Business surgery: Lux

Year established: 2015

Where the company is based: Temple Quay

Sector: Tech/restaurant and hospitality

Number of staff: 4 full-time; 6 senior advisors

Owners: James Courtney and Rocketmakers

Key clients: Green Park Brasserie, Koh Thai Tapas, Ponte Vecchio

The company

LUX aims to do for restaurants what Air Miles has done for airlines. The premium rewards scheme allows customers to earn high quality rewards for money that they are already spending on dining out, and allows restaurants to fill spare capacity with their perfect, high-spending customers –business people and affluent diners. 

Customers get to discover quality restaurants on the free mobile app and can spend points on luxury rewards, including Red Letter Days, or donate to charity.

Businesses can offer the service as a free incentive to staff, and LUX donates a percentage of earnings to a charity of the companies’ choice which can also enhance their CSR.

Founder James believes it’s a “high growth, cash-flow positive opportunity to investors” so is keen to find out what investors look for in consumer app start-ups. 

The challenge

“What do I have to do to be ‘venture capitalist-ready’ and what’s the best way to get them investing?”

FEEDBACK

Adam Newman, Principal, Newman Langley Financial Consulting

Attracting investment is a matter of attention to detail, preparation and timing. Ask yourself this, “Is my business truly ready for VC investment?” Address these five areas for success:

Need

How much do you need in this round of funding and why? Investors will want to know precisely what the money will be spent on. You need to say why you have arrived at the figure and provide evidence to support these calculations.

Who’s’ on your team?

When you meet a VC they will want to know as much about the leadership team, as the fantastic idea you have. Companies are funded based on a mix of factors but the person or people in charge are key. When you are building your executive team choose wisely and fill your team with experienced campaigners where possible. Do the investors bring anything to the party in terms of contacts or experience in your marketplace?

Scalable business model

As a start-up business, with an online application, the competition will be fierce and you will need establish that your operations are lean, as this will be key to your success. You will need to demonstrate that the business will be able to be drive revenue without disproportional investment into operational costs or personnel, each time a new client is brought on board.

Exit strategy

You must have a clear and defined plan for the investors on how you intend on funding their exit. Investors must be confident you will meet predicted return on investment (ROI), in the timescales that you promise. This is as important for you to know as it is for the investors. 

Evidence

It is great to see a start-up business predicting say £60m turnover forecast over the next 18 months, but is this realistic? Investors would prefer to hear that you are on target for £2m T/O in next 12 months, based on actual trading figures and well evidenced forecasts. Your business plan must be watertight, so be well prepared. Provide as much documentation relating to current profit margins, cash flow forecasts and other key financial information. When presenting forecasts don’t exaggerate profit margins, be realistic and provide the hard evidence to support them. Bring an experienced professional advisor or commercially minded accountant to the meeting – or consult them in advance.

With these key areas covered, you have the best opportunity of attracting investment. Pick your moment to approach investors prudently and prepare well before spending the time and effort on resource consuming pitches.

Nick Simmonds, Partner, Technology Venture Partners LLP

LUX appears to be a clear and straightforward proposition and well-articulated on the current website – so a good start.

In order to attract investment it is critical initially to prove the concept.  This means successfully signing up a respectable number of target restaurants and retaining the business – in addition to achieving take up of the mobile app.  Proving the value proposition for restaurants will be a challenge that will have to be successfully met in order to generate revenue. 

Once LUX has a foothold locally the key challenge will be how to scale the business.  Potential investors will be interested in understanding how this will be achieved and at what cost.  How quickly does the business build?

From a financial perspective it is important to have well worked 3 and 5 year forecasts that support the investment proposition.  What do you think the business will be worth in 5 years’ time?

Finally it is important to know the competition and to be able to persuasively make the case as to why LUX will be a winner.  And of course don’t forget the end game for investors – who might acquire LUX in 5 years?

Read more: Business surgeries