Getting into bed with the wrong investor can be disastrous for a start-up. These 10 top tips reveal what you should consider before taking on funding – therefore avoiding a messy divorce down the line
Getting into bed with the wrong investor can be disastrous for a start-up. These 10 top tips reveal what you should consider before taking on funding – therefore avoiding a messy divorce down the line
Why do you need money? And how much? An ideal funder will provide scale-up capital but also relevant experience and contacts to guide you and your business. Can they help you secure customers? Expand into new sectors or overseas? Speak to their portfolio companies to be sure they are a good potential fit.
How much is the investment worth to you? If you give away more than 20% every time you raise, you may end up with a small portion of the scaled, exit-ready business. Having said that, you may be better off taking a lower valuation with the right investor – so keep an open mind.
An angel investor offering a guiding hand when needed but who doesn’t demand constant meetings and input into the business may suit you perfectly; whereas a venture capitalist house with a portfolio you can tap for advice on strategic and operational factors can be crucial for some ambitious startups. VCs are laser-focused on data so ensure your metrics are advanced enough.
Before embarking on a long-term relationship with an investor, get to know them first. What do they want and expect from you? Are your objectives for the business aligned? If you don’t get along with them personally, there could be a messy divorce down the line which harms or even kills your business. Do your homework and don’t take them at face value.
Investors can be hard to please and each will have a different set of criteria to satisfy if they are to invest. Some are focused on revenue generation, while others may be primarily interested in user growth. Be prepared to be told ‘no’ a lot – and don’t shy away from asking for feedback following rejection.
If you secure investment, remember that it’s somebody else’s cash. Spending it wisely will not only keep you onside with your investors but give your startup more runway to build a viable business. Remember, people invest in people – VCs in particular will look for an ability to overcome problems without throwing cash at them.
Another way of reassuring them that you aren’t going to burn through their cash needlessly is to also invest your own money in the business. Friends and family are common sources of seed funding; be careful if you go to the bank as it may ask you to personally guarantee a loan, which would be a risky move.
There are numerous bodies in the tech ecosystem which grant money to startups for little or no equity. Not only is this a great way to retain control of your business as you build it up, but you can also use the publicity around winning the grant to generate some free marketing.
If your product or service resonates with the general public, crowdfunding can be a great way to raise your profile and build an army of supporters. Be sure to plan your campaign in great detail, be on hand to answer questions from potential investors and have at least 40% of your target raised in advance, otherwise you may be in for an embarrassing public failure.
The dream! Keeping full ownership of the business is great if you can make it work, but technology businesses thrive on speed of development and fast growth so it won’t work for many. If you do go it alone, creating a minimum viable product then rolling out more features and adding staff as the revenue comes in may result in a fantastic business.
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