We’re starting to feel like we’re at a point now where we can invest the time to actually think about where we want to be investing. We get inundated with business plans, which is an amazing problem to have, but we’re too reactive to business plans that come to us through referrals. We’d love to spend time with our recent team who joined us to do the kind of work that Mark Zomes of Winnow did for two years before starting his company.
It also depends on the characteristics of the business and what they’re looking to do. We’re not necessarily looking for high growth from day one. We have three companies that are in the very early stages in clinical trials where getting approval from a regulatory perspective might take at least another five years. Whereas we might have a B2C company which is focused on building social networks.
But in the short term, the team at what3words are more focused on commercial partnerships with car companies, logistics companies and postal services in developed markets. Although that’s not why we invested, we totally understand that it is a necessary part of getting them to that ultimate objective.
Ask what are the key line items of the profit/loss statements, and what are two or three of the impact metrics that are going to be measured reported. As we’re investing in the first year or two of the company’s life, a lot of those are going to be zero. And when it comes to a follow-on round decision, then obviously we will have expected meaningful progress and delivery, if not exceeding the budget on all of those elements. That will obviously include revenue and at some point a path to break even and profitability that will include delivery on the social environment impact metrics.
Metrics will be different for our healthcare companies – around improved patient outcomes or lives saved – and they’ll be different for our education businesses. We can aggregate the metrics out by sector, so we can sum up the co2 emission reduction across the six food waste companies (for example), but we can’t compare across sectors.
The more thoughtful an approach is when contacting VCs, the better. If you don’t have a strong referral, make the approach clear that your company has spent time thinking about the kinds of investments that we make, what your core societal purpose is and how that would be measured. Also, make sure all of the elements of their business plan are well covered with no gaps. There are typically six or seven things we’d typically be looking for in one. Within reason, being persistent is another; if you reach out and a VC hasn’t replied within three weeks, then following up again is probably warranted.
I think it’s definitely possible. SEIS and EIS are really attractive – we sort of built our business initially on the back of it. It’s less relevant for us now, and our new fund that we’re raising is not an EIS/SEIS one – but we’ve done six EIS/SEIS-managed accounts, sort of mini funds – and the tax-saving was a significant driver of our ability to raise those. But companies can be successful without it. I’ve heard that a company can reincorporate to regain eligibility up to seven years after losing it, but that was an off-hand comment made to me and I’ve never looked at how possible that actually is.
When I meet founders I’m often asked what we can do that would be helpful beyond funding. If we progress with an entrepreneur, something that will always be part of our due diligence is if we can make a useful introduction to a potential customer of a business. That’s hopefully helpful to founders, and it’s also helpful for us as we get due diligence feedback from that conversation.
The answer is going to be very specific to the kinds of roles that you’re looking to hire. Hiring for a technology department will be driven by very different factors than hiring for a finance director. In my experience, hiring through a personal network is the best way.
Mustard Seed’s Alex Pitt answers founders’ 20 top VC-related questions Kane Fulton , February 18, 2018 ⏱ 15 min read Mustard Seed invests in high-growth impact startups that want to