Why we decide we are an innovation advisory business seeking to provide innovative startup advice at cost and align on success
THE CORPORATE INVESTMENT TIMES
MAY 2020 | WORLD‘S TOP NEXTGEN INVESTMENT MAGAZINE
USHERING THE NEXTGEN
AFS is a innovation advisory business specializing in consulting services and execution for innovative small and medium enterprises or startups. One venue of raising capital for such clients is the Horizon 2020 initiative of the EU. The EU through its European Innovation Council provides grants of up to 2.5 million euro and equity investments of up to 15 million euro to accelerate innovations with sufficient technology readiness level and bring them to market.
In late 2019 we decided to offer our advisory services for innovative start-ups at cost and align our motivation with their success. I took this decision by chance without expecting COVID-19 global crisis that was to follow. The VC finance for start-ups, let alone innovative ones froze to virtually zero since the outburst of COVID. Pre-committed transactions were postponed or even cancelled. Our decision turned out to be lucky. The Horizon Accelerator programs remained a source of fresh cash for startups. Few other sources remained. Providing services at cost meant SMEs did not spend limited cash to access the program. They did not spend resources meant for the company. This was well-considered by the program.
We truly believe that we benefit a lot and that our clients gain even more and this yields a win-win partnership indeed.
First, our original was motivated by the wide-spread lack of liquidity at most of the small and medium enterprises striving to develop something meaningful and bring it to market. The more complex and challenging their initiative was the less cash they had. In addition, the more advanced in their development the more acute was the cash problem. Usually the last stages of a development are periods when the cash needs grow and exceed all the original estimated made by the entrepreneurs.
Second we were enchanted by the idea to attract a wide range of startups, at different stages of their development, with versatile sophistication of their approach and a ranging capacity. Our main goal was to engage early in the development process in order to add value and prevent most common mistakes. As a bonus, we would also assist and match SMEs to the most suitable funding sources whilst also leveraging our network of contacts in the family offices and HNWI segments. The most advanced startups get directed to the Accelerator programme, the VCs and institutional investors.
Third, creativity and enthusiasm does not necessary imply free-style management but they often come paired. Our experience shows that a lot of startups fail because of lack of discipline, process and systematic approach. Hence, we wanted to impose.
Fourth using the analytical framework of the EIC is a very good tool to form a systematic view, approach and process of running a startup. It also pushes the startup team to be market-centric and not tech-centric. The customer is the king and the source of cash. We make startups grasp the whole picture, not only what their innovation is about.
Fifth we pace the startups to work within a clear and realistic self-set time frame so that they progress towards the market as fast as possible.
We review the whole offering, check and assess its realism and RoI for each and every element in it. This is when it is better to postpone or leave out completely distracting, non-core goals. We also explain the importance and require that they set measurable objectives.
What are the characteristics of a successful investment proposal?
First the startup must possess the operational capacity to carry out the project and communicate it in effective way with facts, clues and signals.
The SME should demonstrate and provide convincing description of substantial demand and customer willingness to pay for the innovation. Evaluators particularly appreciate ideas that generate demand and have potential to create new markets.
In order to support the above, the proposal needs a credible description. The description must be of targeted users of the innovation. The proposal must address how it meets their needs together. The proposal must explain why the users identified will want to use or buy it. It must explain why they will want it over what is currently available, if anything at all is available.
Another must-have is a realistic and relevant analysis of market conditions and growth-rate, competitors and competitive offerings, key stakeholders, clear identification of opportunities for market introduction, market creation or disruption.
The proposal should feature all of the above against a realistic description. The description must be of how innovation can scale up the applicant’s organization. It must describe how it can scale up the business. The proposal should ideally support this with a strong business plan. The business plan should have a clear timeline. Financial data can complement it where possible. The business plan should include arguments to support the description. The proposal should demonstrate the team’s commitment with clues, signals, and where possible facts. Evaluators highly appreciate proven commercial and management experience, including understanding of the financial and organizational requirements for successful execution and scaling up of the project and business.
A key part of a successful proposal is a realistic and relevant strategic plan for commercialisation, including approximate time-to market or deployment. The proposal should discuss activities that will undertake after the project to make it long-term sustainable in support of the overall go to market strategy.
In order to increase realism and sustainability, the proposal must ensure freedom to operate the innovation. The proposal should communicate a well-developed knowledge protection strategy. It should include current patent protection filing status. It should also include know-how ownership issues. The proposal should also communicate any licensing issues.
Statistics show that high-risk/high-potential innovation idea projects that have something unique that nobody else has usually score highest. Ideally the innovation should be better and significantly different to any alternative. Evaluators particularly highly value game-changing ideas or breakthrough innovations. This high degree of novelty comes with a high chance of either success or failure and there is no downside in clearly stating that. On the contrary this is exactly the type of projects that get support from the programme.
The proposal needs a realistic description of the current stage. A clear outline of steps to take it to market is also needed. Providing these helps show the plan’s success chance and realism. It also demonstrates the experience level of execution people objectively. Especially the top management of the project need their experience shown. Their experience and maturity must be demonstrated.
Characteristics that score high include a highly innovative solution. The solution should go beyond the current state of the art. It should be compared to existing ones. This includes comparisons based on costs and ease of use. Other relevant features include climate impact. The gender dimension is another relevant feature. Any other benefits for society are also relevant features.
The proposal should also make sure that its objectives as well as its approach and activities are consistent with the expected impact in terms of commercialisation or deployment resulting in company growth. Project outcome should also relate to measurement indicators and criteria for success.
The proposal should demonstrate the availability of resources required, including human, facilities, and networks, to develop project activities in the most suitable conditions that evaluators also consider.
Finally, the proposal should address all of the above points in a mutually compatible and reinforcing way, eliminating any conflicts between them or explaining them.
At AFS, we are passionate about fostering innovation and empowering ambitious minds to flourish. Our mission is to provide best-in-class financial services for traditional and crypto deals, exploit European grants, and use quantitative methods to improve clients’ performance. We aim to help our customers unlock their full business potential.
Are you looking to fund your next venture or unlock grant opportunities?
Contact us at [email protected]!