The Two Killers of Fund Raising: Expectation Mismatch and Inarticulation

Insight article by John O’Connell

Getting growth funding is never easy, but now it has become harder due to the economic downturn generally, tech valuations becoming lower as a result, and the knock-on destabilising impact of the Silicon Valley Bank specifically. 

In addition, in the UK there is a sense that an option to do an IPO – long held to be the ultimate mark of a business becoming mature and successful – is now ‘closed’. 

Ever the optimist, I think the above is part of a normal cycle of events and in due course, we will see more benign conditions in both the private and public markets – especially for my sector of tech. 

However, in the meantime, entrepreneurs with a tech business which has greater potential than they can exploit with current resources should not have to stand still.  They are needed to sustain the UK as the foremost growth engine in Europe in tech. * However other economies are coming up fast to challenge our leadership position. 

Yet there are still more ideas than ever get funded – despite there being an enormous amount of dry powder (unallocated venture capital) sitting there.* 

We at ScaleUp Group see two common obstacles to obtaining the Funding needed when needed:-

1. An Expectation  Mismatch
2. Inarticulation – the often endemic inability of super-smart entrepreneurs to articulate their proposition in an investor-friendly way.

Needless to say, we ensure both are sorted before we take on a client. 

1. An Expectation Mismatch

Currently, there is a misalignment even more than previously between public market valuations – many of which have been hammered- and what entrepreneurs expect in the private sector. 

In ‘normal times’ there is a discount of anything between 30%-60% on average, public to private. In other words, a 15x Annual Recurring Revenue of a quoted business would translate into say 10x or less for a private business in a similar sector. 

However, the current ‘expectation lag’ seems to have gone into reverse with leaders in the private sector not yet experiencing the cold shower of public valuations which have declined rapidly, sometimes ‘overnight’.

The cocooned world of the private sector – not having to face up to this reality – can be shattered on another Fundraise – if that is in the near future. The ‘holy grail’ of avoiding a down road may not be possible. 

In the recent past a multiple of 8-10x of Annual Recurring Revenue was a reasonable goal. Now we are seeing a halving of this to 4-5x. 

If you are an entrepreneur with a ‘window of opportunity’ now, waiting for better days to get funding is unrealistic. So, ensuring your financial requirements are properly calculated and time sensitive and looking at a combination of equity and debt can help to soften the dilution impact, as can, for instance, hitting milestones during the investment period to ease up the valuation in line with improved performance. 

These measures and others can make the ‘wakeup call’ less severe. 


Having a compelling proposition is still fundamental to attracting substantial, multi-million pounds, of growth funding and we at ScaleUp Group have a checklist to ensure our clients are investor ready – but now, more than ever, articulating your proposition in an investor-convincing way is vital. 

The transition from an audience of Friends, Family, and Angels to Institutions is always a challenge. The ‘Series A Chasm’ you might call it. Now it can become a matter of ‘life and death’ for businesses which have built their plans on attracting substantial funding to capitalise on their bravery and of their seed investors. 

Friendly chats with Funds over coffee no longer cut it (they rarely did in practice anyway). 

Series A Investors are still spoilt by being able to pick and choose a handful of companies from the hundreds or thousands of pitches they are getting. 

Tech entrepreneurs have to stand out from the crowd. Letting their offering speak for itself has never been good enough – it is, even more, the case now. 

You’ll get a few minutes to convince a professional investor to either spend time to find out more or not. 

Most entrepreneurs fail at that first hurdle- the failure rate is 99%+!  This is especially the case if they are first-timers. 

Even getting beyond that, simply appealing to just one Fund is not good enough. You and any fellow backers deserve to know that you have done all you can to test the market properly – not simply take the first offer (if lucky) that comes along. 

A Survey we did revealed the difference between offers could be many millions of pounds when in due course you come to realise your ‘life’s work’ by an exit or similar. 

So, conducting a proper process avoids a ‘financial health warning’ later. 

In the next edition, I’ll set out the essentials of what Series A investors need to know so that you attract an offer on the best possible terms. 

In the meantime
realise the world of tech valuations has changed significantly – to avoid an ‘Expectation Mismatch’
– professional help with describing your proposition succinctly to Funds is more important than ever,  as part of a well-orchestrated process- ducking the ‘Inarticulation’ pitfall. 

You’ll then avoid falling into the ‘Series A Chasm’, like the vast majority! 

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