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Meet the dealmakers: what do they actually do?
The people connecting investors and founders around the UK
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Now we’re into August when many founders pause their fundraising efforts, we’re pausing our startup profiles too and bringing you some different kinds of pieces focusing on the early-stage startup space.
Today: we look at what it means to be a ‘dealmaker’: a term that it turns out can mean a bunch of different things but with some common traits.
London-based Beyond Work is a new startup chaired by Tradeshift founder and CEO Christian Lanng (if you’re old-ish like me, you’ll remember when Tradeshift was a hot new startup at the tail end of the ‘00s). This morning they’ve announced a rather chunky $2.5 million pre-seed raise led by Moonfire Ventures. They’re currently testing something secretive involving large language model tech for the enterprise market 🤔
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Meet the people who help make deals happen across the UK
It’s something you see a lot in the startup world: people describing themselves as ‘dealmakers’. On the surface, it’s simple term to explain: a dealmaker is someone who connects investors to startups and helps make deals happen.
But dig a little deeper and dealmakers take a bunch of different forms. Over the past week I’ve talked to a range of people who either self-identify, or have been described to me, as dealmakers. I wanted to find out what they do, and why.
This is in no way a comprehensive list, but it shows the variety of approaches out there to make better sense of what it means to be a ‘dealmaker’ in the UK.
The networks helping angels sing
One of most organised and visible types of dealmaker comes in the form of those who run groups designed to bring angels together. These are often very small organisations run by no more than an handful of people.
The group brings together high net worth angel investors in the South East of England. “They come from totally different backgrounds but most of them are exited entrepreneurs who are now looking to support the next generation of founders,” says Pereckaite.
South East Angels sources startups to put in front of the angels, who then individually decide if they want to invest. There’s a membership fee for angels to take part and a success fee for startups who land investment.
Pereckaite says membership fees are the organisation’s core revenue stream as success fees wouldn’t be a viable business model. But that doesn’t mean there aren’t investments taking place. South East Angels recently announced that it has surpassed £1 million in investments into startups since it was founded in November 2020.
The organisation looks for UK (ideally South East)-based startups raising less than £2 million. The startups it picks reflect the interests of the angels in its membership, although Pereckaite says these interests change over time as different people join and trends in tech evolve.
Pereckaite founded the organisation after running an accelerator in Brighton and realising how dependent startups in the region were on London. And while she’s seen a shift in investor behaviour since the heady days of pandemic-driven investment fever a couple of years ago, she says VCs have been more affected than angels in scaling back their investments.
“Individual angels still have that same pot of money, and they still have the same amount of tax that they want to offset. So angels are still investing pretty much the same amounts, but they are more diligent about the evaluation process.”
Meanwhile, across the country on Merseyside, the LCR Angel Network is fulfilling a similar role in the Liverpool City Region.
Director Katie Nicholson previously built an angel network on the Isle of Man, and was appointed to run the LCR Angel Network in May this year. It was founded in 2018 by MSIF, Brabners, and Grant Thornton, and last year received £1 million in regional development funding to help support economic growth.
Rather than just offer the traditional pitch events and dinners that networks like this tend to hold, Nicholson is working towards launching an online platform to connect investors with startups. But she says they would still hold events to enable more direct contact between both sides.
LCR Angel Network has until now operated on a pro bono basis. Nicholson says this will continue for now thanks to the recent funding, but membership fees for angels are on the roadmap for the future.
The network looks for tech or tech-enabled startups, ideally based in the Liverpool City Region and looking to raise up to £1 million.
Nicholson names smart home energy management startup Heatio’s £560,000 seed round as an example of the impact the network can make.
Take a trip upriver from Liverpool and you’ll eventually reach Manchester, where tech-focused investment bank GP Bullhound and property company Bruntwood launched Manchester Angels last year with a similar remit.
Manchester Angels is a not-for-profit organisation that only charges a commitment fee to angels. Investor partners Octopus, Northern Gritstone, Praetura, and HSBC Innovation Banking contribute to the funding of the organisation.
David Levine, who runs the organisation says it–unsurprisingly–focuses on helping Manchester-based tech startups businesses, unless they’re introduced by angels in the group. He says they’re looking for companies with a good, defensible moat that are looking to raise less than £1 million at a post-money valuation of less than £5 million.
“[The angels are] a group of 36 exited tech entrepreneurs who have capital to deploy but also time to spend with businesses, which is much more important than money,” says Levine.
