How to find investors for a startup…quickly!

A recent report from Beauhurst and SFC Capital* reveals that it takes, on average, 15 months to find investors for a startup and close a first funding round. Small wonder that people say raising investment is time-consuming and a distraction! But almost all startups need investment at some point so how do you find investors for a startup quickly?

How to find investors for a startup
How to find investors for a startup…quickly!

Focused For Business runs Funding Accelerator to make it quicker and easier for startups to raise investment. Hatty Fawcett, the programme’s founder, asked graduates from the programme how they found investors for a startup. This “How to” guide is the result.

1. Be realistic

Ask any founder who has raised investment “How long did it take to raise investment?” and you’ll get the response “Longer than I thought!”.

Raising investment is time consuming. You have to treat a funding round like any project and make time for it. All the founders I spoke to recommended scheduling time in your diary every day for investor conversations and correspondence.  

If you want to raise funding, schedule time to make it happen.

2. Set a timeframe for your funding round

Raising investment is a distraction from running your business. You don’t want to prolong any distraction (and certainly not finding investors for a startup)! Being clear about when you want funding, aligning all your activity to that goal and minimising time-wasting activity is the key to success.

Focused For Business recommend its clients treat fund raising as a three month campaign. The first month is about preparing your investment opportunity – perfect the positioning, messages and all the documents investors will need. In the second month you want to focus on meeting investors. Aim to book at least 3 or 4 meetings a week. The final month is about corralling offers, completing due diligence and closing the round.

Keep focus by treating fund raising as a three month campaign.

3. Don’t waste time talking to the wrong investors

Investors, like startups, come in many shapes and sizes. When trying to find investors for a startup you need to segment all the available investors and focus on the ones that are most like to back your startup – based on your stage of development, sector and size of raise.

Don’t waste your time talking to Venture Capital (VCs) if you don’t yet have revenue, focus on angel investors and early-stage funds that do back pre-revenue startups. One of the challenges faced by VCs in particular, is that they need to keep their market knowledge and awareness of the competition up to date. They will often meet with startups in sectors they are interested in, even when they know they can’t investor in that startup at such an early stage. Whilst it may be flattering for a pre-revenue startup to get a meeting with a VC, it is very unlike to result in investment and therefore it is a distraction to be avoided!

Get clear which investors back startups at your stage and in your sector and focus on these.

4. How to find investors for a startup like yours

Having segmented the different types of investors, focus on reaching out to those investors that do back startups like yours.

Hugo Shephard, founder of Role Models recommends starting with your own network.

“I found my network was better [at delivering investment] than any angel network or introducers’ contact list.”

Statistically, it is most likely that your initial investment commitments will come from people who know you.

Angel networks can be a good place to find groups of investors – and the UK BAA provide a directory of UK angel networks. Be wary of events that are ill defined as there is a risk that you will end up pitching to investors who are not interested in your startup. 

Claire Ayres, co-founder of Twist Teas experienced this first hand

“Pitch events can be quite unfocused if an angel network doesn’t specialise by sector or stage of development. It can also be difficult to do any direct follow-up as the network’s are protective of their members’ contact data.”

There are an increasing number of online platforms that connect investors and founder, including Angel Investment Network, Connectd, Angel List, Gust and Crunchbase to name but a few. However, to get the best result from these platforms you need to commit to researching and reaching out to specific investors on an individual basis.

Knowing which investors are interested in startups like yours is what matters. There are a number of ways you can research this.

Sifted provides a curated list of angel investors but, like any list it can become outdated quite quickly.

Alternatively, if you can identify competitors or companies operating in a similar market to yours who have recently received investment, you can use a number of methods to find out who backed those businesses. You can look the company up on the Companies House website, or use databases like Beauhurst or PitchBook, to find the names of their investors. Armed with this information you can find for ways to be introduced to the investors.

Specialist accelerators, which are usually focused on a particular sector or stage of development are another way of getting introductions to appropriate investors. Funding Accelerator, for example, focuses on startups raising investment for the first time and makes introductions to investors who invest at pre-seed and seed stage.

There are lots of ways to find investors – but an introduction gets the best response.

5. Get an investor’s attention quickly

Having found suitable investors you want to get their attention quickly.

If you can’t get a personal introduction to your target investor, then personalise your approach. Make reference to what you know about them. For example, you might open a conversation with “I know you are passionate about….and have invested in ….” 

Having made a connection, lead with a piece of information that makes your startup standout. This could be strong revenue growth, a well-known company that is a key customer or third party endorsement of your product or service in the form of an industry award or customer feedback.

Personalise your outreach to investors.

6. Busy people won’t give you long to get to the point

Serious investors are busy people, they won’t give you long before they have made up their mind whether this opportunity is for them…or not! Focused For Business’ research shows that investors give you between two and five minutes before deciding whether to meet with a startup. In that time, they are looking for seven key pieces of information (7 Essentials that unlock startup equity investment) that allow them to assess whether this is an opportunity for them. It is why your executive summary is your most important investment document when it comes to investor outreach. Hugo Shepherd speaks to this point

“We spent a lot of time crafting our pitch messages – not just our pitch deck. We also used a graphic designer to help us convey our message visually. We received a lot of positive feedback on our pitch materials. Making a good first impression definitely helped us get meetings with investors.”

