Last month’s Powerlunch was all about raising investment for your business – finding the right type of investor, putting a valuation on your company and nailing your pitch. Although most Powerlunches have focused on beauty businesses, this knowledge can be applied to a business of any sector on their path to raising investment. Fundraising can often feel like a difficult step, but our panel of experts have broken it down and explained everything you need to know, with some tips and advice along the way! Ready? Let’s get our #girlboss on…
Meet the panel…
Michelle Lu & Georgina Harding left their jobs working for Mario Testino to launch Semaine in 2015, an online magazine-meets-concept store that allows readers to shop the lifestyles of various tastemakers, from Gia Coppola to Isamaya Ffrench. They have been raising investment for their company since day one and are on hand to advise all of our baby businesses!
Vanessa Gstettenbauer is the Senior Investment Manager at Founders Factory. As part of her job, Vanessa works closely with startups in the accelerator and incubator programs on strategy, business models and fundraising. In our Powerlunch, she was able to provide the perspective of an investor, giving advice on how best to impress!
Emily Forbes founded her video collaboration app Seenit as a way of turning smartphone users into a film crew. Seenit allows brands such as Adidas and The Body Shop to contact their chosen audiences around the world and collect their video footage, taking user-generated content to the next level. When the company needed investment, Emily joined an accelerator program and throughout the Powerlunch, tells her fundraising story.
So, WAH girls, you’ve got an amazing business idea! You’ve saved a bit of money yourself, but you need some extra funds to start turning your vision into a reality. What different kinds of funding are available for a start-up? Who should you turn to first?
“To begin with, asking friends and family is your first port of call, and then angels,” says Vanessa. “An angel is usually an investor who is very much invested in the story or dream of the company. Angels can get tax breaks on their investments, so they have an incentive to invest.”
“It tends to be a small investment (less than a million) and it tends to be from high-worth individuals,” Sharmadean adds. “Angels tend to be people who are rich from family money; rich because they had a company themselves and sold it and just want to help young entrepreneurs; or rich because they’re still operational in business and they just have spare cash. You do it because you want to support people, but also, you get really good tax breaks as an angel when the company is registered for SEIS.”
REGISTER FOR SEIS
“You all need to register for SEIS, which is a government programme that means anyone who puts money into your company will get a really good tax break on the first £150k you’re raising for SEIS. Anything over the first £150k they’ll get a 30% tax break, and for the first £150k they’ll get 50%. Angel investors will ask if you’re registered for SEIS and you should say YES, it makes you so much more attractive to investors. As long as you apply you can say you’re doing it and the application process takes around 6 weeks.”
But these aren’t your only options, as Sharmadean points out. There are many ways of raising investment, and some to be wary of.
“There’s incubator and accelerator programs and then there’s a third type of investor - the kind who is rich and just wants to own a business and show off to his friends. Imagine your business is a restaurant and every week he wants a free reservation to show off to his buddies. All of these things will happen, I’ve seen it and it’s not attractive, so be aware of that.”
Michelle and Georgina had experience with angels whilst fundraising for their business Semaine, so how did they find it? And what advice would they give?
“When we first decided to start our business we tried to speak to as many people as possible, because you never know, you could call them in three years’ time and they could become your investor,” says Michelle. “After lots of phone calls and meetings, we found our first angel investor, who really believed in us and the business. That angel funded us for the first few months and really helped us get to the next stage. We ended up finding seven investors who all believed in the vision of the brand.”
But finding those investors wasn’t just plain sailing, as Georgina explains.
“Something that was hard to stomach at the beginning was getting so excited and pitching so hard, just to be torn apart,” she says. “At the beginning it was soul destroying, but you need to get over that and use it as ammunition. Not everyone is right, but you have to be so open and take on board what everyone says.”
So, in the early stages of raising investment, try talking to as many people as possible about your business. Ask questions and ask for advice – as Emily advises, this often works better than simply asking for money.
“Someone once said to me, if you ask for money you’ll get advice and if you ask for advice you’ll get money,” she says. “I think that’s a really great way to walk into a meeting. It’s great to start these conversations early, before you need money, so that when you need an investment, they already know about you and your story.”
Starting these conversations early and getting a head start will only benefit you in future, as Sharmadean points out.
“It’s important to accept that you’ll have to meet a lot of people before you get investment. Even some of the most successful companies had to meet over 200 investors before getting a cheque.”
