Money talks: entrepreneurs reveal their investment strategies....and mistakes

Navigating the world of investment is one of the toughest and most time-consuming hurdles entrepreneurs face - especially for those in the “messy middle”, who have outgrown a seed round but aren’t quite ready for a large Series A cheque.

SME XPO’s Money Talks, powered by HSBC, theatre honed in on the blood, sweat and tears reality of growth and funding. Seasoned investors, founders, and finance professionals shared gritty details about the challenges and strategies they deployed in securing second, third or more rounds of investment - including their biggest mistakes.

Here we take a look at some of the lessons that they shared

1. Keep your cap table clean (or pay the price later):

Mark Farrer-Brown, entrepreneur behind Fit To Lead who has also been investing in startup and scaleup deals (worth a cumulative £2.5 billion) since 1998, says this experience makes him warn founders against overly complex investment structures. Backers can reel off structures including ASAs, advanced subscription agreements, SAFEs, convertible loan notes, preference shares  “but it breaks my heart where founders have come to the exit, all very excited, looks like a great valuation, but they’ve taken on venture capital or private equity with these sometimes quite hard to understand structures. And they end up with far less than they thought they would.”

And he also suggests using carta.com’s exit waterfall calculator:  “If you ever come across a complicated structure, put it in there and see what it spits out- you may be shocked. I see a lot of founders go for a high valuation, but it often comes back to bite them. Either they've had to accept these funny structures or they've taken on a mismatched investor. You want the added value investor, it's like a marriage.”

2. The Messy Middle (bridging the gap Between seed and Series A)

“Looking back,” says Lisa Macfarlane, founder of food and media brand The Gut Stuff, “our seed round was relatively easy. You're just excited that someone is trusting you with £2 or £3 million. Then getting to the series A raise was about de-risking the business, but I think that we underestimated that messy middle bit, especially with a consumer brand, and with Covid, it's been really tricky. 

"Getting to profitability quickly gave us control again," she said. Her advice is: don’t rely on endless capital injections. Instead, focus on sustainable growth and a path to profitability. That’s helped The Gut Stuff recently triple its distribution through Tesco and Co-op, game-changing deals that were made possible by Macfarlane’s staying lean and in control.

“Networking is the most valuable thing you can do. It's hard, but if you get out there and speak to other founders who have gone through the same stage, most people are happy to kind of share that knowledge and ask that question.”