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| Stephen Rockman Ceo Merism Capital |
But this might cause a problem when entrepreneurs at seed stage need a bit more hands-on support and confidence building to grow, and understand how to grow. It takes space and time to work on a social business’ potential.
Our 3d host on the Make a Wave pre-incubator programme, Stephen Rockman, founded Merism Capital in 2010 to provide seed funding for early stage social businesses: supporting entrepreneurs with intellectual capital and equity investments of £50k to £150k for both financial and social returns.
In 2011, he co-founded Hub Venture Labs, with Hub Westminster
in London, the only incubator in Europe dedicated to social entrepreneurs.
Hub Venture Labs run short incubator programmes, some with investment prizes. They provide customised non-financial support on behalf of investors and foundations, encourage impact investing and new forms of hybrid finance, and champion social entrepreneurs across Europe.
Merism was set-up to also provide a viable fund infrastructure for angels to participate in seed funding for social businesses.
Merism have made 2 deals so far, with a software company in Palestine which became the biggest local IT employer, and an upcycling business in the UK.
So, what’s special about Merism?
They are fast and transparent. They use standard documentation all way through in their deals. The process is shared up front and this keeps the costs down.
Merism takes a seat on the board and gets reasonably involved with frequent communications. “As a seed investor you have to mitigate the risks so the best way is to keep a close eye on the operations, that's why we are quite hands-on.”
Building upon the models of Village Capital (for which they have the franchise in Europe) and Y Combinator, Merism are developing a new model of startup funding. They have a £3 million fund and expect to do 12 deals a year, and support around 200 individuals through the capacity building/ incubator programme. Joining forces with the Hub Westminster to create Hub Venture Labs, was key to create an education programme with various stakeholders involved in the pipeline.
They put up to £150,000 in for a 25% equity, and expect to double their investment. (For comparison, a seed fund in the tech space would expect between 8 and 20 times return)
Merism do not invest in CIC’s because of the cap on dividends. But there are ways around it.
They would rather see structures like B-Corps, the US For Profit Social Business structure, which Stephen calls a CIC with brains!
Like any other investors, they invest to make money and they make money by getting out of deals.
They have 3 potential routes to exits:
- Selling a deal to another investor, scale up your business and bring you a to a next round of investment. Bridges Ventures, for instance, is a likely following stage in the pipeline.
- Re-appropriating the changing CSR space, and sell a social brand to large corporates.
- Mergers and acquisitions (a common model and second nature in the tech space) which really encourage the investees to work on more collaborations (and that is not enough developed in the social business scene at the moment).
Stephen shared with us the 4M’s (what investors want to see in your startup).
Management, Market, Momentum, Money..
Some remarks Stephen shared on top of the 4M’s:
- What is your market… really?
- Don't try to do top-down market forecast. Be realistic and think bottom-up:
- What is a deal for you?
- What is the timeline and effort involved? How long does it take for you to close a deal?
- What does it take for you to close a deal?
- If I give you money, I really want to see you invest it in areas that give you more traction (Momentum), whether it is to develop a product or spend more on marketing or upskill you.
- Show me a good business model, rather than a forecast (Investors never really believe forecasts because they know you have to change your prospects all the time and they are here to help you think differently…)
- Show me a client! We do not invest in a Power Point presentation.
- It is useful to think commercially and to act more responsibly with the money.
- Commercial sharpness and discipline is quite useful whether you want to make money or not.
- If you can’t afford to pay the bills, you really have to question why you are doing this.
- The good thing with social enterprise, is that you can balance non-commercial with commercial activities, nevertheless, being viable is a duty for all entrepreneurs!
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