Stacking the Investment Odds – Mark Bernstein, Founder @ Diligentsia

Automated Transcript

Alastair Cole 0:03

Hello and welcome to The Sales Scoop. This is a weekly live show for the founders, and senior leaders of technology businesses who want to improve how they sell. My name is Alastair Cole. I'm a computer scientist and ex Software Engineer with two decades experience in sales and marketing, and I'm delighted to say that joining us live today on the sales. Scoop is Mark Bernstein, Hello, Mark, Good morning. Hi, hi. Thank you so much for making the time to join us today. Mark, you're a serial investment whisperer, I like to think of you as somebody who's been in and around the M and a market in the UK for a very long time with a huge amount of experience in acquisitions and investment. And our paths crossed many years ago at Green Cathedral in the Cambridge Science Park, in and around the Cambridge Science Park and that explosion of technology and keen to share a few stories there. But before we do, please, Mark, for anybody who doesn't know you and is watching, could you introduce yourself and tell us a little bit about your journey here today? Yes,

Mark Bernstein 1:16

good, good afternoon, everybody. Now, I think it is. Yeah. I'm Mark Bernstein. I am coming to the end of my career, and I guess I've learned a fair bit from it, successes and failures. I started as an accountant qualified with Ernst and Young in the UK, finance director of a number of listed businesses, and then I began to do my own startups. And I've done a mixture of being involved in some quite big businesses and also do my own smaller startups. I've been involved in taking, I think, four businesses, from startup to IPO in various guises. I've been a non executive chair on private companies and publicly listed boards for about 30 years, and I've also been an angel investor and in building some of my own businesses, I've done quite a lot of acquisitions and disposals, probably about 25 of them. So I have really seen a lot of these flows from both sides, both as a founder looking for funding, and also as an investor being approached for funding. And so that's really what I've been doing for the last 35 years. Yes,

Alastair Cole 2:46

and you're, I've heard you talk about the kind of Cambridge technology explosion. How did that come about? How did you get into the world of tech and tech business growth?

Mark Bernstein 2:58

Well, this, yeah, this was, this really happened when I was about 13 years old. I had some relatives who were involved in the very early Cambridge startup world. They had gone to Cambridge University. They built a computer the size of a room. And I was about 13, though about five years older than me, and I remember having tea with them one day, and I was thinking at the age of 13, I thought, you guys are boffins. What you need is some commercial chap to sit alongside you to help commercialize what you do. And that is essentially what I've done in my career. They went on. They were part of the sort of golden age of computer startups in Cambridge, with Acorn Computers, for example. And my uncle ended up building various technology businesses in and around Cambridge, and that had a very big impact on, really, my career. And in many ways, some of those individuals became mentors of mine when I was young, doing my first startups. But also there's an ethos around Cambridge startups, which I think is quite interesting, in that whole high tech world, which is about trying to make the world a better place. And it's not all about making money. It's about doing good and making money. That I don't know whether that resonates with you.

Alastair Cole 4:35

It does totally, I mean, I people often scoff at that, but I genuinely, you know, felt that in Cambridge. I feel that now in the kind of London startup scene as well. But, yeah, you know, actually, eight, the acorn, acorn is a link between us, because my mother bought two Acorn Archimedes. She was a teacher in home counties, and she'd seen that, and she bought these two, those must, I think there's some vouchers available. And my brother and I climbed into these, these, these machines, and that was it. We ended up both reading AI and computer science, many, many years later. But yeah, I do, I do think there's some, you know, a Tech for Good, a force for good. And certainly that's played out by what I see happening now in and around the Cambridge scene, with the kind of Cambridge 1% and that ethos continuing. So yeah, that's really interesting. I mean, maybe you've answered this question, but I wondered whether you'd been tempted to to leave accounting when you met these morphine and move into development yourself, but it sounds like they're probably enough programmers in your family and in your network.

Mark Bernstein 5:42

I'm not good enough at programming. I'm just a lowly sort of commercial chap, really. But, yeah, I, but I was, I was always interested in technology and the commercial application. So I've been very lucky in my career to do some fairly early stage stuff. So we floated the world's second Virtual Reality business in 1992 Yeah, look how long it's taken to get into the mainstream. Yeah. One of the UK's first internet startups. We did one of the first credit card, UK credit card transactions on the internet, or Yeah. And then I've done computer games and social networks and so on. Yes.

