Top tips for meeting with investors: Tips and advice from Hugo Silva - Senior Investment Manager at Pi Labs

Going out for investment can be scary, and oftentimes we hear from entrepreneurs and founders that it is a longer and harder process than they once thought - but this shouldn’t stop you from seeking investment when the time is right. 

We caught up with Hugo Silva, senior investment manager at Pi Labs, to discuss meeting with investors, the process and his top tips and advice on how to meet with investors.

Hugo is responsible for sourcing next-generation proptech startups from across the globe that are leveraging proprietary technology to enhance any stage of the real estate value chain.s He also manages Pi Labs’ portfolio which now stands at more than 60 companies. Previously Hugo was an Investment Associate at EDP Ventures, the venture capital arm of Portugal’s largest utility, EDP. He enjoyed sourcing and investing in start-ups in smart cities, energy management and cyber-security in regions from Israel to San Francisco while helping the fundraise its first external round. He has also worked for other funds including Firstminute Capital and The Creator Fund, the first student-led VC in the UK. He also spent some time in Mastercard’s Corporate Strategy division. 

With all of his experience, and his passion for helping small, startup businesses succeed, Hugo was the perfect person for us to speak with, to provide you with everything you could need to know.  

As someone who has a lot of experience working with small businesses, how do you personally know when a business is ready for investment? And when is it the right time to go out for investment? 

“Well to begin with, not all businesses actually need to raise money from venture capital funds. When you start out, the most valuable thing for you is your equity, right? So you should be very considerate about giving part of your business that you’re working on every day to someone else. And truth be told, not every single business needs venture funding anyway. 

“There’s a ton of great companies out there that have never raised capital from venture capital funds. So the first thing that I tell businesses that ask us ‘when should I go out for investment?’, is to think very thoroughly about whether or not you actually need to. So, be very thoughtful about why and to whom you’re giving away equity. 

“Also I think the first step that companies need to take is to think about what you are going to do with the funding? We tend to advise our companies to work backwards. Think, here is where I am today, and here is where I want to be in 2 years and to achieve that I need x amount of money, and x amount of employees, will you need a bigger office, more development, and so on. So try to figure out what all the costs are to make sure you know how much funding you need, and that your plan for the next two years will work so that growth happens. From there, you can think about further down the line and raising your next round.  

“Definitely work backwards from your goals, and try to understand how much equity you are willing to give away in order to reach that next stage,” he continued. 

Once a business decides it’s their time to go out for investment, how would you advise them to prepare? E.g. setting up a pitch deck, having questions ready, knowing where to go etc.

 “If we’re talking about an early stage business where it’s just a couple of people with an MVP. Then the first thing you definitely should start is preparing a pitch deck,” he said. 

“You should prepare financial materials, but it doesn’t necessarily matter how exact the numbers are, it’s more about if they tell a story that makes sense. For example, if I just set up a company and I think that I’m going to make one hundred million in annual revenue three years down the line, I would need to show how, why, and where - investors want to understand what the story is. 

“You should also prepare all of the materials that show your progress, and plans for growth so far, including things that you’ve done in terms of product development, historical financials, making sure that all your legal documentation is in place, and so on. 

“It is also important to note that the more mature your business becomes, the more important the CEO or founder’s time is. So we tend to advise companies to try and find someone that can help them with preparing the materials so that the founders can focus on pitching alone. The other advice that I give to startups is to try to identify a long list of potential investors. So find people that would fit with your business, or who have invested in similar businesses before. Once you have a list of potential investors, create a top 10 priority list and then start pitching in reverse order.

“You need to start from the bottom, pitching to VC funds that you think would be interesting and help you gain experience, but not necessarily someone that you think would be game-changing. And the reason why I say that is because, by that time that you’ve gone through the list and you get the chance to pitch to your top 10, you could have potentially done 90 pitches at this point. Then hopefully you will have done a sufficient number of pitches to impress your favourite VCs or investors. You will know what kind of questions are going to come up, and what to expect - this will give you more likelihood of securing the VCs/investors you want.”

The startup community is only becoming more and more saturated. So with more competition around, how can businesses ensure they stand out when they are meeting with investors? - What are investors looking for in businesses today? 

