The ‘new kid on the block’ VC firm who do things differently: Advice to start-ups on raising funding

Julian Carter, founder and managing director of EC1 Capital on what sets them apart and makes them better suited to their market than other VCs, and on his insight in to how he believes start-up founders should seek funding, including his 'top five qualities for a tech entrepreneur'.

Julian Carter

EC1 Capital is a new to the VC scene in London – it’s an early stage, web technology focused venture capital company, and we caught up with co-founder and director Julian Carter.

We first asked Carter, how he feels the firm compares to others in the London VC scene. He described how they are “…efficiently structured vehicle that will make investments of up to £200,000 into early stage web technology companies”

There is a massive reduction in capital requirements for today’s startup tech companies

“Because the cost of launching a technology business has come down so much over the past ten years, there is a massive reduction in capital requirements for today’s startup tech companies to prove that their business is an attractive investment opportunity via the usual traction metrics.”

“The more established, larger VC’s are still really coming to grips with smaller financings and it is generally at odds with their model because of the high overhead costs to them of managing smaller deals. They are also generally slower to complete deals as they still apply the same methods as they do to larger financings.”

EC1 Capital

I would say that we are one of the most active investors in the London tech scene

“I would say that we are one of the most active investors in the London tech scene but there are also others who see the same opportunity and we see this as a great validation and an opportunity to syndicate and partner on deals above £200,000.”

The relatively fast closing of deals is also something that Carter feels sets EC1 apart – it’s one of the philosophies behind the form – so we asked why closing deals quickly is a good way to work, to which Carter told us that “…since Feb 9 we have closed two deals, we have just signed a term sheet last week for another and we have two term sheets for signing out there right now.”

“The Retronaut deal was completed in about 2 ½ weeks from meeting the founders to transferring the money.”

“At such an early stage you are really investing in people. After that I would look at product/service and potential market size.”

“From a people perspective the Retronaut founder, Chris Wild is passionate about history and time and has a fascinating background working for various museums and archives around the UK. Chris is totally focused on the business and team recruitment with investment and day to day business being handled by Robert Loch, a well known entrepreneur in the London startup scene.”

Retronaut

'Retronaut is an exciting destination to travel back in time via a collaborative consumption platform.' Chris Wild also known as The Retronaut is an English blogger and the creator of the blog "How to be a Retronaut". In its review of How to be a Retronaut, the Guardian newspaper said: "Rather than nostalgia or folly, the aim is enlightenment, wonder and the pleasure of weirdness".

“Chris has also managed to augment the team by hiring Chris Thorpe (ex Moshi Monsters, My Space, The Guardian) a reputable CTO who has experience of scaling high traffic sites.”

“Retronaut has never spent a penny on marketing and continues to acquire traffic at a £0 CPA with over 1m visitors a month, this is also highly attractive to investors.”

“It is fair to say the revenue model is a ‘work in progress’ for Retronaut but when you have huge amounts of free traffic you can do a lot to monetise it and they have brought on experts who are also shareholders who will help to do just that.”

We do deals quickly - EC1 Capital was designed from day one to fill this gap in the market

“We do deals quickly (for the right companies) because EC1 Capital was designed from day one to fill this gap in the market. We have a flat management structure and hierarchy. Every week we discuss deals on the table and vote on which ones we want to conclude. Once decided term sheets are signed and funds transferred from Dubai.”

“Many investors work in a herd mentality and look for validation from other investors before committing to a round, for most it is about de-risking an investment as much as possible.”

“When EC1 Capital started I was caught off guard by the activity that ensued but now we are hitting a reasonable pace and trying to meet everyone who is of interest to us.”

Julian Carter EC1

Raising relatively small amounts of capital should not be so time consuming - so what advice would Carter have for a start-up founder seeking to raise capital?

Carter is of the opinion ‘Raising relatively small amounts of capital should not be so time consuming’ so what advice would Carter have for a start-up founder seeking to raise capital? How can one minimise the time they spend seeking funding – whilst increasing the chances of finding funding at the same time?

“Most of the entrepreneurs I have met over the past three months have been massively distracted by trying to raise capital with the product or service they are building suffering. If you have a good idea, that solves a pain point, addresses a large market and your team has fantastic pedigree then it should be easier than it currently is to raise capital.”