“I think people who have spent years making tons and tons of mistakes helping to shine a light on those rabbit holes before a founder falls in them is brilliant. Taking £200,000 from an angel who is quiet is not the same as taking £100,000 to £150,000 from an angel who is involved and engaged. It’s a force multiplier.”
But that’s not all Levine is involved with…
Dealmaking as a service
Outside his work with Manchester Angels, David Levine has carved out a role for himself helping a broader range of startups raise funding.
He says that in the last three months, he’s closed four deals, including a $3.5 million raise for Y Combinator alum Versori (who you first saw here at PreSeed Now last summer) which he says was completed from start to finish in six days.
Levine’s business takes the lead on investor outreach but doesn’t pitch on startups’ behalf. Understandably, investors want to see and hear from founders themselves. Levine will act as a backchannel between both parties throughout negotiations where needed.
Part of Levine’s process for improving startups’ chances of raising is helping them firm up things like market sizing, messaging, and market proposition.
In addition to his existing contacts, Levine says he has a research team that works to find the right potential investors around the world for each startup he works with. This is because he believes successful fundraising is a numbers game:
“If you start with five investors at the top of your funnel, you'll end up with one or two at most at the bottom of your funnel, which gives each of those investors oversized negotiating leverage in the round.
“As a startup in this market, no matter how good you are, you need to be reaching out to 50, 75, 100 investors at a time… but personalised. Just reaching out by email isn’t going to work. You need to think about what is the key message? What is it about that investor, in terms of previous investments, or what are they talking about publicly, or how is their thesis put together? How are they constructing their portfolio?”
Some investors believe startups should do all of their fundraising themselves. Levine’s pitch is that just as a startup will bring on additional expertise in fields like marketing as they grow, bringing in an expert in fundraising helps founders focus on their core role of growing their business.
Levine charges startups a success fee rather than a retainer, a move he believes helps demonstrate his value.
“That shows that we have a vested interest only in the business getting funded with the right funder. If we're successful, the business is successful, but clearly that means that we're very, very picky about the businesses we work with.”
The co-investing dealmaker
Tim Dempsey is perhaps the first person I ever came across who described himself as a dealmaker. Based in Manchester, he’s been involved in a lot of funding rounds across Europe since 2007.
In that time, Dempsey has seen his role evolve from simply introducing founders to the very few investors there were at the time, to supporting the fundraising process when there were more investors. Now with more investors than ever, his role has become about taking charge of the fundraising process so busy founders can get on with what they do best.
Dempsey says he personally invests in the startups he works with. “I believe it's important to be on the same page and to have the same goals, and that alignment is irreplaceable,” he explains.
“A lot of corporate finance advisors will invest, but at a discount, with warrants or things like that. I just don't think that's fair; it's not alignment either. So I invest on the same terms as incoming investors. I mainly work to bring institutional investors to the table, but I do have a small angel syndicate of my own that I always invest alongside as well, again for alignment.
“I know a lot of people who will just take fees and go away and live off them. That might be a function of someone's own financial situation, but I think having that alignment also allows the investors that I bring in to say ‘Tim's in and we can see that he's not screwing us because he'd be screwing himself as well.’”
Doing what needs to be done
If there’s a need in the market but no clearly profitable business model to satisfy it, some entrepreneurs will just walk away. Others will do it anyway, just for the satisfaction of seeing that need filled.
Leeds-based Bateman noticed how not only were regional startups in the UK overly reliant on London for investment, but London-based investors that wanted to reach out to the regions struggled to find the best startups outside the M25.
Thus he created a non-commercial company to solve the problem and make connections that help deals happen.
“On a daily basis we'll get a number of inquiries where companies are looking for funding, or funds are looking for dealflow,” says Bateman. He adds that often Investor Ladder needs to do some work with startups to ensure they’re investor ready.
Investor Ladder generates some revenue through event sponsorships but it is very much something that exists to solve a problem than to make a profit.
“It's what my wife calls my expensive hobby,” says Bateman. “If it was looked at as a commercial business, it wouldn't be profitable or viable. It's just because it needed to happen.”
Bateman admits Investor Ladder is not entirely an altruistic endeavour. A better investment landscape in the UK outside London means more opportunities for his consultancy business, and being able to connect startups with investors lends credibility to his main business.
Now 10 years old (although it’s only five years since it received a name), Investor Ladder held its biggest event to date in Leeds earlier this year, Climb 23, which was well received and featured a roundtable and on-stage appearance from PreSeed Now.
Climb 24 is already planned for June 2024.
Building an ecosystem
Dealmakers in a mature ecosystem have a very different role to those in ecosystems that are at an earlier stage.
