Briar Keen of Friction Free Shaving
We caught up with three fast-growing companies to hear how venture capital has helped them scale their businesses.
There are a number of ways you can raise the money needed to scale your business.
You could go down the traditional route of turning to your bank or you could jump on the crowdfunding bandwagon.
Alternatively, you could look to government and European grants, that is if you’re lucky enough to be eligble to apply for them.
Another form of raising capital however, which has gained serious momentum over recent years, is venture capital funding.
Venture capital funds are investment funds that manage the money of investors who are looking to purchase private equity stakes in start-ups and SMEs that have strong growth potential.
These investments are generally characterised as high-risk/high-return opportunities and are perfect for businesses looking to upscale.
Businesses that receive venture capital investments tend to have high-growth potential, are risky and have a long investment horizon.
Also, unlike other investors, venture capital funds tend to take a more active role in their investments by providing guidance and often holding a board seat.
One such company is Paddle, which was launched by entrepreneur Christian Owens back in 2013 in a bid to bring a new platform to market which would allow software companies to sell their products.
Christian told BQ: “Here at Paddle we have built a platform that other software companies can build on.
“We manage the complex aspects of checkout, payments, taxes, support and customer management, so software companies can focus on building great products.
“I started Paddle as I previously ran a software company and loved building products, but hated the complexities of selling internationally, managing taxes etc.
“We set out to solve the problem of software companies spending resources on areas of their business that weren’t core to building and growing an incredible product.”
The company went on to grow by 300-400% each year until 2016 when Christian decided to raise further capital to help scale the business.
This led to the company raising US$3.2m from a Series A funding round led by BGF Ventures, with participation from Spring Partners.
He added: “I think venture capital made a lot of sense to us. We started with a hypothesis of how we think an industry will change, and how we’re going to be the catalyst for some of that change.
“This tends to be a very long-term vision, so having backers who make investments with this longer-term, bigger picture view was important for us.
“Venture capital tends to lend itself well to companies with big ideas working over a long-time period.”
Since then the company has continued to grow and Christian has ambitious plans for the future as he looks to open a US office and double the company’s workforce.
He concluded: “The additional capital helped greatly with hiring incredible people, and helping us expand and serve larger customers.
“We also focused on finding VCs with operational expertise, this has been crucial in helping us put in place the right internal infrastructure to help us scale.
“We’re around 40 people today, and having operational experience with how to grow teams has been really critical to hiring key people at the right time, and avoiding potentially problematic situations.
“We’re still early in our journey but in the next 12-18 months we’ll be opening a US sales office, and roughly doubling the size of our team.”
Another company to benefit from venture capital funding is Friction Free Shaving, the world’s first shaving subscription company specifically for women.
Brummie entrepreneur Briar Keen launched the business back in 2015 after being accepted onto the first cohort of Birmingham’s Entrepreneurial Spark programme.
The company grew rapidly during its first two years and after graduating from the Entrepreneurial Spark Hatchery, Briar was all set to take the business to the next level.
To fund this next stage of growth she decided to turn to venture capital funding and began looking for investors.
Briar said: “Our decision to raise venture capital came last Autumn and followed a successful crowdfunding round six months into trading where we raised £150,000.
“Within just a few months, that initial cash injection had enabled us to scale a number of incredibly valuable marketing channels and to grow our customer base by over 350%.
“So, we were confident and could evidence that a further cash injection would enable us to use the same customer acquisition formula but to grow on a bigger scale.
“We chose to seek VC funding over crowdfunding because of the amount we were looking to raise and the speed at which we wanted to do it – most notably to capitalize on the summer months, which are the busiest for us in terms of trading.
“Like any ambitious start-up, we used as many personal and professional networks as we could to initiate conversations with VCs – calling on friends, friends of friends and so on. We were also introduced to VC contacts via the business accelerator Entrepreneurial-Spark in Birmingham, where we lucky enough to be mentored and supported for our first 18 months as a business.
