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Starting a business can be tricky for many reasons, but finding funding stands out as a particular challenge. We speak to Niall McEvoy of Elkstone about signs that a start-up will be successful.
Perhaps one of the best metaphorical descriptions of what it’s like being a founder was written in a 2022 tweet by LinkedIn co-founder Reid Hoffman, who said that starting a company is like jumping off a cliff and assembling a plane on the way down.
Starting a company can be a dizzying experience: from pinning down a business idea and forming the right founding team to figuring out the target market and finding customers. But with high risk comes high reward, such as the chance to be the next Stripe or Intercom.
But one of the most challenging tasks in the early stages of a start-up is securing that initial investment to get the ball rolling – the fuel for that plane you just built, if you will.
“I’ve never met a founder that doesn’t have a vision. And I’ve never met a founder that does not have ambition – albeit sometimes it can be misplaced ambition,” Niall McEvoy of Elkstone told me in a recent interview. “But I’ve met plenty of founders that haven’t worked out what the execution plan is. And I think it’s really important for an investor to understand this.”
‘Assumptions need to stand up to scrutiny’
Formerly the head of Enterprise Ireland’s high-potential start-ups team in the ICT sector for seven years, McEvoy joined Elkstone – one of Ireland’s leading investment firms with a venture fund for early-stage start-ups – two years ago. Elkstone has been an early investor in Irish success stories such as Manna Drone Delivery, Flipdish and LetsGetChecked.
The firm has a €100m venture fund for high-potential Irish start-ups in the seed and pre-Series A stages, which is backed by the Ireland Strategic Investment Fund and Enterprise Ireland. Some recent investments include Zerve, Wellola, Jamango, Numra and Cytidel.
Despite the flurry of activity in Ireland’s tech start-up scene and its resilience amid downward macroeconomic trends, McEvoy recently told SiliconRepublic.com about the need for the Irish State to incentivise entrepreneurship and increase supports for early-stage companies.
‘A founder can tell the story like no hired hand can tell’
But when it comes to raising funding, what do venture capital investors look for in founders? McEvoy says the answer lies in a healthy mix of ambition, vision and a solid execution plan.
“Be on top of your subject matter and numbers. If you build a set of projections – they need to be based on key assumptions, and those assumptions need to stand up to scrutiny. Never just pick numbers out of the air,” he said.
“If we write the check, what do you do with the money? What is the actual execution pathway? Where are the key hurdles that need to be jumped? What are the challenges in getting over them? It’s being able to tie the vision and the ambition to the detail of execution.”
According to McEvoy, founders need to be able to convince investors that they are the right people to execute the business idea proposed.
“What is it in your background? What is it in your skillset? That will give us the belief that you talking the talk will be followed by walking the walk.”
Investors want to be able to see anywhere between 12 to 24 months into the future of the start-up from an execution perspective. More importantly, they want to be convinced the founder or founding team has the breadth of execution, experience and skills to see through the plan.
Founder – the first salesperson
The closest thing to a red flag for McEvoy when it comes to founders pitching to him is seeing empty spaces in a future organisation chart where prospective roles are left with only titles and no names of actual people who are set to fill those positions.
“If these are the first 10 hires you’re going to make in your business and if you’re talking to me or any investor and you don’t know who any of them are yet – that’s not good. You should know who at least the first three or four are and have discussions subject to getting funding with someone who has agreed to come on board when you’re ready to actually pay them a salary rather than just blank boxes with titles.”
But there’s one hire that McEvoy thinks is best avoided in the early stages of any start-up: sales.
“Founders need to be able to sell. There’s absolutely no doubt that getting to the first 1m or 2m in revenue in any business, for me, for the most part, will be founder-led sales. The founders are getting out there selling because they alone have the passion, the vision, the ambition – they can tell the story, like no hired hand can tell the story,” he said.
“Salespeople have a script – but you don’t have a script for the first few years. What you do have is a sceptical customer base who need a lot of convincing to deploy your technology or product in their business. Why would they take the risk on you? Only a founder will convince somebody to buy into the vision that they have for their business in the future.”
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