Ask Me Anythings
August 6, 2022

Drew O'Sullivan, Lead Equity Advisor for InterTradeIreland & MD of Serafina Capital

Drew is the Lead Equity Advisor for InterTradeIreland, Managing Director of Serafina Capital and is a Member of the Expert Jury on the European Innovation Council’s SME Instrument.

What do InterTradeIreland do and if there are any events/initiatives coming up startups should know about?

InterTradeIreland are a cross border body set up after Good Friday Agreement. They support trade by firms on both sides of island - whether supporting sales from NI to RoI or vice versa.  They have programmes and grants to support such sales activity. They also support innovation that is cross border. They also have a remit to support investor readiness for companies across the island (no need for the investment activity to necessarily be cross border). A significant focus on this investor readiness activity is for high growth, high potential startups - we cover this segment with SeedCorn, VC Conference, workshops and equity advice clinics. My role is mainly to deliver one to one equity advice clinics with startups looking to raise a seed round or series a round. I support the team on SeedCorn, VC Conference and co-lead our business planning and Seed Finance workshops. There is more info on the website.

What advice would you give our founders on how to ensure you get a follow-up meeting and ultimately funding. And how long should they spend on preparing their financial decks/projections before seeking funding.

To get a follow-up meeting - prepare well for the first. Sometimes best fundraise meetings are before you are actually asking for investment - the getting to know you and I'll be back when we are in fundraise mode. Whatever the deck says or the market opportunity, it is a people business and VC/Angels will be backing those teams they have had a chance to get to know. Pitch decks etc are great for preparing for a meeting but they may not be what the VC/Angel pays attention to - they simply are an aid for a conversation for the entrepreneur to tell the story. Research Angel/VC beforehand so you know what they invest in typically - scary how often this is poorly done. Once you are in fundraising campaign mode - try and get initial meetinsg with your top target vcs around same time, so you have best chance to have multiple options/termsheets to weigh up simultaneously

Is there a normal cash to equity ratio you are seeing at the very early stages? (eg. €500k for 20%) I think some founders struggle to benchmark what is good deal for their stage.

The issue on valuations is - raise locally, secure not a great valuation. Raise in UK or US, chances of higher valuation improve. Geography I believe is the single biggest determinant of seed valuation right now. The thing is - for most companies to raise in UK or US, they will need a base and network there (hence why international accelerators for Irish companies looking to raise seed rounds abroad are attractive). I think in EU and UK - ca 15% is expected to be given away for a seed round of ca EUR 1m. Saw these numbers in stats from 2020. In Ireland I think you are looking at closer o 25-30% including EI for a seed round. Personally I think 30% for a seed round is not great - most startups will need to raise a Seed+ round as well - so they end up giving away >40% to get ready for a Series A. And that in itself is not a great look for some SeriesA investors. In a nutshell combination of factors keeping local lower than abroad - not enough lead investors at seed stage is a biggie.

What equity management tools would you recommend?

I still use excel. SeedLegals is used a lot in UK by startups (but some of that is not only around legal agreements, and cap tables, but a functional options plan regime etc).

Recent figures show the number and value of deals in the 1-5m category is down significantly in Q2. Is it harder to raise at the moment and separately, can you give advice of giving equity to advisors who may be relevant and vital at the beginning but not long term?

I think the country is awash with money to go into startups, the issue is  we lack deal leads. The "awash" is a bit strong - but if Spark crowdfunding rounds always close (where many of the deals are not even offering EIIS, as they are CLNs or SAFE) and Elkstone Venure Club model is doing well - indicative that the money is out here, often irrespective of tax relief. What the market needs is lead investors at seed stage. Used to be seed funds (several years ago we had several active seed VCs - Delta, ACT, Kernel, Ent Equity, DBIC etc) - now couple of fund managers are doing less local Seed (eg FrontLine and ACT) understandably as they are mainly Series A funds with a seed component, not pure seed. Conundrum for EI to solve.

Equity to advisers. I'm okay with a corporate financier swapping fees for equiy in a round. Alternively for other investors, let them invest now, potentially at a discount. Alternaively options that vest over time. I do not like or think much of free equity.

Also - if it is harder to raise seed locally - this sounds harsh - look abroad for it. This EI mantra of starups which are international from day one - that can include approach to seed finance - paricularly if you cannot start without the third party capital and you believe you can make a justifiable case for it. The lead investor piece is critical - the diligence, legal and syndication process does not work well in this market. UK have some of the latter points licked with SeedLegals. And other angel networks, crowdfunding platforms etc It is underestimated how painful and unrewarding it is to lead rounds if you are not a professional paid VC.

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