“That said, most of the applications I receive through the website do not comply to our requirements. There is more than enough information on our website to be able to put together a compelling proposition.”

“This is why most VC’s only pay attention to deal flow through their network or contacts.”

“The best way to minimize fruitless emails and meetings is to carefully target the investors you want to talk to. Make sure they fit your criteria, your stage, your sector and your geography.”

“Then spend time building a polished presentation. Get a friend to help you with the design of the PowerPoint or buy some templates. Use high quality photographs and graphics.”

“Don’t send long-winded business plans. VC’s are busy people and look at thousands of applications every year. Just do enough to capture their interest quickly. A business model can quickly encapsulate your venture in one graphic or use an infographic format. A video or animation is even better and can help with visualization and understanding. Remember you must make it easy to understand.”

Here are Carter’s top five qualities for a tech entrepreneur:

  1. Has experience of starting tech companies (failures and successes)
  2. Can ‘do’ tangible things. (Coder, Marketing, Design etc)
  3. Demonstrates vision, enthusiasm and belief
  4. Is personable, genuine and honest
  5. Has also worked in corporate life or in other start-ups.

As Albert Einsten said: “If you can’t explain it simply, you don’t understand it well enough

“Make some financial projections around revenue and costs and have them to hand, prepared. Most early stage investors take revenue projections with a pinch of salt but would look closely at costs. This is not essential when you are reaching out to investors initially as all you want to do is peak their interest and get to a meeting.”

“Make sure you only pay yourself a reasonable ‘survival’ salary and not a lifestyle one.”

“Keep your valuation realistic. I’m not sure every company that goes into an accelerator has a valuation of £500k at the outset. I have seen too many excessive valuations that do not allow us to acquire enough equity for the amount of risk an early investor has to take and therefore we walk away leaving some wasted opportunities for both parties.”

“Make sure your company would be interesting to a VC. Remember, they want returns of 10x plus. Is your business really capable of delivering on that? Does it have a clear exit? Does it have a large addressable market?”

Old Street Roundabout

Old Street Roundabout, coined 'Silicon Roundabout' by Matt Biddulph formerly of London start-up Dopplr. “EC1 Capital does base itself in a co-working space off Old St and that is fine until we grow beyond four people at which point we would consider an office in the same area.”

Some VC’s do ‘open hours’ where anybody can come along and ask for advice in an informal setting.

“Finally, build a relationship with your target investor. The most compelling way to get to a meeting is to outline what you are doing and then tell the investor what you are going to deliver and when. Ask to keep them updated. Ask for an informal meeting to introduce yourself and ask for advice. Some VC’s do ‘open hours’ where anybody can come along and ask for advice in an informal setting.”

“This proves to the investor you have discipline, determination and you can show tangible progress along with some possible early traction metrics. At the same time you have started the relationship building process. Even with more compelling propositions a lot of VC’s will not invest until they get to know you better, so you can short circuit that by starting that process early.”

Carter bases himself from a co-working space, and whilst he believes VC’s don’t actually have to physically be in the same places as entrepreneurs – in co-working spaces, he believes that they should be at least be in the areas where they are concentrated.”

“I think if you want to be agile you need to easily get to the locations where the events are happening and easily network with entrepreneurs in the hope that they will like our approach and help with our deal flow by sending filtered companies that they feel are worth meeting. As I have less capital than the larger VC’s I have to find an edge that I can exploit.”

“I have applied to try to get a desk at Google Campus but their rules are that they do not allow investors in, only tech start-ups. That is fair enough and I understand that approach.”

“Most of the larger VC’s are based in Mayfair, Chelsea or other parts of The City, this is a world away for most tech start-ups.”

“EC1 Capital does base itself in a co-working space off Old St and that is fine until we grow beyond four people at which point we would consider an office in the same area.”

Carter recently wrote about the concept of  ‘Lean VC’  – expanding on this, he told us of another VC who said he “…spends less than two days a week meeting with entrepreneurs and the rest of the week doing paperwork due to the complex funding structure and reporting”.

Carter tells us that “EC1 Capital spends at least four days of the week meeting people and doing what we should be doing, finding the best deals.”

