Venture Capital – going through your As, Bs and Cs to scale up
“London has the largest tech concentration of category-defining companies and will continue to attract top talent and venture capital investors, despite the big elephant in the room – Brexit!” Stirring words from Yoyo’s co-founder and chairman, Alain Falys, at Money 20/20 USA, which took place in Las Vegas last month. Reporting big growth numbers only four months after Yoyo went through a £12m Series B round, Alain takes us through his funding journey so far and offers advice to startups looking for their “VC princes”.
Let’s face it, startups have fewer options than the big guys when it comes to gaining access to finance. In the early years, companies need to focus on building their revenue lines, with a view to reach profitability over a period of time – but that profitability is often a precondition for securing a loan.
Venture capital gives a startup access to much larger capital than any other form of financing, which means you can accelerate growth by hiring faster, investing more in your product, and getting your offering onto the market more quickly.
But how do you go about finding the right VCs for what you want to achieve?
Put simply – you need to kiss many frogs before you meet your prince. It’s a numbers game. Meeting a lot of different VCs in different geographies with different focuses is the best way to go about it.
For a startup that is really disrupting the market, there will be no one VC that fits perfectly. It will be essential to have a convincing story to tell, to talk through your ideas, and show them why they should invest.
Of course, not all of those you meet will invest. Several may not have the same degree of comfort around the sector you are disrupting or agree with your business model.
So the more VCs you come into contact with, the more you’ll get to know the industry and the greater the chance of finding the ones that are most suited to what you want to achieve.
It’s also important that the prince or princess you eventually fall into bed with are aligned with what you want to achieve, whether its future ambitions for the business, exit potential, business model, etc.
Essentially, it’s a two-way street, whatever anyone tells you. VCs need to feel comfortable with your business and you need to feel happy with their approach to how they want to invest in your company.
A series of funding:
Gaining Seed investment does what it says on the tin. This is an initial show of faith by investors in your idea, with funding made available to research, develop and grow that idea. This can include hiring a team, creating product prototypes, launching to market and growing your initial target audience.
Yoyo’s idea? To deliver a seamless mobile payment and loyalty experience for consumers, and at the same time, provide retailers with the tools to better engage, reward and retain their customers.
Following a trial at Imperial College, Touchstone Innovations (then known as Imperial Innovations) led two seed rounds, totalling around £2 million, for Yoyo in 2013 and 2014. Once the investment was gained, the Yoyo app was then rolled out to all 32 of the university’s food and drink outlets, where it soon represented around 30% share of payment transactions.
Gaining Series A investment is a big challenge. For every 100 seed-stage startups, only around 31 are said to reach this next funding round. Startups need to prove that they have had a strong product market fit and can show early signs of revenue generation and growth.
VCs have already shown an interest in the “idea” through seed funding – now it’s time to lay down plans on how this idea can be monetized.
By 2015, only two years after launching, Yoyo was in a position to meet such criteria. We’d signed more universities as customers, moved into closed corporate canteen environments and, most importantly, began to implement our solution onto the high street.
We were able to show VCs just how much our numbers were growing – with over 200,000 app transactions processed each month.
Seeing the size of the potential, Touchstone Innovations returned to lead a £6 million Series A round.
“Yoyo made strong commercial progress, and in just over a year since launch, by consistently growing its transaction numbers and signing up new universities, high street retailers and corporate canteens,” said Touchstone’s director of technology ventures, Jon Edington.
With the Series A funding, Yoyo was able to double its headcount – particularly in engineering, design and product talent. This gave us the ability to launch a number of new features and show a clear leading edge from a product standpoint.
Gaining Series B funding is even harder and fewer companies get there (apparently only half of those who achieve Series A).
At this stage, you need to be able to show that you’ve used your Series A funding wisely to grow, not just your cost base, but also your revenue-base and the number of customers.
This is the moment to grow your business. Your sales, business development and marketing functions, as well as your values as a company, now need to bulk up to provide a clearer vision of where the business is heading – which may not always be the direction that was first anticipated when you started the company.
When it came to Yoyo, just 18 months after Series A, we had grown from 20 university clients to more than 70, from a few dozen corporate accounts to more than 200, and from a small presence on the high street to winning retail partnerships with Planet Organic, Harris + Hoole and HOP Vietnamese, as well as the UK’s third largest coffee chain, Caffè Nero.
From this growth, monthly Yoyo app transactions shot up from 200,000 to 1 million – we celebrated our 10 millionth transaction in March 2017.
Owing to such rapid growth, Yoyo raised £12m in a Series B round in July 2017, which was led by METRO GROUP, with additional investment from Woodford Investment Management, as well as our Seed and Series A investor Touchstone.
METRO GROUP coming on board was of particular significance. Yoyo’s aim had always been to expand beyond student and corporate environments and move on to the high street.
The German retail giant recognised that Yoyo’s solution was having a meaningful positive impact on a wide spectrum of retail businesses. With their input, we were now able to further achieve our next stage of growth.
By this point your company has proved its worth and it’s ready to scale up in a much bigger way. The “startup” days are now gone and the value of your company has considerably increased.
So what’s next for Yoyo as we head towards Series C?
It’s pretty simple – all metrics now need to grow 10-fold, whether it’s monthly transactions, active users or product improvements.
Importantly, we’re well on track. At Money 2020 USA, which took place in Las Vegas this month (one of the best events to find payment-focused investment partners), Yoyo was able to announce rapid growth figures, just four months after gaining Series B.
In October 2017, Yoyo hit more than 700,000 users, with over 370,000 monthly active users, a 75% increase in just six months!
What’s more, Yoyo is now processing more than 1.75 million transactions a month, and we’re on course to reach 2 million a month before the new year.
So as we move towards Series C, it’s all about more and more growth…and in big numbers!
Alain is a serial technology entrepreneur and investor. He is the co-founder and chairman of London-based Yoyo, the fastest growing mobile payment and loyalty marketing platform in Europe.
Alain is also a Partner at Firestartr.co, the tech startup investment platform, a Venture Partner at Touchstone Innovations Plc and a Director at Pelican.ai and OneLinq.nl. He sits on the Technology Advisory Board of the Royal Bank of Scotland Group.
Previously, he co-founded the OB10 global e-invoicing network, which floated in London as Tungsten Corporation Plc. He was Senior Vice President at Visa International and co-founded Omnis Mundi, an e-commerce incubator with operations in Frankfurt, Berlin and Zurich, with successful startups such as BuyVip sold to Amazon in 2010.