Introducing Joe Knowles, Principal at Smedvig Capital | Inside the mind of a VC : How we work and what we look for!

At Smedvig Capital we lead investments in tech and tech-enabled businesses at Series A and Series B. Our approach is to act with conviction, backing 2-3 business a year, becoming a long-term, supportive partner to a focussed family of companies.

The Journey
The route from first meeting to term sheet is a continuous process of dialogue, data sharing, product demos and meetings with the senior team. The three main milestones are the “one-pager” where we discuss a summary of the business internally, the “multi-pager” where we discuss the investment proposal and the “IC Presentation” where the management team presents to our Investment Committee. We look to make an offer after that.

The fastest we could go from first meeting to term sheet would be 2–3 weeks, but it’s usually more like 4 weeks. Once a Term Sheet is signed the legals usually take another 3-4 weeks to close. In practice all the companies we’ve backed, we were building the relationship for 2-3 years before we invested.

What are my chances?
The best way to explain this is to share our deal flow funnel. We see 800 opportunities per year, from which we take 100 first meetings and offer roughly 5 term sheets. Of those, 2 -3 are accepted by founders and ultimately close.

What do we look for?
Smedvig evaluate companies against 6 areas:

  1. Team: Energetic founders who care deeply about what they are doing and have a strong desire to develop personally and hire and retain the best people
  2. Product differentiation: how real is the pain point / opportunity for the target customer and why is your solution a step-change better than alternatives?
  3. Product defensibility: what will stop others replicating your product?
  4. Market size: a large core market with upside opportunities in adjacent areas
  5. Growth: a good proxy for product-market and route-to-market fit, we care more about the quality, efficiency and sources of growth than the absolute number
  6. Business model and unit economics:
  • Product market fit = high organic + high win rate + low CAC + low churn + high NPS
  • Route to market fit = pipeline velocity + conversion + fast CAC payback
  • Long term profitability = high LTV:CAC
  • Lower cash need = fast CAC payback

For us, Series A is all about moving from proof of concept to product market fit, whilst Series B focuses on route to market fit. For product market fit we look for clearly defined, similar customers buying for consistent reasons and a clear articulation of why they chose you.

Tips for Fundraising

  1. Allow at least 6 months, you don’t want to be raising when you’re running out of cash
  2. Raise 50% more than you think you need and make sure you can demonstrate material progress before you need to raise again
  3. Continue talking to investors you like between rounds. Make sure they have good visibility of where you are so that they can make space for you in their deal flow pipeline
  4. Know inside out who your customers are, what they care about and why they chose you
  5. Choose your investor carefully, it could be a long partnership and you want a strong relationship with a VC who you trust and who will be there for the long run, through the ups and downs

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