The CEO of Apadmi Ventures has advised early-stage tech start-ups to avoid ‘poisonous investors’.
Apadmi Ventures is the investment arm of award-winning mobile technology group Apadmi and employs more than 60 people in Manchester.
It specialises in backing early-stage, highly scalable tech businesses and currently boasts an eclectic portfolio featuring advertising tech firm Bidooh, dating app JigTalk, ‘Uber for the skies’ Flyt and music streaming start-up Beatstream, which won 2017 Venturefest.
The firm’s CEO Howard Simms says entrepreneurs need to spend time with and get to know potential investors before jumping into bed with them.
“I look at it like a marriage,” he told BusinessCloud. “You hold hands to start with, you might eventually give each other a kiss but you don’t get married until you are absolutely certain. Why treat investment any different?”
Simms said he’s seen “too many scenarios” where the wrong investor has “crippled a business”.
“Some investors are poison; you’ve just got to avoid them,” he said. “It’s difficult, because when someone is floating £200,000 in front of you and you know what it means to your business, it’s really hard to say no and walk away.
“If you need the cash then where do you [then] go? Because you’re so keen for the cash you would shake hands with people you shouldn’t be shaking hands with.
“Some investors only got their own interests at heart…and only care about getting a return at all costs – that’s not the right thing for the company they’re backing.”
He added: “I’ve seen a friend of mine destroyed because he was losing a company he’d built for eight years, his livelihood disappearing. Fortunately he got through it.
“A shocking investor with their own agenda was crippling that business and its ability to progress.”
Apadmi Ventures was founded in 2015 when the experienced people behind Apadmi – which was incorporated eight years beforehand – saw an opportunity to invest in tech ‘ideas’ that excited them.
Its best-known investment was in intelligent market research firm RealityMine, which Simms says taught them the importance of collaboration in building out successful companies.
He suggests that expecting a business to succeed purely based on the quality of its product is naïve, citing an example of investors who would be perfect for a business being blocked.
“I’ve seen instances where an existing shareholder refuses to be diluted even if an incoming investor has got skills and expertise which adds to the business – and I find it bizarre. Money is just one part of the jigsaw,” he said.
Simms said entrepreneurs need to work out how they’re going to sell their product.
“You can have the best technology solution in the world but if you haven’t worked out how you’re going to sell the damn thing then it’s futile,” he said.
“You’ve got to have a really solid route to market and ideally you get someone on board who knows the market inside and out.”
Apadmi Ventures has links to highly-active business angels and investor networks which means it can both access high-calibre advice and provide tech due diligence on the start-ups that angels are considering investing in.
There is a great deal of talk these days of identifying the next billion-dollar tech ‘unicorn’ company – but Simms says this is “just a brilliant soundbite”.
“I remember meeting a top Manchester entrepreneur and the first thing he said to me was ‘I’m building the next unicorn’.
“These days you take it with a pinch of salt.”