For example, in Lancaster, Rory Southworth works for Lancashire County Council with an ecosystem development remit.
In addition to overseeing the Fraser House co-working space, which acts as a hub for local tech companies, he runs a programme designed to connect startups with investors.
“Lancashire’s tech ecosystem is nowhere near what Manchester's network is. We have an angel network–it's small but it's growing–and we do have a number of businesses that have taken VC and we’re in touch with funds all the time. But it's a lot smaller - it's a lot more in its infancy in some ways,” Southworth explains.
So the FHundED programme works to attract investors from around the UK to Lancaster so they can see what it has to offer. And there are deals happening in the city. Southworth says companies based in Fraser House have received in total around £15.4 million in pre-seed to series A investment to date.
Unlike other dealmakers included in this article, Southworth’s public sector role means that while he connects founders and investors, it’s purely from a neutral point of view.
Often, public sector involvement in tech can have a slightly out-of-touch air. It doesn’t fully engage with the wider industry and views everything through a lens of budgets and short-term KPIs that end up selling local companies short.
Just consider every local politician who has talked about building ‘the next Silicon Valley’ in their small town, much to the eye-rolling of anyone who knows anything about the tech industry.
But Southworth doesn’t come across like that.
“I do have my own business that I run on top of this, in the digital marketing content creation sector. So I'm running what I run as if it was a business, because that's what I know, that's what I'm comfortable with, and that's what I do.
“I think sometimes you come across some stuff that doesn't come from a commercially minded viewpoint, and I'm a big fan of commercially driven activity from an economic development point of view… I think it's got to be something that is benefiting everyone financially.”
What makes a good dealmaker?
Do you like the idea of becoming a dealmaker? I asked some of the people I spoke to for this article what qualities a good dealmaker needs.
Kristina Pereckaite of South East Angels has some advice that applies to all the different types of dealmakers we’ve covered above.
“You're going to deal with so many different characters on the founder side. You're going to deal with young founders, experienced founders, people from all walks of life; and you need to get a lot out of them. You need to be able to challenge them. You need to be able to get all your questions answered.
So you need to be somebody that can be direct and challenge somebody without letting your ego get in the way, because you're trying to assess the company in a really open minded way.
It's about being able to like get the best out of somebody else, and being able to talk to any type of person with any level of experience and be able to extract the core information from them.
If you haven't experienced that before, it can it can feel quite intimidating for some people to have to speak to all these different founders and challenge them. I think it can be quite tough. It’s a soft skill of being able to connect with any level of person.
Tim Dempsey offers some advice if you’re thinking of getting into the more hands-on deal support and advisory side:
I don't think you can be an accountant and I don't think can be a lawyer but you have to be a bit of both. From the start, it's about being aware of the tax issues. Not advising on them, but just being aware of them and signposting.
It's also about being aware of the legal control issues. It's very easy to jump into a situation where the cap table’s messed up and you think ‘okay, I can deal with that’. And actually, you can't, it's stuck. Or it looks like it’s stuck but there's a simple solution with something like growth shares. You'd be surprised at how many normal situations create complex cap table issues.
I think the reason why I've stuck with this for a long time is I'm genuinely fascinated by business and entrepreneurs.
Also, I wouldn't necessarily classify myself as being interested particularly in, or have any particular predispositions about, about where technology is going. I don't really know where A.I. is going. I don't really know where the future of health is going. But I do observe what happens now.
So I can see a little bit into the future, but I'm not one of the people who can predict 20 or 30 years from now what frontier tech is going to do, and I think that's fine, because this is how the venture world works as well.
I think also you need to get an understanding of the fact that the world is a big place. Often I find myself injecting ambition onto founders who say ‘we've tried raising money and we're just going to bootstrap’. But they’ve not really tried raising money and they've got a fabulous product.
They’ve got a big vision there, and they know that, and they can articulate that, but they're constrained by what they feel the market is, or they've tried something and it didn't quite work. But their problem may be they didn't try to explain their big vision in a way that venture understands.
Injecting that is quite important, so I think you have to be a good coach as well.
This wasn’t meant to be a comprehensive list of dealmakers, and I know we missed out some good ones. If you know someone we should have included, drop me a line and let me know.
That’s all for this edition
PreSeed Now normally publishes an in-depth profile of a different early-stage UK B2B or deep tech startup every Tuesday and Thursday.
This August, we’re publishing weekly feature pieces like today’s edition instead before we go back to startup profiles from the beginning of September. In the meantime, our Startup Tracker is there to keep you up to date about developments from the 100+ startups we’ve already profiled.
We’ll be back with our next feature piece next week.