Duet Partners
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Increasing competition for capital has changed the way we support founders

30th January 2020

10 years in: the Startup to Scaleup process has become clearer but not any easier

We all thought that with 2019 hitting new highs for VC investment things would have become easier. Founders should be basking in a sea of readily available capital. However, for the majority, things seem to have become even harder.

If you’re a UK startup trying to shift through the early stage rounds you may be forgiven for thinking that capital availability is shrinking rather than expanding. Why is this and what steps are savvy founders taking?

Trend of greater investment $ but fewer deals in 2019

Soon we’ll be in ‘report season’ and the major investment research houses will be publishing their 2019 analysis. But the writing is on the wall, again: More VC investment, but fewer deals.

Our prediction is that average deal sizes will be up dramatically again in 2019, which is exciting news if you’ve been one of the lucky ones. But for the rest, access to early stage capital is getting harder, not easier.

This trend and can be traced back to 2016 and the rise of the mega funds. With huge amounts of capital to deploy, average deal sizes have been rocketing. Our earlier blog article, “Europe VC deal count plunges again in 3Q 2019” revealed the economic drivers that are fuelling this relentless shift.

Funding strategy is part of the business strategy

As a consequence, savvy founders have been developing their funding plans at a much earlier stage. Increasing numbers are now realising that the funding plan and the business plan must be fully interwoven, especially though Seed and Venture stages. Capital raising can no longer be almost an afterthought in the business creation process.

More and more founders are therefore baking in their target funding steps right from the beginning. Who will the likely investors be at the next stage? What evidence will they need to see? What will make my investment proposition stand out in an increasingly competitive market?

For first time founders especially, this can be a real conundrum. Even for experienced founders that have been away from early stage markets for just a few years, the funding landscape is almost unrecognisable.

We’re re-writing the user guide on early stage advisory

As an advisor helping companies transition through the early funding stages (pre-Series A, Series A and B) our role has also changed dramatically. 10 years ago, our focus was heavily on ‘transactional’ support – fairly classic corporate finance. That is what companies wanted. Today, in response to rapidly changing market needs, things are very different.

Increasingly, founders are seeking guidance at a much earlier point in the funding cycle. Often this is being prompted by incumbent investors - usually private individuals - who are becoming increasingly anxious about future funding options. Many of the companies we helped during 2019 were at Seed stage, trying to plot the course ahead with more certainty.

For this recent cohort, the next funding step has either been the pre-Series A or Series A round. We have been assisting in the development of the funding strategy months before any investor pitch is sketched out. This has allowed time to shape much more targeted capital raising plans.

As a result, as we head into 2020, our role is now better described as Startup to Scaleup Advisory, which begins with funding preparation advice in the early stages, then transactional support later on – if required. Having taken many companies through this entire process in recent times, we can also seamlessly connect these very different but related phases.

As a founder, can’t I just figure this all out for myself?

Perhaps - if you have the time and the expert insights to hand. But if you can tap into someone that has first-hand startup to scale up experience as well as extensive capital raising know-how, you can dramatically speed things up and avoid the costly potholes. With an independent assessment of the prospects for securing investment you are simply going to end up with a far more robust plan.

Let me share some insights.

With a rapidly evolving funding market, founders are keenly seeking deeper understanding. They have read the headlines (‘VC investment hits new highs’) but are also witnessing deal numbers tumble at the same time. They want to know what is going on and how this will impact their sector and, more particularly, their own business. With access to all the latest market data we can expose all the relevant tends.

The big revelations we provide are often around understanding the evidence-based investing strategies of institutional investors such as VC firms. We explain how these align with the classic funding stages – from Seed right through to Growth – and provide the research to back this up.

With a clearer understanding of the road ahead we can then focus on the development of the investment proposition. Here we zoom in on a range of critical areas, testing key aspects across all the topics we know investors will want to interrogate. The key is that these insights are stage and sector specific.

We’re finding that once we get through the cold shower of revealing the realities of the current investment climate, there is a greater urgency to roll up the sleeves up and start developing the funding plan. Here we can help identify priorities and set overall milestones against a target timeline.

For first time founders in particular, this process can be an epiphany. The task ahead then comes more clearly into focus and there is greater confidence. A key factor here is that there is time to optimise - we are not under the immediate time pressure of having to raise capital.

Seeing around corners

Inevitably, founders are most anxious to understand what problems are likely to lie ahead. What barriers will they run into that they can’t yet see? This is particularly evident with respect to investor sentiment and what criteria will likely be evaluated at each funding point.

Our biggest insights here are around the take-off point for early scaling – the Series A round. As we said during 2019, ‘Seed is the new Series A’. For founders now seeking Series A finance, that bar is continuing to move upwards. The result is that some late Seed stage rounds have all the characteristics of a Series A round of 4 years ago. In turn, Series A rounds now look more like Series B of that era.

It may sound brutal, but these tougher criteria are indirectly helping build stronger businesses. For example, founders are increasingly eager to demonstrate real cash efficiency through each phase of development – focussing on the critical points of evidence that will drive the next round. In an environment where investors are paranoid about premature scaling, this is a real virtue.

Advisors should have first-hand experience

The way in which corporate finance advisors must now support companies at early stage has fundamentally changed. We know that decisions made at Seed stage can have a profound effect on the prospects of funding right through Series A and beyond, so establishing a trusted relationship in the early stages can have enormous value downstream.

Advisors that have first-hand startup to scaleup experience, as well as extensive capital raising experience, will have most to bring. These will also be longer term relationships rather than purely transactional engagements, so the chemistry has to really work. When these elements come together founders truly believe someone has their back.

Ultimately though, the goal hasn't changed. High growth companies need to raise capital to fund their journeys. But unlike funding established businesses, early stage funding is much more a process than an event. It is far more nuanced as there are still many unknowns ahead.

Will things get easier through 2020 and beyond?

This is the question everybody is asking, particularly with the backdrop of elevated valuations. With increasing talk of some form of overall market correction on the horizon, the outlook will certainly remain challenging for a majority of young companies.

US VC sentiment is worth monitoring as a foretaste of what may happen in the UK. As Howard Marks, co-chairman and co-founder of Oaktree Capital Management, a leading US investment firm with more than $120 billion in assets recently commented: “this is a time to decrease risk…investors should be more cautious than usual…this is a time to take some chips off the table’.

Whilst we don't have any control over the macro economic situation, we do have control over our investment proposition. So, 2020 is a year in which startups will need to up their game yet again. As a larger percentage of the pie moves to later stage transactions, competition for capital looks set to intensify.


In July 2019 we started our Duet Insights Blog and have already published 16 articles aimed at helping early stage companies navigate the funding path ahead. Through 2020 we will keep the tips and advice flowing. Please let us know if you have any special topics you would like us to cover.

Also published in The Startup on 3rd February 2020

About the author: John Hall is CEO and co-founder of Duet Partners. His 30-year tech career began with major US semiconductor and software companies, and was based in Silicon Valley during the '90's. Before Duet he was CEO of a VC-backed consumer electronics company, sold in 2009 following several rounds of capital raising. In the past 10 years since starting Duet he has advised dozens of founders on the startup to scaleup journey and is a retained Board advisor to a number of UK technology companies.

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