How do you value a startup – in the real world?

The internet is littered with stories of astounding startup valuations, achieved within just a few years of a company’s birth. I think my favourite in recent months is the aptly named Improbable, a UK tech simulation company, which raised $502 million (£390 million) in a funding round in May 2017 at a valuation of over $1 billion, making Improbable a unicorn (a business valued at $1 billion or more). The company was just 5 years old.

Are such valuations the stuff of dreams, make-believe and fairy stories? (Surely that choice of the name “unicorn” isn’t used without irony!) How do you value a startup in the real world?

“A startup needs money. It makes the dream come true.”

Now, don’t get me wrong. I expect a founder to be bullish and full of optimism for their business. No one is going to invest in a business you’re not excited about. The issue here is that investment for early stage businesses is vital. It is literally the lifeblood. It is what enables you to build your prototype, test routes to market, build market understanding and provide the funds for growth. A startup needs money. It makes the dream come true.

“A “deluded valuation” can close doors before you’ve even had a chance to say ‘Hello'”

But, a “deluded valuation” can close doors before you’ve even had a chance to say “Hello, I’m Rumpelstiltskin”. Why would you close doors before you’ve even started a conversation?

Established businesses have it easy. When you’ve got predictable revenues there are numerous ways to assess and measure business value. (If you ever find yourself having trouble sleeping, take a look at this Wikipedia article listing ways to value a business. Startups and early-stage businesses are anything but predictable – they may not even have revenue. In such circumstances, the only business valuation that matters is when two parties agree to buy and sell.

“The only business valuation that matters is when two parties agree to buy and sell.”

But how do you get to that point? Where do you start? How do you evidence your valuation? How do you negotiate to reach agreement?

Startup valuation is a negotiation – but not one that exists in the founder’s head. One that is grounded in fact, displays careful planning and contains a dose of realism.

There is nothing more likely to cause a potential investor to walk away than a business valuation justified in the following was:

“I’ve looked on crowdfunding sites and another company that’s not as good as ours is valued at more”

“That’s how it’s done “in the Valley””

Instead, real world valuation starts with:

  • Facts – that demonstrate what you have achieved in the business and that there really is a market that is willing to buy what you offer
  • Financial forecasting – not “finger in the air” stuff, but grounded spreadsheets that demonstrate a founder’s understanding of market drivers, costs and diversified revenue streams
  • Strong team – the right people with the skills and experience to make the financial forecast a reality
  • Credible exit – which demonstrates not just an attractive return for investors on paper, but a believable route to selling shares so that the return can be realised.

Then, it’s a conversation between grown-ups – exploring assumptions, plans and options. The length of that conversation being tempered by the speed at which the business needs the investment!

By Hatty Fawcett, Focused For Business

*********************************

If you want to learn more about practical business valuation for startups, sign up for the live and interactive online masterclass “How to create a business valuation that gets your startup funded.”

You might also like “How to value your startup: A brief, practical guide.”

“Speaking the language of investors made it quicker to find investment” says Jason Kirk of Kirk & Kirk

Jason Kirk co-founder of Kirk and Kirk, an upmarket eye-wear brand, is a very credible founder and business owner. He and his business partner Karen built and sold a successful business prior to starting Kirk and Kirk, they both have over 20 years’ experience in their industry, their latest business has made good progress and they have raised investment before (for their first business). You might think that they would find it a breeze to raise investment. And yet, when they were looking to raise investment for Kirk and Kirk they sought external support and advice. Hatty Fawcett of Focused For Business caught up with Jason to find out why.


Hatty: You decided to raise investment from business angels rather than any other source, why was that?

Jason: We didn’t need a huge amount of money, about £150,000. We were eligible for SEIS (Seed Entreprise Investment Scheme) which I knew would make us appealing to angel investors so it felt like a logical place to start. I was also interested to see what sort of angel we might attract and whether they might bring additional value to the business in the form of contacts or skills, as well as their money.

I’d also decided against going to the banks because they tend to be slow and expensive. The amount of work involved measured against the amount of support you end up with from the banks is, at best, frustrating.

Hatty: You had raised investment before, for your previous business, so people might assume you knew what was required. Why did you decide to get external support in preparing for investment?

“I really want to ensure I was speaking investors’ language. I know how time consuming raising investment can be. I wanted to get it right first time and avoid going backwards and forwards with investors and spending too much time on it.”

Jason: Yes. I’d raised investment before but this was a different business. Enlisting the help of someone who knows how to tailor a document to the needs of a specific audience is very time efficient and should lead to better results. I really want to ensure I was speaking investors’ language. I know how time consuming raising investment can be. I wanted to get it right first time and avoid going backwards and forwards with investors and spending too much time on it. Raising investment can be a big distraction from the day-to-day running of your business if you’re not careful!

