Hello, Mike. We're very pleased to have you on FundingHero’s Expert Insights Interviews. Let’s open this up with an introduction. Please tell us about your background, and what was your journey to becoming a VC?
Mike: It’s been an interesting route into VC for me. I started at PwC and became a Chartered Accountant. Shockingly, auditing financial institutions really wasn't as fun as they made out when I started... I then met the CFO of a large London craft brewery, Fourpure Brewing Co, who had just been acquired by Japanese drinks giant, Kirin. We hit it off and he trained me up in a really hands-on Commercial role, while the brewery was going through huge scaling, investment and growth. I also built out the B2B white label department and grew that to £1.5m in sales.
After 2 years there, I joined the CFO who hired me at Fourpure in a Venture Builder startup. My focus there was working with our portfolio of founders on commercial and financial strategy, building models, decks and helping with fundraising. VC was the natural next step, where I joined Fuel Ventures!
That's great. Can you tell us how many applicants you roughly get per quarter or per year?
Mike: Fuel Ventures sees in excess of 6,000 opportunities a year between our webform and deals passed to us through our own networks. For context, annually we invest in c. 45 companies from our pre-seed fund and c. 15-20 companies from our scale-up fund.
So, the deck is always a founder's first port of call when fundraising. How long do you spend on a deck?
Mike: Usually within a couple of minutes of reading the deck, you can get a relatively good read on what the founders and company are trying to achieve. At an average of 15 slides, that's around 8 seconds a slide. Given we see a pretty high volume of decks, we need to be able to evaluate pretty quickly. Any deck sent to us via our webform is reviewed by multiple people within the team - which ensures we don't miss anything. Of course if something catches my eye, I'll do a deep dive, usually coming back to the deck multiple times, collating questions, reaching out to my own network to validate claims etc.
What percentage of those applicants would you say aren't actually ready for VC funding yet?
Mike: From the perspective of investment materials readiness - that is a tough one to put a number on. Founders who've worked in/founded startups previously tend to know 'the score'. They have a concise deck with a strong narrative, ambitious but well thought through financials, are able to answer probing questions effectively and often have a dataroom/Notion page with additional info.
First time founders don't often have the complete package in terms of investment readiness. That said, they could still be extremely capable at building and scaling a world beating business.
Approaching a VC for funding without being ready just makes it much tougher to be spotted amongst thousands of other founders and even tougher to actually land an investment.
What percentage of those applicants would you say will never be suitable for VC funding?
Mike: We see a lot of really great founders running great businesses that will likely grow and deliver good returns for both the founders and shareholders.
At Fuel, we're really looking for outliers. We seek to invest in companies that can deliver outsized returns.
From our pre-seed fund, we always ask ourselves "could this investment deliver a 100x return from the point of investment". That is one of our driving principals.
We're not looking to invest in a company that will do "well", we want a company that has the potential to be a world beater. Given we invest in c. 1% of the companies we see, safe to say a lot of founders raising may (unfortunately) never quite be what a VC is looking for.
At what stage of a business do you prefer to invest? And why?
Mike: I'm part of Fuel's pre-seed fund - so naturally investing at the very early stage. As our pre-seed fund is an SEIS fund, we're actually often the first external capital a company raises. The lines and definitions around what 'preseed' actually means are often blurred. Generally speaking, we're investing in companies far before any semblance of product market fit.
We have invested in many pre-revenue businesses, but typically there is some kind of product built, and some form of commercial traction. Often the product is a scrappy MVP, and the founders have been able to demonstrate providing something that is a real 'must have' for their customers.
Investing at this stage is really exciting. There are often limited indicators to go off (i.e. later stage investments have actual metrics to evaluate), so it's a lot about stepping back and thinking about the big picture. Where can this go, could this team deliver it etc.
Commercial traction takes many forms, and of course the more users/customers a company has, the easier it is to validate assumptions. Having people willing to pay you money to solve a problem for them is a pretty clear indicator, at pre-seed, that you're doing something right. However, whilst always interesting, generating revenue is absolutely not the be-all and end-all of what makes a good pre-seed investment for us.
Do you have a preference for the types of founders you fund?
