Every company with ambitions to scale-up needs funding. Here, Sarah Barber, co-founder and CEO Jenson Funding Partners explains what companies need to have in place before they approach the company for investment in their business.
This interview forms the first part of a series of articles in which we seek to understand what VCTs are out there in the UK and what sort of companies they tend to invest in and how much this tends to be.
What are the details of the company?
When the government announced the SEIS initiative in 2012, Jenson Funding Partners LLP (JFP), was founded by the team behind Jenson Solutions Limited, Paul Jenkinson and Sarah Barber. As an appointed representative of Foresight Group, JFP launched the Jenson Seed EIS Fund to provide start-ups with the level of financial and operational support normally only available to much larger businesses.
Raising just over £5 million in the first fund iteration, JFP now manages more than £14 million, which has been invested in just under 100 companies.
In 2015 JFP, recognising that the SEIS investee company portfolio was maturing, started raising funds under the Enterprise Investment Scheme (EIS) to provide follow-on funding to the successful companies. To date, the EIS, combined with the syndicated investors, has invested over £5 million, and raised over £5 million of debt facilities.
What do scale up companies need to consider before they can secure investment from you?
JFP see a lot of companies and we make an investment in, on average, one in every 25 we see. The core components to any successful pitch, at set out are as follows:
Credible Management: We look for a balanced team with complementary skills and significant relevant industry knowledge and experience. A minimum of two active members with a balanced share of equity and, of course, drive and enthusiasm are vital.
Minimum Viable Product (MVP): A reduced technical risk is important so the MVP established and developed. We also want to see a product or service that can support an initial market offering.
Commercial Traction: Validation of the product or service is essential before we invest and any evidence of sales, contracts, trials or letters of intent is key.
Business Model: A relatively low cash burn business that can grow largely organically and achieve profitability without the need for further funding rounds is key for JFP.
Exit Potential: We want to see a good growth potential with the possibility of realising a good exit. We target a return of 185p for every 100p invested (excluding tax benefits).
The company also need to consider that we are an active investor. Our experience tells us that there are always a number of core functions that can be supported within an investee company; business development, marketing; corporate governance; bookkeeping, accounting and technology to name a few. We actively wrap a support structure around the company to provide those functions that need support. This way we closely align our fund management duty of care for our investors with that of our investee companies in giving them the best opportunity to grow.
JFP believes that this help is best practised by an investment manager. The “invest and forget” mentality of many does not help the investee companies, nor the prospects of a good return on capital deployed on behalf of the investors.
What high-profile fundraisers have you orchestrated and how did you apply your expertise to secure a successful deal?
Investee company Voneus was originally a Voice over Internet Protocol (VoIP) solution. The company needed to pivot, Jenson was instrumental in this strategic repositioning and backed management and this decision through turnaround capital. Since then Jenson has consistently been the go-to cornerstone investor of each round of funding. The most significant of which was a £500,000 one-off raise through our IFA/ultra HNW network that was then used to leverage a £4.8 million debt facility with Boost.
What market trends do entrepreneurs need to be aware of when seeking investment?
Start-up is comparatively easy to raise with a number of sources available to entrepreneurs, be that SEIS, grants and R&D tax credits. The key is using this capital to put the company in a position that it is in a good place to raise additional follow-on capital. The entry requirements for a traditional EIS/VCT is typically (can vary throughout the year) £1 million of revenue and ideally profitable. To do this on start-up finance alone is difficult. There are few options between this Start-up Capital and traditional EIS/VCT. This is why Jenson launched its own EIS which actively invests in this funding gap.
What key pieces of advice would you give to entrepreneurs who are seeking investment in the business and may not be familiar with SEIS and EIS funds.
- Take time and be prepared. Investment companies have processes that enable them to invest significant amounts of capital easily. These processes are paramount to the smooth running of the investment house and enable the identification of the best opportunities. It also takes time to put a potential investee company through proper due diligence. Make sure that any presentation contains all the required information; that accounts are up to date and cashflow forecasts are reasonable and supportable.
- Be prepared to listen. The key objective for investment houses is to provide a return on capital invested for the investors. With a wealth of experience in start-ups and growth companies, they add significant value in the support they offer.
- Work with investment companies that can invest beyond the SEIS stage, into EIS and syndication. The need to recognise that as the company grows, additional funding will be required and, if not easily accessible, is time-consuming on the management team to raise.
- Having some revenue is crucial. If you can create a revenue stream before capital raising, do so. If not possible, be ready to share your plans for when revenues will happen. Demonstrating traction and potential with evidenced sales will differentiate you in the market.