Funding Readiness for Early Entrepreneurs: Key Insights

Last month, we hosted the December edition of CDI First Fridays, an event series designed to empower the UCL CDI community by bringing together experts from academia, industry, and funding bodies to discuss key topics and share valuable insights that fuel entrepreneurial growth. This time, we were honored to welcome a distinguished panel: Simon Hulme, Director of Entrepreneurship at UCL School of Management and serial entrepreneur; Itxaso Del Palacio Aguirre, General Partner at Notion and Associate Professor of Entrepreneurship at UCL School of Management; and John Spindler, General Partner at Twin Path Ventures. Together, they explored the crucial topic of "Funding Readiness for Early-Stage Entrepreneurs." The panel was expertly moderated by Koby Yogaretnam, Head of Programmes at Foundervine.

Here are the standout insights and expert advice shared during this high-impact discussion:

1. Understand Investor Expectations: Focus on Timing and Equity

Itxaso started the discussion by highlighting one of the biggest hurdles early-stage founders face: not knowing what investors are looking for. She emphasised the importance of asking questions to investors and understanding their expectations. A key piece of advice was to focus on when a venture capital (VC) fund was last closed. Early-stage startups have a higher likelihood of receiving funding in the first 3 years after a new fund is raised. There are many VC firms that struggle to raise new funds and the likelihood to get money from them is limited once they have deployed most of their capital – which happens during the first three years of the life of the fund.

Equally important is understanding the dynamics of equity. VC investors expect significant returns. It depends on the stage of the VC firm but normally VCs would look to return 2-5x their fund and therefore, they are looking to invest in companies that can contribute significantly to this overall return – VC call these investments “fund returners” as they look to return the whole fund in every single investment they do. In order to achieve this, they need to own a minimum of 15-20% of the companies they invest in, as otherwise they can’t return their whole fund with a single investment. If a founder is reluctant to give up that much equity in a single funding round, alternative funding sources like corporate investors, angel investors or family offices might be a better fit.

2. Make Your Pitch Stand Out by Showcasing Your Team’s Strengths

When asked about what separates a standard pitch from one that truly grabs attention, the panel was unanimous: the team. John emphasised that a pitch is more than a presentation—it’s a conversation starter, and investors are looking for expertise and credibility. At the pre-seed stage, investors often rely on signals, as hard data is sparse. Credibility is paramount.

Simon echoed John’s thoughts, stressing that credibility is key, and added that a founder's ability to respond to questions effectively is a major differentiator. Itxaso also agreed but pointed out that, by the time a startup reaches the venture capital stage, the quality of the team is often already assumed. What sets successful pitches apart at this stage, she said, is the ability to answer why this team is the right one to win.

3. Balance Equity and Compensation to Stay Motivated and Attract Investment

The topic of equity and valuation is always a concern for early-stage founders, and the panel offered some clear insights. Itxaso shared that founders should aim to maintain enough equity to stay motivated but also be careful not to underpay themselves. Striking the right balance in terms of compensation and ownership is essential for long-term success.

Simon provided a practical benchmark: angel investors typically value startups between £1 million and £7 million, with little room for negotiation. This gives early-stage entrepreneurs a clear sense of where they stand in terms of equity offers and valuation expectations.

4. Avoid Red Flags: Be Honest, Committed, and Responsible with Funds

The panel also shared some of the red flags they have seen in founders over the years. John stressed the importance of honesty, advising founders not to say what they think investors want to hear. Authenticity is crucial for building a successful partnership with investors. Simon highlighted the need for careful handling of funds, as he’s seen some founders not respect the responsibility that comes with managing investor money. Itxaso warned against founders who aren’t fully committed to the business, advising that it’s a red flag when a founder or co-founder isn’t working full-time on the venture.

5. Keep an Eye on Investment Trends: B2B and Risk-Taking are On the Rise

Itxaso discussed some emerging trends that are shaping the investment landscape. While AI is trending, not every startup needs to have AI as the main element of their product. Many companies are using AI within products that offer end-to-end solutions to their customers. So AI is not the end goal but an element of the product that is contributing to making the processes more efficient. In fact, B2B businesses are seeing an uptick in investment, a trend that signals a more diverse and dynamic investment market.

John pointed out that the IPO market in the US is on the rise, and falling inflation rates are improving the value of money, which could benefit early-stage entrepreneurs. Simon added that many founders underestimate how interest rates affect investment decisions. Lower rates create a more favorable environment for risk-taking, which can work in favour of early-stage startups seeking funding.

6. Embrace Resilience: Learn from Success Stories of Overcoming Challenges

The panel shared a few memorable success stories that highlighted the resilience needed to succeed in the startup world. John spoke about overcoming the inevitable “dark days” of entrepreneurship, reminding the audience that with enough conviction, any challenge can be turned around. Simon emphasised the importance of maintaining a solid balance sheet, which can be a lifesaver during tough times and make a startup more attractive to investors.

7. Prioritise Long-Term Success: Enjoy the Journey, Choose the Right Investors

As the session came to a close, each speaker offered their best piece of advice for early-stage founders. John’s advice was simple: enjoy the journey and stay passionate. Simon advised entrepreneurs to focus on long-term profitability, while Itxaso urged founders to carefully choose the right investors. She recommended doing thorough due diligence to understand how potential investors work with startups, ensuring that their values and vision align.

Join us at the next CDI First Friday event!

These invaluable insights from our expert panel provide early-stage entrepreneurs with essential knowledge and practical advice to navigate the challenges of funding and grow their ventures. A big thank you to Simon, Itxaso, John, and Koby for sharing their expertise and sparking such a dynamic discussion. We invite you to stay tuned for details about our next CDI First Fridays event, where we’ll continue to offer exciting opportunities to learn from industry leaders and fuel your entrepreneurial journey. Don’t miss out on these inspiring sessions designed to help you take your startup to the next level!