Leading tech entrepreneurs share how they raised funding
Funding a tech start-up doesn’t always work out how you planned. Three tech entrepreneurs reveal how their first-time fundraisings turned out...
Raising finance can be a treacherous path to take, inevitably throws up twists and turns and often takes twice as long as you expected.
Speaking at London Technology Week, founder of Seven magazine and forthcoming website 2210 Fashion Marc Cameron, asked three tech entrepreneurs – Tim Jackson, Nick Holzherr, and Stefan Siegel – to revisit their first-time fundraising attempts.
Name: Tim Jackson
Tim Jackson started Europe’s first online auction service called QXL.com way back in 1997 and floated it two years later at a valuation of $400m, before it was ultimately sold for $1.9bn. But how did the venture capitalists respond to his attempts to inveigle a few million out of them go?
“The way I raised money was that I couldn’t. I had spoken to lots of entrepreneurs in the course of writing and I had this expectation that I would be able to produce some slides, show it to venture capital firms and a couple of weeks later get my cheque for £10m and get going really fast.
“I went to go and see the European VCs, showed them my slides and a set of forecasts that showed the value of the business was about $20m right now and they were not impressed. They were right not to be impressed but not for the right reasons.
“Their first question was always ‘What makes you think that people will buy something off the internet?’ All the VCs in Europe asked that question. The right question was ‘What makes you think that a journalist with no prior business experience can run a start-up?’
“As I soon discovered, this was a major problem. Anyway, the answer was I started with my own money.
“I stepped down from my first business in 1999 because after about six weeks I realised it’s really easy to look at other people’s ways of doing things but when you try and do something yourself, it’s a lot harder.
“Today, because of Mark Zuckerberg, Larry Page and so on, the assumption of most entrepreneurs is that they’re going to start a business and 20 years down the line they’re still going to be running it.
“It’s worth remembering this is actually a relatively recent phenomenon and that what used to happen was that start-up founders were great at building businesses for the first year or two, but then they had to be kicked aside.
“I thought if the business was going to be a success, I shouldn’t wait until someone on my board took me aside but rather that I should be ready when the time comes and that was about the same time that I started it!
“The first three people I offered the job to said no and it wasn’t until IPO that the fourth person I offered it to accepted the job. We sold QXL for $1.9bn in 2007, I thought it would be worth much more.
“We were the market leader in other countries but I have to admit we didn’t execute very well so by 2007 we were only the market leaders in Poland and Norway which is why it was $2bn and not higher.”
You went from entrepreneur to ‘Dragon’, why?
“Out of curiosity. I couldn’t raise funding when I started and it’s quite stressful when you’re showing up to work every day and thinking I’m getting paid five times less than the largest salary I’ve ever earned.
“I thought it would actually be interesting to see how things look from the other side of the table. Because of my background as a journalist and entrepreneur I had strong opinions about what would work and what wouldn’t and it seemed like a learning opportunity. It’s fascinating how much insight you get if you’re an investor.”
Name: Nick Holzherr
Nick Holzherr set up Whisk.com during his run on Lord Sugar’s The Apprentice. Faced with the knowledge he hadn’t won Sugar’s investment he set about raising external funds. But what did he go for and why?
“Between my coffee business and Whisk, I started another tech company and that basically funded Whisk at the early-stage. I would be working half days, one day a week or one day in the evening outside of my time from the other company.
“It was always a massive, ambitious idea because we wanted to connect people and give inspiration for food and for everyone to adopt it, and it would cost us a lot of money to do that.
“When I knew I hadn’t won The Apprentice, between that and the airing was about six months, we then looked to raise finance. We secured over £500,000 in two angel rounds.
“We chose angel funding because we didn’t have revenue. Revenue should be the preferred route you use if you can and if I could go back and do it that way I would.
“We couldn’t go to a VC, I didn’t have a hugely wealthy family and there weren’t that many funding options I could go for.
“We found angel investors that were tech entrepreneurs who had done it before, who could help us and give the right advice. I had no experience of how to scale a business.”
How did you secure investment?
“What I learnt very quickly from my mistake on The Apprentice, where I think I overcomplicated the pitch, is that the most important thing when you speak to an investor is to make sure they understand what the concept is and why it’s special.
“In the early days I spent too much time discussing the marketing plan, how the financials would work, who I would hire, before I’d even explained the concept. The thing to get across when you speak to an investor is the concept.
“A huge thing for me was how long it takes to raise investment, it took us six months which I know is very short compared to what I see most start-ups experiencing. We had investors say ‘yep, I’m interested’ but that’s basically just a British ‘no’. It then took about six months to get investors who were genuinely interested to say ‘yep, I’ll put this much money, yep that much equity’ and then you have to wait for them to sign the documents and transfer the money.
“Generally, investors are always going away, they have yachts and big holidays, so they all disappear and it just takes ages for the funding to get signed off. It usually takes about a year to close angel finance.
“Whisk existed at the time of The Apprentice airing but it was just a business plan at that point. The Apprentice didn’t help with investment-raising at all because we had already raised the funding prior to it airing and we weren’t allowed to speak about it but mainly it helped with B2B relationships.
“Whisk integrates with publishers and brands and it was amazing how many publishers, brands and supermarkets called me up after it aired and wanted to work with us. That was a massive asset.
“The comment from Lord Sugar was that we needed more funding than we were asking for and he was right. The first round we raised £170,000. We quickly realised we needed more so we raised £340,000 over an initial six month period and that was primarily invested in technology.
“We’re just in the process now of raising a larger round, between £1-2m, which will be announced in the next few weeks to go towards marketing and business development to help grow the business.”
Name: Stefan Siegel
Company: Not Just a Label
Former model and investment banker Stefan Siegel created fashion database Not Just a Label in 2007. He wasn’t sure he’d tick the boxes with some investors, so what did he do?
“Half of our cash came from the bank of family and friends and my own finance, a £20,000 bonus [Siegel used to work at Merrill Lynch and Ernst & Young before starting his business].
“There’s never been a choice for us to source outside investment as a lot of people don’t understand what we do. Yes, we are a tech company and yes, we’re scalable but only to a certain degree. We give more no’s then yes’ to the opportunities that are offered to us.
“I think we have a much bigger role as we’re an ethical symbol, a project, and so I think it’s hard for us to enter into an investor’s spreadsheet.
“We were one of the first Tech City members and we met a lot of VCs and relevant people but every time they would say ‘Stefan you need to concentrate more on making money’, but for us it’s really about changing the system than making a lot of money.”
Will you ever raise funding for Not Just a Label?
“We get approached by people who are interested but it’s really tough because we have learnt to live without investors.
“We literally have no running costs; we’re a team of 10 people. We don’t earn a lot but we achieve a lot. We have a very powerful business model and we’ve become really good at that.”
Has it taken you longer to achieve your goals without outside investment?
“Yes and no. Last year we signed one of our biggest deals with the government. Thanks to that cashflow we invested in skilled people and we went from salaries of £20,000 a year to salaries of say £50,000 to £60,000 but we didn’t really gain that much.
“I think [outside investment] depends on the business; so many of the things we’ve achieved in the last five years, we couldn’t have done if we had funding.”