“Through that process, we met the smart VCs at Athene Capital LLP. Their enthusiasm for what we were doing was compelling and through them we were lucky enough to secure £1.25m funding to drive growth in partnership with one of Britain’s largest publishing houses, Northern & Shell.”
A significant portion of the investment was put towards a comprehensive media campaign with Northern & Shell, whose media portfolio includes OK! Magazine, New! Magazine, Express and Star newspapers, together with access to multi-channel television advertising inventory.
“The funding has been instrumental in helping us to mature as a business,” she added. “Not only have we nearly doubled in size since then, but we have also drawn on the expertise of our VCs and investor partners to ensure that we have, among other things, a positive cashflow cycle, a sustainable, scalable and secure supplier chain and a fundamentally data-driven culture.
“The company is growing at a fast and exciting pace and our ambition is to continue disrupting the women’s shaving market both in the UK and abroad as we scale. But in addition to shaving, we are looking to enhance our offering with other products and services and to develop as a brand publisher, providing women with authoritative advice on how to live their lives more ‘friction free’.”
London-based prop-tech company Goodlord is another great example of how venture capital can be used to scale up a business.
Property specialists turned entrepreneurs Richard White and Tom Mundy launched the business in April 2016 in a bid to introduce a better way to transact property.
They self-funded the business through its start-up stage and managed to establish Goodlord as a real challenger in the rental market space.
However, after pumping all they could into the business, the pair decided to look elsewhere in a bid to raise the further capital needed to scale up the business.
As Richard told BQ: “We turned to venture capital at the point when we ran out of our own money! Nobody else would give us the money so we looked to venture capital.”
But how do you go about even finding venture capitalists that would be interested in pumping their money into your business?
Richard explains: “We just started doing a lot of searching on LinkedIn and Google to find venture capitalists who were investing in companies similar to us.
“We had so many people say ‘yes we will invest’ at the start but when it came down to it they didn’t.
“We persevered however and then after a few rejections the 11th one said yes and they got what we were about instantly. It was a great feeling.”
Their persistence paid off and they managed to raise £7.2m from a Series A funding round led by Rocket Internet’s GFC back in March.
He continued: “The funding has helped us grow lot quicker. It has allowed us to grow at speed and has also helped us level up our expertise in the business through working with different venture capitalists.”
Looking forward, the pair are now hoping this new capital will help take the business to the next level.
Richard concluded: “Looking forward we’re hoping to continue growing at the current rate and I see us becoming a market leader in the long term real estate market over the next two years.”
Another company to successfully raise finance through venture capital is Tide, the mobile-first SME banking service which raised over £10.8m in one of the largest Series A investment rounds closed by a fintech company this year.
The funding round was led by specialist fintech investor Anthemis, alongside Creandum, the Scandinavian fund that has backed global leaders including Spotify and iZettle.
The cash will be used to expand Tide’s workforce at its central London headquarters and develop more features to help UK SMEs manage their finances quickly and efficiently.
Existing investors Passion Capital and LocalGlobe have also participated in the round, which follows the US$2m seed investment the company raised last year.
George Bevis, Tide founder and CEO, said:"Raising external investment is always on a start-up founder’s agenda. It is a full-time job, particularly when a company has big ambitions.
"This time round we looked at a variety of options that would help with our plans for international expansion in the coming year, as well as help us to launch more services for our members.
"We were lucky enough to have offers from venture capital funds with proven track records in the fintech (financial technology) industry and saw these as a natural fit.
"The round was oversubscribed and Tide secured US$14m from fintech investor Anthemis and Creandum, the Scandinavian fund that has backed global leaders including Spotify and iZettle.
"We also had further support from our existing investors Passion Capital and LocalGlobe. We made contact with our new investors through friends in the business community and our previous backers."
Since closing the investment round Tide has went on to hire 15 new members of staff and aims to grow its workforce by another 30 to 70 over the next six months.
Bevis added: "Tide is already saving its members time and money that they need to grow their businesses but there is much more that we will do to support entrepreneurs.
"We plan to launch Tide overseas next year and aim to become the number one brand for entrepreneurship in each market we serve."