Tim Bullock is a co-founder of New Wave Ventures LLP, a vehicle for the personal business investments of its founders. New Wave has no external investors or investment committee and addresses each investment opportunity with an open mind - aiming to achieve the most satisfactory structure for all parties. New Wave’s preference is to invest in high quality management teams with a strongly differentiated product and the potential to make a significant impact on markets with global scale.
Q: Where did you get the idea for New Wave Ventures?
A: I have always had an interest in small, fast-growing businesses. I spent my early career working with, and lending to, small and medium-sized businesses. Even working in large businesses, I always sought to encourage entrepreneurship and to organise business around dynamic smaller operating units. As an investment proposition, 2010 seemed like a good time to move into venture capital as other sources of finance were drying up. I’m habitually contrarian.
Q: What qualities do you look for in companies when considering investing?
A: Management ability comes far ahead of everything else. A brilliant management team with a mediocre product will always beat a poor team with a brilliant product. That said, we do also look for good ideas that are game-changing, can be defended and have the potential to make a significant impact in markets with global scale. Products should be addressing a recognised need or creating an obvious benefit. Great ideas that are looking for a problem that needs their solution are a hard sell – nobody has a budget to buy those. But in the end it all comes down to a management team that can solve problems and make things happen – especially sales.
Q: What common mistakes do companies make when seeking venture capital?
A: Too many to list them all! Here are a few.
- Failure to read the VC’s website. Why submit an application that clearly doesn’t meet the investor’s criteria?
- Failure to produce well researched and reasoned estimates of the size of the potential market
- Too much unnecessary detail. You should be able to summarize what is great about the product/service, who it will appeal to, how it makes money, the size of the potential prize, the funding requirement and why the management team can make it happen, all on one page. Too much detail shows a lack of clear thinking. And repetition is irritating for the reader. There is no point producing a 5 year forecast if you can’t explain the basic factors of the profit model
- Failure to conduct market research with potential customers and be able to name some likely early buyers who have expressed an interest.
Q: What tips would you give for a start-up looking for venture capital?
- Don’t waste time approaching investors who don’t finance start-ups – read their websites
- Approach angel investor networks in your local area
- Seek out people who have retired recently from senior positions in the same industry – they may have useful contacts, knowledge, time and money, and be pleased to have a part-time activity
- Try to network with intermediaries (solicitors, accountants, brokers) who are well connected with investors. At New Wave we do not finance start-ups - it says so on our website and we never consider direct approaches from start-ups. However, we have recently financed two exciting start-ups that were referred to us by people we know and respect
- Don’t be afraid to pay a fee for an introduction, but make sure it’s conditional on success
- Be frugal! You don’t need an office, book-keeper, PA, etc to get started. Running a virtual business, from home or a borrowed office, with everything outsourced, is normal these days. If you have to buy anything, look at the secondhand market first. Deal and negotiate. Investors will look at your first acts for signs that you will preserve cash and have sound trading and negotiating skills.
Q: Do you ever invest in an ‘idea’ rather than a business and if so, does the idea need to be very special?
A: We normally only invest in businesses. We have invested in one very special ‘idea’ that was ready to be turned into a business, but that is an exceptional technology platform with patent protection, a great team, and the potential to be a game-changer in a global market worth $40bn (£25.3bn) annually. The management team also have a good appreciation of how the risks can be managed and reduced. Every rule has its exceptions.
Q: What trends do you foresee in venture capital/equity funding into the future?
A: I think we will see less dependence on debt in deal structures, and I see that as a good thing. We feel very strongly that risk capital should be provided by equity shareholders.
Although it’s not a forecast, more a hobby-horse, I would like to see the tax system do more to provide incentives (reliefs) for successful investments than initial investments. That way the tax reliefs can be met from the revenues generated from successful businesses (VAT, PAYE/NI, Corporation Tax) rather than being a cost to the Exchequer while the country’s finances are in a mess. We need incentives to bring out investment from individuals and companies who can add real value to the companies they invest in, rather than creating funds in the hands of fund managers who’ve never run a business themselves. The rules around schemes such as EIS
can be a complex, easy to trip up over and cause decisions to be made for tax rather than commercial reasons.
Q: What effects did the economic downturn have on venture capital investment?
It has significantly reduced availability and made investors far more selective. That means it’s a really tough climate for those looking for investment. You need a lot of stamina and persistence. Intelligent research and planning are more important than ever.
Q: To what extent does the sector the company is working in influence your decision to invest?
A: We are agnostic as to sector. We look for a great product, a large global market, a big profit margin and a truly capable management team. We aren’t keen on the next big thing on the internet unless it’s underpinned by a business model that is clearly profitable. We don’t finance unprofitable ‘land grabs’.
Q: When you say you are interested in companies with ‘significant growth potential,’ what do you mean exactly? A company with a good team? Disruptive business model?
Both, and more. We are looking for the opportunity to go from small beginnings to making an impact on a global market. So we aren’t talking about 10 percent growth per annum. We want to create businesses that will soon be on the radar of the world’s leading companies as potential acquisition targets. Having said that, we have no fixed views about exit and if a management team is growing a business successfully, with the appetite and ideas to keep it growing, we would probably want to stay in and enjoy the ride.
Q: A lot of small companies are put off by venture capital, thinking it’s something that ‘other companies go for.’ What would you say to them?
A: It isn’t for everyone, but it does come in different flavours, so shop around. At New Wave we are a bit different – we don’t see ourselves as venture capitalists, more as a couple of businessmen who invest in interesting ideas in the hands of people we like and can trust. There are others like us, and business angels can offer a supportive form of investing. Do your homework and make a list of what really matters to you so you can vet potential sources early on. There is no point talking to people you will never be able to agree terms with. But if you can find a supportive investor that you feel comfortable with, they really could help you to make your dreams come true.