A well-crafted one page executive summary helps investors see the opportunity for themselves so they can make a decision to meet you.

7. Keep up momentum

When you have an investor “on the hook”, just like a fisherman, it is your job to reel the investor in. Do not expect – or wait for – an investor to take the initiative.

Once an investor has seen your one-pager and agreed they are interested in the opportunity, your aim should to book a meeting at which you can use your pitch deck to explain the opportunity in more detail. Be ready to divert from the flow of your pitch to respond and provide detail on the specific things that interest each investor. Some investors want to know about the team first, others the market opportunity in terms of USP, market size or competition.

If the meeting goes well you should expect to leave an investor with a detailed financial forecast which makes it easy to explore the commercials of the opportunity.

Different investors focus on different aspects of the deal, be ready to follow an investors interests.

8. Gauge interest and intent – not all investors are serious

“Serious investors make a decision quickly – usually within 2 or 3 calls. Either they like the business or they don’t”

This was Hugo Shephard’s experience. He cautions against investors who keep coming back with more and more questions.

It is your job to spot which investors are serious and which are just “kicking the tyres”.

Having your Term Sheet ready is a great way to sort out who is serious, and who isn’t. This is a non-binding document, but very useful in working out who is really interested in making an investment commitment.

Use a Term Sheet to work out who is serious about making an investment, and who isn’t.

9. Create FOMO

In order to negotiate the fairest deal for all parties, you want to attract more than one offer of investment. Ideally you want investors lining up to offer you more investment than you actually need. That puts you in the driving seat and allows you to negotiate terms.

To drive multiple investment commitments you need to be come skilled at using the progress you’ve made in the business to maximum effect. You want to use your successes and achievement to create a sense of FOMO (Fear Of Missing Out). By releasing news  – about a new signed customer contract, a new commitment from an investor, securing a lead investor – you show progress in the business and encourage those who haven’t yet committed to come off the fence and back your startup.

As Claire Ayres explains

 “We went back to investors that we had spoken to early in our investment round, but who had not committed to an investment, to update them on our progress. We used FOMO to allow us to double the investment we raised overall.“

Hugo Shephard followed suit

“Whenever a big investor came on board, I would send out an email to my investor database and use FOMO to re-open conversations with investors who hadn’t previously committed, or who were sitting on the fence, to see if they would follow the investor who had committed.”

Running a “rolling round”, such as SeedLegals SeedFast to bank commitments as they are made  whilst also keeping the round open, allows you to start spending to deliver more progress in your startup and thus creating a virtuous circle.

Go back to potential investors with updates as the story of your business (and funding round) develops.

10. Surround yourself with people on a similar journey

Raising investment is a tough and surprisingly lonely job. Being part of a community of founders as committed as you, not only gives you access to new insights, tips and insider knowledge of what is working and what is not, but it also helps you to keep motivated and can even makes the process of raising investment fun! Funding Accelerator and Startup Masterminds: Funding provide support for the funding journey.

Surround yourself with other founders who are raising to maintain your motivation.

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If you would like help to find investors for a startup, of if you would like to explore your funding options further, Book a Funding Clinic

* Seeding to Succeed: Beauhurst and SFC Capital, July 2021

Should you raise startup funding from friends and family?

So you think you need to raise funding for your startup? You may be right, but before you being to raise startup funding from friends and family, take a moment to assess whether your startup is ready for investment. It is so much easier to raise investment when you have traction.

Should you raise startup investment from family and friends

There comes a point when all startups need investment. As Founders, we do what it takes to build our startups, to make our vision a reality. We use our savings, we load up the credit card and we bootstrap to fund our startups but if this isn’t enough to get the business to “traction” (the point at which professional investors get involved), the next best option may be to raise startup funding from family and friends.

Startup investment is very likely to come from people you know

There is a lot of anecdotal evidence that a startup’s first funding round will come, predominately, from people known to the business. So speaking to friends and family isn’t a bad idea in itself. People who know you, your skills, strengths and experience, are more likely to believe you can take your startup to the next stage. They know your abilities. They trust you. They are, in effect, backing you.

But, should you do it? Should you raise startup funding from friends and family?  Should you take money from your nearest and dearest when there is, inevitably, risk involved. If things don’t go to plan with your startup, will you regret mixing business and personal relationships?

What does it mean to raise startup funding from friends and family?

Before we explore the emotions that arise when you raise startup funding from friends and family, let’s consider the different forms this type of funding might take. Friends and family funding could be:

  • a gift – with no expectation that the money will be paid back
  • a loan – perhaps with low or no interest and a long loan period
  • a commercial arrangement where you offer shares (equity) in your startup in exchange for the cash.

All of these options could give you the cash injection your startup needs but, with the possible exception of money offered as a gift, the money comes with expectations – some of which may be explicit, but not all!

Relationships with friends and family run deep. When you raise startup funding from friends and family the people who back you trust you – with their hard earned cash. Depending on their education, career and financial situation they may not realise the risk they are taking. The implications can be far-reaching.

I know one founder whose father invested in his startup and – when that business failed – the father lost all the money he had invested. As a result father and son didn’t talk for years. Worse still, the father almost refused to attend his son’s wedding. A betrayal of trust isn’t easily forgotten so proceed with caution when raising startup funding from friends and family!

