This is a guest post by Michael Broughton, Managing Partner at Sports Investment Partners.
Sports Investment Partners (SIP) is a bridge between the worlds of commercial sport and financial investment. We work with investors looking for opportunities and with companies looking for investors. We personally co-invest in businesses and play an active role in driving growth and value. We partner with entrepreneurs to help realise the capital value of their hard work and with rights holders seeking to secure the financial future of their sport.
From introducing those seeking investments to those offering opportunity, providing commercial advice to investors, strategic consultancy to those looking for investment, developing business plans, driving commercial due diligence to sitting on the board of directors driving growth we are here to further commercial interests in sport.
Now this list is not meant to be exhaustive nor to cover all the ground that might be of use to prospective companies looking to raise funds. My colleagues at SIP will also have their own list of Do’s and Don’ts so this is just my personal perspective. What it will hopefully do is show some of the things that we commonly see and my slant on how best to approach the task.
You can’t all be Facebook
The beauty of the logical way of thinking of course is that when you starting adding up suddenly your growth curve is exponential and that’s exciting. The problem is when a start up comes in and presents that it will be a unicorn in just 3 short years it makes it difficult to believe. Is this possible? Absolutely. Is it probable or even likely? No. Here’s the thing, you just need to make people believe it’s a good investment. That doesn’t necessarily mean you have to be Mark Zuckerberg.
No-one ever mentions the competition
I am often amazed at how insular companies can be at launch. The ideas are normally great and there is often actually a near useable MVP (minimum viable product) or live commercial entity. The focus on growth is brilliant but making presentations that suggest there is no competition or none that is viable is rarely going to convince anyone that is actually the case. Much better to recognise this, accept the challenges that may come along and focus on having answers ready as to why you will win.
Have a good finance man in the wings
I have been regularly amazed at how rarely young companies have a competent or better yet brilliant finance man involved. It may not be the core asset the company needs on day one but I promise you that having someone who understands finance and the value of money can be incredibly useful to your business. I’m not talking about an accountant – but an actual CFO who can see the forest for the trees, can advise you on cash burn, opportunities and the language of investors. They needn’t be full time but having them on side will make your planning better and give confidence to outsiders.
Where’s the IP?
A lot of business plans I have seen in the past few years are for exciting technologies that may or may not change how sport is consumed. A common problem though is when you look at what is actually the core to the product you can often see that a 16year old could be building the next version of that already and the barrier to entry is next to zero…so you need to tell the story as to why you can win if the IP is virtually zero.
The world isn’t that logical
One of the regular occurrences I see is business plans that rely on good simple logic. It makes a lot of sense and I understand why that approach has been taken. Logic is always a good place to start. It is also very difficult to programme into excel sheets the illogical nature of life and the fact that we know things won’t be so straight forward. I would love to see more young companies look at the problems they will face and have ready answers as to why it can’t be perfect all the time.
Be realistic
At least a few times a year I meet with someone pitching a new product. This product is often barely past MVP stage but they give themselves a valuation of £100m+ and ask for £10m up front. The response is normally “Good Luck”. Whilst I am sure I will miss out on a few opportunities where that may work out its still worth saying no and finding someone who understand that having the work tech in their deck doesn’t make them valuable (yet).
Show me some initiative
Whenever I meet someone for the first time for a business meeting I will invariably try to google them, search their background on LinkedIn, figure out what might have interested them in the past. I would strongly suggest companies out fundraising do the same. Know who you are meeting. Ask them questions, show a willingness to learn from their experiences and make a connection. People like to work with people who they trust and show some drive. A little bit of google may go a long way.
Leveraged Assets
I love the “lean start-up” and its great to meet people who have read similar materials along the way. However, most tech businesses have a pitch that says they need to build assets and staff for about 2-3 years but after that the cost base stays the same and they just leverage the assets. That’s an interesting concept but most exponential organisations have grown their cost base…Facebook isn’t still 50 people. Be more realistic.
Europe is not the same!
Shocking I know but the European market isn’t the same as the US. Actually most European markets are quite different to one another let alone the US. Personally I see lots of opportunities for US sport businesses to grow on this side of the pond but they need to recognise that their product or service offering needs to be adapted (and yes SIP can help).
There are lots of exciting things coming in the sports industry and the pace of technological change offers, in my view, a wonderful opportunity to grow and expand the sector.
For more information on SIP visit us at www.sportsip.co.uk or email us at enquiries@sportsip.co.uk we are always happy to meet up for a coffee and a chat and explore the possibilities.