StartUp Britain: Getting Funding for Your Start-up (August 2016)
You’ve got an awesome tech start up idea and a buddy who once made a WordPress site for his uncle’s business. Your investor ready right? Well not quite. Although we hear the stories of companies raising millions of pounds without even having made a penny of revenue (cue twitter et al), raising capital can be a highly complex and tricky affair.
We’ve previously closed rounds of investment and to make these rounds a reality we had to have a lot of investor meetings. So what were the key things we learnt when it comes to raising start-up seed funding? Well in short there are a lot of them but for the benefit of being precise and to the point I’ve decided to distill these down to five key points.
1) Either be raising or don’t be: Raising seed investment can take a lot of time. Investor meetings, slide decks, presentations, data requests, term sheets, negotiations and the rest of it. Many people say it’s a full time job in its self. That’s why its important to either be raising or not raising as if you’re trying to grow your business and build your product at the same time as raising you’ll find that you do everything quite poorly. Investors love to see a business that has made progress but if you have had no time to make any progress then you could be leaving your perspective investors not interested.
2) Build a great team: We always hear the old clique of investors invest in people not ideas but it’s a clique for a good reason. Investors want to invest in great people and teams. Ensure your team has complimentary skills, make sure everyone is awesome at what they purport to be, ensure they are hard working and last but not least make sure that they are willing to stay the course. The reason I say this is because start-ups are not easy and there will very likely be some very challenging days along the journey so its important to have a team with staying power who are committed to getting the job done.
3) Make sure it’s a BIG market: Investors invest to make a return. The way they make a return is by investing in a great team who create a great product that improves a big market and can therefore service a lot of customers and grow dramatically. This means the start-up will increase in value and sell for lots of money and everyone (fingers crossed) will walk away with a nice windfall. If your market is hyper niche, low value and low frequency your not going to get any investor excited. As a general rule of thumb, make sure your market is worth at least £1 Billion.
4) Get Traction: (AKA Customers) Its very well and good talking a good game and talking up your great idea but the proof in the pudding comes when people are willing to put their money where their mouth is and buy your new creation. Investors love it when you can get traction as it shows you understand what people want but more importantly it shows you can hustle and build a product that either makes revenue or has the potential to.
5) Creating a competitive dynamic: It can be tricky to get that first investor loving what you’re doing to the point that they give you a term sheet but if they do it does not mean you should instantly stop meeting other investors. By settling for the first offer you receive you don’t have a fair and accurate reflection of what the market is willing bear. Instead you should still have those scheduled investor meetings and see what happens as the likelihood is that your start up now will be more desirable as a competitive dynamic has been created. On the flip side there is also a chance the first investor could pull out of any possible deal which means you should have your back ups lined up.
Raising money for a start up is not easy but if you use these five tips that we learnt during our process you’ll be sure to get an upper hand in getting funding and building a great start-up.