Be clear about the risks

Approach any conversation with friends and family with frankness and honesty. Nine out of ten businesses fail in the first two years of trading. Running a business is challenging and influenced by some factors beyond the Founders control. Make sure anyone making an investment in your startup realises this. Business Angel investors know the risks and are usually in a position to spread their risk across a number of investments. Your friends and family may not be in a position to do this. They may only be backing your startup.

Explain this is a long term investment

There is no quick return on an investment in a startup either. Indeed, if you raise startup funding from friends and family, they are unlikely to see any of that money back for a good few years. Startups don’t pay dividends. Early investors, and this includes friends and family, don’t get their money back until there is an “exit”. That generally means until the startup has grown to such an extent that another business (or other investors) want to buy the business. It takes time (between 5-10years generally) to get to an “exit”. Can your friends and family wait that long for their money back?

Consider the impact of future raises – and don’t over-value today

Then there is the issue of valuation. Valuing any early-stage business is complex but valuing a fledgling startup is very difficult. It is often difficult to know where you start. There is also a risk. If you get the valuation wrong you could end up selling too much of your business at too early a stage. This can then hamper your ability to raise further rounds. As new investors come on board, the Founder and other shareholders become “diluted”. Depending what proportion of shares were sold originally, you may find you no longer own enough of the company to take on new investors and maintain control of the business.

To raise startup funding from family and friends can be a good route

Nevertheless, raising startup funding from friends and family can still be a good option – and may be your only option. But, if you want to stay friends, full transparency and honesty are essential. You have to be responsible about what people are getting involved in. Be open about the risks.

You can enthuse about the opportunity – but you must also level with everyone about the risk. The decision to invest is then theirs to take, or not. It gives your friends and family the opportunity to choose whether or not to invest and at a level that hopefully won’t sour your relationship if things don’t go to plan. It moves the transaction onto a business footing.

Being honest in this way creates space for personal choice, without any feeling of pressure that family and friends might feel to support you at all costs. As the Founder, you must also be willing to accept any answer with good grace, especially if that answer is a “no”.

If you can do that without ranker or grudge it gives you freedom. Freedom to ask almost anyone to consider an investment in your business. And that opens a world of potential investors to you.

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Find out whether your startup is ready to raise investment by taking the Startup Investment Score card

Startup Meetups and other events

Angels@Essex: Female Founders & Investors event, Friday 15th October, 12.30pm-2pm (BST)

A networking event for female founders and angel investors to meet online and discuss funding. Hatty Fawcett is a guest speaker at the event and will be talking about how to impress a potential angel investor.

Book here

How to close a deal with investors…quickly! Friday 5th November, 12pm (BST)

A practical session hosted by Focused For Business & Seed Legals which will explore:

  • The 7 Essentials that have investors queuing up to meet you
  • How to use the 7 Essentials to maximise the impact you make with investors and angel networks
  • How to use a Term Sheet to close a round quickly
  • The key terms investor will expect when backing your business
  • and provide practical practical tools that help you prepare your funding documents

Book here

Funding Clinic, weekly, various times

 An informal but focused 1-2-1 with a member of our funding team. Before booking a Funding Clinic, please complete a Startup Investment Scorecard

Why raising investment for a startup is as simple as baking a cake

Your startup is hungry! It needs cash for product development, marketing and building the team. You’re probably hungry too. You see the opportunity. You have a vision for growing your business but it won’t even make the (metaphorical) oven – let alone get cooked – if you don’t succeed in raising investment for your startup.

Raising investment for a startup is as simple as baking a cake

Raising investment for a startup is like baking a cake.

Gather the ingredients

First you will want to gather together all the ingredients that are needed for successfully raising investment. What does the business do? What evidence supports this? What have you already achieved in the business? You will also need to tell the story of how your business grows using a compelling financial forecast. Investors like to know what they get in return for their investment so you will need to value your startup too.

Craft the recipe

Ingredients in themselves are not enough. You need to put them together in such a way that potential investors can see the opportunity and are excited about it as you are. You need a recipe.

Bake the cake

No one likes raw egg in their cake! You have to cook a cake for the right length of time. It’s the same with investors, they don’t back ideas or hunches. They need to see that business is “cooked”. Investors call this “traction”. It’s how you demonstrate what the business has already achieved and prove this is more than a hunch.

Conduct taste test on the recipe

Different people like different cakes. Do you prefer chocolate cake or fruit cake?

Different investors like different deals for different reasons but, just as most cakes have four key ingredients (flour, sugar, butter and eggs), so investors look for four main ingredients:

  • Opportunity – what’s the problem your startup solves for customers? How big is the market?
  • Team – who is behind the startup? Can they deliver on the market opportunity?
  • Traction – how far has the business got to becoming a reality?
  • Deal – what is on offer in exchange for investment? Is this fair and realistic?

Once you are happy you have built a compelling narrative around these basic elements, check others agree with you by conducting “taste tests”. Speak to trusted advisors, other founders who have raised investment and – when you feel ready – potential investors. Are they excited by what is on offer? Is your “cake” cooked to perfection? 

Ice the cake

No one likes a “soggy bottom” to their cake – and you can expect investors to look beyond the icing. Investors will do their due diligence. Metaphorically, this means investors will prod and poke your cake as if they were judges at a bake-off. You can expect them to test your product, develop their own view of the market opportunity, interrogate your business model and financial forecast and get to know your startup team – and that’s before you get into the nitty gritty of valuation and term sheet.

