taking the time to research what kind of funding and support you need and which VCs can help you is a much more effective approach than applying to everyone.

“Founders should also think ahead when applying for funding. If you think you are going to need money in 12 months, start researching and reaching out to VCs now. Then, over the next year, you can share press cuttings, progress reports, hiring plans and anything else relevant so they have an awareness of and relationship with you and your business before you actually need the money. The funding process isn’t all about personal relationships but involving a VC in your business journey earlier on will help gain trust and stand out when the crucial time for funding arrives.”

What else can entrepreneurs stand out and set themselves apart from the rest?

“How you show up for yourself and your business is really important. You need to make sure you have a good story and a clear, concise and compelling narrative. Test your pitch on people who don’t know you and your business. Can they then go and tell someone else who you are, what you’re doing and for who? If not, that story needs to be worked on to shape better word of mouth around the proposition. Remember that VCs want to get excited, believe stories and invest in people and ideas, and to do this it needs to sound valuable, unique and exciting when you talk to them about it. Originality is key here – we hear “we are the Uber of X” far too often when really we want to hear about something different and distinctive.

“Pitch slide decks don’t need to be 50 slides long. It is better to be short, punchy and coherent, focusing on what the story is, how you can solve it, where the addressable market is and a brief background on the business’s journey so far. At Praetura, we have an investment playbook that guides what we think about when investing – first we look at the business model, the market and what the money will do, then we think about management and momentum – who the people are behind the business and whether we believe in and support them, and then the ‘more than money value’ or what the founder will get out of the relationship besides the cash injection.

“Something else that is crucial when talking to investors is honesty and transparency around risks involved in the business. If anyone says there are no risks to their start-up, they are lying. It instils much more confidence and trust when an entrepreneur is upfront about potential challenges as we know that they are aware of what may need extra caution and attention.”

Are there any specific considerations tech firms need to make during funding rounds?

“The ongoing talent shortage in tech means that attracting and retaining employees is a crucial sign of success when VCs are considering funding applications. We are often impressed by those businesses bringing in and keeping strong talent.

“The tech industry and tech start-ups have a tendency to be bogged down by jargon, which can get in the way of a clear message and vision of what is being done, so this needs to be minimised.

“We also look for a realistic plan and understanding of distribution channels, as well as awareness of what an internationalisation strategy looks like for the business as this is typically when tech start-ups find true success.”

What are the best things you see in the investment process?

“There is an intangible feeling when you meet someone and what they’re doing is exciting and you want to be part of their trajectory. It is a pleasure to see founders go from ambitious entrepreneurs with a vision to successful and resourceful leaders of a group of people.

“Chemistry is so important in the VC and founder relationship as it is a partnership that might last longer than a marriage. When we first meet potential businesses to join our portfolio we have to think about if we can put up with and trust this person in the medium to long term or when things don’t go to plan. Because this is so important to the overall process, we work with people we get on well with and are genuinely thrilled to see succeed, which is a really rewarding part of the overall job.”

What are some common mistakes you see during funding applications?

“There is a lot of misinformation out there about the funding process out there which leads to mistakes that aren’t necessarily the founders’ fault. Avoiding this goes back to the research point, and research does not just mean a couple of Google searches. Get out there, connect with founders who have successfully raised funds and talk to them about their lived experience, use sites such as Landscape, which is the Glass Door of investors, and reach out to organisations such as Tech Nation and Investor Ladder which can provide reliable insight into the process.

“This is where spaces such as the Exchange programme, where founders can plug into a network of peers and partners are so valuable. Entrepreneurship can be a lonely experience, so seeking out these communities will help founders to find dependable advice, support, peace of mind and even work referrals, all of which will accelerate their journey.”

Do you think being based in the North has an impact on funding success?

“It is a common and at times damaging misconception that you need to be in London to access the best VC funding. True, there is a £300-600million early-stage VC equity funding gap in the North, but this is changing, and it is changing quickly. Networks and communities are coming together and realising the potential to play on national and international stages from the North.

“I would urge founders to look at what is available on their own doorstep before going looking further afield and also to think about what different investors on their cap table bring. For example, it could be beneficial to have a local investor for that day-to-day support as well as someone with a wider reach to help propel internationalisation.

“Manchester is a brilliant city to scale a business in – spaces are cheap, there is a lower cost of living, good infrastructure and an easy-to-access airport. The race for talent has been pushing wages up and money going further here than in London makes for a better quality of living which has been attracting tech talent for a few years now. The cost-of-living crisis is likely to make this even more prevalent. To be part of a city’s tech scene with such a promising trajectory is a very good thing, especially in its still relatively early days.

“The Covid after-effects mean investors are becoming more comfortable working with people they’ve never met, so being based here doesn’t necessarily rule out London VCs if that’s what a business wants.

“People need to be more open to the North and being here definitely isn’t a disadvantage –

lots of people move their businesses to London and fail as a result as it is so competitive and expensive. To make it work, however, it is crucial that founders are tapping into the networks that are developing in the region to connect with the right investors.”

What is one key piece of advice you would give to founders raising funds?

“Founders are the stars of the show, investors are there to support. Do not take funding from a VC that wants to tell you how to run your business and be careful about taking too much feedback. At the end of the day, your business is yours and your vision is clearest to you, so don’t change and pivot based on what may not be well thought through or the best advice for you right now. Of course, take feedback on board especially if it is consistent, but it is not always the be-all and end-all.”