All small businesses need to think about bringing in investment as they grow. But where do you start: which sources of funds are there, where to meet them, what to prepare, what’s the process?
There’s money out there in government grants, “angels”, crowdfunding and venture capital. But these days they’re experienced – and picky – and have lots of potentials to look at.
Assume they’ve seen 10 ideas today. Why you? What stands out? What’s missing?
You’ve already done your bit to bootstrap your company. On top of your time and sweat, investors want to see founders putting their money in before they do. Think about your “family & friends” network too, for initial cash and for the next investor: if your mum and mates share your confidence, all the better.
Show you’ve worked every angle. Demonstrate how you’ve kept costs to a minimum. Welcome unpaid interns with open arms. Juggle every invoice and receivable. Barter your services: “I’ll do your PR if you build my website…”
Look in the mirror
Take a long hard look at your business:
- What’s the problem you’re fixing?
- Why will people pay for it, and how big is the market?
- What makes your brilliant team different?
- Where have you come from, what have you achieved and learnt so far? What are your next milestones?
Prepare a one-slide “teaser”. It’s hard to do – there’s so much to say! – but the discipline helps, and attention spans are short.
Put yourself in an investor’s shoes: ask the awkward questions and be self-critical. Talk to your team, your customers, your peers. Why are you unique? Is it wishful thinking? Leverage your wins and your validation points to date.
Talk to investors. It’s never too early to start socialising your idea, and they can give great inputs. Think of it as an ongoing CRM exercise: introduce yourself, expand your network, keep them updated, then you’re on their radar when you need them.
What I am worth?
Start with what you need. Be realistic, and don’t raise too much too soon. What will get you through the next milestones? Prove those, then raise again. Your value goes up as you validate the model, so think about funding getting you to the next stage – and avoid giving away too much at a low price.
Valuation is somewhere between art and science, but really it’s mostly “finger in the wind”. If you have years of revenues/profits to show, that’s one thing – but if you’re less than say five years old, growing fast, likely not making much money yet, there’s no magic formula.
Try not to focus too much on it. You’ll find a number if they like the business: you and your team, the idea, the pitch… and you can make it adjustable anyway depending on future milestones and targets.
Where do I find these people?
Try the low-hanging fruit first. Singapore offers great government grants, though there’s a slightly confusing number of them – thankfully the SME Centres can take you through this. Visit one, or more if you don’t meet the right person, to walk you through what might fit and explain the process.
Do your research and networking. Again, talk to friends and connections, ex-colleagues, customers, get introductions. You can Google local crowdfunding platforms, incubators, or venture capital firms to build a long list of potentials.
And then hit the road: treat it like you would selling your services. It’ll almost certainly take a bunch of meetings before something sticks, but that’s OK; every discussion is practice, you might get a new introduction, and you’ll get there. I spoke to a founder recently who said she met over 200 and got four investors… but four was enough.
Next week’s homework
Ready for some due diligence? It’s not just about selling your idea. You’ll have to at a minimum give them proper up-to-date accounts, show that your government & tax filings have been made and that there aren’t any potential black holes. Make it easy for them and their advisors to tick the boxes – and try to do more, by showing them a proper governance and finance set-up.
You should do a financial forecast, looking say 4-5 years ahead. It doesn’t have to be rocket science but should at least show projected revenues, costs and what you’re going to spend their money on. Building your team? Customer acquisition? R&D? Spell it out, in reasonable detail.
Think about building your “investor deck”, maybe 15 slides – but don’t let it drag you down. They reckon the first seven seconds of a job interview are most important, and your teaser’s already longer than that.
Until you’re self-funding, you’re always fundraising.
Be prepared, and don’t leave it to the last minute. Be realistic. Be crystal clear on what you want to achieve.