Offer investors a slice

Raising investment doesn’t happen overnight. You need to get out there, have lots of “cups of tea” with potential investors and show off your “cake”. You will want to work your network, pitch at investor events and get introductions to investors in order to find the investors who want a slice of what’s on offer.

Will you share your cake?

Once you have a queue of investors lined up to take a slice of your delicious “cake”, you’re in a position to choose who you’d like to share the cake with. Consider what each potential investor brings to the conversation. Who can make the biggest difference in your startup based on their skills, experience or contact book? It’s not just about the cash. Who do you want with you for the journey?

Don’t forget the washing up!

Baking isn’t finished until you’ve washed up and put everything back in the kitchen cupboards. It’s the same with raising investment for a startup. The deal isn’t done until the money is in the bank. There are term sheets to agree and valuations to negotiate.

As easy as pie?

Perhaps, baking a cake isn’t quite as easy as it first seems! So much can go wrong in the mix or the cooking. Raising investment for a startup is similar. It’s a process – and requires a chemical reaction – just like baking. It takes time to perfect. You may need to practise and improve to avoid that “soggy bottom” feeling. You can also have fun – in the making and eating of your “cake”. When you understand the process, and surround yourself with people who can support you on the journey, you can settle into enjoying the all those cups of tea with potential investors and raising investment for your startup.

Find out whether your startup is ready to raise investment by taking the Startup Investment Score card

For the full recipe on what investors look for in a “cake”, read 7 Essentials that unlock startup equity investment

7 Essentials that unlock Start-up equity investment

Different people like different things. Take cakes for example. Would you choose chocolate or fruit cake? It’s worth remembering this when it comes to raising start-up equity investment. Different investors like different opportunities for different reasons.

Image of a cage dollar bill with the words 7 Essentials that unlock Startup equity investment

For some investors it’s all about sector – what’s hot, disruptive or growing fast? For others it’s about the stage of development. Some investors like to get in early, others like to wait till the business is scaling. For many investors the management team behind the business really matters. The point is, you can’t predict the individual preferences and foibles of investors.

Communicate what is on offer

You can’t predict, but you can communicate clearly what is on offer. The quicker an investor understands what is on offer, the quicker they can decide if they will back you, or not. Raising investment is time consuming. It’s a distraction from your real job of growing your business. You don’t want to waste time talking to people who are not interested in what you have to offer – so make sure you are clear and succinct in your communication. Give people the information they need to make the right choice for them.

The ingredients of success

Most cakes have four essential ingredients (flour, butter, sugar and eggs). Similarly, most investors taste test the appeal of a start-up equity investment against four ingredients:

  1. Opportunity – what is the problem the business solves for its customers? How big is the market? Are there many competitors in the sector?
  2. Traction – investors don’t back hunches or ideas. They want evidence that demonstrates how effectively the business develops products and recruits and monetises customers. They want to know how established the product range and marketing strategy are?
  3. Team – who is behind the business? What motivates them? Do they have the skills, experience and relationships to deliver a successful business?
  4. Deal – how much investment does the business need and what equity is offered in exchange for that investment? Is that realistic and fair?

7 Essential Ingredients

When you dig into the detail of what investors look for in order to make a start-up equity investment, there are 7 Essential ingredients investors look for to unlock start-up equity investment:

1. The problem your business solves for customers

Customers don’t buy products. They buy solutions to problems they face. What problem does your business solve for its customers? How does it do this better than anyone else?

2. The market size and targeting approach

This is usually addressed in terms of the Total Addressable Market (TAM), the Serviceable Available Market (SAM) and the Serviceable Obtainable Market (SOM).

The Total Addressable Market is the number of people who could buy your product. This show investors the ultimate size of the market and is usually demonstrated with industry sector research reports.

The Serviceable Available Market draws a picture of the customer segments your business can reach given your geographic/financial/product constraints.

The Serviceable Obtainable Market – or your target market – identifies the customer segments you intend to target first. Given all businesses have limits to their marketing budget you have to focus somewhere, even if you will extend to other segments at a later date. Different customer segments have different needs and most start-ups choose to focus their attention on customers who have the strongest need and ability to pay.

3. Monetising the market and growing revenue over time

How does your start-up make money? Investors expect to see clear revenue streams. Ideally more than one as this de-risks the opportunity. A detailed 3 year (or sometime 5 year) forecast should tell the story of your start-up’s growth trajectory in numbers.  

4. Traction

Traction provides evidence – or proof, if you will – of what the business has achieved so far. Traction is an equation . It isn’t something that happens over night. It is an iterative process which showcases not just your start-up’s ability to deliver, but that you have the grit and determination to perform over the long term. Running a start-up is a marathon not a sprint!

5. Brilliant team

However good your business strategy and executional plan, it is people who make things happen. Does the team behind your start-up have the skills, experience and relationships to deliver the strategic drivers that will make your start-up thrive?

6. Ask

Cash is king, right? Investors need to understand how much money your business needs to succeed. They are not interested only in what X or Y costs, but that you have also thought about how much time it will take you to achieve key milestones in your start-ups development. There is nothing worse than the cash running out before you have reached a critical milestone that unlocks the next stage of start-up equity investment.

