Tech entrepreneurs looking for investment in their early stage businesses need to pass the “grandma test” if they want to be successful.
That’s the view of Norman Molyneux, founder and CEO of Acceleris Capital, who says too many tech entrepreneurs speak in a language that makes it difficult for other people to understand what they do.
“The grandma test is ‘can you explain it to your grandma?” explained the veteran funder. “We use that a lot. Could you talk to someone in a bar or at a party and explain what you do and why?
“If you can’t, you’ll struggle to get that early investment. As you move on and start talking to technical investors, that’s fine, because they’ll understand what you do – but that early investment tends to be coming from high net worth or early-stage funds.
“Tech start-ups need to respect their audience, and that not everyone is an expert in understanding what they do. Just break it down into simple business speak. ‘I need some money to get an office’, or ‘I need some money to get a laboratory, and kit it out’. That’s really what the investor is looking at.”
Acceleris Capital provide corporate finance, advice and support to SMEs with the majority of their work being in technology-based businesses. The company has arranged around £110m of capital into the technology sector, primarily in the north of England and has completed at least 150 transactions.
The portfolio of companies it has been involved in include Femeda, Everycloud Computing, Metronet, YProTech and Swellaway.
“Valuation is a very sensitive thing,” he said. “Equally, incoming people want a fair share of the equity as well. It’s an area that doesn’t get enough attention because companies with new ideas are bound to have problems, be delayed and find other things they need to do. As a consequence, it can get overly diluted and the incentive is lost.
“More attention needs to be taken to the capital structure and incentivisation schemes from the beginning. There’s lots of money in this country, and it’s in different places and it needs to be approached in different ways.
“Just because you think you’ve got a great idea doesn’t mean that somebody else does. You’ve got to sell it.”
Molyneux said people were the vital ingredient of any successful business. “We’re also looking for the right management team to take [the product] forward,” he added. “That is a challenge because young companies don’t always have a full team. That’s where we offer a lot of support and help in management.”
The veteran funder urged tech businesses not to overcomplicate their business plan. “Generally, there is always a start-up phase,” he said. “There is always a development phase, and there’s a growth phase. So let’s break it down into segments and understand actually what we have to do in each one.”
Other speakers on the roundtable included high profile investor Jon Moulton, Peter Leather, head of IP & Commercialisation, UCLan and programme director of the Lancashire Investment Readiness Programme; and Rohit Mateur, senior vice president venture capital, Barclays.