RSS feedsIain Hawthorn
Professionals specialist, HSBC
Raising second-round investment is about having proved the concept, demonstrating a robust business model and that a clear market opportunity exists for an investor to obtain a good return on their money.
Richard has done everything correctly so far in building the business, using his own cash resources and bringing in a top UK fitness expert to build credibility around the company. He has correctly identified that an angel investor is the next step in fundraising. They will be attracted to a strong management team and partnerships held with larger brands or organisations that present a clear route to market.
The corporate market should be tapped for its growing demand for employee
wellbeing programmes, but it’s not an easy sell. Most business failures are a
result of running out of cash and care must be exercised that fixed costs are
not ‘burning’ it at an unsustainable rate before the revenues come on-stream.
An average angel investment is between £50k and £250k and the investor will be
looking for an exit within five years; achieving a 25% to 40% rate of return on
their funds.
By focusing on the benefits of their product to their target market,
VirtualGym can gain a
good brand awareness and competitive advantage.
Niraj Patel
Assistant director, Saffrey Champness
VirtualGym TV is tapping
into two visible cultural trends ñ increasing penetration of new media through
‘on-demand’ internet services and people’s heightened awareness of the
importance of exercise in maintaining healthy lifestyles.
Richard is in a position to rapidly penetrate these factors. He appears to have ‘first-mover’ advantage and now needs to progress quickly, as his business model appears to offer few barriers to entry to potential competitors. But with additional investment and targeted marketing spend, Richard could take advantage of being an early market player and build a strong brand.
VirtualGym can be seen as providing a complementary, as well as competitive, service to gym memberships and Richard should investigate any potential ‘tie-in’ opportunities with gym players that this might present.
In tough economic times, the business could stand to benefit as it offers a very cost-effective alternative to gym membership. And the internet-centred nature of the business could help Richard attract users from outside the UK.
Nonetheless, Richard should aim to keep the business in as robust a shape as possible, continuing to keep his overhead cost-base low while increasing revenues through new memberships. Focusing on developing stable cashflow streams and keeping the company ‘lean’ will also help increase its attractiveness to investors.
Nick Winters
Partner, Vantis
Like many companies that have performed well in their first year, VirtualGym
has reached a critical point. The founders need to remain focused on driving the
business forward, while at the same time diverting significant energy to raising
finance. I believe that successful second round finance can only be said to have
been achieved if the total funds required are raised at a reasonable valuation.
On Dragons’ Den, we see that most of the participants soon realise the value of
getting an experienced Dragon on board and this is sometimes more important than
the cash investment itself.
So, my advice to the founders of VirtualGym is to be selective about where you raise your funding. Make sure the business continues to perform well while you are seeking this funding. Prepare an excellent presentation about the business with strong financials. Get professional help with this, or at the very least get it critiqued by someone who has done them before.
Angel networks are a good place to seek investment and some are better than others. Try Envestors or Endeavour Ventures, as networks such as these have access to good quality angels who can add value.