7. Valuation and term sheet

If all the elements of your start-up strategy are in place, then investors will assess the deal. What are you offering in exchange for investment? Does that taste good or not? Most founders focus on valuation (the percentage of equity (shares) they are offering in exchange for a cash investment), but the detail in the term sheet is important too. What type of shares are on offer? When do they vest? Who will sit on the board to represent shareholders? It all influences the appeal of the deal.

Investors are busy – the 7 Essentials help you communicate quickly & succinctly

It’s important to recognise investors are busy people. They are short on time and have lots to distract them from looking at your opportunity. The 7 Essentials give investors the information they need but you must also be succinct in conveying this. Go on for too long and a potential investor will drift away.  No one like stale cake!

Everything you prepare needs to be short, to the point and focused on giving investors the information they need. Nothing more and nothing less! It’s a good exercise to convey the 7 Essentials on just one page of A4. One page can usually be read in 5 minutes which is how long most investors take to make up their mind whether this is the cake for them, or not!

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To find out if your start-up is ready to attract investors, take the Start-up Investment Scorecard

Funding Accelerator is designed to speed up the process of preparing your start-up for equity investment.

Startup Meetup: Why traction speaks louder than words when raising equity investment

Investors look for “traction” when deciding whether or not to back a business – but what does that actually mean?

This interactive meetup brings together startup founders for a practical discussion on what investors mean by traction, and to share experiences of how best to evidence this to get investors “on the hook”. Together we’ll:

  • Uncover why “traction” speaks louder than words for investors
  • Discover the three elements which deliver “traction”
  • Explore ways in which you can evidence “traction” to quickly hook investors

This facilitated meetup will start with presented content to spark a conversation but will include time for you to ask specific questions and to share your experiences too. You will also have the opportunity to hear about resources that make it quicker and easier to raise investment.

We meet via Zoom – with cameras and microphones on – to share as a community. This is about you getting the answers you need – and offering support to those on a similar journey to you. Bring your questions, be generous in sharing your experience.

A Zoom login will be provided after you register and in a reminder email before the event. Places are limited to ensure a good interactive experience. Please book early to avoid disappointment and, if you can’t attend at the last minute, please let us know so that your place can be offered to someone else.

Reserve your free place here

Use the scroll bar to see all available dates. If booking panel doesn’t load you can reserve a place via Eventbrite

Facilitated by Hatty Fawcett

Hatty Fawcett, founder of Focused for Business, has been raising money for businesses and projects since she was eight. She has worked in three startups and raised £250,000 for her previous business (a marketplace). In addition to raising investment herself, Hatty managed some of the investments Kelly Hoppen made when Kelly was a “Dragon” on the TV show “Dragons Den”, making business angel investments. This gives Hatty a unique perspective on raising investment, with practical experience of having raised investment herself as a founder, but also understanding what angel investors look for when they back a business.

Hatty is on a mission to make it quicker and easier for founders to raise early-stage investment. Her vision is to see a level playing field when it comes to raising investment. In the last 12 months, Hatty has raised over £1 million for her clients, with individuals raising between £10K and £350K.

Hatty is a Regional Manager for Angels Den, a Talent Spotter for The Startup Funding Club (SFC) and works with all the main crowdfunding platforms. She is committed to giving founders the clarity, connections and confidence to attract a range of investment offers so that they choose the right offer for their situation.

What people say about Hatty

“Hatty’s meetup was like a one-stop shop for all the information I needed . Succinct, clear and full of ideas.”

“The Meetup was a very beneficial experience. It made me rethink our whole launch and fundraising strategy.”

“By the end of the Meetup everyone was contributing and helping each other. It was energising and motivating.”

“Hatty brings clarity and focus to the complexities surrounding raising investment.”

“It was useful to interact with the others and it’s reassuring to hear others’ stories of fundraising.”

“Hatty is a fountain of wisdom when it comes to raising investment.”

“Hatty’s tone and enthusiasm are very motivating.”

If the Eventbrite booking checkout does not appear, you can book your ticket direct on Eventbrite

Traction makes it quicker to raise funding for a startup

So you want to raise funding for a startup? To succeed, you’ll need to speak the language of investors. Investors will ask “how much traction have you got?” Knowing what traction is, and being able to demonstrate this, makes it quicker to raise funding for a startup.

So, what is traction?

Traction is another way of investors asking for evidence.

A pig made up of cogs and wheels depicting how traction helps to raise funding for startup
Demonstrate traction to raise funding for a startup

Funnily enough, investors don’t throw money at a question mark. They don’t back ideas or hunches. They take a calculated risk.

By backing a startup relatively early in its development, investors anticipate being able to make a significant return on their investment as the business grows. But backing a startup too soon, is risky. It’s all to easy to lose money. Investors want to make sure their money won’t be lost on expensive mistakes that don’t actually grow the business. That’s why investors are fixated with traction.

When an investor asks “what traction do you have?” they are really asking for evidence. Tangible evidence that proves a business is poised for growth.

Demonstrate traction to raise funding for a startup

Traction boils down to three things. You can think of it as an equation:

(MVP + Customers) Proven Marketing Machine = Traction

First you have to create a product or service – not just come up with an idea for a product. Investors call this first product you Minimum Viable Product or MVP. It might not have all the functionality – all the “bells and whistles” – you intend to add to your product over time but it must offer enough to solve a problem that customers’ experience.

