I met with local VC dealmaker Tim Dempsey at the busy Grindsmith café in central Manchester to talk about tech startups and investment in the North. Our conversation included the success of various new tech companies and how their innovations have met the challenges of growth and fundraising.
N – At 27 you were listed in Insider’s 42 under 42 (2012) and you have since achieved an outstanding record of raising £35 million over the last two years. How did you start out and what is it about raising funds for investment that you find interesting?
T – I dropped into this world, after making some money and then investing and helping out in a few startups… for me, it’s about working with very high growth companies who have the potential to really shake up markets – it’s the excitement of the unknown. I now understand the VC world very well and this is my stomping ground…it’s a process that consumes CEO time like nothing else, and I’ve found that my experience and approach can really relieve that, whilst also aligning company’s aspirations with the appropriate investment teams.
N – Entrepreneurs are often caught in a Catch 22 situation where they are so busy building their companies they often don’t have the time to look for investment. How can you facilitate this process?
T – I know the context in which companies are fundraising – because I’m with investors all the time – so I know the trends, I know who has fundraised before, I know the individuals personally, their own competencies and appetite, the way their syndicates work, what terms are worth negotiating up front, how things should look at what round etc. – and can rationalise that with a companys expectations and plans.
N- There has been a continued amount of good publicity about the success of Push Doctor – What was your experience like working with them and why do you think they got it right?
T – There’s no doubt that the founders are superstars, their eyes are wide open and they really understand their product – inside out. By that, I mean its capability, the models behind it, the assumptions they needed to test in marketing it, and how the customer interactions can shape its development. They’re not afraid to be guided by data, either. More importantly, they understand how to build partners and their team – they’re relationship people – which is really important at this stage of a company.
N – Could you tell me a little about the minimum figures a startup should be thinking about when looking for investment – and what sort returns should both parties aspire to?
T – It’s really something pretty specific to each company – but you have to be careful not to underfund – you need to think of the journey as a series of inflection points, where you achieve something and value increases – you need to map how you get through those (by a couple of routes) and decide how much works – there might be other ways to get there without raising money – but bringing in money might come with its own benefits – expertise, discipline, added value. Then it’s about aspiration – if you’re planning to do sequential rounds in a company (typical VC model), then how do you fit your into the appetite of a VC – raising the right amount of money at the right time. One thing that’s important to note, VCs are usually looking to pay out their fund by investing in each company – so a £50m fund wants at least that back from putting capital to work… so there’s a magic balance between ownership, capacity to deliver, funds raised and valuation.
N – When the idea of the Northern Powerhouse is discussed there is often a conversation about either working in London or alternatively working in the North. In practice I’m starting to see more organisations and individuals using both locations simultaneously – do you think networking between London and North is becoming more of a norm?
T – I think the North/London relationship is overthought, by everyone. The Northern Powerhouse isn’t trying to compete with London – we’re just trying to leverage what’s here, so the UK can build something wider and more diverse. London’s 2 hours away from Manchester and Leeds by train – some people take about as long as that on their commute into the City! Start-ups in the North are going to have to deal with London being a big part of who they are for a while, so why not embrace that? Maybe the best place to hire specific talent is London? Maybe it’s Sheffield? What we’re trying to harness here is a different type of ecosystem, create different things, achieve quality of life at the same time.