Hatty: You’re right. Raising investment is a full-time job – on top of the full-time job of running your business! Raising investment gets an awful lot easier when you have a lead investor, someone willing to back your business and say why they are doing so. How did you go about finding a lead investor?

Jason: I didn’t have a huge network of investors so I admit it was daunting knowing where to start! But having worked on what I need to say to investors with you, it gave me confidence to go out and start talking to people. I remember you encouraged me to talk to everyone! Telling them about the business, what we had achieved and what we wanted to do next. I spoke to so many people I began to get board of the sound of my own voice!

“It’s definitely easier to attract other investors once you have a lead investor.”

But it paid off, one of the people I spoke to – looking for their feedback, I wasn’t actually asking for investment – was an active angel investor and he liked what we were doing. He agreed to be our lead investor. It’s definitely easier to attract other investors once you have a lead investor.

Hatty: That’s very true. A lead investor really gets things moving. I know it worked for you and, with the support of your lead investor, you were able to complete the investment round. Thinking back on the process of raising investment, what advice would you offer to anyone preparing for investment today?

Jason: I’d use an experienced pro to help you prepare the documents and figures you need because it saves a great deal of time and makes your investment look more attractive to potential investors.

Hatty: Have there been any surprising outcomes from raising investment?

Jason: The investment has allowed us to make significant progress in a relatively short time frame. In fact, we’ve achieved the milestones we set and are ready for our next round of investment!

Jason worked with Hatty Fawcett of Focused For Business to prepare for investment, with the specific objective of developing a strong summary of the investment opportunity (in the form of a one page executive summary) and a credible business valuation.

If you would like help preparing for investment, book a free funding clinic with Hatty Fawcett or attend a live and interactive, online masterclass that gives you the tools to prepare yourself for investment.

Giving you the tools to raise investment: Online masterclasses for start-ups, founders and early stage businesses

Raising investment is a journey. It takes time, you learn and adapt as you progress – and it’s a full-time job! The online masterclasses series is designed to give you the tools and information you need in a focused, practical and actionable way:

How to write an executive summary that attracts investors
Everything you need to create an executive summary for business angels or crowdfunding investors that really sells your investment opportunity.
Find out more and book a place

How to create a business valuation that gets your start-up funded
A down-to-earth, step-by-step approach to creating a business valuation for start-ups and early stage businesses looking to raise angels investment or crowdfunding.
Find out more and book a place

How to find investors and move them from “Doubters” to “Shareholders”
A focused, methodical approach to finding, warming up and closing deals with business angels and crowdfunding investors.
Details coming soon

How to pitch your start-up to raise investment
Everything you need to prepare the different types of pitch you will need when raising angel investment or crowdfunding.
Details coming soon

 

 

How to create a business valuation that gets your start-up funded

Business valuation...the most common deal breaker

A down to earth, step-by-step approach to creating a business valuation for start-ups and early-stage businesses looking to raise angel investment or crowdfunding.

You will:

  • Learn what a business valuation is and how it changes over time
  • Become familiar with the terminology used to express a business valuation
  • Discover the evidence you will need to justify your business valuation
  • Understand what investors look for when assessing value in a business
  • Undertake a practical exercise to identify the drivers of revenue in your business
  • See a worked example of a financial forecast
  • Receive a valuation calculator

Places are limited to ensure a good interactive experience.  Please book early to avoid disappointment.

Duration: 1 hour 45 mins
Location: online using Zoom video conferencing
Presented by: Hatty Fawcett, Focused For Business

Book your place on the next masterclass

If you can’t see the booking form, book your place via Eventbrite

About Hatty

Hatty Fawcett is the founder of Focused For Business  She raised two rounds of investment for her own business venture and now supports others in raising investment, predominately through business angels and crowdfunding. She runs a series of online masterclasses and Crowdfunding Accelerator, an eight week online programme of workshops and mentoring that makes it quicker and easier to succeed at crowdfunding. Hatty also offers free Funding Clinics to founders and business owners raising investment. Hatty regularly speaks on the topic of raising investment and is an active blogger on the subject.