Step two is to prove customers love your product. This might just be a handful of “beta” customers, people trialling the product and able to explain why they like it. Does it save them time? Money? Or allow them to do something they’ve never been able to do before? If so, you are creating value. The best evidence of customer value is not just people using your product but people paying to use it. Investors love paying customers.

Once you have MVP and paying customers, you are out of the starting blocks. It can, sometimes, be enough to raise funding for a startup but if you can complete the traction equation you will “hook” investors faster.

Completing the traction equation means showing you can multiply the number of customers using your product in a predictable way – that you can grow your customer base with a proven marketing machine.

Proven means proven – not guessing! You will need to know exactly how much you have to spend on specific marketing channels in order to recruit a predictable number of customers. You could say investors are looking for a proven formula:

£XX,000 spent on Y marketing channels = Z new customers

This takes trial and error. Lots of experimentation and tweaking to reveal the winning formula. Ideally, you want to prove it works every time and can be repeated again and again. That is the Holy Grail as far as investors are concerned. Rather than you having to search for investors, this will have them queuing up to back your business.

Achieving traction isn’t something that happens overnight. It takes focus, persistence and a series of “test and tweak” experiments. What’s missing in your traction equation? What experiment could you commit to today to move closer to traction and raise funding for your startup?

Is your Startup ready for investment?

Take the Startup Investment Scorecard to discover if your Startup is ready for investment. Start here

Further reading

Want to raise equity investment? Is your business ready?

What is the best way to fund your my business?

When is the right time to raise investment for your startup?

7 Mistakes that stop you raising investment for your startup

Startup founders are resourceful and move quickly but sometimes that haste can work against them. They make mistakes. When it comes to raising investment for your startup, there are plenty of mistakes you can make that may cost you dear!

Mistake 1:  A brilliant idea is all you need to raise investment for your startup

This is the most common mistake of all – and an easy one to make.

I made this mistake. The first time I raised investment for my startup I had a brilliant idea, a wire-framed web platform and a well-considered business plan and forecast. I was skilled at getting meetings with investors. We had great conversations. The people I spoke to gave me really useful feedback. But they didn’t invest, and they weren’t going to. Not at this stage. It was too soon.

I hadn’t built the platform. I didn’t have what investors would call the Minimum Viable Product (MVP).

I hadn’t got my first customers. I hadn’t got any revenue.

I hadn’t got what investors call traction.

It wasn’t that the idea wasn’t good. It wasn’t that I wasn’t capable of building the business it was just too soon for an investor to get involved. They needed more evidence, more proof it would work.

It took me four months to realise this. Four precious months.

When the penny dropped, I invested my life savings and spent just two focused months building the platform and recruited my first customers. Then I raised £150,000 in a week. That’s the difference traction makes when you are raising investment for your startup.

Mistake 2: You just need a beautiful pitch deck to raise investment

I’ve seen a lot of very good pitch decks. You can tell a lot of work has gone into producing them, but nine times out of ten those pitch decks won’t help in raising investment for your startup because they lack the key information all investors need to back a business.

There are two common mistakes with a pitch deck. Image is prioritised over substance – it looks good but doesn’t give investors the information they need. Or there is so much content in the deck that investors can’t see the trees for the wood. They are overwhelmed and left wondering what the opportunity really is.

Working out what investors need to know to back your business may feel like a game of smoke and mirrors but there are actually seven key pieces of information (The Seven Essentials of a Successful Pitch) that allow you to raise investment for your startup.

You need to present this key information logically. It’s all about positioning the opportunity. So, stop worrying about what your pitch deck looks like and focus on getting the message right.

Mistake 3: If I speak to everyone I know I’m bound to find investors

It’s very common to think investment is a numbers game. The more conversations you have the better. Someone will invest eventually and, if not, they’ll introduce you to someone who will.

Like all mistakes, there is some truth in this. The problem is that believing raising investment is about having lots of conversations often leads to founders mistakenly sending out endless emails seemingly asking just about anyone for money.

Do you respond to random requests asking you for money? Do you think “I must have this” when someone pitches to you on a subject you’re not even interested in? No? Nor do investors.

What is more important is reaching out to the right investors. Investors who are interested in your stage of business, your sector, your type of market opportunity. It’s about targeting.

Save your voice and use it for the conversations that really matter. Take time to do your research and find the right investors (or work with someone who can make the right introductions).

Mistake 4: It’s easy to get investors on the hook when raising investment for your startup

Serious investors get a lot of opportunities across their desk in any one week. You need to make yours stand out. That’s about getting the positioning right – for sure – but it’s also about making sure you stand out as a credible founder.

Your aim is to build a relationship, establish your credibility and gain the trust of an investor before you ask for money.

You don’t (usually) ask someone to marry you on the first date, nor should you ask for money the first time you contact a potential investor.

Think of your investor outreach as a dance, if you will. You need an investor to notice you, spot how good a dancer you are, to ask you to dance and then to thoroughly enjoy the process of dancing.

Don’t try and reveal everything all at once. Give them enough to entice them. (I favour sending a one-page executive summary not a pitch deck in the first instance). Leave them wanting to know more. Offer them a meeting to allow you to start a conversation. Build the full picture of your business over a series of documents and meetings.