“It really depends on the area that the startup comes from,” he said. “If we’re talking more of direct-to-consumer business, it’s typically all about branding.

“So, make sure that you’re putting enough resources into marketing your brand and its image. If you have a direct-to-consumer product, it’s likely that someone else could copy your idea and sell the exact same, or a similar thing - so it is really important for all startups to find what truly makes them different, and use that in their pitch.

“In any given area you will have competitors, so one of the things that I tell founders is, don’t delude yourselves into thinking that you’re the first ones that ever came into this space, and you’re the first ones that have found this solution. There’s always going to be someone else and investors will always know someone else with a similar idea- so don’t elude yourselves with that idea. Try to figure out, what are you doing differently from your competitors?”

Hugo went on to provide us with a perfect example of how businesses can do this through the story of a data analytics company he has come across in his career. Discussing how and what they did to stand out to competitors, he said, “There are a ton of companies that are using data from third parties to give you information about consumer behaviour, but what this company did, in particular, was that all of their algorithms were focusing on GDPR.

“Focusing on GDPR was their differentiation. Of course, it is now a super-saturated market and there are many people trying to do the same thing, but they had this unique selling point that put them on top.

“The second interesting thing they did was that they started out in Germany, which is arguably one of the hardest markets in terms of privacy and GDPR compliance. And they were successful there, so in theory, they can be successful anywhere - which helped prove their credibility. 

“To stand out, there are a few important factors you need to consider; the actual product itself, the customer base and how successful you are at executing your goal. Ask yourself, ‘How good is this team at actually following the promises that we’re making to investors?’

“I would say that in 99% of cases, we see a business plan and the numbers don’t end up matching exactly with what you had predicted - which can be okay if the execution is right. The way you do things, the way you sell, the way you do product development, the way they listen to customer feedback, and so on, can be differentiating factors.

“I get a lot of companies asking what do you want to see in terms of traction? And again, it’s an answer that varies from stage to stage, but I think the most difficult part is when you’re at the seed stage, where you don’t really have recurring revenue. However, there are many ways to measure traction, it doesn’t have to just be sales and revenue. Traction can be engagement, numbers on a website waiting list, feedback etc. So ensure you’re showing your uniqueness, execution, and traction for the business.”

As the business world advances, there are now a number of ways in which businesses can gain investment e.g. crowdfunding, VCs, Angels etc. So how can businesses know which route is right for them? 

“Again, it depends on what stage you’re at in your business. If you are at the pre-seed stage and you don’t really know how to show traction or have the things you need to impress VCs or investors, it’s more likely than not that the first people that will invest in your business are friends and family - and maybe a couple of angels that understand the space that you’re in. 

“Typically in the very early days, you would go for family and friends or some angel investors that you might have in your network. As you progress, you will organically then access different pools of private capital.

“There are also a ton of micro funds that are popping up like Octopus Ventures which has just launched its first pre-seed fund -  meaning there are earlier stage funds being offered, and later-stage funds are coming in earlier and earlier. At Pi Labs, we have our Growth Programme that is supporting early-stage businesses as well.” 

Discussing the different types of funding, Hugo said, “I think crowdfunding is a great tool, but it’s for certain types of businesses. So we’ve had a number of our portfolio companies trying to raise from crowdfunding platforms, and the ones that we saw that were really successful, had some sort of product towards the end-user - so more direct to consumer businesses. With crowdfunding, you’re typically accessing a pool of investors that will invest in you because they understand what you’re selling, and care about the business. 

“But if we’re talking about something like a B2B SaaS cloud infrastructure business, it’s very unlikely that someone in the mass market would go on Seedrs or Crowdcube and invest in them because it is not commonly understood. But if we’re talking about a company that is trying to sell a new type of energy drink, it is more likely to get funding on a crowdfunding website because its product is widely understood, and people might be interested in investing because of this. So if you’re considering crowdfunding, it is far more likely to be successful as a direct-to-consumer business.”

A huge factor that businesses are concerned about when they go out to fundraise, is the amount of time it will take. Discussing this, Hugo said, “Because of the current situation that we’re going through with our economy, rounds are taking longer to complete, and valuations are coming down everywhere. 