Mike: We have invested in a huge range of founders - with different backgrounds, ethnicities, genders and ages.
There are certainly common traits - we want founders who are commercial, especially in this environment. Founders who we trust to make important and even uncomfortable financial decisions. Founders who know their industry inside and out. Founders who can deeply empathise with their customers. Founders who can cut through BS, and focus on things that will genuinely move the needle, not getting caught up in vanity projects/features/metrics. Founders who, when sh*t hits the fan, are they able to keep a level head. Founders who can SELL - this is a huge one for us. A founder's ability to sell is crucially important - selling to customers, selling to attract the best talent in the industry, selling to investors in future funding rounds.
We don't expect founders to individually have all of these attributes - often it's around building a core team who can deliver on all of the above.
There's no real point in trying to give a particular founder 'profile'. We have invested in first time founders and founders with multiple exits. Highly educated founders and those who went straight into industry. Founders in their early 20s and founders in their 60s...
What makes a founder really stand out to you? Is it the idea or the founder?
Mike: Founder, founder, founder. There are plenty of adages and cliches around good founder/average idea vs good idea/average founder. I won't repeat them here (well, I guess technically I just did...)
At the pre-seed level, the team is so hugely important, as there are often few other indicators to rely on or evaluate. Any roadmap, market assumptions or financial forecast is 100% going to change, so we don't entirely base our investment decisions around what we see on paper. An important part of the process for us is getting comfortable with the notion that the team will be able to adapt to whatever is thrown at them. To zero in on what works and quickly determine what doesn't.
Of course, ideas are important too. I always come back to the idea of 'must have' and ROI. Especially in a challenging economic environment. Budgets are getting cut left and right - is this solution going to solve a really painful problem, and is there a clear mechanism to see why paying money for this solution, in whatever form it takes, is going to ultimately benefit the customer.
To put some meat on the bones here, we like to see founders who have walked the walk. Often that's industry experience. Even better is they have been a founder or operator previously. It means they've made or seen mistakes being made before, and will be able to hit the ground running. They've seen what works, what moves the needle, what good culture looks like, and know how to WIN.
What do you look for in a pitch deck and how important is it in your decision making process?
Mike: We obviously see a huge volume of companies each year - and the deck is typically our first interaction. We never invest purely based on what's in a deck - but it's a crucial factor in determining whether we take things further and have that first meeting.
The blunt truth is - every deck review is essentially an exercise in opportunity cost evaluation. Is spending the extra 15 minutes going deep and thinking about the contents of this deck going to be worth it, or would I be better off allocating that time to another deck?
For me, a deck needs to paint enough of a picture that I want to have that first call and find out more. Are there enough customers out there, who deeply feel this problem, who are willing to pay/engage your company to solve it for them. And critically, are you the team who can execute this grand plan.
Let's also throw a caveat in here! I absolutely know that a founder's ability to put together some good slides has a somewhat limited correlation with their ability to build and scale a hugely successful business. I've seen plenty of objectively great decks for, in my view, not great investment opportunities.
You must see some "out-there" deals from time to time - What do you specifically look out for in terms of deals?
Mike: Thousands and thousands of incredibly talented founders tackling huge problems - there are always going to be some "out-there" deals. One of my favourites was a company building a distributed network of servers that sit inside people's boilers, generating heat essentially by acting as a data centre. In the cloud. Slightly outside of Fuel's thesis (i.e. heavy on hardware) but a cracking idea.
The only criteria for Fuel pre-seed: can this team win, will customers see this solution as a 'must have' and is the market big enough to enable Fuel to achieve a 100x return on our investment (there are some sectors we lean away from, hardware, medtech etc)
Can you tell us about a deal you really wanted to secure but didn't?
Mike: Ahhh, the ones that got away. Even in my relatively short career as a VC, there are of course a handful of deals that have slipped away. Fact is, the most exceptional founders, the real outliers, can choose whose money they take, it's that simple. Fuel has a very strong proposition - our team is full of former founders and operators. We also have an immensely strong fundraising function (15 people strong) and our network is both wide and deep, so losing deals of course hurts when it happens.