What people say about working with Hatty

“Hatty is a great teacher! The rich content of the course kept me interested and helped me. This course has given me confidence.” Sue Frost, Co-founder Curamicus

“The webinars from Hatty are great but the best bit is the interaction with the other participants and hearing how they are approaching their journey to investment.” David Toscano, Cin Cin Italian Canteen

“Hatty was a fantastic coach helping us create a short pitch, ensuring the delivery of key investor information in a simple but effective way” Gill Hayward, Co-Founder, YUU World

Hatty’s content was excellent and I learnt far more than I had imagined. We had a good laugh whilst getting some serious work done.” Sharon Maddy-Patel, Maddy Lou Shoes

“Hatty made the daunting process of accelerating my business a simple, outlined and structured process. As a company we have gained direction, professionalism and valuable information through her insights.” Arun Thangavel, Co-Founder, Hollabox

You can read more about Hatty on her LinkedIn profile.

Book your place on the next masterclass

How to combat loneliness as an entrepreneur

What words do you associate with entrepreneurs and founders?

Ambition?
Passion?
Optimism?
Energy?

Lonely?

Perhaps not the latter. And yet…

At the outset, most entrepreneurs act alone. They have an idea, they research it, develop it, make it happen – on their own.

They are self-reliant – they have to be. In the early days there is often no budget to build a team, there may not be a co-founder to share ideas with, or to moot the relative benefits of this strategic option over another. Entrepreneurs have to trust their own judgement.

Even when the business is able to support a team, founders have to keep a distance between themselves and the team some of the time. There are some things you just can’t share with the team – especially if the thing that is worrying you is “how do I pay the next monthly salary run?”

And yet, as the saying goes, “a problem shared is a problem halved”.

So what’s a founder to do?

There are practical things you can do to combat loneliness:

  • Using co-working spaces can be a good way of ensuring you have people around to talk to.
  • Making time for networking also makes sure you are meeting new people with different perspectives, but beware people’s natural inclination to present a positive picture of themselves which may mean you feel you can’t be as open as you’d like to be in certain circumstances.
  • Working with a coach or mentor can provide an environment for discussing more sensitive, and potentially challenging, situations – but it can become expensive.


Or you could join an online Entrepreneur Board – an intimate group of entrepreneurs whose businesses are at a similar stage to yours, people who get to know you over time, building trust, rapport and understanding of each other’s businesses. It makes for a powerful support option. Not only does it combat loneliness but it is designed to facilitate problem solving, offer support in responding to challenges and in exploring strategic options. You become part of a community, surrounded by experience.

You are not alone, afterall.

******
Find out more about Entrepreneur Boards

Crowdfunding isn’t just about the money…three founders share why they chose to crowdfund

There is no doubt that crowdfunding is a good way to raise investment. What’s interesting is that the reasons people are choosing to crowdfunding are changing. Of course the investment raised is nice – but it isn’t the only reason for undertaking crowdfunding. Below, three different founders share why they choose to do crowdfunding:

“Crowdfunding proved a brilliant way to market test a new product and boost sales.” 

Kellie Forbes and Gill Hayward, Co-Founders of YUU World, who have successfully raised two rounds of equity investment, decided to do reward-based crowdfunding to test demand for a new product. They noticed that “wearable tech” products did particularly well on reward-based crowdfunding platforms and they decided to include crowdfunding as a key plank in their marketing strategy. It wasn’t the easy ride they’d hoped but had some surprising results…Read more

“Crowdfunding enabled us to turn a shared vision into a tangible financial commitment.”

Robert Woodford, Marketing Director at Deep Time Walk, turned a shared ethos and vision for the world held by the alumni of Schumacher College to raise funds to create not only a mobile app that takes you on a detailed and dramatised walk through the earth’s history, but also funded educational burseries in the process…Read more

“I loved the idea of having 100+ brand advocates who are emotionally and financially invested in our product.”

Peter Ramsey, Founder of Movem, wanted to put down a marker in his industry by not only raising investment but also establishing brand advocates in the process…Read more

All three founders faced challenges along the way – no one ever said crowdfunding would be easy – and they have been generous in sharing their experience and advice so that you can learn from it.

*****************

If you are considering doing crowdfunding Crowdfunding Accelerator, an eight week online programme, makes it quicker and easier to prepare for crowdfunding, focusing your attention on the things that really matter. Find out more about Crowdfunding Accelerator

 

“Crowdfunding proved a brilliant way to market test a new product and boost sales” says Kellie Forbes Co-Founder of YUU World

Kellie Forbes and Gill Hayward, Co-Founders of YUU World, know what it takes to raise investment. They survived “Dragon’s Den” (TV programme) receiving offers from all five dragons and going on to raise investment from Peter Jones and Deborah Meadon. Then, in 2016, they raised £210,000 from a number of business angels. In 2017, with the business doing well and a new product to launch, Kellie and Gill turned to crowdfunding to raise investment to launch the new product but, more importantly, to test demand for their latest creation, YUUGo a GPS tracker backpack which provides parents with everything they need to keep their kids both entertained & safe on-the-go.