Relationships are built over time. Allow time for your relationship with an investor to flourish. Don’t rush it. If you do your investor outreach right you’ll know when is the right time to ask for investment – and it, if you’ve done your job properly, it will be well-received.

Mistake 5: I don’t know exactly how much money I need to raise – but I’ll work it out as I go and take whatever I can get

What is the right amount of money to raise? It’s an interesting question. Raising too little could mean you have to go through the time-consuming process of raising investment again, sooner than you want to. Raising too much investment could mean you sell more equity than you really need to at an early stage (and probably at a higher valuation than you might like).

A common mistake founders make when raising investment for their startup is to cost the activities or projects that need to be completed and aim to raise enough to cover that.

It’s perfectly natural to start by thinking what will it cost to… launch a new product, recruit some new staff members, carry out some marketing campaigns.

The trouble with this approach is it has you thinking only about what things cost. It doesn’t consider the amount of time such projects take to complete. Time has a cost too. Every week or month it takes to complete a project you also need to cover your monthly outgoings – or what investors call your burn rate. You need to ensure you have consider how long a project will take and factored in your burn rate costs as well as the project costs.

Another problem with thinking only about costs, is it ignores the bigger picture. It is almost certain that you will need to raise more investment. It is easier to raise investment if you have achieved significant milestones in the business and moved the business on a stage in its growth cycle.

For this reason, it can be better to think in terms of milestones when raising investment for your startup. Think about what would be the next milestone that demonstrates your business is succeeding. It might be attracting your 1,000th customer, achieving revenue of 6 figures or entering a new market. What constitutes the right milestone will vary from business to business. The point is you need to think about it now and ensure you raise enough investment to get you to that milestone. Give yourself enough runway to reach the milestone.

Thinking in this way will not only help you determine the right amount of investment to raise but it will also help you sleep easier at night once you have raised because you will have bought time to focus on the business, rather than be distracted by another investment raise.

Mistake 6: I don’t need to talk about valuation – it’s all about opportunity

Founders who don’t think they need to be clear about their valuation from the get go are delusional.

Raising investment is an exchange of value.

First you have to be clear about the value you have already created in your startup. This could cover all sorts of things – it might constitute assets in the form of technology or a strong brand that you have built. It might be intellectual property (IP) or it might be your approach to capitalising on a market opportunity.

No one is going to throw of money at a question mark so you must be clear about what you have created.

The second thing to consider is that you don’t get something for nothing. If you want to raise investment you must be clear about what you are offering in exchange.

So many founders don’t know when to introduce the topic of valuation into their conversations with investors. Some founders seem nervous about putting valuation into a pitch deck for example. However, you must. Not doing so is like offering a product and not indicating its price. Without a valuation investors can’t work out what the opportunity is worth to them.

Worse than that, not mentioning valuation undermines your credibility with investors from the get-go.

Mistake 7: I don’t have time to raise investment I’ll get someone to do it for me

It is true that raising investment for your startup is time consuming. It can even feel like a distraction from your real job of growing your business. It is tempting, therefore, to look for short cuts, cut corners or even to get someone to do it for you.

If you delegate part or all of the process of raising investment to someone else you lose on two levels. You can’t be certain how your business is being portrayed to investors (and what commitments you might be held to) and you miss out on the opportunity to meet investors, get to know them so you can be sure that an investor is a good fit for your business.

Rather than get someone else to do the work for you, find an adviser who can guide you through the process of raising investment and support you in unlocking investment. Be wary of advisers who talk a good game but have not actually raised investment themselves. There are a lot of people who will offer advice – some of it contradictory – which can leave you more confused than when they started.

Generally it is good advice to learn from someone who has raised investment themselves. Someone who knows first-hand what it takes and who can support you through the process with a proven methodology, insights and resources. This will make it quicker and easier to raise investment.

Funding Accelerator uses a proven methodology to unlokck investment

It is a wonderful moment when you raise investment for your startup. Investment can unlock so many opportunities for growing your businesses. It is definitely a moment to be celebrated. However, don’t make the (ultimate) mistake of thinking it’s the end of your journey. Really it’s just the beginning of the adventure…the adventure of growing your startup to the next stage. Enjoy the journey!

Discuss your funding options

If you would like to discuss your funding options, you can book a Funding Clinic with Hatty Fawcett (who raised two round of investment for her startup) here:

Book a Funding Clinic

Lack of investment is one of the biggest barriers to startup growth. Now more than ever. If you have developed your product, launched your business and want to understand your funding options booking a Funding Clinic is a good first step.

What is a Funding Clinic?

A Funding Clinic is an opportunity for you discuss your investment
requirement in an informal but focused 1-2-1 with startup funding expert, Hatty Fawcett. A Funding Clinic will demystify the process of raising early-stage investment and outline your options.

Each clinic lasts 30 minutes and, after an initial discussion about what
your business has achieved to date, will provide practical,
tailored advice on the funding options open to your startup. You can
expect frank, no-nonsense advice which gives you a clear, honest picture of your funding options and what you need to prepare to raise investment. You will leave with clarity about your next steps to unlock investment.

Funding Clinics are conducted via Zoom video conferencing. All you need is
an internet connection and a laptop/computer with a webcam and microphone to take part.

Who are Funding Clinics for?

