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

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.

“What’s the best way to fund my business?”: Ten founders give the lowdown on the best way to fund your business

One of the fundamental questions at the front of most founders’ minds – and the most frequently asked question – is “What’s the best way to fund my business?” As part of Global Entrepreneur Week, Hatty Fawcett of Focused For Business asked ten founders who have raised investment for their businesses to share the pros and cons of different funding options.

A quick question to ask, but a complex question to answer. And, of course, it depends: On the stage of your business; your objectives for the business; your reasons for seeking investment; and the speed at which you require it. It will also depend on what you are willing to offer in exchange for investment. Will you sell shares in your business, for example, or are you looking for a loan which will eventually be paid back?

What is the best way to fund my business? Ten founders offer suggestions

Bootstrapping – a good way to get the business off the ground

Bootstrapping your business usually means funding your business with your own money to get if off the ground, and then continuing to fund it with revenue generated by the business itself. When I started my first business, I wasted a lot of time talking to potential investors explaining why they should back my business. At the time, “the business” was little more than a well-crafted business plan and financial forecast. I remember the moment when the “penny dropped” and I realised no one was going to invest in my business until I had actually created it and it was earning some revenue. That meant investing my own savings to get things moving. I had to put my money where my mouth was.

A big advantage of starting your business in this way is that you are in control of the business. It puts you firmly in the driving seat. When it comes to the direction you want the company to take, the key decisions are down to you.

Tim Martin, CEO of WorkInConfidence,  who bootstrapped his business puts it very succinctly

“You do it because you have to.  It means you can build value before funding and get it [the business] going.” 

Always assuming you have some money you can invest, there are some disadvantages to this route. Tim found

“You are often unable to make key decisions, such as spending more on marketing.”

So is bootstrapping the best way to fund your business? Be aware that a lack of money can slow down the speed at which your business grows.

Bank loan or Start-up Loan – a helpful cash injection to achieve an important milestone

Even a bootstrapped business will probably find there comes a point when you need a cash injection to achieve an important milestone. It might be that you need money to pay for tooling for product manufacture, or you need to purchase materials or premises in order to start generating revenue. If so, might start-up loans and bank loans be the best way to fund your business?

Jaya da Costa, Founder of Pause Cat Café, saw a number of benefits in going for a start-up loan.

“It gave me the opportunity to maintain my own vision for my business and was a quicker option.  I was asked to complete a business plan to gain funding, which has been very useful during the set-up and also since opening.”

One drawback of this route is that you will have to pay interest on the loan which, as Jaya highlights

“The repayments can take a big chunk of your cash flow especially in the early stages of your business, try to negotiate an interest-only period to help with this.”

Angel investment – investors bring not just their cash but their skills, experience and contacts too

Business angels (high net worth individuals who have very often run and sold their own businesses) do not expect an immediate return on their investment. They don’t ask for interest or dividends but want to see any revenue generated by the business put back into the business so it can grow faster. What is more, business angels bring not just their cash when they invest in your business, but also their skills, expertise and contacts too. They may also have useful sector knowledge which can help you grow the business faster than the cash injection alone would suppose. They often act as mentors and can provide practical help and hands-on support. Could business angels be the best way to fund your business?

Sue Frost, Co-Founder & CEO of Curamicus, discovered many benefits of this investment route

“We were fortunate to find business angels with a wealth of business experience in particular areas who were willing to share with us for the benefit of the business. The best business angels can become key people in your startup team.”

Jason Lowe, Founder & Director of FYB London, echoed this

 “As well as the capital investment, the most valuable advantage [of accepting business angel investment] is having an experienced business mentor to work with. They help you avoid common potholes and provide an outside view on long term strategy for scaling the business.”

One of the challenges of raising investment from business angels, as Sue points out, is the time it takes:

This route to funding can be very time consuming as [business angel] groups meet probably only once per month/quarter and they only see a handful of startup pitches per meeting. We found angels within these groups can be looking for specific kinds of businesses such as entertainment apps or traditional retail businesses [and this may not coincide with your business sector]”

Jason also pointed out that with business angel investment, although you benefit from mentoring and practical advice, you are also relinquishing some control in your business. As he put it,

“You may have to compromise on some of your ideas and plans to attract investment.”

It’s important therefore to find a business angel with whom you are aligned in terms of the strategic direction of the business. It also helps if you build good rapport, openness and trust.

Angels may be more patient than banks in getting a return on their investment but they will expect a return so you do need to offer a clear “exit”. Typically, this will involve selling the business in a 3-5 year time frame so that the business angels can sell their shares at a profit.