Alastair Cole 6:35

And given, you know, we worked together in a green cathedral, you know, almost 20 years ago, and you know, you've helped two unicorns. You know you're going to grow. You know, why? Why? You know, I'm sure you should have, you should have retired to your private island now, right? Why? Why? Why are you? Why are you back in with diligent What drove you to make that decision to, like, keep going and

Mark Bernstein 7:00

Cole two or three things. Firstly, I love doing this stuff. And I think I mean all of us, for those of you listening who are listening to this, if you're in a smaller company, rather than the large corporate, you're probably there because you're trying to prove that you can achieve something, you can build something, that you can do something that perhaps nobody's done before. So it's about pushing the envelope. It's not just about making money. Otherwise, most of us probably wouldn't be here. But so there's always, I've always been interested in having an idea and seeing whether I can make it work. That's number one. Number two. I love working with younger people, and I sort of do believe that as you get older, if you carry on working with younger people, it helps you stay young yourself. And Diligentsia, which is my latest startup, I have spent all these years on both sides of the fence, as I previously explained, I came to the conclusion that at the bottom end of the market, the pro the investment process, is full of process friction. It's inefficient for everybody involved. It's inefficient for companies looking for funding. If you, if you're listening, and you're doing a startup, you probably, you know, looking for funding, you're probably spending at least 50% of your time looking for funding, rather than building your business, most people then spray and pray their decks to VC websites where, because of the VCs that we're working with, they have a one, probably 1% or less chance of getting funded your application. So it's not a great use of your time. And then, from the investors perspective, they're deluged with applications from many of the companies that they are looking at, they've got no real way of knowing whether those companies are investment ready or not. So and the deal sizes are too small, so as a result, they can't do proper diligence, because the numbers don't justify the costs of doing really good diligence, and even if they were prepared to spend the money, they can't do the diligence, because often the applicant company's data and files and information is not in a structure where they can actually be diligence. And as a result, investors make investments, and most investors lose most of their money on most of their deals, which is a very inefficient capital allocation. So I thought, Well, why not put a platform in place where we can help companies get investment ready self diligence, know that they're ready for investment, and they can offer a quality we can offer a qualified diligence company to the investor, and we can offer a bunch of tools to investors. That's what we're building. We'll see whether it works. Some of the things I've done in my career have worked. Some of them haven't. We'll find out with this

Alastair Cole 10:06

one. Yeah. So if I was a small business owner or a senior lead at a startup, listening to how much, how much would it cost for them to go and do, you know, pay service provider, professional services company to go and do due diligence. How much does it cost?

Mark Bernstein 10:24

Well, in the we have, we work with a number of people. One of them is paid $ 25,000 for a Series A. Yeah, they charge around 25,000 which is put onto the company. That's quite a lot of money. Clearly, it can be done for much less. I think the costs have come down. Certainly 15, maybe 15 years ago, the costs were around 50,000. It was all manual, but now we can automate more and more. Yeah,

Alastair Cole 10:58

and out there in the, you know, kind of in an investment space at the moment, right? How does it look? How does it feel right now, in 2025 you're, you're right in the Cole face. How does it feel to you?

Mark Bernstein 11:12

I think I've, I think the UK is a great place to build these businesses. I think the tax system with this is as favorable as it needs to be. I think it's still tough elbowing, elbowing your way through to get noticed. And it is. I still think it's a very inefficient process. Generally. There's quite a lot of luck involved?

Alastair Cole 11:43

Yeah, and the time, I think, is really interesting, because obviously, with smaller outfits and startups, you know, they probably can't last as long, right? It's all about, can they find the investment quick enough? Can they go through the due diligence quick enough? And then can they actually land the money. I mean, what? What kind of timings are we looking for, doing it kind of traditionally, or with, or with, you know, advanced tools like diligent? What's the difference?