Their crowdfunding campaign didn’t raise what they hoped but they still feel the campaign was a success and that crowdfunding was very worthwhile. Hatty Fawcett  of Crowdfunding Accelerator caught up with Kellie to find out why and to discover what they’d learnt in the process.


Hatty: What attracted you to crowdfunding for this investment raise?

Kellie: We were attracted to crowdfunding to launch our new product not just because of the financial support, but because we thought it would be a great way to test the desirability of our newest product. We also wanted to gain some valuable insight on how to improve our product along the way.

Hatty: What influenced your decision to do reward-based crowdfunding (rather than equity)?

Kellie: YUUGo is a tech product (it uses GPS/Wi-fi tracker to allow children to track their journeys whilst giving parents the ability to see where their kids are). We noticed that “wearable tech” performs particular well on reward-based crowdfunding platforms. It seemed a good way to reach out to new customers beyond those who already love our core product. Nothing is certain in crowdfunding – and we had some concerns – but we wanted to give it a try.

Hatty: How did you decide at what level to set your crowdfunding target?

“I would urge anyone considering crowdfunding to think very carefully about their crowdfunding target…setting this at the right level is more complex than you might think.”

Kellie: I would urge anyone considering crowdfunding to think very carefully about their crowdfunding target (the amount of money you want to raise).

We reviewed a lot of crowdfunding projects before launching our own and, in many cases we saw the percentage reached outshining the actual target. When this happens “the crowd” tends to be encouraged by the initial response and join in backing the project causing an over-funding situation. This is very exciting when it happens but it can also be misleading. You have to deliver your promised rewards the minute you hit your (minimum) target, even if you are planning to go on and over fund. We considered setting a lower target (so that we were seen to achieve our target quickly) but we were concerned that if we set our minimum target too low we would not raise sufficient funds to meet our minimum order quantity with our factory, leaving us needing to deliver rewards without the minimum order quantity economies of scale. That would have cost us money!

I guess what I’m saying is that setting your crowdfunding target is more complex than you might think. You’ve got to think about what you need, the costs of delivering your promised rewards and recognise that there is human psychology at play too.

“It is dependent on you to get the first 40-50% (of your target) pledges in – and you need these pledged in the first few days of your campaign. I cannot stress this enough”

Hatty: Had you lined up some initial investors to support your crowdfunding pitch when it went live?

Kellie: I cannot stress enough how important it is to do some in-depth prep and ground work on lining up initial investor pledges. I’d recommend lining up initial pledges that account for 40%-50% of your target – and you need these pledged in the first few days of your campaign to get the traction your campaign will need to reach “the crowd” (people you don’t know).

We’ve found there is a difference between American and UK consumer behaviour on crowdfunding sites. We found that our campaign received good numbers of visitors but the conversion from our Facebook advertising and our database was not what we had anticipated. People can be scared off, or simply be confused about what they are there for, if they have not made a crowdfunding pledge before. I’d recommend providing a clear, short explanation on your pitch page explaining how crowdfunding works. UK consumers, in particular, seem less familiar with crowdfunding compared to, say, the USA.

“I wish we had worked with somebody independent to our campaign and company so that we had another perspective and view.”

Lastly, and I feel this sincerely, I wish we had worked with somebody independent to our campaign and company so that we had another perspective and view on how to approach our campaign. In my experience, you cannot cover enough angles when preparing for your campaign!

Hatty: Have there been any surprising outcomes from your crowdfunding campaign?

Kellie: Yes! it was disappointing that we didn’t hit our target but we have learnt so much and had such useful feedback we feel the campaign has delivered – just not in the way we expected.

We now know that we were not focused enough on finding that first 30% (of our target). It was dependent on us to get those pledges in and, whilst we believed we had these teed up, it took more than we anticipated to bring them home. The first two days of the campaign were exhausting, asking friends and family to pledge. If we had understood the importance of this better, we’d have prepared more pledges before going live.

That said, we’ve had amazing feedback regarding the new product. That’s been insightful. We know we have a desired product, but we now realise there is another way to deliver this – as an add-on option rather than a bespoke product. We had considered this before but had opted to make a stand alone product. It was feedback by via the crowdfunding campaign that has caused us to re-think this decision. We have a better product as a result.

Another unexpected outcome has been the amount of exposure our business has received and the impact this has on sales. We’ve had some lovely PR which has been brilliant (including a spot on BBC Business Breakfast). Better still, we’ve seen this exposure directly impact on sales. Our sales are up almost 20% which is thanks to the crowdfunding campaign exposure. Experience tells us that this will also bode well for the all-important Christmas sales period too.