Funding Clinics are designed to support startups and early-stage businesses who have launched their business and developed at least one product. They are most suited to startups looking to raise between £75,000 and £1 million of seed (or pre-seed) funding. It may well be the first time you have raised investment – that doesn’t matter.

Typically, the founders Hatty Fawcett works with are aged between 40 and 60. About 60% have had a successful professional career but have left corporate life to create their startup, a further 25% are serial entrepreneurs. 

Scroll to the bottom of this page to book your Funding Clinic.

What people say about Funding Clinics

“If you are a startup needing advice on virtually any level of the
business, Hatty is the person to talk to. She clearly has a wealth of knowledge
spanning from the basics of starting a business, building and articulating a
value proposition, through to raising investment for your startup. I started
having conversations with Hatty on her Funding Clinic and found her to be both incisive and attentive. People who have real experience in fundraising – and are actually good at it and willing to share in their experience – are hard to come by, and Hatty is one one them. Moreover she is a thoroughly pleasant human being.”
Manish Patel, Interim CEO at Jiva.ai

“I spoke in detail about funding options and Hatty put us in
contact with several useful organisations. I would recommend Hatty’s
expertise to anyone who has a start up idea or a fully functioning
business.”
Robin Dolton

“Hatty is a true professional and a breath of fresh air in this
sector. I felt very comfortable in sharing my new business app idea with Hatty, and it was inspiring to receive external validation from an expert like Hatty. Hatty’s advice helped spur me on to take the next steps in realising my
idea.”
Valerie Lothian

“Hatty gave me clear, concise and invaluable advice on how to
improve my e-commerce presence and grow my business.”
Becky Lewis

Booking your Funding Clinic

Funding Clinics are free and in heavy demand. Funding Clinics must be pre-booked (via Calendly). Once booked, please make every effort to attend. If exceptional circumstances occur and you can’t attend please use the Calendly link to either re-schedule or cancel the Funding Clinic (or email Hatty) as soon as you know you can’t attend. This allows your Funding Clinic to be re-allocated to someone on the waiting list.

After booking your appointment, you will receive a reminder email with a Zoom link. You will also be given the opportunity to complete an online assessment which gives you a snapshot of how an investor sees your business, and provides pointers on areas you could improve your investor readiness.

Book here:


 



If your internet browser does not display the booking form, click here to be re-direct to the Calendly booking page.

If you require more information about Funding Clinics, email Hatty at hatty@focusedforbusiness.com

How to succeed at crowdfunding: Free, live and interactive webinar

A free 60 minute, live and interactive webinar presented by experienced crowdfunder Hatty Fawcett, Founder of Focused For Business. You will discover:

  • How to select your crowdfunding platform to attract the right investors.
  • The 7 essential elements of a successful investment pitch.
  • The secret of crowdfunding (that no one tells you) which is key to success.
  • How to set your crowdfunding target to ensure success.
  • The inside track on how to off-set risk to attract serious investors.

This interactive webinar offers a good opportunity for you to ask your specific questions about crowdfunding and to hear how others are approaching crowdfunding. In uncertain times it is reassuring to hear how others are approaching funding challenges and to learn from the experiences of others.

All you need to join this webinar is an internet connection, mic and webcam. A login link will be emailed prior to the webinar.

BOOK YOUR PLACE NOW
Click on the “Select a date” link below to see all available dates and times for this webinar and to reserve your free place:

(If your browser does not display the booking form, click here to be re-directed to an Eventbrite booking form).

Come ready to participate! Hatty will share specially prepared content, but there is time for you to ask your questions about crowdfunding too. You will also learn more about resources that make it easier to succeed at crowdfunding, such as Crowdfunding Accelerator.

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

What people say about this webinar

“A very informative webinar that gave me a much clearer understanding of the different types of crowd funding available and which of these might be most suitable for my business”

“I learned the amount of preparatory work that is needed before you launch the crowdfund campaign. It was a good overview.”

“Hatty is a fountain of wisdom when it comes to crowdfunding.”

“Hatty is a great teacher! The rich content of the webinar kept me interested and helped me understand how crowdfunding fits into various financial offerings.”

“I found your webinar to be extremely helpful and would rate it 10/10”

“It was useful to interact with the others and it’s reassuring to hear your stories of fundraising.”

“I found the webinar useful and, as always, your tone and enthusiasm are very motivating. You would be a great person to work with because of your know-how.”

About Hatty

Hatty Fawcett raised £250,000 through crowdfunding and angel investment for her own business venture. She learnt the hard way what it takes to raise investment and now speeds up the process of getting investment for startups and early-stage businesses. Hatty runs Crowdfunding Accelerator an eight week programme designed to make it quicker and easier for businesses to prepare for crowdfunding. She regularly speaks on crowdfunding and is an active blogger on the subject of raising investment. Hatty is also a Regional Manager for Angels Den and is a Talent Spotter for The Start-up Funding Club.

What people say about Crowdfunding Accelerator

“Hatty is a great teacher! The rich content of the course kept me interested and helped me understand how crowdfunding fits into various financial offerings. This course has given me confidence on how and when to organise a campaign.” Sue Frost, Co-founder Curamicus

The Crowdfunding Accelerator was an excellent way to explore the concept of crowdfunding in a real hands-on and practical way which resulted in having everything I needed to proceed.” Claire Timbrell, Co-founder The MacGuffin Project

“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 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