The methods companies use to attract funding range largely, but not all outside investment means losing control of the boardroom. Below Chris Phillips, CEO and Co-Founder of Just Develop It, champions new ways of investing and encourages start-ups to look beyond the traditional VC structure.
The traditional VC has long been the go-to for hungry start-ups looking for an injection of money to boost growth – a trend typically driven by the US tech sector. Perhaps naively they often don’t realise just how much they are going to have to give away in order to secure that golden funding egg. There are a host of start-ups that could be being smarter about how they get finance and the amount of control they give away
Whilst VCs are a tried and tested way to get the backing your business needs, VC-based funding also comes with disadvantages. It puts too much of the business in the hands of the investors, for one thing; and as a result, it often leaves the founders feeling that they no longer have a stake in their own future, radically reducing motivation and aspiration levels. Founders no longer feel they have control of their own business and this can massively affect future growth.
But now pushing back on the VCs that originally dominated the investment market is a new breed of investor, one who has realised after taking the entrepreneurial path themselves that there has to be a better, more inspirational way for tomorrow’s creators to get the support they need. We’ve always been aware the traditional VC route is no longer appealing to a lot of start-ups, so we offer a model that shares the risk, while giving its investees the confidence and motivation to grow.
From experience of using this type of investment model, it is so different that we very rarely even take a seat on the board of the companies we invest in. It’s more flexible than traditional venture capitalist investors, and gets far more involved across the business with HR, accounting and marketing support while leaving the founders plenty of incentive to maximise their success by leading their own business decisions – these have been vital considerations for early-stage businesses and securing their success.
In a competitive market place for both start-ups and investors sometimes it’s worth taking a calculated risk, often the less obvious ideas can really strike a chord with the market and become a huge success. If there’s more than a 50% chance the business in question will succeed, in my opinion, it’s worth finding out more. I also strongly believe that the make or break of an idea lies with the personality behind it. Now coming up to its 10th year and £100million in assets JDi is proof that investing in people, not just product, is a winning formula.
My background is the same as my business model – far from traditional. I started out at 16, a tech-obsessed teenager during the dot com boom, following a dabble in a rudimentary football scores website; I created my first company ‘Dot 5 Hosting’. I was passionate about football, had an interest in tech and enough time on my hands to think about something that might just work.
A couple of years on, iPower, an American hosting company saw what I’d created and I sold to them making my first million at 18 years old. The site wasn’t without its issues and during the fledgling years had a few close calls, but the company saw something in me and invited me to work with them on future projects. They believed that I had potential, nurtured me and allowed me to grow my ideas under the safety of their business know how and support. Something that stuck with me.
The learnings and business ethic I took from my time with them taught me to think big and grow fast – I’ve tried to convey this in everything I do, both personally and in business with JDi – which in itself has been an opportunity for us to start to change how investment is secured and how business ideas flourish, whether it’s chartering jets or re-defining the anti-virus software market.
The investments we help to nurture remain agile and ready to move with the market, there aren’t layers of bureaucracy which mean the right decisions get slowed down or worse still, lost. Investors need to have the ability to guide the right people if they need it and sometimes an original idea can be shaped to better survive an ever changing market and often fickle consumer.
This type of approach hasn’t been without its hard lessons, not every start-up will succeed and empowered entrepreneurs have to demonstrate the same passion and drive for success as its investors. The product can often be wrong, but if the person is right and you can identify something there, a good investor will drive hard to look for that opportunity and not just walk away at the first hurdle.
Diversity still remains a barrier in the traditional investment landscape. Built on a foundation of tech innovation and smart investments, JDi now has a diverse range of businesses across, leisure, tech, retail and property under its roof. The wide range within the portfolio means there is years of expertise to pull on and best practice that can be taken from other sectors to make businesses more competitive and allow them to grow faster. I would encourage investors to let go of the ‘specialist’ barrier and see where their money takes them.
The sooner start-ups realise traditional VCs are not the only option, the more competitive the market place will become and much like Dragon’s Den, there will be a line of investors vying to support (but not take ownership of) the next big thing. They might not be in the first Den you enter, but there are investors that will let you keep your majority stake, with the belief in you to grow your initial idea into something big.