Julian Carter

Julian Carter: “As Managing Director, I run EC1 Capital like a startup and hire when it hurts. I like to put as much capital to work in investments than be absorbed in meeting overheads.”

“I run EC1 Capital like a startup and hire when it hurts”

“As Managing Director, I run EC1 Capital like a startup and hire when it hurts. I like to put as much capital to work in investments than be absorbed in meeting overheads.”

“I plan to hire one or two interns to help with the most time consuming elements; deal discovery (going to the myriad of tech meetups every evening), diligence and competitive research.”

“As the portfolio grows we will take on additional professionals from next year, we hope to complete at least ten investments this year or one a month.”

Carter describes how he spends most of his time doing deal discovery –he tells us how “…deal discovery can also be manifested into the day-to-day meetings I do with entrepreneurs. It is all about meeting people and building a relationship so that you can have referrals come to you before anyone else.”

EC1 Capital is the ‘new kid on the block’ in the London tech scene

“EC1 Capital is the ‘new kid on the block’ in the London tech scene and as such our priority was to start getting some quality deal flow and making some investments as soon as possible, when visitors come to our web site the second most ‘clicked’ area of ec1capital.com is the portfolio section so it is important to build credibility as quickly as possible. “

“Since This should say February 9th, 2012 we have sponsored some meeting and pitch groups or provided pizza and beer at others. We have sponsored larger events like the London Web Summit which enabled us to gain visibility relatively quickly.”

London Web Summit

EC1 have sponsored larger events like the London Web Summit. Photograph by Dave Bird - commercial photographer - itsdave.net

“The London Web Summit is a merging of the ‘Geek ‘n’ Rolla’ event and the Dublin Web Summit. I liked the format of the LWS because all the presentations were relatively short, punchy and entertaining and from industry luminaries. The whole event is also based around socializing, pitching and meeting people and those are the key takeaways you need to come away with, not just a bunch of brochures.”

On events which ‘turn the tables’ like Capital On Stage, Carter tells us how he felt “…the concept was good, the event was well attended and we got a lot out of it (we just closed a deal with one of the attendee companies).”

“I do think it would be far improved if the investors were aligned to the mainly early stage audience, most of the investors pitching were later stage firms.”

“Just as VC’s pick entrepreneurs so should entrepreneurs pick who they feel the right VC’s are for their stage, sector focus and geographic locations.

Passion Capital Team

Pictured: Eileen Burbidge, Duke of York, Stefan Glaenzer and Robert Dighero "Passion Capital invests in ambitious entrepreneurs who have global ambition for their early stage digital media and technology startups."

“I’m a big fan of what Passion Capital is doing”

So who else is doing things right in the tech VC scene in London?

Carter tells us how he’s “…a big fan of what Passion Capital is doing and I think they also have a commendable model backed up by successful web entrepreneurs. I would hope at some point we will work with them on larger financings. Two thirds of their capital is taxpayer money (which has certain restrictions) via an ECF vehicle with the rest being made up of private equity. I think Passion Capital have made over 20 investments to date which is about one a month. They are also able to incubate their companies at White Bear Yard although they still have to pay a desk rental.”

Passion Capital

"Passion Capital startups are also able to incubate their companies at White Bear Yard although they still have to pay a desk rental."

“I know of other several funds being set up via the ECF mechanic at the moment, Notion Capital recently closed a $100m fund for Cloud Computing investments in Europe.”

Carter describes how EC1 is exactly at the ‘sweet spot of funding’ and at the ‘scrappy’ end of the market’ – so what do these phrases mean?

To clarify, Carter tells us that “EC1 tries to fill a gap between a ‘friends and family’ round and a Series A round, some might call it a Series ‘AA’.”

“Most of the entrepreneurs I have met are looking for between £100k and £350k to be able to refine/launch the product, develop the market, acquire more users that will add value to the company over a period of about one year.”

“I use the term ‘scrappy’ as the early stage market is more fluid and dynamic, deals are also becoming more competitive so our ability to move quickly is essential.”

So in a nutshell – why should start-ups consider seeking capital from EC1? Carter offers a succinct response:-

“We are able to close deals quickly, being run by a web entrepreneur we are familiar with start-up issues and we are in an on-going process of building out a mentor and advisor network to help portfolio companies.”