Mark Bernstein 12:09

Well, I think, I think things have actually changed quite a lot, even in the last decade. And now there are a lot of funds which will do the concept of pre-seed where you can get a relatively small sum of money relatively quickly. Some of these funds will fund you. They'll give you a term sheet in three or four weeks. They'll fund you in six weeks. Okay, that's, that's pretty quick, yeah, and I think there's a lot of money actually washing around. How can you utilize a platform like diligence your health so you can actually deliver a package to the investor? Well, you're really doing two things. You're increasing your attractiveness to the investor off the bat. Because if you've come and say, I have self diligence and here's my pack, so I don't think I've got many problems that you're going to uncover in your diligence, or we notice there are a couple of things we've got to sort out, but we're telling you about them up front. As an investor, that gives me quite a lot of confidence. I'm not going to waste a lot of time working with you, figuring out whether you are a good opportunity is a good opportunity, and then find at the end of the process that you don't own your own IP or there's a dispute between the founders, because that's what tends to happen.

Alastair Cole 13:35

Yeah, and we know from helping businesses down that funding road that it does take a long time before you get to the kind of the pebbles under which you know the challenges lie. How does Diligentsia accelerate that? And how can you know,

Mark Bernstein 13:54

AI would say, there we split diligence into two halves. And maybe, if those listening, can think of a pyramid. At the bottom of the pyramid, there's a base layer, which we call the foundation there, and that's about documents. That's about data, data room. It's about business audit directors, questionnaires, warranty disclosures. So that's about getting all your documents sorted out and under and uncovering any issues that you might have. Then the next layer we call value diligence, and that's about understanding the market opportunity route to market competition, technology differentiation and those that sort of diligence usage cost a fortune for each one of those reports you might well pay four or 5000 pounds to a specialist company, and they would take maybe three or four weeks. Now we can deliver that in minutes. Now, if that first specialist. Company for four or 5000 pounds. Let's say that you could get a 10 out of 10 result. We can probably, with our AI, deliver a six out of 10 result in minutes, but what it enables you to do is see your business as others see you. And that's really very useful, because you know, if your AI is telling you your market opportunity isn't that great, because you've got an opportunity to remediate. So I think AI can do what we already see. AI can help in so many ways. Yes,

Alastair Cole 15:34

yeah, brilliant. Okay, thank you. I want to come back to due diligence in a little bit, but in terms of, you know, making businesses attractive to investors. From your considerable experience, you know, What? What? What? What kind of behaviors and the kind of attributes that the startup founders and scale up founders, what should they be doing to make their business as attractive as possible?

Mark Bernstein 15:57

I think firstly, you've got to be able to explain your idea to your granny. Okay, yeah, if you can't do it, explain it really simply to start with, it's probably going to be difficult to get people's attention. So think about how you explain your business to your granny, because it's almost certainly different to how you explain it to your colleagues, yeah, if you buy that, that's the first thing, I think. Secondly, the team, particularly with earlier stage businesses, changes as you go through to Series A, Series B and so on. But to start with, you're backing the people and an idea. Yeah, so you and it's almost certain that you're going to pivot, to some extent, it's not often that you do a startup and your product market fit is right. Normally, it's a bit of a chicken and egg, and you hone your business. So as an investor, you're looking for people who can adapt, who can recognize that when they're playing a losing game, that they can pivot and do it fairly nimbly. So the people element is really important. The third element is, I think in a big market, it's much easier to be successful if you're going to have a tiny piece of a large market than if you're going to have a large piece of a small niche.

Alastair Cole 17:33

Okay, that really helps. I love granny. There was a UX tester maybe 15 years ago, and he offered a service where he would have his grandmother, his real grandmother, like, user test your website. And it was genius, right? Because it didn't work for her, you know, so product market fit, obviously, that's critical. Everybody has a different kind of view of it in their head, from your point of view as a CFO, right? What an investment whisperer, what? What are you looking for, or what, what, what informs you that there is proper product market fit

Mark Bernstein 18:14

customers, and it's really more difficult than that. It's really difficult, but the answer is customers, and then paying customers. The other frustrating thing for anybody listening who's doing this for the first time, you need to think of a ladder. Whenever you speak to your investor, it doesn't matter what step of the ladder you're on, it's always the next one that people are interested in. So it's, do you have a prototype? Yes, do you have a product? Yes. Do you have revenues, or do you have customers? Yes, are they paying you? Yes. So are they profitable customers? Yes, are you? Is your churn low? Are you retaining those customers? And so whatever stage you're at, you're always made to feel a little bit inadequate, because people are always interested in the next stage,

Alastair Cole 19:07

sure, and are those, how much of that kind of, that kind of landscape, does Diligentsia cover? Does it? Does it give feedback on some of that, all of that we

