“Show me the Money!” – What Investors are Looking for in a Tech Startup
Ahead of EIE this month, Deborah Magid of IBM Venture Capital Group, one of the investor panellists, shares her thoughts about what catches an investor’s eye when it comes to tech startups.
Will this be your first time at EIE?
I have been coming to EIE every year since the very beginning, when it was still a small event, with only around 150 people in a hall who were mainly from the UK. I was introduced to EIE by the person at IBM who handled our relationships with academia, as he thought I would be interested. It’s now so popular that people come from all over the world!
There is a reason I come back every year – everything about the event is extremely well done, from the way they coach the companies, right down to the small details, like the way the stands are designed!
Is it true that IBM Ventures doesn’t make direct investments?
We don’t generally make direct investments, but have on occasion for strategic reasons. Instead, I personally get involved in building relationships with angel investors and traditional venture capitalists, to learn where money is going in the market, and why. We in turn share insights about the technology needs of global enterprises, which then helps VCs support their companies and create investment strategy.
We meet with their portfolio companies, and if they are a good fit with IBM, we can explore ways to partner on various business activity. We also support mergers and acquisitions, so there is a lot of business generated from these relationships that extends beyond an equity stake.
Even though IBM doesn’t invest directly, you must know what investors are looking for in a tech startup?
Investors are looking for products that really work, talented teams with an expert understanding of their customers, and companies that have the ambition to grow quickly and achieve critical mass. We look for companies who want to become global businesses – we want to partner with companies who share our same global ambition. I’d say this is true of most investors.
I become enthusiastic when the founding team is talented and credible, experts in their field. You get a sense of excitement from certain people and it’s hard to put your finger on it – it’s often just a gut feeling.
Is the startup investment scene in the US different from the UK?
In my experience, startups in the UK are just as innovative. The main difference is the style of investment. Early rounds tend to be smaller in the UK, and the startups tend to have a different view of scaling up. There is a sense of “do anything” to reach scale and grow across US tech ecosystems. Sometimes this is great, and other times it causes issues as they reach levels of scale.
Their goals are lofty. This is not always the case, but I notice a different definition of growth in Europe. The ambition is just as strong but the approach between the US and the UK can differ.
For example, at EIE a few years ago, a European company told us during their pitch that they would create 1000 units of their product. I jumped up out of my seat to say, “Why not a million?” Their answer was that they didn’t have the capacity to do that yet. And I said, “You’re pitching in front of 300 investors – so tell us what you need!” This was their opportunity.
I do think it helps that there are now some very successful tech companies, like Skyscanner, coming out of Edinburgh, so that startups have real examples of what can be achieved if they think big.
Do you have something you are specifically looking for at EIE?
I’m mainly attending to meet people. Over the years I have met companies and angel investors, and today we’re doing business together. It’s a great place to get a sense of what is going on in Scotland and the UK and get a glimpse of the future. IBM has had a large presence in Scotland for many years – mainly manufacturing and hardware in the beginning, and now more software.
Visibility here helps people understand IBM’s business and spreads the word about our own ability to be innovative.
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What are your top tips for companies pitching at EIE?
A lot of companies spend too much time on the setup, talking about the problem that they’re trying to solve. The consequence is they don’t leave enough time to explain what they’re actually doing to solve the problem. I should never have to ask someone pitching, “what exactly is it that you do?”
You often speak about trends and disruptions in various industries – what’s on your radar just now?
AI is finding its way into a lot of products and every industry right now. Healthcare and automotive companies, for example, are using AI for everything from manufacturing to diagnostics to workforce management, but it needs to be applied carefully. My recommendation is to think critically about AI and really understand how, when and where it can improve your business – there are no shortages of opportunities. But avoid the hype.
Blockchain is also exciting, but we’re in the early days where we’re seeing implementations for the first time in many industries. The next 12-months are important for blockchain as many initial pilot implementations begin to yield real results.
As a successful woman in technology, do you have any tips for women at EIE who may just be starting out?
Women entrepreneurs must do the same as men in order to be successful – they must have a good team and a great product. That said, they’re also working against biases which can often be unconscious, and that sometimes includes their own. I’d encourage women to understand they are not constrained by their gender – they can do anything they want to do.