So where did it all begin?

Like all good business stories, ours began in the Caribbean – almost exactly ten years ago.  I was a Lead Chemical Engineer working for an oil and gas company. It wasn’t what I dreamed of growing up – when it came to choosing a career, I simply Googled ‘best-paid jobs’ and picked one. The novelty of that, and being stranded on a mega-hot island, soon wore off, though.

Likewise, the constant barrage of North American fantasy sports betting ads. But, being a fantasy football geek and a keen mathlete, I got sucked in – and thought there was a gap in the market back home. Alongside three university mates, we founded a company, hired software developers, secured investment… and realised that the biggest ‘fantasy’ in this game was profit. So we decided to pivot. 

Was it an easy decision to pivot the business?

The long and short of it is no. It was a huge decision, but you should never shy away from being bold as a founder.

We’d made viral apps, which had reached the top of the UK download charts, so we knew we could make engaging products. We turned our pay-to-play fantasy game into a free-to-play engagement game, creating a suite of complimentary products like score predictors. This took us from B2C to B2B and allowed us to focus on what we were best at – the product and technology, rather than driving traffic.  

We started selling our products to Tier 3 gambling operators. I blinked and, now, I’m proud to say that we are the number one supplier in the industry, with clients including Bet365, Fan Duel, Betway, Dafabet, Live Score and Virgin Bet. 
 

What more could the ecosystem be doing to support businesses like Incentive Games?

We are fortunate in that we found good advisors. Having a trusted advisor in Shepherd and Wedderburn has been key to our success. They have supported us for several years. One of their partners mentored us, giving us stellar advice and even the use of their meeting spaces (with a great view) in London. It may seem like something small, but the use of meeting rooms allowed us to have a presence in London at the time we needed it most. We need more of the business community to open up their doors, and time, to early-stage businesses in order to really move from a start-up to a scale-up nation.

How did you find raising your first investment round in Scotland?

Raising my first investment round was definitely challenging as it was early in lockdown. There was uncertainty and it is more difficult to gauge audience interest when you can’t see them. Online video conferencing did make it easier to join angel syndicates from Scotland and England. We’re very happy to be supported by three fantastic groups – Angel Academe, Investing Women and Cambridge Capital.
 

What advice would you pass on to other founders embarking on their first finance round?

Start early, meet with lots of investors and ensure you have good lawyers!
 

What qualities did you look for in your investors?

A good network of industry connections, sector and investment experience and the capacity to devote their time to help Cytochroma grow. Investing Women have been brilliant, they provided online trade missions to Germany and California and a variety of mentoring and workshops throughout lockdown. Angel Academe are great at promoting founders' success, have provided lots of quality advice and been really supportive. It’s great to know you have a team of people who believe in you and the company.
 

How has the investment transformed your business?

Our first round of investment was critical in our success. We’ve leveraged the seed funding to secure a large Innovative UK grant. Bringing our non-dilutive funding to around £1 million. The most recent grant to manufacture ethnically diverse mini-hearts has effectively doubled our product offering. We’ve also grown the team to six and expanded our facilities at Roslin Innovation Centre. We’ve transformed operations, capacity and funding has enabled me to focus more on business development which has been a new and enjoyable challenge.
 

What more could the business ecosystem do to support founders like you?

In-person events are important to early stage companies to support, advise and inspire new entrepreneurs. It's been great to see others succeed and to support each other again!

I think Scotland needs to do more to support growing life science businesses. We need larger funds if we are to keep business here, it's disheartening to think we have to move elsewhere to get the support we need. Visiting investors in the US this summer made me realise we are on a different scale from them and we must do more to compete.

Scotland’s business ecosystem is great for supporting businesses early on but must do more to support Scottish talent and retain companies as they grow to ensure we don't lose them to countries that offer more support.

What is the top tip you would you give to founders?

Validation is key! The difference between a nice project and a strong business is customers. So engage early with potential customers, listen to the problems they have and develop a deep understanding of the issues that are important to them.

How important is it to have the right foundations in place for scaling?

The wise man built his house upon a rock. Scaling a company is difficult, but you are making things much more difficult for yourself if you don’t have clear evidence that you are solving problems for your customers and a strong team in place to develop and deliver your solution. 

With these strong foundations in place, I have seen many companies make much faster progress.

What more could the business community do to help our scale-ups?

This is a difficult question! They do say it takes a village to raise a child and there are many parallels when building scale-ups. 

We carried out some research which showed that our most likely entrepreneurs know more than five other entrepreneurs, so I feel that the more we can see and learn from others’ scale-up journeys, the better the chance of other founders understanding what is required and believing they can do it.

What support do Edinburgh Innovations offer to start-ups?

As the University’s commercialisation service, we have a pipeline of support that can take people through their entrepreneurial journey from idea to impact – from basics, to builder, to support, financial and otherwise, as the company grows. 

