Raising funds, either seed for your start-up or for Series A, B or C, is distracting and time consuming. What’s more, it’s an activity that usually falls outside company founders’ area of expertise, which means they often try to defer or avoid it. Consequently, entrepreneurs often ask us “when should I be fundraising?”
The answer is simple: if you have a rapidly growing business, you should always be fundraising. Minutes after your latest fundraising round is complete, your thoughts should turn to the next one.
If your new business is really gaining traction, a further complication can be that the amount you needed last month is considerably less than the amount you’ll need next month. You’ve developed your pitch, started conversations and then because things have evolved so quickly, you realise you’ll need significantly more than you thought. That’s exactly what happened with our client AI based tech talent resourcing platform Distributed.
When we started working with Distributed’s founder and CEO Callum Adamson and his team, they were looking for a fairly small investment. Within weeks, having landed some major clients and needing to press on aggressively with the next round of AI development, Distributed’s funding requirements had substantially increased. The original story was scrapped, new plans developed (and then reiterated) which involved approaching a completely different set of potential investors. The Distributed team took on some of the short-term pain in order to get the right investor at the right level. In December 2018, Fuel Ventures invested £1.5m into the company – their biggest investment by a factor of two.
I met with another client last week to discuss growth planning for their new content business. In January we reviewed a seed capital raise of a few hundred thousand pounds. Within four weeks, and with no formal marketing, their service had gained traction with two blue chip companies, meaning that the original funding plan had to be totally re-engineered. They’re now going to need to scale a whole lot faster. It’s exciting when your brilliant idea starts to become tangible, however it’s also nerve wracking when you realise that you’ll need £2m from investors in order to get to the next level. It’s a completely different story, requiring a different type of funding from investors with a different appetite for risk.
So, what are our top five tips in these circumstances?
- Early funds are the most expensive – guard your equity like a mother bear guards a cub.
- Consider bootstrapping– such as-relying on your personal finances – to allow you to target a bigger raise at a time that suits you. Don’t be afraid to ask friends and family for financial help.
- Be prepared to become a specialist in telling your story and raising funds. Evolve your story as your business morphs and changes – your needs change and so will your appeal to potential investors.
- Raise enough so that you don’t have to do it again in six months’ time.
- Be agile in your thinking, expectations and approach. Don’t obsess about a particular amount you need to raise or get fixated on a specific funding route.
Did you think tip #5 was going to be “and speak to somebody like Waypoint”? My advice would be don’t, at least not straight away. Work out what you can do for yourself before looking for help – remember, investors are buying you and your vision so spend time really thinking about that and articulating it.
That said, once you have taken your planning and visioning as far as you can on your own, working with a growth advisory firm like Waypoint can help navigate the complex funding journey and can also open important doors. When we spot a new company with real potential, we like to take the journey with them, staying close to the founders as it develops. Because we know buyers and investors, we understand what they ‘value’. This knowledge helps to shape how a business should develop, which in turn can inform the funding requirements.
So when should you be fundraising? If you’re leading a robust, fast growth business, you will spend the next five years fundraising. I said you wouldn’t like the answer!
Follow Andy on LinkedIn