Mark Bernstein 19:17

do, we do a little bit, we do a little bit and we can do more. Our focus right now is to start, is to if you come back to that idea of the pyramid with the foundational diligence, then the value diligence, the top of that pyramid is the human, the investor and the advisor, where they are doing the really difficult assessment of, Is this really a great opportunity? Is their product market fit? It's for sure, the AI and so on will get better at it, but at the moment, yeah, hallucinates a lot. So what we're trying to do is do stuff at the bottom of the pyramid, the boring stuff at the bottom. The Pyramid to allow the investor and the company to focus on the real identification of value drivers at the top of the pyramid.

Alastair Cole 20:11

Yeah, so you're getting a lot of interest from investors then, because I can imagine, if I was an investor that diligent would be, you know, incredibly helpful for me, either with active, you know, engagements I'm talking about, or or future ones.

Mark Bernstein 20:27

Well, we're we're early stage ourselves. We're still doing product, market fit ourselves. Despite all my experience, I don't want to suggest I know everything we've recently taken signed up about 40 VCs and Angel networks, and we're now learning about exactly what they want, how they want stuff to be delivered to them. But I think, I, I think this is, this is also with AI, the start of another phase one take. I mean, I'm afraid I can go back 30 years ago to bank managers. Yeah, 30 years ago you went, if you wanted a bank loan, a personal loan, you went into your bank with you, shines your shoes, and the bank manager made a decision based on you. And then computers came along, and computer based lending, and the bank managers said it never catch on, because it's all about personal relationships and my judgment, 30 years later, those people don't exist anymore, and all the lending is data driven. My second example is football managers 30 years ago, 20 years ago, used to have people like Harry render making decisions on whether he fancied a center forward and splurging 10, 10 million quid on him. Now the manager doesn't really make those decisions because the data analysis department and I think the bottom end of this investment market, we are going to increasingly find data driven decisions, where, if you raise a fund of 50 million quid, the computer is going to determine how that 50 million quid is allocated, and it's not going To be left to a bunch of investment managers, sort of backing on hunches, I don't know what? Yeah,

Alastair Cole 22:25

no, no, absolutely. You know that data led approach is perfect, like you say, for the bottom of the funnel, you know, in investment, but across the board, right, those low level jobs that actually are going to be done better, just with some data you still need, still going to need humans involved. And talking about the humans, I thought you picking out people as a really important part of success, I think, is massive, you know, those who are able to realize that it's not going the right direction and pivot. And I wanted to ask those, those investment rounds that you've seen or been involved in when, when it's not worked, is that what, how has what's been, what's the ratio of where that's been, a kind of people problem versus a technology or product problem?

Mark Bernstein 23:13

For me, normally it's product market fit. Okay, that hasn't gone right, right, but the other really, and you know, I've had some failures in my career. And the interesting thing about the failures is they tended to fail for a problem that you identified right at the beginning, which you didn't want to face up to, and you sort of hedged it, and you thought it would, you'd sort it all out. And when you've finished, when the business is finished, and you look back with all that sweat and effort, if you're true to yourself, you go about this business has failed. It was something that I was gnawing our way at me at the beginning, but I want to address, I don't know whether that resonates with anybody.

Alastair Cole 24:06

Well, it certainly resonates with me. I think, you know, you know, we turn a blind eye, don't we, and it happens early on, and then psychologically, we kind of hoodwink ourselves like, well, I've kind of passed that now. I've dealt with it, but it wasn't dealt with because you didn't really shine a light on it. So, you know. And I think the truth is, you know, to a certain degree, we all kind of get what we deserve, and and, and our biggest problems are of our own making, and it's when we don't look in. And I guess that that's another thing that Diligentsia, I would imagine, will solve, which is, there are areas, things that I don't know I needed to know, or areas it's going to shine a light into corners that I hadn't even realized were there, never mind looked in.

Mark Bernstein 24:49

But yeah, you know I'm, I mean, I'm still learning. You asked me right at the beginning, why am I still doing? I'm still learning. I've come across our own business, uh. Another company that's been helping us doing customer insights, and that's been fascinating, yeah? And they gave and their advice is, don't start coding and building your product on day one. Spend time just talking to people. And they gave me the example of Bolt, which is a sort of Uber. And the founder of bolt, who comes, I think, from Lithuania or somewhere, he spent the first year of the business simply riding in taxis and talking to the taxi drivers to really understand the pain points of alternative solutions and so on. And once he'd really understood the pain points, he then started building his product. And that's, yeah, that's a big lesson.