“There’s also an option for founders to raise venture debt. So that means that you’re raising capital that is not non-dilutive - it’s almost like a loan, but it’s under more favourable terms for the founders. Most of the time, as a seed-stage business you won’t be able to get a loan from a bank - if you’re not making profit banks won’t even want to talk to you in the first place. 

“But going back to how I started, it really depends on the stage you’re at, and I would emphasise - don’t go out to VC investors until you’re completely sure that you can make your business grow 10 times over the next few years, or that you can go two or three times year on year, at least. Try to conserve your equity as much as possible!”

What can businesses be doing to put them in front of investors organically? E.g. social media, consumer networks, etc. 

 “I recently saw Harry Stebbings, the founder of 20VC saying that he got a couple of deals from TikTok. So people are finding new and clever ways of getting in front of investors all the time. And I think my main advice would be don’t give up when it comes to investment. There’s always a way to get in front of investors - and warm intros definitely help. 

“If you’re looking for investment try to talk to one of the founders that have been backed by a VC you’re targeting, they’re typically much more responsive than VCs are. That is a way that founders can easily get in front of the people they need to. So one of the definite do’s of trying to fundraise is to try getting warm intros - because investors are bombarded with dozens of emails a day from companies that send them pitch decks. So having that warm intro will put you ahead of many of your competitors. 

“Another thing that we would advise not to do is founders asking us to sign non-disclosure agreements, especially in very early stages. The reason why we won’t do it is twofold. One, VCs are not in the business of sharing information with their portfolio companies anyway - at least we aren’t here at Pi Labs. But more than anything, VCs don’t have time to go around and share information, and because of the sheer amount of deals that we see, if we’re signing an NDA per company, it would take up far too much time. So it’s not something that VCs will do - I would recommend avoiding this.  If your product is good enough, it doesn’t matter how much someone might know about your business - you’ll consistently outperform. If you’re really that good, people can look and know all they want, but they’ll never be able to copy you because you’re one of a kind right?” 

What are your top dos and don’ts for businesses that are meeting with investors, and if you could give one piece of advice to someone going out to investors what would it be?

“Be flexible with your rounds, especially these days. Rounds are taking a bit longer to close, so go into negotiations with an open mind, and figure out what you want to achieve. So that’s one of the things that I advise founders to do.

“For example, say you want to go out for a £5 million round. Think about what you would do if you achieved that, or what would happen if you raised more or less - do you have contingency plans? Do you have an additional growth plan? By having a goal, a worst-case scenario, and a best-case scenario prepared you can know what to expect from your fundraising. 

“Personally, we’re not the type of investor that will simply rush to close a round in two weeks, when we see a business plan that we like. We chat with the founders a couple of times before we close the round, and then there’s a bit of due diligence that needs doing. And for that reason, we like to see that founders have thought about what they would do in all circumstances, and how they would survive. I would advise people to think about different scenarios on how they can grow or how you can scale before going out for investment.” 

Discussing his key dos and don’ts for businesses going out to investment, Hugo said, “ My best piece of advice would be, don’t raise money if you don’t have to. I know it sounds weird that a VC is saying don’t raise capital, but a lot of the times people stumble upon great ideas and they become profitable and they think, I have something good here, I need more money to develop a product further - but if you’re already profitable, you are already in a strong position, possibly more so than 99% of startups in your market. You really should value what you’ve built. Ultimately, VC capital is looking for opportunities to realise a sharp increase in value as a result of what they can also bring to the table -  investment, network and advice etc, so it’s all about the right startup at the right time for them. Either way, think very thoroughly about whether now is the right time to fundraise and who your target investors are.

“Other advice that I would give to founders of early-stage businesses would be to avoid using financial advisors, especially if you’re a pre-seed or seed company. We receive a lot of decks from financial advisors, which are great, but they serve a specific purpose. From our perspective, these are for later-stage businesses that are more interested in a financial return rather than helping their growth. So if you’re in a really early-stage business, typically a lot of investors will find getting a deck from a financial advisor as a red flag. Because even if it might not be the case, it’s a sign that these founders were not capable, or confident enough to get in touch with us, and present themselves - so avoid financial advisors presenting you to investors if you are looking for true growth and support form your investor.”