Crowdfunding – a good way to raise funds but also to test product demand and build brand ambassadors

On the face of it, crowdfunding could be the best way to fund your business. The media is full of stories of businesses raising phenomenal amounts of money in remarkably short time periods. And crowdfunding brings other benefits too:

For Kellie Forbes, Co-Founder of YUU World, crowdfunding proved a brilliant way to market test a new product and boost sales

“[Crowdfunding provided] 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. 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.”

Peter Ramsey, Founder & CEO of Movem, has done crowdfunding twice and he agrees there are benefits to crowdfunding above and beyond the money raised

“Crowdfunding gives you a lot of exposure…I know that our shareholders talk about Movem all the time, so there’s an unknown amount of network effect going on there. But that’s the biggest benefit, the exposure.”

Kellie Forbes also sees PR and marketing exposure as a big upside to crowdfunding

“Our sales are up almost 20% which is thanks to the crowdfunding campaign exposure.” 

Crowdfunding is not a quick route to investment.

There is a lot of work done behind the scenes to ensure a successful crowdfunding campaign. James Courtney, Founder & CEO of Lux Rewards, explained

“For early stage startups, it is very difficult to get viral spread like Monzo etc. managed to. Realistically you need to bring 50-80% of the raise through your own connections or angels.”

Peter agreed

“Crowdfunding isn’t as simple as just ‘making a video’. Months of work go into a pitch, and even before then you have to be pre-raising and getting momentum. My advice would be to be realistic on the amount of money you need. Raising £500k might sound glamorous and you might be pleased that you’ve got 3 years of money in the bank, but it’s considerably harder. Only raise as much as you need.”

Venture Capital – the holy grail of raising investment?

For some founders and entrepreneurs, venture capital (VC) investment feels like the holy grail of raising investment. VCs typically manage a fund made up of other people’s money. The funds can be large which means VCs are in a position to make big investments, and cash-starved founders may be tempted to see pound signs in front of their eyes. Perhaps this is the best way to fund your business?

VCs are also generally very well connected and, like business angels, they want to see the businesses they back succeed. Rajeeb Dey, CEO of Learnerbly, found he benefited from his VC’s network by being introduced to one contact who became CTO and another contact with very specific skills whose advice helped them develop proper, scalable systems. As Raj put it

“I’d [recommend VCs for their] connections and expertise…as well as potential business development connections.”

VCs are unsuitable for the majority of startups

As a general rule, VCs are looking for businesses which offer not just fast growth but exponential growth. They are often focused on particular sectors and industries, and have a preference for companies that disrupt the status quo, not just “me to” products. As a general rule they don’t invest at “seed” stage but will wait until the business has proved the market and is ready to grow. For all these reasons, VC funding is not the best way to fund every business.

VCs manage other people’s money, so they have to be ruthless in managing the investment.  This drives a different agenda and a certain amount of governance and bureaucracy.Raj at Learnerbly put it this way

“The amount of governance increases – ie monthly board meetings in our case – I doubt it’d be so frequent had we just had business angel [investment]. That said, I’m actually finding these meetings useful…it’s something to schedule, prepare for and ensure you are aware of the reporting/governance requirements VCs may have.” 

Harinder Sandhu, Founder of EmpowerRD wasn’t comfortable with “overbearing beaurocracy” and loss of control. She described her situation,

“I hadn’t appreciated the level of control the VCs would look to exert – they had a specific mould they were looking to shape each company into. I decided to execute a break-clause I’d baked into our contract to cut short the funding and therefore the VC’s equity stake.”

Thomas Beverley Co-Founder at Fy also felt uncomfortable with his situation

“The VC will typically be operating [on the basis that] ​‘one-in-twenty of my investments are going to be huge; 5 [will provide] ok returns and 15 [businesses will be] write-offs mentality’. [As the founder] they obviously want you to be successful but they have 20 bets to your 1 so [motivations] aren’t entirely aligned. Therefore, they might push you to do irrational things post investment.”

The consensus with regards to Vc investment is, before you take the money, make sure your motivations and expectations are aligned.  Taking references can be a good way of ensuring this

So, what is the best way to fund your business?

There is no one best option when it comes to funding your business. The best investment for your business will be the option that is right for your stage of business, your ambition for growth and what you are willing to offer to investors in return for their investment.

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If you want to know more about the pros and cons of different forms of business investment, why not attend the free webinar “What’s the best way to fund my startup- quickly?“. Find out more, see dates and reserve your place

How I proved my startup so I could quit my job and feed my passion

Anyone can come up with a “brilliant business idea” but it is quite another thing to put your money where your mouth is, take the plunge, give up your job and commit to making your idea a reality. For many founders of startups, taking the decision to leave your job – and a predictable salary – to commit to building your startup full-time can be terrifying. But it doesn’t have to be. There are steps you can take to prove you have a viable startup which reduces the risk, builds your confidence and makes it easier to attract funding.

