Serial entrepreneur Emma Sinclair MBE has founded a parking business and a members’ club in her time, and now co-leads global software company EnterpriseAlumni.
Their software powers the corporate alumni networks of some of the world’s largest companies. She was only 29 when she floated her first company on the Stock Exchange, the youngest person ever to have done so.
She was Unicef’s first business mentor, and was awarded an MBE in 2016 for services to entrepreneurship.
Tell us a bit about your background and how you came to start EnterpriseAlumni?
I started working life in McDonald’s at 16 but my first job on graduation was seven years in M&A at Rothschild & Co. I then listed a company focused on servicing the real estate industry, subsequently founded a car park operator and latterly find myself in tech.
I co-founded EnterpriseJungle in 2013 and our hero product, EnterpriseAlumni, grew out of that. Our software powers the corporate alumni networks of very large companies to drive sales, talent and business development.
Because in a world where work is increasingly contingent and project based, a company’s alumni network is also its number one talent and sales pool.
How did you go about raising start-up capital for your business?
It does help to have a track record but raising capital is always a challenge.
My co-founder and I seeded EnterpriseAlumni then took our first round of external funding once we had a proof of concept.
For most entrepreneurs starting out, that first funding is going to come from friends and family. If investors don’t know you – that you are diligent, trustworthy and hardworking, it’s very hard to persuade them to back you.
You can have the best business idea in the world but investors need to have confidence that you and the team can safely execute it.
How much personal risk should you take when financing a business?
There’s no ‘shoulds’ and one size fits all approach to fundraising in my books, but it does send a very positive message if you have personally committed funds and are highly incentivised to make your business a success.
Equally if you are a very young start up and very cash poor, there is nothing wrong with taking a small salary while you are building the business.
How long did it take for your business to start making revenue? How did you feel when it did?
We were very lucky that our hero product, EnterpriseAlumni, was revenue generating within months. It helps that our customers are all large enterprises [clients include HSBC, SAP and Bechtel] so our contract sizes are pretty healthy and payment terms are fair.
As for our first win, I remember it well – but I am just as excited with each new win. They are all milestones to be celebrated.
I love business – I love my business. Some people enjoy art or love to spend evenings at the theatre – my business is the focus of much of my energy and passion, and the same can be said for my co-founder.
When the business started to grow, how was it financed?
We completed our first funding round via convertible loan notes to investors. These are effectively an IOU, typically interest bearing, which promise investors that their cash will convert to equity at a future date at a price yet to be determined.
Why did we do it that way? From my time in M&A I know that it’s very hard to value a fast growing business in its early stages. With every month that passes, the business grows in value – so rather than spend months negotiating (for negotiating read battling!) over a fair valuation, a loan note allowed us to delay that process until it was easier to agree a value.
Our loan notes committed to converting cash into equity at a discount to the price per share set at the equity round, to compensate for the risk our investors took by investing early. Typically loan notes carry a discount of 10-30%.
To put that into numbers to make it easier to understand, let’s say our first formal fundraising round valued our equity at $50m. In that situation, it would mean our loan note holders could convert their investments into stock at the $50m valuation with that discount I referred to earlier as an added perk – typically 10-30%. I’m afraid I’m not telling you the exact details of ours but the terms were pretty standard!
The main downside for UK investors is that convertible loan notes are not eligible for Enterprise Investment Scheme tax relief which at that time, did put a few investors off committing to our first round. Perhaps something for the Government to think about!
This particular investment tool is much more common in the US than the UK but it helped that our documentation was produced by a reputable law firm who gave our investors who were less familiar with this investment type added confidence. We were fortunate that our lawyer at the time – Michael Helsel, M&A partner at Greenberg Traurig – helped pull the documentation together.
I think it’s always worth spending money on quality advisers. Early stage businesses often assume that big name advisers with broad experience are likely to be too costly, but large firms are always seeking a pipeline of new clients with the potential to scale.
Never be afraid to reach out to a lawyer or accounting partner you think is well placed to help and discuss capped fees, discounts to hourly rates and ways you can ensure the right advice early on in your business at a price you can afford.
Tell us about one scary time regarding cashflow. How did it happen, and how did you get through it?
I don’t know any interesting entrepreneur who has avoided a close shave with cashflow. Sometimes events outside of your control such as most of your customers paying late, contribute to hairy days. Not fun at all when you know payroll is about to leave your account and funds are dangerously low.
Whilst these situations are obviously best avoided, business is fraught with risk and in the early days, managing cash flows is almost always a challenge. If you are the kind of person who avoids risk at all costs then starting and scaling a business probably isn’t for you. The stress may kill you!
What is the best piece of advice about cashflow that you have been given, and by whom?
‘A bird in the hand, every time.’ Advice from my Dad. He has always taught me that it’s better to take cash when you need it (or sooner) because you don’t know what the future holds and whether that investment or loan will present itself again.
Whilst I always pay attention to his advice, I don’t always apply it. There is a balance to be struck when seeking investment or financing – and often a negotiation to be had to find the right deal at the right price.
How do you manage cashflow today?
I am pleased to report that we don’t use a crystal ball! We use our own internal model, software wise we use QuickBooks for accounting, Salesforce for actual and projected sales – all tools that help us manage our cash flow, our business and keep investors in the loop.
The tools that are available today are amazing, to help enhance decision making, complete accurate forecasting and automate invoice collection like Fluidly, for example. The whole process is much faster and simpler than it was when I started my first business.
It’s important to maintain good financial records right from the start, even if you are not looking for investment. It will reduce the chances of cash flow crises, help you understand when and if you need investment and it will show investors that you have good financial discipline.
How do you envisage financing your ongoing growth?
For us this will likely be a continued mix of equity investment, debt and customer income.
Words of advice learned from years of growing a business: Don’t be afraid to impose fair and reasonable payment terms on your customers. It helps enormously that the UK has robust guidelines that requires large firms have to treat smaller businesses fairly when it comes to payment – which is not the case in many other geographies.
And there are so many other finance options such as invoice discounting (factoring), government backed loans, grants and peer to peer lending available, for example.
It’s here that technology also catalyses the process; for example Quick Books has an API to Fundbox for loans based on your cash flow. Funding Circle offer small business loans and can give you an answer in minutes via their website. So many tools available from your desk that offer different ways to fund your business if cashflow is tight.
What three tips can you give other SMEs to better manage their financing?
Look at debt as well as equity. It’s not for everyone but if you have good cashflow or strong contracts, debt can be a cheaper alternative to equity without the need to dilute your shareholding.
Can you get a grant? There are a staggering number of grants available for new businesses, especially those building innovative technology and products that speed up economic growth and help the UK remain competitive. Make sure you check your eligibility.
Look beyond your bank. There are so many alternative funding options available these days. You wouldn’t buy a new dishwasher without shopping around, so do your homework and make sure you get the best debt deal in what remains a very competitive market (but if dealing with your bank, make sure you negotiate!).
