How to raise seed funding – the Kindred Capital approach

How to raise seed funding – the Kindred Capital approach
11 September 2017

“It’s really, really hard.”

That’s how Russell Buckley, one of Europe’s most experienced seed investors, describes fundraising.

The following figures illustrate what entrepreneurs are up against when looking for sophisticated funders for their early-stage venture.

Every year, Russell’s company, Kindred Capital, receives “too many business plans to count”.

No doubt it’s many, many thousands.

Of those, 600 companies get an invitation to present to Russell at his firm’s office in London.

A remaining 120 companies get invited to a second meeting.

In the end, only 10 of them will receive funding. That’s about 0.1% of the total who enquire about getting funding.

You better be darn good before you try to pitch to Kindred Capital.

That said, having just had dinner with Russell, I can give you the lowdown how to prepare for pitching to him. The same kind of preparation will come in helpful when pitching to any other seed investor.

Who is Russell Buckley?

To understand why Russell is such an attractive potential funder (who offers much more than just funding), you need to go back to the mid-2000s.

He was one of the early team members (and later MD) of AdMob, a company that was started in 2006 and quickly rose to become the largest mobile advertising company in the world. Google subsequently acquired AdMob for $750m in cash. The early staff members are said to have received a “generous” participation in the sales proceeds. Before selling out to Google, the AdMob team had managed to get funding from Sequoia Capital and Accel Partners, the renowned venture capital firms.

After leaving AdMob, Russell worked with the British government to help some of the best British technology companies raise a total of $150m in funding. On the side, he mentored founders and involved himself as an angel investor in a number of ventures.

Since September 2015, Russell is a partner in Kindred Capital, which his LinkedIn profile describes as a” new early stage venture capital fund based in London, with a refreshingly novel approach to venture investing”.

What’s new about Kindred Capital, and why does it matter to swashbuckling entrepreneurs in search of that elusive first cheque of seed capital?

Why you don’t just need money

I have managed or co-managed organisations that ranged from consisting of nothing more than a single sheet of paper with an idea to ones with more than 50 years of history.

Something I noticed, again and again, is how important it is to have the right kind of funder for your venture (or, alternative, the right mix of funders).

Having enough cash is important. Without it, the wheels are not going to move. You should praise the Lord each time you get up in the morning without having to worry about cash flow problems in your company. Having gotten to that stage is big. Once you are in such a position, every other problem can be resolved.

Something I noticed, again and again, is how important it is to have the right kind of funder for your venture (or, alternative, the right mix of funders).

However, right after the requirement to be sufficiently funded to execute your plans, comes the need to have a plethora of other factors aspects under control.

  • Do your funders understand your operational challenges? Are they helpful in solving them or do they prove to be a hindrance in your operating the actual business?
  • Have your funders sufficient expertise in creating, right at the outset of it all, the right kind of legal structures to secure your venture’s long-term future?
  • Will your funders support you in building the kind of culture your venture requires to succeed, or will they try to force their view of culture onto your fledgling company?

I could go on and on with that sort of list. There is a lot your funders should contribute to your venture besides just cash. Which, in reality, usually requires to have more than just one funder backing your venture. We live in a complex world, and it’d probably be too much to ask for a one-stop solution.

Or maybe it isn’t.

What Kindred Capital offers to its investee companies, sounds like a pretty comprehensive package to me.

What has Russell invested into so far?

It was a real delight listening to Russell give a dinner presentation.

Wearing a Hawaii shirt, he looked nothing like the successful British businessman he is and much more like you’d imagine a Californian venture financier.

In his talk, Russel described:

  • Who has Kindred Capital invested into?
  • Who has Kindred Capital not invested into?
  • What are some general tips for entrepreneurs looking for funding?

Over the past 18 months, Kindred Capital has invested into 17 companies. With £80m ($105m) in funds under management, it is one of the largest seed funders in Europe. On average, the first cheque they write is for £500k ($650k), with the range being £250k ($325k) to £1m ($1.3m). The company is entirely happy to have other funders come onboard, too.

Their investments range from companies that already have a product and some revenue, to ventures that only exist as a PowerPoint presentation. Though as Russell quickly pointed out, to get funding on the back of nothing more than a PowerPoint presentation, you need to have a solid track record of having taken a venture to a successful exit.

The Kindred Capital approach

As Russell stressed right at the outset, Kindred Capital doesn’t just understand investing. The firm also has a “considerable operations background”. Kindred Capital “knows the trials and tribulations of companies” and they come in to help.

To best help their entrepreneurs to succeed, Kindred Capital only invests in companies that are in the UK. Russell’s team wants to be able to see the investee companies regularly and be actively involved in shaping and growing them. This “bicycle approach” isn’t new. Some of the most successful Silicon Valley VC’s will only invest into companies that they can cycle to. Investments in companies outside of the UK are out of the question for Kindred Capital.

Where Kindred Capital has taken a unique approach, is the model of turning every entrepreneur they invest in into a co-owner of their investment fund. Of the profits Kindred Capital makes from its investments, 20% is allocated to be shared among the entrepreneurs that the portfolio backed. Every entrepreneur funded by Kindred Capital gets to share in the success of the other entrepreneurs around them.

