Codec: A Journey From VC to Debt

There is nothing like the thrill of seeing your start-up flourish into exactly what you had in mind just a couple of months ago.


There’s a light that shines in the eyes of those struck by this fortune: It’s confidence and hopefulness, and it’s contagious.


Tom Blah, co-founder of Codec, is one of those enlightened people who secured a round of funding tailored to his needs. And he was here to talk about it with us.


He sat with Ben Tresham, our marketeer extraordinaire, but also Dylan Chauhan, Investment Manager and infamous cocktail master from our deal team, as well as Tangina Uddin, Client Experience Executive, to recount his journey before, during, and after securing a round of funding with Fuse Capital.


Two Sides Of The Same Coin:


What’s interesting about Tom’s journey is how familiar he was with this process before. He worked in venture capital for years, before launching his own A.I. start-up, Codec. Here are takeaways from his experience.


 “I realised I was a bit naïve at the time I worked for VC. When I worked there, I had my own problems, my own work to think about, and I didn’t really think about how hard it is for small businesses to go through such a deal; I had access to only one lens of the experience.”


He shared the three main problems he faced at the onset of raising funds to scale-up:


3 Problems Scale-ups Typically Encounter

  1. The time it takes to raise capital
  2. Finding the investor that fits your timetable and scale-plan
  3. Manage complex preferences such as the modalities of exits

The first item, Tom glances over quickly.


He’s got a lot more to say about the second:


Going with venture capitalists, they have a very clear idea of the strategy they want to deploy with you. Personally, we wanted to hit the profitability benchmark as soon as possible, while they wanted to take a deeper j-curve dip (change in management style which disrupts short-term performance for the sake of better long-term success), take more time to spread our client base, and maybe hit profitability in three years' time.


While that strategy works in other types of industry, Tom seemed to share the sentiment that the A.I. sector did not abide by this timetable.


He goes on to share his thoughts on the third point: “As a business owner, you always want to think about your exits, have it in mind at least as a possibility. Taking money from a VC fund makes that pretty hard. You have a lot of money, but not all the options laid out, that’s the trade-off.


“What really changed working with Fuse was this manoeuvrability, but also the ability to plan the terms in a tight format.”

How To Use Your Funds With Fuse's Added Value


Tom’s emphasis on the importance of flexibility and fit was threading throughout the whole interview. He also praised the unique added value at Fuse Capital: “They helped tighten up the business model and find the best possible deal. Fuse really understood what the lenders needed to see and in what format. Super smooth and easy process, not enough good things to say about it.”


Our host Ben, trying to refrain a blush but to no avail, wants to delve into the specifics:

 “How is Codec going to use these funds to build, and fulfil their ambitions?”


Tom answers swiftly: “We’ve been using it as a classic growth capital: building the product and the sales engine up to a point where it's stable and predictable, which enables forecasting fairly well how the scale is going to go from that point onward. That in turn makes it possible to know how much capital can get unlocked to hire x number of salespeople and sell the product more effectively.”


It enabled them to grow the account sizes of existing clients. They are also able to generate more leads now and are on pace to nail their objectives: multiplying the account size by 3 within the year.


The industry Tom works in with Codec is deep-tech, and it always requires investment to stay ahead of the curve, so the money generated with this upgrade will be used for R&D purposes. It will allow them to mitigate product risk, unlock more data sources, and add more regions where they can do analysis.


Private Debt, Bang for Your Buck?


Our host Ben proceeds to ask how much of the Bang for Your Buck effect applies to the deal Tom managed to secure with Fuse Capital.


As mentioned previously, they wanted to hit the profitability mark as soon as they could. VC had a different strategy in mind, and though it was a respectable one, it didn’t fit with their agenda.


"The cost of capital with Private Debt is lower, though, we’ve been able to manage the cap dilution much better, as there is much less than with a typical VC deal.”


“We were able to retain much more control over the business. We accumulated a brilliant base of board advisors, (Editor’s note: which might have been shaken up by VC). Down the line, you might have an investor who might not be the best fit for your company anymore, but they have this casting vote on the board, that’s not ideal.”


Private Debt funding does allow you to manage equity dilution and operational control much better than Venture Capital. Tom continues on his thread:


“The structure of the deal fits our strategy well. The amount we raised, when it’s coming in, and what we can use it for, Private Debt seemed like the obvious option.”


They did a small venture debt round before, but because they wanted a bigger deal this time around, they went to Fuse, to make sure their plan wasn’t “crazy”, and profited from Fuse’s own touch: assessing the finest strategies and deals, to get the best investor on their client’s side.


Reaching A Deal & Managing Pressure:


Venture capitalists often set performance targets you feel you’re never going to achieve on time, the rationale being that you will perform better. Ben shared witnessing an entire board and CEO being fired and replaced overnight, at the beginning of his career. The founders had given away too much and lost control.


Is debt a more attractive prospect in that sense? Going over that finish line without that kind of pressure is an added value, and we asked Dylan how Fuse helps with that:


“First, we deep dived into the companies’ information and pulled out an information memorandum which they used to go and advertise for the market. Then, we advised which kind of model to build your strategy upon, according to what our lender like to see. These conversations helped them to pitch codec to the lending partners, improving communication and efficiency."


Dylan knew and learned enough about the business to make informed calls, without the onboarding of an extra party on the board. In other words, Tom and Codec got the best of both worlds.


Ben asked Dylan a follow-up question on his input: “What did your go-to-market plan look like, how did you build and deliver it?”


Dylan had the answer ready: “We went out to market with the lenders we knew would potentially be interested. We prepped Tom before the interviews with key questions about what the deal structure would look like. We were the first line of defence of sorts, to help the process so that Tom could also focus on his day-to-day operations.”


You’re not alone in getting the deal done:


Founders are used to being on their own, fighting for funding. The image of a lone wolf is often conjured up. But Dylan was there at crucial times during the process.


“We know the sweet spots of the different lenders, so we could go to targeted ones, and not all of them, submitting all the forms and dealing with all the requests. We make the process smoother.”


Along with Dylan, Tangina also smoothed up the process. She recounts: “We started with a kick-off call. Then we had a confirmatory due diligence, and further down the line, we mostly helped speed up and streamline the process as much as possible by preparing the data in advance for the lenders.


We then advised Tom on a range of covenants and carve-outs and arrange with top London lawyers to get the best deal for Tom and the clients involved.”




Ben concludes the interview by asking Tom how he would describe his experience in one sentence.


The start-upper's eyes pause in the air for an instant, while he recollects memories from his journey with Fuse.


“It saved us a lot of time and anxiety, absolutely”




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