For instance, our Data Driven Entrepreneurship programme provides funding, education, incubation space, venture building and acceleration support. We run competitions such as the Summer Accelerator and Power Her Up for female founders. 

The University’s in-house investment team has its own venture capital fund, Old College Capital, to provide seed funding, and manages the University’s portfolio as it grows, leveraging investment and sometimes reinvesting at a later stage.

Entrepreneurship can be lonely, so we have an online community students can access at all times. Now that we’re back in person, we have a physical enterprise hub too, and lots of networking events.

How can advisors play their part in supporting our entrepreneurs?

The entrepreneurs we support at the University of Edinburgh are bright, enthusiastic and capable fast learners. But the majority of them have never started a company before. Advisors have a key role to play helping founders navigate as smoothly as possible through the many pitfalls they may face.

How attractive is the UK tech sector to international investors?

In recent years, we have seen an increased amount of international funding being invested in the UK Tech sector. 

GP Bullhound’s Titans of Tech report released in 2022 highlighted that UK tech companies raised over $25bn in 2021 and the first two quarters of 2022 – which is the highest of any European country – and the amount of funding coming from foreign investors is increasing each year.  

Many of the top US growth funds now have dedicated offices and teams based in the UK and are actively looking to deploy capital, which highlights the quality of the companies which are being created and built in the UK. 

How is GP Bullhound finding the market for tech deals currently?

Coming off the back of record high activity in 2021, the market has slowed slightly in the past 6 months as the turbulence in the public markets has filtered through to the private markets. 

Therefore we expect the total number of deals completed in 2022 to be lower than 2021, but as VC & PE firms have all-time high levels of dry powder in need of deployment the deals market certainly won’t grind to a halt. 

It has been well documented that valuations have contracted recently, however for high quality assets valuation levels are stable – and in some cases they are increasing due to increased competition amongst investors to secure best in class companies. 

What more could we do to support our tech scale-ups?

In the past few years there has been a vast improvement in support available to scale-ups, ranging from governmental support (such as the tech visa scheme) to mentorship programmes, however these resources are not always clearly signposted to all founders – therefore we need to find a way to signpost the support available to those who need it. 

How important are market square events (such as the GP Bullhound Titans of Tech) events to the tech ecosystem?

Vital, entrepreneurship can be a lonely journey and therefore networking with other entrepreneurs at events can be extremely helpful. 

There are many challenges faced by entrepreneurs which are the same regardless of sector – such as dealing with difficult shareholders, raising investment, or entering new markets. Therefore, events provide the opportunity to learn from others who have already faced these challenges. 

The Titans of Tech brings together the entire ecosystem, it offers the chance for entrepreneurs to meet investors (and vice versa) and also for entrepreneurs from earlier stage companies to gain inspiration from those who have already scaled businesses successfully.

What bit of advice would you give to first-time entrepreneurs?

Identify your weaknesses and surround yourself with a core 
group of people who are experienced in those areas who you trust to give you honest feedback and guidance – not just yes men and woman who will tell you what you want to hear. 

What do investors look for when considering investing in scale ups?

Every investor has their own set of criteria which they apply when reviewing investment opportunities, there is no one-size fits all approach. However, there are certain factors almost all investors will consider:

Management team
The people behind a scale up business are hugely important, and a strong management team is a key criteria for any investor. Investors want to support teams that are credible, passionate and that they can build a relationship with.

Finances and business plan
Your business plan and projections should be ambitious and demonstrate how your business will grow but should be based on assumptions that you can support. Investors will be put off by a vague business plan with assumptions that aren’t realistic.

Market
Investors prefer businesses that operate in markets with significant growth opportunities. It is 
important for your product or service to fit well within the relevant market to ensure that it is competitive, can scale and solves a real problem.
 

What is your top tip for founders embarking on the investment trail?

The earlier you can start preparing for a fundraise the better, the process usually takes longer than expected! It is also important to be aware of your cash runway to prevent placing yourself and the business under unnecessary pressure. Engaging with a business advisor may seem like an unnecessary cost but they can help save you time and money and minimise distractions from running your company day-to-day.
 

How do you choose the right funding partner for your business?

Choosing an investor is about more than just the money or getting the highest valuation. Receiving investment is like entering into a partnership, you need to be able to work together as it is likely that any investor will be involved with your business for an extended period. An investor needs to be the right fit for the company and both parties need to have a shared vision for driving the business forward and maximising value.

How do you choose the right remote workers to join the team?

Remote work suits people who are confident in how they work best, are very clear in communication and see value in providing feedback early and often.  It can be a lonely existence, so testing for an awareness of how they see the relationship with their colleagues, with work and also socially goes a long way to making sure you’re bringing someone on who understands not just the benefits, but the challenges of remote work.
 

How can you have confidence in a remote team getting the work done?

