‘The money’s there’ – the frustrations of finding funding

In this piece from TheBusinessDesk.com’s first Talking Tech roundtable, sponsored and hosted by Armstrong Watson, attendees discussed how investor appetite is changing.

With stats showing that at the height of the pandemic one software business a week was becoming a £1bn company, what is the real story behind the scenes?

Andrew Gunn, CTO and co-founder of Mina, said his business was launched in August 2020. He said perhaps one of the “hardest things about the pandemic was getting that angel round of investment.”

He said his venture started looking for funding at the beginning of the year and had been planning to close around April/May, only for the pandemic to strike in March. So the Covid crisis pushed timescales back and investors “kind of battened down the hatches.”

However, he said: “After a few months investors were like ‘let’s do it, let’s take that risk'”. He noted that his business has now had two rounds of funding from a major company within the vehicle market.

Gunn added: “I don’t think we’ve struggled with investment but maybe we’re lucky and maybe we’re in a sector, EV, which is just a hot topic. It’s a bit like the .com boom. Investors don’t know what it is but they know they want to be part of it.”

Chris Armstrong, partner at Armstrong Watson, said: “March to June 2020 everything went really quiet and then everything sort of seems to have come back to normal.”

He explained Armstrong Watson had been selling a software business at the time and although everything was put on hold for three months, once the transaction resumed “the process went really well.”

He said since the return from Covid the market has been really buoyant and he has not seen any change in momentum in 2022.

Liam Wright, founder of Exodus Technologies, said he thinks there may have been a challenge particularly around seed level funding as a result of the pandemic, stressing “It’s a lot about face-to-face and meeting a high net worth individual and discussions.”

He accepted the rapid adoption of digital communication tools such as Zoom had made the process easier.

The conversation turned to crowdfunding, which Chris Rabbit, co-founder of Meeow, bluntly described as “a racket.”

Will Arnold from Sentio said: “There’s going to be an unwinding, particularly of the debt crowdfunding.” He said when it comes to angel investment the feeling is that “the money’s there but it’s patchy.”

He explained the frustration often comes as businesses don’t know where to go, noting it is all “shoe leather” and tapping into ecosystems such as London. He said some potential investors assume “if you’re trying to get in touch with me, you’ll know someone who knows me and there’s a arrogance built up in these sort of old boys networks.”

Rabbit agreed with his points, noting: “I have the same frustrations and I think there are a couple of things Government can do right now to help. First, extend SEIS to £500,000, as that would free up literally billions of pounds of Angel finance because I think the awareness of it is criminally low.”

Wright said the issue around SEIS at present causes people to undervalue their business and “potentially not get enough money to get to the next phase of growth.”

Archer warned a business can therefore end up spending increasing amounts of time chasing investment, because if it doesn’t get enough money it goes back for another funding round. He said this process can become like a full time job.

This chimed with Rabbit’s own experience, who said he was fundraising constantly for about six months in 2021 and describes the process as nearly killing him. “I went to bed on 23 December and woke up on Christmas day – I slept for 32 hours,” he said.

So, does the region’s investor community support local businesses? According to Rabbit, local investors don’t care if you’re from the region.

However, Adam Driver, founder of Settlr, had a different experience.

He said: “So the business is registered is Harrogate, the town’s got a small but growing tech community and I reached out to some of the local tech investors and leveraged the fact I’m a local guy, and do you want to join the journey? The response I had was very, very good. I mean it was only a small number but out of five emails I’d say three came back positive, three meetings and now one person is joining as a non exec.”

Ultimately there is no one experience of the investor journey. Although there may be some luck involved and some timeliness there is also clearly more the region can do to support tech investment and also more that can be done centrally to highlight the benefits of investing in new businesses.

Throughout the conversation, what was clear was that although the headlines will be made of businesses which are “overnight successes”, it is important to remember that no one sees how long it has taken that business to be an overnight success!

TheBusinessDesk.com’s Talking Tech series is a series of roundtables discussing the changes, opportunities and challenges within the technology sector in Yorkshire. The series has been sponsored by Armstrong Watson, Access 2 Funding, Gordons and Sentio Partners.