There is one deal in particular - an exited founder in a very exciting sector with some big contracts in the pipeline, that I ultimately wasn't able to secure. Losing that deal was a huge learning experience for me, and there are things I'd do differently now. Hopefully the painful lessons learned will actually yield more value in the long run...hopefully.
What's your particular process for deciding YES, No or a Not yet?
Mike: We know founders are busy, and we know fundraising is generally a tedious process. When we engage with a founder, we try our hardest to get to a decision quickly, instead of dragging a founder through a drawn-out process.
Typically, it looks like this:
1. Review deck
2. Send any initial questions over email so we can hit the ground running on a first call
3. First call - 45 minutes - chance for the founder to sell the dream
4. Second 45 minute call with the wider pre-seed team to go deeper into the detail
5. Any clarifying questions over email
6. Discuss internally, pitch to our GP, Mark, and decide if we want a final call
7. Final call with Mark - decision to offer a term sheet within hours of the final call
What percentage do you actually invest in each year?
Mike: Broadly speaking, it's around 1% of the deals we see each year.
What is the biggest sticking point in getting a deal done? Is it valuation or other terms?
Mike: Once we've decided to invest, valuation is of course very important. A £3m vs £4m valuation for example, whilst not huge in absolute terms, majorly impacts the dynamics on what the company needs to achieve for us to get to that 100x return. It's balancing valuation from this perspective against dilution, traction, product stage and the team (i.e. a founder with a previous exit can command a higher valuation).
At pre-seed, the rest of our terms are pretty light touch to be honest. The most likely reason for losing a deal is another investor offering a better valuation or bringing more to the table in terms of specific sector experience.
We've also had a small number of deals blow up due to various SEIS related problems....stories for another day. The joys of being an SEIS fund!
As you know the SEIS criteria has changed. There's been big improvements on caps. What are your thoughts on this?
Mike: Yes it's huge news for Fuel and the rest of the early stage ecosystem. Long overdue - it means founders should be able to get to £250k much faster. The extra year and the higher gross assets cap is also interesting for us, hugely increasing the number of companies we can invest in. We can also take higher stakes in companies we really believe in.
Throwing in an unpopular perspective - is there a risk that angel investors and SEIS funds, now they can invest in later stages (and in theory, more de-risked companies) - will allocate less funding to pre-revenue, pre-product businesses? Will the 'traction bar' be set higher? Will that lead to valuation inflation? Rising tides, size of the pie etc etc probably stand true here, but I think one to watch out for.
What's the best thing about being a VC?
Mike: Getting to talk to, challenge and exchange ideas with people who are significantly smarter, grittier and more creative than I will ever be - on a daily basis.
Finally, any tips for founders out there looking to secure VC funding in the next 6-12 months?
Mike: 1. There is a lot about VC that is still broken. It's getting better, but it will take time. Fact is: a deck sent from another founder, investor or wider ecosystem partner is often going to get that extra few moments of consideration than one that comes in cold. When a VC sees thousands of decks a year, that extra moment can be really important.
Reach out to other founders in a VCs portfolio (almost always public information). Ask them about the process and the experience. Listen to them, take a genuine interest in their business. Talk through shared problems. A founder is going to be empathetic to the challenges of the raising process. If you can build rapport, it's likely they'll make an introduction here or there.
2. Make a Notion page that goes into more detail than the deck. Share the link as a quick follow up. Honestly, you'd be surprised at how many of the best founders do this.
3. Make the investor's job as easy as possible. Have a good looking deck with minimal jargon. Show me why your customers are going to be banging at your door for your product. Show me there are enough people out there willing to pay for it. Show me you can win. Give me a financial model that shows you deeply understand the commercials of building and scaling a business.
4. Make sure your round size is sensible. If you're pre-revenue, do you really need to be raising £1m? It's going to distort your valuation and likely show investors you don't know what you're doing. Show an investor that you have a specific reason for raising the amount you are. Build a strong narrative around the metrics and milestones you'll achieve with the funds, as that's what you'll be going out to investors with in the next round.
5. It's a numbers game at the end of the day - talk to as many potential relevant investors as you can. Hone your pitch and don't get disheartened when you get rejected. One or two yeses are all you need for a round to gain serious momentum.
If you found this interview interesting, you might want to go ahead and take a look at our other Experts Insights Interviews.