The model they use for this is simple and straightforward. A summary of how it works is available on the company’s website. It’s a bit like a stock option plan.

Every entrepreneur funded by Kindred Capital gets to share in the success of the other entrepreneurs around them.

What Kindred Capital uses this model of “equitable venture” for, is “to have our founders help each other”. Which takes you straight back to Russell understand the everyday challenges that founders have to overcome.

Your venture just received funding, and you need to build a team in California to enter the US market? Other Kindred Capital backed founders will have done this already and will be asked to help you with advice, contacts and on-the-ground support.

To be embedded in an eco-system of companies that are in a similar situation as you and where the founders and the entire team are available to lend you a helping hand (because they get a share in your success), will improve the odds of your enterprise succeeding.

That’s not even to mention the support provided by the management team of Kindred Capital itself.

Each new investment starts off with a working session between the investee company and the team of Kindred Capital. The investee companies can ask anything they need advice on. Crucially, Russell and his partners only invest into founders where they have a feeling that the chemistry is right: “Would you enjoy working together? If you intend to work together for up to 10 years, you have to like each other.”

One of the regular contributions that the firm makes to investee companies is to act as a “talent manager”. Kindred Capital firm teaches its founders how to locate great people, and what structures the investee companies need to have to attract top talent.

Kindred Capital sees entrepreneurs not as “risk takers” but as “risk managers”. It tries to instill this thinking into its founders. Russell recommends you read the book “The Risk Takers” to learn more about this approach.

Kindred Capital firm teaches its founders how to locate great people, and what structures the investee companies need to have to attract top talent.

One of the risks Russell mentioned as an example, was that of not managing a young venture’s team properly: “Early stage investment is very much about the people…

If a company has seven employees and you have to replace the CEO, then you have already lost.”

No wonder that at the end of his talk, he once again stressed: “We have considerable operations expertise, and that is really important.”

Russell’s other list of criteria

If you want to approach Russell’s firm for funding (or any other seed investor), here is a list of additional factors you want to keep in mind:

  1. Is your company aiming to solve a real world problem? Can you make money off it?
  2. Is there a “founder/market fit”, i.e. does the founder appear able to go through a difficult period? People who have an employee mentality and flee back to a comfortable corporate job at the first sign of trouble will never succeed in convincing a funder.
  3. Is your company aiming to one day be worth at least a billion Dollars? If not, forget about the entire undertaking. Seed investors are looking for the next big thing.
  4. Does the management have a significant stake? For Russell, a company where the management team only owns 20% is “unfundable”. He doesn’t think much of angels who think they are “clever” by taking a large stake off a cash-strapped founder. Looking a bit further down the road, that makes a company unfundable.
  5. Does the company have an unfair advantage in the market place?
  6. Does timing seem right for this enterprise? Using the example of AdMob, Russell mentioned how this company couldn’t have been created two years earlier (there weren’t enough mobile phones) nor two years later (everyone else was doing the same thing already).
  7. Does your company have a “domain expertise”? Much as a new venture needs a younger perspective to disrupt a market, it also needs to have enough sector expertise to not be a rookie operation.
  8. Is the team up to it? You need some “really, really special people” to make a company succeed. What can you say about your team being extraordinary?
  9. Keep in mind that venture capitalists are also people. Get introduced to them through a mutual connection so that your business plan goes from “cold call” to “trusted referral”. You don’t know anyone who can introduce you? “Not knowing people is a trivial problem. If you can’t solve that, you’ll run into worse problems!”
  10. Give the deck design as much consideration as your website design. It has to look like it was thought through. “It has to be a thing of beauty.”
  11. Research who you are seeing. Russell mentioned the example of a founder trying to tell him how amazing mobile advertising is – not realising that Russell had co-founded AdMob. Fail!

You will find further useful advice in his article “7 reasons why founders shouldn’t talk to Kindred”.

What to expect from due diligence

If you have made it through the pitch process and Kindred Capital is considering an investment, you’ll have to go through their due diligence process. It will involve:

  • Meeting all four partners of the firm.
  • The above-mentioned working session with their entire team.
  • Kindred Capital will take personal references, e.g., through talking to customers or companies in your supply chain.
  • Then you’ll be issued a term sheet.

It’s all quite straight forward.

Provided, of course, your plan is up to scratch.

Which, I am sure, you are now in a much better position for. Go on, what’s stopping you?

A quick note about the source material for this particular article: If you live in London or visit frequently, you might want to check out the service provided by TableCrowd. They host dinners where a speaker is invited to elaborate about their experiences relating to fundraising, building a company, selling a company, etc. I am not affiliated with them, pay for my own dinner participation, and don’t get any commission for recommending them. But they do get my wholehearted recommendation for providing an insightful and quite affordable service to the London start-up scene. I get to meet people that otherwise, I would not have come across (including fellow diners). The source material for my blog is, at least for now, regularly based on those dinner talks.

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