The Startup Investment Journey
Note: This guide was made with the help of Hugh Bickerstaff, the head of Investment at Investible, who came in to guide us through the overall process of securing investment.
From finding a VC that will share your vision to understanding the areas/metrics that investors will typically look at within your business and finally how to secure that all-important cash injection that will make all the difference to our business.
In Startup life, every day (and business) is different but in an ideal world your businesses funding lifecycle would go as follows:
You have your day job and your startup is a side project that you work on in your spare time.
Friends, Families & Fools: If these people don’t believe in your idea enough to invest in it, experienced investors are just a pipe dream at this point.
Cue – “I just secured Secured my first round of funding! Thanks Dad!”
Ok, this is where things start to get interesting.
Seed investments are initial investments made by company insiders, private Angel investors (high net worth individuals) or other companies. These investors recognise the potential of a business despite it being in its embryonic stages and having a high risk of failure but also have the most to gain (in terms of equity).
Series A, B etc.
Note: There’s no limit to funding rounds, they can go all the way to series K if need be. Although your equity would be unbelievably diluted by this point…
Series A funding is for companies that, against all odds have survived and are looking to expand both in employees and sales figures.
If you get to this point your company will need to secure investment to expand to new markets, reach new sales goals and bridge shortfalls in capital. This will probably be your first experience with professional investors/capitalists so it’s important that you pick an investment fund or VC (Venture Capitalist) with experience in your field who has the resources and knowledge to guide you into the future.
Series B funding and the following rounds prove you have a thriving business that has a large consumer base and is achieving set goals. A big focus in this round is the ‘scaleability’ of your business – is there room in the market for it to expand? If there is, a business in this position will often find investors pursuing them rather than the other way around.
To an exit/liquidity event
Start with the end in mind. Hugh emphasised the importance of having a plan for not only how we will grow the business but how we will eventually exit our own company.
Will you take it public in an IPO? Take a buy out when you’re acquired by a larger company? Will you be bought out by other members of your company, or worst case scenario… be unceremoniously booted by your board and co-founder?
As Hugh put it:
“The no.1 destroyer of any business is a bad board”
Starting with the end in mind gives you direction and a clear goal to work towards.
Hugh referred to the above stages of fundraising as the framework for what goals we should be working towards in order to progress to the next stage of funding. If we haven’t completed our research and validation phase, we can’t move on to the Investor Ready/MVP stage (if we do then we will undoubtedly be under-equipped) and so on.
We’ve included the other frameworks Hugh referenced during his talk for download here:
Some final words of wisdom from Hugh.
Two bits of advice from Hugh really stood out for us and represented his extensive experience across investment and the wider business community…
“80% of our judgement of a start-up comes from the founders and their team.”
Sounds like the old adage of “We can rely on an A team to execute a B plan, but not a B team to execute an A plan” still holds up.
“Any money is good money is a flawed concept when it comes to investment”
Don’t just take that ‘Doctor money’!
What’s Doctor money? It’s capital without the expertise.
The ‘right’ investor should give you both capital and expertise or at least a network of experts for you to bounce ideas off and guide you throughout the process.
For instance, in Silicon Valley there are investors who have made their millions from building their own startups. Investors who understand the inner workings of the industry and which direction the market is moving. These are the ‘right investors’ because they can give huge amounts of value outside of their $X in funding.
Doctor money might be slightly easier to obtain and that will always make it tempting, but without the expertise and advice that comes from the ‘right’ investor you could easily find yourself burning through 18 months of someone else’s money before you know what’s hit you.
And that’s it! We’ve also included the event video from the day below.