innocent drinks and Social Chain founders share secrets on how to get funding
Don’t start pitching for investment until your business is well-prepared. Our Plusnet Pioneers, Richard Reed and Steven Bartlett, give their advice on how to get your business ready for funding
You wouldn’t enter the ring without due preparation, so it’s important to know you’re fighting fit before you start seeking investment. Going several rounds with investors and getting rejected can leave you feeling discouraged. But how do you know when your small business is ready to raise investment? And are you seeking business investment for the right reasons?
To find out, we interviewed two of the UK’s most inspiring entrepreneurs – innocent drinks and JamJar Investments co-founder, Richard Reed, and Social Chain’s CEO, Steven Bartlett. Both have more than their fair share of funding experience from both sides of the pitching process, as founders and investors.
Richard and Steven are proudly supporting the Plusnet Pioneers programme; a series of exciting content from business broadband and phone provider Plusnet and Startups.co.uk, designed to help small businesses overcome their biggest challenges with funding and marketing.
As Plusnet Pioneers, Richard and Steven have shared their four most valuable, and, somewhat surprising, tips to ensure your business is fighting fit for raising funding.
Richard and Steven’s four steps to get your small business ready for funding
1. Have a product or service ready to show investors OR fake it until you make it
You might be in a position where you need finance to make your product or service a reality, but something is better than nothing. Richard says:
“I am being as hypocritical as it’s possible to be because, with innocent drinks, we raised funding before we had a product or even had a business name.
“We just said we’re going to start a smoothie company, and we had a very convincing business plan about what this smoothie company would be and where it would be sold.
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“What did I do to get investors on board? I faked it.
“We bought bottles of other people’s smoothies and poured it into clean bottles, then made up some labels that were printed out on a colour printer and stuck together with Sellotape on the back. We had the cheek to have investors try what was then our competitors’ smoothies, and pretend they were ours.”
“I don’t advocate doing that when pitching to investors, but entrepreneurship is about doing whatever you need to do to get it done and get that funding in the bag. We were raising money for a smoothie company, so of course we had to show them smoothies.”
2. Assemble a strong team for your fundraising journey
When seeking investment, you’re not just pitching an idea to investors, you’re pitching yourselves. As Richard explains, you need to show why you’re the right team to bring this idea to life.
“First and foremost, your team is crucial to getting an investor to back you.
“It is ultimately a human endeavour that investors are looking for when they are considering to invest. You have got to have that drive, resilience, intelligence, and the ability to make stuff happen despite the odds.
“They’re trying to find a founder that is disproportionately good and has got that wonderful combination of ambition, altruism, drive and energy.
“And then, ideally, you’re not doing it by yourself but in a team. And that team consists of people who are really good at different things.
“A big driver of our success at innocent drinks was that there were three of us. None of us would have been able to do it by ourselves. Together we made one good business person. And so, we’re massive believers in teams that share the same values and bring complementary skills.”
“I invested in a great business idea but the team wasn’t so great and I ended up losing a lot of money. It made me realise that it doesn’t matter how good the business idea is or how much you love the brand or the product, it all comes down to the people because they can figure stuff out and make ideas work.
“No business idea is born perfect, so you’re going to have to rely on intelligence and your team to get it there.”
3. Create a believable business plan
The business plan is often held up as the cornerstone of a successful company – but how important is it really in getting investors to fall in love with your business and invest in you?
“You absolutely are going to need a business plan and it’s going to have to be detailed enough so investors can see you’ve thought it through and run the numbers.
“You can’t just make things up in your plan – I say this, even though secretly everyone knows a business plan is a lot like a work of fiction. It’s about predicting the future in an ambitious but sensible way as projections in a business plan don’t always become a reality.
“However, your business plan still needs to be a credible estimation of what will happen. Don’t make your business plan so long or detailed that you get separated from what your business actually is, what you’re going to do, how big it’s going to be, or how you’re going to do it.”
However, Steven has an alternative approach to writing a business plan to show to investors…
“There was no formal business plan for Social Chain. My business plan, on my mother’s life, was written on a napkin in a café in Hammersmith. That napkin was photocopied, and it was put on a piece of paper in the investment document.
“The plan included:
- Here’s how much money I need for my business
- Here’s how much money my business would make; though roughly no one knows
“I’m honest enough to tell my investors: ‘I have no idea what we’ll be doing in a year’s time’. As a founder, you need to have a rough idea of the direction that your business is going in and a vision for where you want to take it, but the whole magic is to move with the opportunities.
“At Social Chain, we wake up in the morning and new information decides the business direction because social media is always changing. So, there’s no business plan, and if I write one in the future, it’ll be on a napkin again!”
4. Only raise funding if you need it – many businesses have become successful without it
Securing investment might be seen as a sign of success, but that doesn’t mean every business should make it its aim to get funding. Steven explains that some businesses would be better off without it.
“Don’t raise investment unless you’re sure that it is necessary for your business to seize an opportunity that won’t be there in the future because there’s increased competition.
“If you are already running a profitable business, then I honestly would tell you not to raise investment and to just scale from your own success. Taking this approach builds a sustainable business and one that’s not built on a fixed set of investor terms.
“I implore all my friends that if you can scale from your business success, from your own profits, from your own revenues, then you should hang on for as long as you possibly can before getting involved in raising investment.”