David Toscano of Cin Cin Italian Bar & Kitchen did just that and Hatty Fawcett of Focused For Business asked him to share the steps he took to build his successful restaurant business – and what gave him the confidence to give up his profession as a lawyer to follow his passion for Italian food.

Hatty: How long had you been thinking about your business idea before you decided to take the first steps in getting your business off the ground?

David: About 10 years. I qualified as a lawyer back in 2001 but was bored of that career about two years in so I started to look for a way out. I spent a lot of time thinking I was not capable of doing anything else.

“I had always had a passion for food and when a friend left law to go into wine, it gave me that little bit of confidence that maybe I could have a second career in something completely different.”

Hatty: Who or what pushed you to take action in creating your business?

David:

“I just did not want to spend the next 20+ years of my life in a job I did not enjoy or care about. I needed to be putting my time and effort into something I had a real passion for”

Having grown up in an Italian family, food was always central to my childhood and something I had always felt comfortable with.

Hatty: What initial steps did you take and why did you choose these steps?

David: The very initial steps were saying yes to catering parties and dinners for family and friends in 2010, even though I had no chef training or experience.

“I did a lot of research about opening a restaurant and quickly discovered it was an enterprise with a high set up cost and high risk of early failure. Given I had never even worked in a restaurant before, this made the jump to restauranteur feel even more precarious.”

So in 2012, I bought a vintage Fiat van and converted it into a street food van which in 2013 I launched as Cin Cin, an Italian street food and event catering business. I started trading at festivals and fairs, as well as taking private bookings to cater weddings, parties, celebrations; all while still working as a lawyer in London.

“Testing my offering in this way was very low risk because I was not reliant on income from the new business to pay my bills and I had set up the business with my own funds.”

I was also aware that I was moving into a completely new sector that I had no experience in so I had no idea whether I would even enjoy working in food & drink. Thankfully, I immediately loved it!

“I spent 2013 testing the business in various street food and private catering events, doing all the cooking myself and calling on family and friends as staff.”

 I was enjoying event catering and starting to pick up bigger events which meant I was turning some good profit but by 2014, I was sure that I wanted to open a restaurant so started to look for a chef to work with to put on supper club/pop up restaurant events. This was because I wanted to take the food beyond the limitations of the van and make the Cin Cin offering more refined. That summer I met Jamie Halsall, who is now my head chef in the business, and we started putting on supper clubs in Brighton, London and Kent. This step helped bridge the gap between the van business I had started and the restaurant business I wanted it to become.

Hatty: What did you learn by taking these initial steps?

David: These initial steps allowed me to test the development of the offering in low risk scenarios – I was still working as a lawyer so was not reliant on the income from the fledgling business to fund my lifestyle.

“I still approached each event with the aim of making a profit, but at that stage it was more about getting feedback on what customers wanted and expected from a new restaurant and more importantly, their feedback showed me that there was a gap in the market that we could fill.”

Hatty: Was there a specific event or turning point that gave you the confidence to commit working full-time in your business?

David: In Spring 2015, the business had grown to the point where I no longer had enough leave days from my job as a lawyer to cater all of the events I was being offered.

“I was turning down work and was extremely tired given I was using all my leave for events. So I made a plan to quit law at the end of 2015 and chase my restaurant dream full time. I have never looked back.”

Hatty: What influenced your decision to raise investment?

David: I opened my first restaurant in November 2016 with my own funds. It was a small 20 seat restaurant, all housed in one room which meant the set up costs were relatively low. By Spring 2017, we were constantly full so I began looking for a second larger restaurant site.

“I needed the investment because I could not grow the business without it. While there was cash in the business given the success of the first restaurant, I did not have enough to build and open the second larger site so I raised finance through a mix of bank finance and asset finance on the new kit we needed to open the new restaurant.”

Hatty: Did the steps you had taken to prove your business model make it easier to raise funding for your business?

David: Absolutely. As above, I used the Enterprise Finance Guarantee [EFG] scheme to access bank finance because the business did not have fixed assets to borrow against. In order to access that finance, I had to submit a business plan with costed financials to show that this step to growth was sustainable.

“All of the testing of my business model and offering went into that business plan and was a key part of the data that convinced the bank and asset finance agency to lend me the money I needed.”

Hatty: Do you have any advice or tips for entrepreneurs thinking about starting their own business?

