Article by Fergal O'Mullane, 10CMS
Fergal O'Mullane, co-founder of ecommerce company 10CMS, talks about raising £2.15m in early stage funding.
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Background 10CMS was formed in early 2008 by four co-founders. The business developed a software-as-a-service e-commerce content management platform, which allows online retailers to create, manage and deploy sophisticated user experiences cost effectively. These help drive improved sales conversions for online retailers. In 2008 the company raised approximately £1m in seed capital funding (mix of angel, friends and family, and investment from a seed tech fund). 10CMS completed an early stage funding round led by Octopus Ventures in December 2010, of a further £2.15m. The business is generating revenue and has gained significant market traction in the UK. The money raised will be used to consolidate the company's position, accelerate product development and establish a foothold in other key markets such as Europe and the US. |
Q: How easy was it to get funding for your business?
Easy is not a word that springs to mind. It's a process and you need to have a number of items in place before you proceed – a good core product offering, a solid and scalable business model, a large addressable market and a good management team. For us this process took much of 2010, including preparing the business plan, financial model, and so on.
Q: Who did you approach?
We identified three funds which invest in technology businesses at our stage of development, which typically invest £1m to £2m in companies with the ability to follow-on. Octopus Ventures was one of these. We had a positive response from all of the funds, but Octopus moved quickly and we liked their approach.
Q: What are the pros and cons of different sources of funding?
The key is to understand your business needs and ensure you match this with the right type of funding. Angel funding can be good as they tend to be passive investors and rarely take a controlling stake. But your share structure can be fragmented, meaning more effort around shareholder approval, and pitching can be time-consuming. With a VC you're dealing with one investor with deep pockets, who generally can follow-on if you need extra investment. Be aware that they will be heavily involved and take a significant stake and the investment will be wrapped around a comprehensive agreement.
Q: What is the most challenging aspect of the due diligence process?
It's very time consuming and can distract you from the day-to-day business, which, ironically, could impact your ability to raise funds. We were able to split roles, but that might not be possible for others.
Q: What advice would you give to companies looking for funding?
Do your homework before you start fundraising. Format the business plan in the way the VCs expect and create a short teaser version to send in advance. Have a comprehensive financial model that you are confident in and ensure you are raising enough money with plenty of contingency. Identify a short list of suitable VCs and research the size of the fund, their typical deals and types of investment. Research the backgrounds of the fund managers and do some dry runs on your presentation. Prepare as much in advance of due diligence to reduce the level of effort involved and speed up the process.
Q: What would you advise companies to look for in an investor?
Find an investor who understands your business and can bring added value. Ask for references on other investments, talk to them and find out how they find working with them. They may help identify potential pitfalls in the due diligence process.
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