Angel investor Dale Murray offers straight-talking advice on the best way for entrepreneurs to secure start-up investment for their ventures or to fund the crucial next stage of growth
Dale Murray winces slightly as she recalls the challenge of seeking investment for her own first business venture: “It was quite an arduous experience,” she says. But the New Zealand-born entrepreneur is glad she stuck to the task: Omega Logic, the company she co-founded in 1999, and which pioneered prepay mobile phone top-ups in the UK, posted a turnover of £450m inside five years.
Today, Murray is an award-winning angel investor specialising in high-growth tech businesses and holds non-executive director roles for UKTI, the Department for Business, Innovation and Skills and investment firm Sussex Place Ventures.
Awarded the CBE last year for services to business, she also serves on the prime minister’s Business Taskforce, with a mission to cut the red tape of EU regulation hampering the growth of UK businesses on the continent.
And, happily, the climate for securing investment in the UK is, in many ways, now “excellent”, she says. “There are many great programmes to support entrepreneurs.”
But how can entrepreneurs looking for an angel improve their chances? Read on for our exclusive Q&A with Murray on the best path to securing angel funding…
What is the biggest mistake people make when pitching to you?
If it’s a start-up, the biggest mistake is that they get seduced by their own idea. It might be a fantastic invention, but that doesn’t mean there’s a market for it. The best way of validating your idea is building a prototype and selling it.
Entrepreneurs so often forget that the goal is not to achieve funding, but to create a demonstrably better product or service, that you can manufacture or produce in a cost-effective way and that people want to buy.
What’s the secret of a great ‘elevator pitch’?
You need to have a number of pitches: your 10-minute formal pitch, your 30-second elevator pitch and a two- or three-minute one which follows the elevator pitch, when someone wants to know more.
The shorter pitch is where many entrepreneurs stumble – because they suddenly realise they’re in front of an angel investor, see sterling signs above their head, and forget that in order to make a sale you first need to develop a relationship. Find out what interests them, get them to talk about a great business in their portfolio they’ve enjoyed, and be human about it. And then you can say, “would you mind if I tell you in 30 seconds about my company?”
What else does a business need to attract your investment?
A carefully constructed management team that matches the needs of the company. I prefer a group of co-founders that represent diversity, when they perhaps come from different countries, educational backgrounds, different disciplines, and a gender mix… I also want to see that friends and family have committed behind the project. I get very suspicious if an entrepreneur doesn’t put any of their own money in and has none of their own friends and family on the shareholder register. That tells me they haven’t been able to convince the people closest to them.
How should entrepreneurs tackle equity and the value of their businesses?
Don’t ever give away equity if you can find the money from somewhere else. Entrepreneurs take all the risk and suffer the hardship in building their businesses.
But the equity question is linked to the valuation of your company so have a look at where you’ve got to, what your forecasts are and find a comparable business in your sector and learn what they’re worth. If you’re going to say ‘my business is worth £1m’, please have reasons! That you’re in a growth sector, that you already have customers… If you’ve been looking for investment for four, five months and you’re not getting there it’s normally because your valuation expectations are too high.
Aside from money, what should an entrepreneur expect from an angel?
Every investor is different, but it’s something you must get clear upfront. If you’re going to get four or five investors into your company, ask ‘do they have experience in your domain?’ Have they got a fantastic network of relevant contacts? Are they prepared to pick up the phone and make introductions? Provide mentoring and coaching? Ask them for half an hour a month to be your sounding board, or – six times a year – to introduce you to someone in their network. Be very specific about what you want from the start.
When you were an entrepreneur, how did you cope when funding ran low?
A couple of times in the growth of my first company I really had my back to the wall, there was very little money. I relied on my accounting skills – I would do daily bank reconciliations, ring debtors and make absolutely certain I knew when their cash was coming in, assess every line of overheads and expenses to see where I could trim back, and do it every day to ensure I was well within my limits.
Did any investor try to exploit you, and how did you cope?
Once we were negotiating with a very early stage venture capitalist for a £500,000 investment. I went to his office to sign the agreement and get the cash – we had no money in our account, had been drawing money from the ATM to pay payroll from our personal accounts and were really on the bare bones. He said: “I’ve decided to halve the valuation of your company.” And I said “no.”
If at any point it doesn’t feel right, you don’t like the angel investor or you’re not sure of their motives, then there are times when you must say “no”.
When is the right time to end a relationship with an angel?
The angel investment model doesn’t work without an exit. I get my entrepreneurs to write a statement of intent from the outset – do they want to grow the company to a certain size and then sell it for a certain amount? Is £5m enough, or £15m or £20m? Then, once a quarter – or every six months in the early days – have ‘Exit’ on the agenda at your board meetings.
Take at least 10 minutes to ask “should we be grooming ourselves for exit… have we had anybody interested… do we feel the market is moving?” It means your board and owners will stay mindful of exits. That’s important.
What is the best way to search for an investor?
Go on the UK Business Angels Association website and look for angel networks in your area. Call them, explain what your business is and what stage you’re at and then register to pitch at their events.
Standing in front of 50 or 100 investors, you’re significantly more likely to generate a conversation than approaching individuals. But also search trade publications for interviews with people who’ve invested in your sector, and ask accountants, lawyers and others in your supply chain and domain to come up with a really good list of people you can approach.
Dale Murray is an ambassador for this summer’s International Festival for Business