David: Lean testing – there are a lot of ways to try out what you think you’d like your business to be without risking your personal finances with a loan or spending a lot of your savings. But just as important is that it’s also the best and least risky way to get feedback from potential customers about whether your business model and offering is actually what people want. Be prepared to listen and adjust your offering to suit the market.

Passion – I worked hard to become a lawyer but never had a passion for it. Working on something you do not care about is a recipe for mediocrity or even worse, failure.

“So if you are going to start a business, make sure there is something within it you are passionate about. That passion will drive you through fatigue, disappointment, and little failures while also making success all the more sweet as you’ll have created something you can be proud of. And isn’t that why we become entrepreneurs in the first place?!”

Do it now – you can come up with a million reasons why you should not to take a chance on starting your own business or pushing it forward. I spent the best part of 10 years telling myself I could not do it. But rather than saying ‘I wish I’d done it earlier’, I have always just tried to grow the business day by day and make decisions for growth as promptly as I can.

“There is no point waiting around wondering whether you could be great at something. Do it now.” 

Read more interviews with Founders

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Want to raise equity investment? Is your business ready?

So you want to raise equity investment – but are you ready? Rather than leaping straight into action writing a pitch or talking to investors, take a moment and ask yourself three questions.

How much money do you need?
What will you do with the money you raise?
How will your business change and grow as a result?

If you can answer these questions properly – not just in an off the cuff manner – but by providing real detail, facts and figures, then you probably are ready to raise equity investment.

But the devil is in the detail.

Investors don’t back ideas, hunches or broad-brush thinking. They want proven products (or services), thoughtful plans and evidence to support your approach. These things aren’t just conjured up by brainstorming, desk research and theoretical plans. They are created through action, hard work, persistence and a lot of iteration.

I touted my theoretical business plan around VCs and angels before the penny dropped that I needed to get the business going before anyone would back me.

I learnt that the hard way. I touted my theoretical business plan around VCs and angels before the penny dropped that I needed to get the business going before anyone would back me. The next time I tried to raise equity investment, (just six months later – but six incredibly busy months) I had not just a web platform but paying customers and a detailed marketing strategy. I raised £150K in one week – from pitching to money in the bank.

The proof was in the pudding. Investors call this “traction” and it speaks lounder than words.

Traction speaks louder than words

Be honest, ask yourself what stage your business is at:

If you have a business idea but nothing tangible yet, don’t waste your time talking to investors. Instead invest your time into creating your product/service/app. It doesn’t need to have all the bells and whistles but it needs to deliver the essence of what customers are looking for. This is often called an MVP or minimum viable product. It allows customers to trial your product, give feedback and for you to understand what needs to change to meet your customers’ needs better.

You don’t have to spend a fortune to develop an MVP. In fact, it’s better if you don’t

How do you fund this? Invest your own money (if you can), talk to family and friends to see if they will lend/invest money or explore a start up loan (but be aware that you will probably have to start making repayments immediately so be sure you can generate revenue quickly or negotiate a repayment free period). You don’t have to spend a fortune to develop an MVP. In fact, it’s better if you don’t – the chances are your MVP will change when you get customer feedback.

If you have got an MVP, focus on getting your first customers – whether they are paying you or not. Being able to demonstrate you can attract paying customers is best, but honest – hopefully positive – feedback can be just as valuable. Work on really understanding your customers – who they are, why they like the product and how you could find and sell to similar customers. This information is gold dust for your marketing strategy. Tried and tested marketing strategies do attract investment.

Work on really understanding your customers…Tried and tested marketing strategies do attract investment.

And then? Well, it’s back to the three questions we started with. To raise equity investment, you will need to explain in detail how much money you need, what you will do with it and how that will grow your business.

Growth is the key here. Investors don’t want you to stand still. They want you to create value by finding better ways to work, developing new products, attracting more customers. Investment isn’t philanthropy. Investors want a financial gain and that is created when the business grows – fast.

Investment isn’t philanthropy. Investors want a financial gain and that is created when the business grows – fast.

If you’d like to speed up the process of raising funding, it’s worth talking to a professional. Someone who understands the process, someone who has “been there, done that”. Investors are looking for specific information when deciding whether to invest and it pays to get the inside track on what you’ll need to provide – as well as having someone to help you prepare, to challenge you and give practical advice on how to improve your pitch.

If your business is ready for equity investment, and you want to speed up the process find out how Funding Accelerator makes it quicker to attract investment.

If you’re not sure if your business is ready to raise investment, why not take the online assessment “Would an investor back my business? or Book a Funding Clinic to explore your funding options.