Fundamentally it’s about trust and often I find people who ask this question mask the remote aspect for a lack of trust. 
Just because someone comes into an office doesn’t mean they’re getting their work done. 

A manager should have an understanding of what done looks like and be able to tell if someone is performing or not based on the work itself, not where someone 
did it.
 

What can be put in place to give remote teams the best chance at success?

Thinking through processes and rituals is important to make any business productive, but remote especially so. 
If one member of a meeting is remote, everyone should be ‘remote’, i.e everyone should be on separate connections during zoom calls, even if they’re in the same room. 

Decision-making should have clear processes – for us, ‘if it wasn’t on Slack, it didn’t happen’ to encourage everyone to write up decisions, even if they were made in person.
 

Have you found any particular advantages working with a remote team over more traditional in-office teams?

The flexibility is extremely beneficial and often leads to more happy team members. 
Expanding our talent pool to be highly specific to global timezone-ranges rather than local lets us hire faster, reduce office cost and also do much better asynchronous work.

At what stage of building a company should you be considering an exit strategy, if at all?

As early as possible. The type of business you are building will dictate the likely exit route, lifestyle businesses are more difficult to “exit” and high growth venture backed businesses are put on a conveyor belt to get to an exit.  The quicker you know what type of business you want to build, the quicker you can start thinking about your exit strategy, which ensures you put in the foundations to make it easier to exit when the time comes.  

How do you know it is the right time to sell your business?

There are two parts to that problem, the first being are you ready to sell and the second being is the market ready to buy. As a founder you need to be ready to let go of your baby and you need a team and the foundations in place to be able to successfully complete a transaction. If the market you are in is getting bigger and it attracts larger more established competitors to enter into it, you may find there is a window of opportunity to exit before the market gets hyper competitive.

The market typically tells you when you can exit, competitors being bought, inbound interest and strong growth rates across the market. Trying to sell when the market isn’t ready is like pushing water up a hill.

Are there any common mistakes founders make when it comes to selling a company?

Underestimating the time and resource it takes to complete a successful process. If you are not set up with the appropriate resource and skills to run the company and run the process in parallel, then both will suffer. Not having the right advisors from legal, finance and investment banking is a common mistake. It is better to get the best you can afford than trying to do it on the cheap.

What advice would you give other founders who may be considering selling their company?

Make sure you are really ready to sell, both from an individual perspective and from a team perspective. If you don’t have strong foundations in place and you don’t have good corporate hygiene, then it will be difficult to get a good outcome.

What advice more generally would you give to first-time entrepreneurs?

Don’t give up. If in doubt, be bold. Remember, experience is the thing you get just after you really needed it.

Valuation is often said to be an art, but what would you say a normal valuation process should look like?

Valuation of any asset is really about benchmarking to the market. With businesses, you are trying to find valuation data on comparable companies (“comparables” or “comps”) that have undergone a transaction recently. 

In its simplest form, you are looking at the multiple of profit that was paid for each of the comps, then calculating the median or mean multiple from your sample and applying it to the profits of the business you are valuing. This becomes trickier when the company you are valuing is not profitable (which is the usual case with companies seeking venture funding) – in these cases, people often default to revenue, rather than profit, multiples. For businesses that are pre-revenue, more creativity is needed. Some experts favour discounted cashflow (DCF) models, which predict the future cashflows of a business, then discount them back to arrive at a present-day valuation.

Being armed with this data helps your valuation argument but it is a basis for a negotiation. Ultimately, the price paid will depend on how attractive the asset is in the eyes of the buyer and how much competition there is for the asset. Anyone who has ever sold a house will understand this.

What are the key variables in valuing a private company?

Going back to the most straightforward method of valuing a company – the multiples based approach – the multiple chosen will vary depending on a number of factors. 

For example, different industries tend to be valued at different multiples due to perceived quality of earnings. For example, software companies with recurring revenues will, in general, be more highly-prized than hardware businesses with one-off sales. 

Another variable is size – all other things being equal, a larger business will typically attract a higher multiple than its smaller counterpart, the consensus being that size makes a company less risky.

Growth will also impact pricing. High growth businesses can attract elevated multiples as, if the growth is sustainable, the profits will “grow into” the multiple. In other words, whilst the price may look initially high as a multiple of profits, this multiple will appear more modest on a forward-looking view.

What trends are you seeing in valuations for scale ups in the UK just now?

We are seeing valuations contracting but not to the same extent as the public companies. The trend that is more indicative of the health of scale ups is the number of deals and quantum of funding being invested in this area. On this measure, the picture is bleak – the last quarter saw Series B+ (investments of £10 million and over in scale-ups) funding shrink by 66%.

What does Mark to Market do and how could it help founders?

MarktoMarket is a data platform with rich intelligence on private companies, particularly SMEs and start-ups. It helps advisers and investors identify, research, value and connect with businesses.