“All in all, crowdfunding been a win win situation for us.  We have collected so many assets from the experience. It was never our intention to use the campaign as a market research or selling exercise but that has been the unexpected result. If you look at the pound for pound result – it’s been great value.”

 

***************************

Crowdfunding Accelerator is an eight week online programme that makes it quicker and easier to be successful at crowdfunding. Find out more

How to create an executive summary that attracts investors

A practical, results-focused masterclass that gives you everything you need to create an Executive Summary for business angels or crowdfunding investors that really sells your investment opportunity.

Developed with input and feedback from active investors, you will:

  • Learn to use the 7 Essentials of a successful pitch to structure your Exec Summary
  • Do a practical exercises to describe your business in one succinct sentence
  • Receive a ready-to-use Exec Summary template which investors love
  • Develop a series of “proof points” that show investors you have traction
  • Discover the three most important things to include in your Exec Summary
  • Receive a supporting workbook, additional resources and proven tips

In addition to the live and interactive online masterclass, if you submit your draft Executive Summary (using the template provided in the Masterclass) the course leader, Hatty Fawcett, will conduct a review of this and provide detailed feedback and suggestions for improvement, giving you additional confidence that you have an Exec Summary that will attract investors.

 

Places are limited to ensure a good interactive experience.

Duration: 90 minutes
Location: Online, using Zoom video conferencing
Presented by: Hatty Fawcett, Focused For Business

Book your place on the next masterclass

If you can’t see the booking form, book your place via Eventbrite

About Hatty

Hatty Fawcett is the founder of Focused For Business. She raised two rounds of investment for her own business venture and now supports others in raising investment, predominately through business angels and crowdfunding. She runs a series of online masterclasses and Crowdfunding Accelerator, an eight week online programme of workshops and mentoring that makes it quicker and easier to succeed at crowdfunding. Hatty also offers free Funding Clinics to founders and business owners raising investment. Hatty regularly speaks on the topic of raising investment and is an active blogger on the subject.

What people say about working with Hatty

“Hatty is a great teacher! The rich content of the course kept me interested and helped me. This course has given me confidence.” Sue Frost, Co-founder Curamicus

“The webinars from Hatty are great but the best bit is the interaction with the other participants and hearing how they are approaching their journey to investment.” David Toscano, Cin Cin Italian Canteen

“Hatty was a fantastic coach helping us create a short pitch, ensuring the delivery of key investor information in a simple but effective way” Gill Hayward, Co-Founder, YUU World

“Hatty’s content was excellent and I learnt far more than I had imagined. We had a good laugh whilst getting some serious work done.” Sharon Maddy-Patel, Maddy Lou Shoes

“Hatty made the daunting process of accelerating my business a simple, outlined and structured process. As a company we have gained direction, professionalism and valuable information through her insights.” Arun Thangavel, Co-Founder, Hollabox

You can read more recommendations on Hatty’s LinkedIn profile.

Book your place on the next masterclass

If you can’t see the booking form, book your place via Eventbrite

See all Preparing for Investment: Online masterclasses

Crowdfunding Accelerator graduates raise almost £400K of investment

Crowdfunding Accelerator is a year old (as at July 2017) and our graduates have raised almost £400K of investment for their businesses during that time. Proof, if you like that Crowdfunding Accelerator increases your chances of raising investment. Congratulations to all our graduates.

Crowdfunding Accelerator, an eight week online programme, makes it quicker and easier to prepare for crowdfunding, focusing your attention on the things that really matter.

Find out more about Crowdfunding Accelerator

 

New crowdfunding regulation could make it harder to get accepted onto a crowdfunding platform

The Financial Conduct Authority (FCA) which regulates both peer-to-peer lenders and equity crowdfunding platforms has announced that it plans to introduce more regulation to protect potential investors and help them understand the risks of investing via crowdfunding.

Areas likely to come under scrutiny include:

  • more prescriptive requirements on the content and timing of disclosures
  • better management of conflicts of interest
  • improved standards of due diligence and
  • enhanced client assessment rules.

These changes could lead to new eligibility requirements for companies wishing to crowdfund and greater scrutiny of their businesses plans and forecasts, making it harder for businesses to be accepted onto equity crowdfunding platforms. It is also possible that crowdfunding pitches will require greater validation in order that risks can be more accurately assessed and reported.

Read the FCA’s an assessment of new rules for crowdfunding

Want help with your crowdfunding application and campaign? Learn how Crowdfunding Accelerator makes successful crowdfunding quicker and easier