What is a Fund Looking for?

Interview with Richard Moore – Co Head of Investments – Calculus Capital

Calculus Capital has over 20 years’ experience investing in UK growth companies. Calculus works in partnership with investee companies, usually taking a seat on the board and providing advice on a strategic level – with the aim of realising the full potential of the business and its management. Calculus typically invests £1-3 million in fast growing businesses that are UK based or have significant UK operations. In this interview Richard Moore, who heads up the Calculus investment team alongside Alexander Crawford, takes a deeper dive into what a Fund is looking for from a potential investee company.

Assuming the initial pitch went well, what would a company expect thereafter?

The next stage is to progress to a term sheet. To do this a Fund will have provide data and to present on a number of different topics. These will be specific to the business, but they usually include –

  • Current and historical revenues
  • Product capability and roadmap
  • Sales capability and pipeline
  • Customers and contracts
  • Financial model
  • Long term vision

We will cover each of these topics in meetings with senior management. You should assume it will take 10 – 15 hours, or two working days, to work through all of the different areas.  However, the work will be spread over several sessions, usually over the course of a few weeks. We always try to get a term sheet issued to the company as quickly as possible, but in reality it depends on the speed with which we can obtain the data and the availability of management. The average time is two to five weeks.

Our term sheets are detailed, thoroughly considered and Investment Committee approved. Once past the term sheet stage we have a very high probability of completion.

Once the term sheet has been agreed we will engage third parties to undertake financial, legal and potentially technical and commercial due diligence. Our due diligence culminates in a detailed investment agreement including the terms of the investment and the key investor rights. This process can take a couple of months, during which time we will apply to HMRC for EIS and VCT Advance Assurance.

Post completion what does Calculus offer to an investee company?

The relationship is much more than just the provision of capital. It is vital that from the moment we invest in a company a value-creating partnership is formed, one that is built on mutual trust and respect. We will work closely with the company over a number of years, providing active support and input. We share our market knowledge and connections and use our in-depth experience to help mitigate risks and enhance value.

Are there any pet hates you and the investment team have?

There are quite a few! Top of the list would be:

  • Top down-market sizing – “If the population of the world is 8 billion….”
  • Telling us what our return will be – “Your fund’s cash-on-cash return will be 9x!”
  • Financial model with frozen links
  • Revenue that is not recurring presented as recurring
  • Competitive landscape presented as a grid (company raising funds is always “top right”)
  • Aggressive NDA processes
  • Pitch decks that are too long (20 pages is about right, we see some that are 80!)
  • Turning a page in a presentation and saying “we don’t really need to say anything on this page”
  • Assuming that because the model is built by a big a/c firm the forecasts are right

What would be your top tips for any founder?

Firstly, trust your team. Companies are founder driven, but the founder cannot do everything. Let team members present their own material and answer questions.

Also, the plan – and therefore the model – must make sense.  If you are looking to raise £3m, don’t show us a plan with cumulative cash burn of £1m.

The model is a key part of the sales pitch and a “shop window” for your company, make sure that you have it ready before you launch the process and that you understand it. The assumptions embedded within it must be ones you believe.

If any founders are looking at approaching Calculus for funding, what would be the initial steps?

We would be delighted to learn about your business and discuss whether Calculus could be a suitable investment partner. An initial email with a pitch deck is always a good place to start, this will then be assigned to a relevant team member who will be in touch.

You can email this to our Investment Team: [email protected]