Alastair Cole 25:52

Yeah, it's massive, isn't it? You know, market orientation, spending time with potential customers and buyers, you know, spending time with the people whose money is going to leave their pocket and come into your pocket is a really big deal. How long should you expect people to be working on their idea or their startup before they should be making a decision about, you know, is it going to be successful or not? You know, some people go on for decades, right, flogging the same horse. What, in your experience, what's a good cutoff point? Well,

Mark Bernstein 26:30

This is my first. I don't know the answer on this, on this, on this podcast, there are two schools of thought. One is, you do an MVP, and you do it quickly, and you learn and you adapt, and depending on who you're aiming your product at, maybe that will work into B space. My experience, and that's certainly the perceived wisdom. Everybody seems to think you should do an MVP in three months and then adapt. My experience is, if you go and talk to trying to do a B to B sale, if you're going to talk to people before you've got a product that looks anything like broad and deep enough for an enterprise to take on, that's tough, and they tend to turn around and go, Well, it's come back when it's ready. So and so what we've done with I've done both. We did it generally. We've actually spent three years building it. And so we've now got a very broad, very deep platform, yeah, that we're not so worried about competition. We because I want to compare that to, for example, pitch deck analyzers. Yeah, there are hundreds of companies offering pitch deck analyzers. Well, you can create a pitch deck analyzer in five minutes now on AI and so if you would produce an MVP six nine months ago of a pitch deck analyzer, yes, trawled it around. You might have got a bit of initial traction, but actually, other people would come along and just replicate it. So I guess I don't completely know the answer, but I don't think, I don't think it's quite as simple as always produce an MVP and then take

Alastair Cole 28:21

from there. Yeah, no. But I, I kind of feel with technology, it's almost like there's a, there's a there's a two track approach, where you've got your kind of 12 or 24 months goals, and you're beavering towards that right, and you, you're resolutely moving there and making those kind of rapid spikes or MVPs in order to test stuff. But if you went with a prevailing wind, you'd be changing left, right and center every two months because of what's happening. So that two tracks is a way to mitigate that. You've talked a lot about Diligentsia, which is fantastic. If anybody wants to get more information about it, they can@Diligentsia.co.uk at Diligentsia.co.uk, or they can track you down on LinkedIn. And actually, I wanted to say that our one of our new 100 day transformation packages, is a series a readiness package that we offer, but we don't have a due diligence component to that, and maybe that's something we should be investigating. Mark that we're able to provide

Mark Bernstein 29:30

as a package, and vice versa, and vice versa in the end, yeah, we don't just want to be doing the boring stuff. We want to be helping people sell more, because that's what, yeah, yeah.

Alastair Cole 29:40

That's another way to, you know, revenue essential indicator of an attractive business for investors. If anybody listening or watching would like to see some of the other guests and master classes we've got, you can head over to the sales scoop.com our next show. Is Isabel Bathurst, who's who's created inertia in legal AI, I mean, fascinating talking to her mark about the barriers of going, even though it felt like it was the right thing for Isabel going and taking a new product and convincing law firms that this is the way forward, given their tradition. I'm looking forward to speaking to her. But thank you so much Mark for your time today on how to stack the investment deck in the favor of startups.

Mark Bernstein 30:28

Thank you very much for having me on and thank everybody listening, for listening. I hope, I hope they found it. You found it reasonably interesting.

Alastair Cole 30:36

Well, I have some absolute gems there, Mark, you know, loads. I mean, I love the pyramid analogy, and I think, you know, it's really good to hear you talk positively about the market, because a lot of people talk negatively. And I think I'm not as close to the kind of raw numbers and the finance in the market as you are. But certainly, to go back to how we started the show, like I feel that you've got to stay positive, there's an opportunity to improve life for people, but certainly for businesses through technology, if you if we're if we're positive about it. And I think the diligent platform, when you approach it, is opening up, you know, due diligence at a, you know, crazily lower price point, and hopefully enabling founders to sell their businesses and buy their private islands. Thank you very much indeed. Thanks for your time. Mark Bye, bye. You.