Dealroom data shared by Sifted shows funding for UK tech fell to $18.4bn in 2023 from $31.3bn in 2022 and from $41bn in 2021. Described as being a ‘sobering year’ for UK tech, following the post-Covid boom, 2023 was hard for fundraising and 2024 will likely be the same.
Factors such as inflation, the cost-of-living crisis, increased operating costs and market volatility have played a part in the level of funding available.
But give up at your peril, as there is always money available for a promising young business with heaps of potential – even if it is much harder to raise money.
To this end, here is an investor’s take that doesn’t follow the same generic advice being peddled constantly in all corners of VC land…
1. Brand yourself, not just your business – VCs remember people, they don’t always remember ideas
Most founders would rather let their business do the talking for them, preferring to let their story, mission statement or case studies sell their vision. But as our co-founder and Managing Partner David Foreman points out, investors are often buying into a person as much as they are an idea.
Your first interaction with an investor may not necessarily be in a pitching environment. It may be a brief introduction; however, your chances of making an impression can greatly improve if investors already have an idea of who you are and what you’re doing, making it easier to pitch later down the line.
As well as being an active member of an early-stage founder ecosystem and taking part in events, start thinking about your online presence and creating content to pique investors’ interest. Treat your own personal brand as if you already have the funding you’re seeking; it will make you appear more backable.
2. Be more brutal with your time, cut what doesn’t matter and double down on what does
It is very easy to go to every event and spend what little time you might have left networking with the same people. At some point, you’ve got to ask yourself which events are worth attending and which circles are worth being part of. If these events are simply a social occasion and aren’t opening new doors, cut them, and focus on the events that have a reputation for benefitting founders.
Events aside, if you are early-stage, you may want to spend the additional time you’ll save applying for accelerator programmes, such as Baltic Ventures or the Exchange programme from Department. Alternatively, refine your pitch, work on the business or (where possible) arrange face-to-face meetings with angel investors, mentors or investment directors in a more informal setting, where there is less pressure to stand out in a crowd of people with the same agenda.
3. Don’t just focus on what the six months after investment look like, plan for the years that follow
All investors have an exit timeframe in place and a target year for when they expect to start seeing a return. For us, this tends to be between four and seven years, so when we’re assessing a business, we’re thinking far into the future. Yes, there will inevitably be conversations about how the money is initially utilised post-investment, but you should be thinking about the long-term – what is your big vision? What territories will you be in? What does the team look like in 2028?
How you communicate the long-term vision is paramount to your success when pitching. Saying you want to be the next unicorn will not win you favour with an investor; plotting out how you plan to build and futureproof a growth-oriented business and weather potential headwinds can be the difference between getting what you want and your fundraising efforts dragging on.
Remember, as money tightens, investors become more selective and guarded with their cash, which heightens the need for evidence, reassurance and accurate forecasting. Your vision may sound impressive, and your IP may have a high level of defensibility, but your plans must be able to weather increased levels of scrutiny.
4. Put yourself in an investor’s shoes, predict the reasons why they would choose not to invest and address these areas
One of the most common mistakes a founder can make is not researching a potential investor. The next most common mistake is to do a quick glance at an investor’s website and conclude your research there. In this tough fundraising environment, where money and opportunities are much more finite, this approach is not enough and will only give you a surface level understanding.
As our Investment Director Louise Chapman explains: “Founders should do nearly as much diligence on us as we do on them. Speak to companies within our portfolio, learn about our More Than Money approach and read our portfolio and investment playbooks to get an idea of who we are and how we came to be.”
This isn’t just to make an investor feel special; it’s to help you get into their mind and understand – with complete clarity – what they are looking for in a business and what their investment appetite is for certain sectors.
Putting yourself in the shoes of an investor enables you to identify any areas you should iron out before a pitch. For example, if you know (from research and talking to other founders) that a particular investor favours businesses with strong case studies and a proven track record of returns, you may want to consider waiting until you have these proof points before you pitch, or seeking out angel investment if that investor is likely to deem you too early-stage.
Finally, decide when it’s time to stop what you’re doing and consider changing tact
Venture capital isn’t the only investment route available to founders, so if you’ve been pitching to VCs for a long time and haven’t yet got anywhere, there is nothing wrong with changing tact, either by seeking debt, crowdfunding or another alternative investment route. Bootstrapping may have fallen out of fashion in recent years, but it can form resilient long-term habits that help you in tough times.