Start-up financing is a very specific skillet and it needs to be done at a low cost. While it sounds good to use the biggest most well-known firm in town, chances are they don’t have the specific skills needed to close a venture round in a reasonable time frame at a reasonable cost.
We had to incorporate in Delaware, flip our Australian entity into a US entity, establish a share plan for employees, set up license agreements and do it as cost-effectively as possible.
If you want to keep costs low and do it the right way, make sure you engage a firm who specialises in this. The documents and work required is very specific and can be turned around quickly and affordably if you use the right people.
We used Richard Horton and his team who are probably the best guys in the business for Australian to US venture financings. They did an incredible job and moved fast.
Raising money has a domino effect. If you can convince one or two influential investors to back you, the rest of the process becomes significantly easier.
Some investors like to be the first money in and some prefer to be the last. Once we had the first two investors committed, the rest of the round filled up pretty quickly on the back of that momentum.
You need to capitalise on early momentum and move quickly. Try to get the big names in first for as much as they are willing to commit then leverage that to bring in others who were already interested.
The trick here is to approach investors very early on. You don’t want to be selling the story at the 11th hour. Have conversations six months out and inform potential investors about your start-up.
Tell them you are raising money but don’t come across as desperate. Once these people hear you have interest from a couple of lead investors, it takes just one call to ask if they are in or out. Do the story telling before the momentum builds so that you don’t need to sell the story at the 11th hour.
Additionally, investors like to see good management capabilities. If you can convince a credible executive to join your board during the investment process it will show investors that you can attract the right people and increase their confidence in your abilities.
We had three interested parties who were strategic investors. As an entrepreneur it might make sense in your mind to bring in a customer as an investor but customers are only interested in using your product for their own benefit whereas investors need to make a return on their equity.
So if investors make a return on their equity, then as a founder, so do you!
Furthermore, if a customer is interested enough to invest, chances are they will become a user of your product in any case. Try to get venture money not strategic money if you can.
When you need money it can be tempting to accept any term sheet you receive however if you truly believe you have a great product, team and vision, then you deserve to receive a fair deal.
Seasoned investors understand they are taking a one in 10 chance and should give the entrepreneur a fair deal. That means a priced round at a healthy valuation without any tricky terms.
If your investors are trying to shaft you from day one, find someone else who really believes in you. You’re in it for the long run.
Don’t be afraid to walk. I walked away from two term sheets before I got what I wanted.
There is no chicken or egg scenario when it comes to raising capital. Investors need something to invest in, i.e. businesses and founders, and while this might seem arrogant or naive, you need to maintain a demeanour that reflects a sense of confidence and belief that the “train has left the station”.
Investors will flock to a founder that has confidence, conviction and a great idea.
However, confidence and conviction are vastly different characteristics to arrogance and ignorance.
Finally, be patient and DFTBA . It took almost 10 months from our first investor meeting to close the round.
