Show me the money: How to raise millions without giving away your business
In his first column for Startups.co.uk, Huddle co-founder Alastair Mitchell shares the secrets that helped his business secure $40m in growth capital
When it comes to securing funding for ambitious start-ups, the challenge is not just finding investment but retaining control when you do find someone willing to inject some cash into your company.
In spite of the government’s best efforts to improve the UK investment environment by injecting millions – into the technology sector in particular – many entrepreneurs are still failing to see this funding filter through the ecosystem.
Early-stage investment in UK start-ups is looking increasingly healthy as serial entrepreneurs who have had some great exits invest back into the ecosystem, but securing mid to late-stage funding for start-ups in particular is proving more difficult.
At this stage in their life, start-ups are in need of cash to rapidly accelerate their growth, but there is a huge amount of competition and everyone is clamouring to be heard above the noise.
While there is still a huge gap at B, C and D stage funding, securing investment isn’t impossible. Having secured $40 million investment for Huddle from Series A, B and C rounds, here are my top tips for ensuring you gain the funding you require and get heard above the noise:
- Carefully consider your options. Before you take the plunge and go down the venture capital (VC) route, step back and consider if this is definitely a journey you are prepared to go on. There is no doubt VC funding will enable you to rapidly grow your business and enable you to build a better, more-focused product without the distraction of revenue generation from the outset. But, in turn, you are also committing to an aggressive growth curve and all the risks and capital implications that come with it
- Blow your own trumpet. With so much competition for cash, you need to get your company noticed and make sure you are as visible as possible. If you can convince movers and shakers that what you are doing is a great idea – and you have the courage to get out there and talk about it – your credibility will increase. Attend as many networking events as possible as they’re great places to meet VCs, spread the word about your company and provide an excellent opportunity to meet with other entrepreneurs. Entrepreneurship is an addiction and many people will have been through the mill a few times and have a great contacts book of investors. There’s every chance that they will know someone who might be interested in funding your company.
- Kiss a lot of frogs. You will eventually find the right VC for you and your business, but make sure that you cast your net as wide as possible. VC funding isn’t a case of “one size fits all”: your proposition won’t suit every VC and vice versa. By meeting as many VCs as possible, you are giving yourself the opportunity to get the best fit possible.
- You are the interviewer too. You are interviewing the VC just as much as they are interviewing you, so don’t be afraid to grill them too. You are going to have to work with this VC for the next few years, so you need to ensure your ambitions are aligned. Questions you should be thinking about include what level of board participation they’d be expecting if they were to invest and whether they have any feedback on the company’s strategy.
- Who is looking after your business? Raising money is a full time job and can take months. You’re going to be attending meeting after meeting, wading through contracts, pulling together metrics, preparing and pitching, so you need to have capable colleagues willing to run the business in your absence. Is your team big enough to cope without having you coding / selling / marketing?
- Preparation, preparation, preparation. When meeting and presenting to VCs you need to know your figures inside out and back to front, so don’t try and cut corners. Figures you’ll need to have at your fingertips include user acquisition cost, cost to convert to paying, lifetime value, payback time, monthly churn, yearly churn and solid justifications for all projections. As well as knowing your company, metrics and product, you also need to know your competitors.
If you’re certain that VC funding is for you, be prepared and good luck!
Alastair Mitchell co-founded enterprise content collaboration company Huddle with Andy McLoughlin in 2006. Since then the company has raised $40m of venture capital in a series of rounds, has offices in London, San Francisco and New York, and names 80% of the Fortune 500 and UK central government as its clients. www.huddle.com