If boosting your business is on the cards for 2023, check out this advice from investors.
Throughout our Start-up Advice series on SiliconRepublic.com, we ask for insights about what makes a great founder, how to put together a good team, the critical ingredients for success, and the big mistakes that entrepreneurs make along the way.
We also ask what advice people have for founders who are starting to look for investment. Looking back at responses from 2022, here’s what we learned from tech investors.
Understand what you’re looking for
Before you go seeking investment, you need to have a strategy and know what you’re actually looking for.
“Understand the present but also future capital requirements for your business,” advised Barry Brennan, venture partner at Elkstone.
“For example, if your business is a capital-intensive business, you will need significant funding not just now but also in the future.”
QED Investors’ Yusuf Ozdalga suggested defining your goals for the next 12 to 18 months.
“Make sure you have no more than two, max three, strategic goals,” he added. “Strategy is very much about what you say no to. You cannot do everything!”
Once you have set those goals, you can start thinking about what sort of investment you’ll require. But remember that venture investment may not always be the best route.
“Taking investment may theoretically help a founder ‘go faster’, but if the company doesn’t yet have product-market fit then it may not be the right time to raise a round,” warned Thomas Krane of Insight Partners.
“Consider the risk-adjusted return of an exit as a larger shareholder with a smaller absolute exit value, compared to the dilution, risk and time required to get the bigger outcome.”
Research the investor
Once you’ve figured out what you’re looking for, it’s time to research the investors who might be interested.
“Do your homework and identify investors who could be a fit based on their strategy and approach,” O’Sullivan said.
Nangia added that this homework could include looking at fund sizes, past investments and what other founders say about these funds.
“There is plenty of capital out there and you should look for value-add capital,” she said. “Do your research rather than sending your pitch deck to everyone.”
Once you have some investors in mind, Ozdalga said it’s time to do “reverse due diligence” on them. “Go and talk to other companies that they have invested in, and ask the founders there how their experience was.”
“Build relationships with investors early on.” That’s the advice of Delta Partners’ Amy Neale.
“Let them know what you’re working on, provide them with updates, and seek their advice.”
O’Sullivan also suggested getting in touch with potential investors before you formally pitch for funding. “Early engagement can provide very valuable feedback and a relationship is established before you start fundraising,” he said.
This will help build on your reverse due diligence, allowing you to get to know the investors.
“Interview your investors in the same way the investors are interviewing you,” said Brennan of Elkstone. “These investors will be part of your journey for the next few years; it helps to like them.”
Get your pitch together
“When you’re ready to formally pitch for investment, make sure you have a simple, compelling story,” said Neale.
“Have your materials ready – an investor deck, financial projections, articles that validate your market, CVs of the founders – and be ready to make introductions to early customers or trial partners.”
Speedinvest’s Nangia also said it’s very key to send a background of the team, a blurb about the business, details about the stage and amount of capital you’re looking for, along with your pitch deck.
“You can use tools such as Loom videos or Notion pages that might help stand out from so many pitch decks that funds receive every day,” she added.
In terms of what’s in the pitch deck, Barry Downes of Sure Valley Ventures said it’s important to clearly present the opportunity for the company. One resource he recommended to help with this was Guy Kawasaki’s ‘The Only 10 Slides You Need in Your Pitch’.
“I would advise founders to focus on how their business solves a problem for a clearly defined customer and how they will take the product to market,” Downes added.
When it comes to what not to put in a pitch deck, Krane of Insight Partners said you should never qualify a growth plan on “being able to have the money”.
“I get nervous when I see a pitch deck that shows me two trajectories – one that is exciting ‘with funding’ and one that is weak ‘without funding,’” he explained.
“To me, that shows a lack of confidence and control in the underlying business, or perhaps a company that simply is not right for the venture model.”
Ask for advice
Next, Brennan advised that you get good advice on your legal structure and on any terms you receive from external investors. “This means you have strong foundations in place from the start of your journey.”
Even if a pitch doesn’t go your way, don’t forget that you can still ask the investors for advice.
“Not everyone can give you capital, but everyone can give you feedback,” said Nangia. “If they don’t, please ask for it.”
And remember, there’s always a start-up ecosystem around you that can offer insights too.
“It’s important to also network and build relationships with other founders who have been on the journey themselves,” O’Sullivan added.
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