So there’s family and friends, and then angel investors, but what about accelerator and incubator programs? What’s the difference and how do you know if they’re right for your business? Luckily for us, Vanessa and Sharmadean are on hand to explain.
“Incubator for us can be taking people in who haven’t started anything yet, pairing them up with a co-founder and starting a company in the incubator,” says Vanessa, describing the process at Founders Factory. “Accelerator programs are more the full on - equity stakes are taken and we launch a sixth month program with a huge team and there’s constant support. Another great thing with accelerator is that you’re with all these other teams that are doing the same program, going through the same struggles, it’s like a co-working space.”
“Accelerator and incubator programmes tend to run for three to six months,” adds Sharmadean. “A lot of accelerators are backed by land securities, it’s all a big strategy on behalf of corporation. If you think about Barclays, they want to hear about any new technologies in finance, so how are they going to do that? By funding start-ups and giving them the space. You tend to be under a 3-6 month program and they tend to give you an office space, where you’ll be sat next to other start-ups working furiously on your product. At the end of the three months you’ll usually present to all of the partners and the investors in that accelerator.”
Emily took the accelerator route and tells her story.
“The accelerator I pitched to specialise in B to B in the marketing and advertising space. You should do your research and find the one that suits you, because so many specialise. The one I found was perfect and it was worth the equity I had to give away in exchange for funding. You probably give more equity away than you would with angels, but that’s because you get the additional support around you and you can ask the questions you are too embarrassed to ask someone else,” she explains. “Accelerator programmes also have amazing networks, so they can keep you going and open those doors. They can be great if you don’t know where to start.”
If you are just starting to think about investment, finding the program that’s right for you begins with research, as Vanessa is keen to stress.
“It’s so important to research the different types of investment first to decide which is right for you and determine the quality of the program,” she advises. “Read blog posts and talk to people who have done the program already and find out how valuable it was for them. Also, look at their networks and corporate partnerships to see how valuable these will be for your business. If you’re running a beauty business and one of the investment programs has a relationship with L’Oreal, that could be very beneficial and eliminates some of your risk early on.”
Research is key to choosing your investors. Do your due diligence on the program or angel in the same way that they will do theirs on you.
“You should be interviewing your investors, because you don’t necessarily know if they’re going to give you any support. As with researching accelerators, you should look through their portfolio and be able to ask them who else they have invested in and get their contact details,” says Sharmadean.
Choosing an investor is about far more than just money, as Georgina points out, you need someone you can work with in the long-run.
“Having an investor is a two-way street, you’re obsessed with getting them to like you and believe in you, but you’re letting people into your family,” she says. “You need to know that you can grow with them. You need to make sure you understand the mentality of why they’re investing in you. Do they believe in your business or do they just like you and want to throw you a bit of cash?”
Whilst you don’t want people investing in your business for the wrong reasons, Vanessa is quick to point out that having a range of investors, with different levels of involvement, can end up working best for your business.
“There are very much two different types of investor, number one is the value-add investor who has experience in investing and experience in the industry you’re breaking in to. The second type of investor is an SEIS investor that enjoys their tax breaks, they may have a lot of spare money that they want to spend and invest. These investors are often quite silent. It can be better to have a mixture of value-add investors and then those who just have money, otherwise you risk having too many people trying to give you advice and give their input,” she explains.
So, you’ve done your research and you’ve decided which type of investor is right for your business. Now you need to prepare your pitch and make sure you’ve got the right valuation. But how do you set this? How do you go about valuing your own company?
“There are many ways to go about valuing your company,” says Michelle. “When you’re pre-launch and you don’t even have a product or any revenue, it can be difficult. The best advice we were given was to figure out how comfortable you are at a certain threshold; how much are you willing to give away? I think that was useful for us, because we would go into a meeting and know what our breaking point was.”
“One thing that we did was look at our competition,” adds Georgina. “Who is doing something similar and how are they doing? We looked at everyone from Refinery29 to Vice to Farfetch to understand the value of our company and see future revenue paths for us. You can map out 16 different ways you can grow to reach a certain valuation and plan your evolution. You can use your comparables as examples for understanding opportunities and showing investors your value.”
Looking at the market and your competition is key to setting your valuation, as Vanessa and Emily agree.
“An investor wants to know that you understand what your market looks like, how much money it makes and what percentage of that you forecast to make in three or five years’ time,” explains Vanessa. “Often the market sets the price. Valuation is psychology, it’s often about what people perceive your value to be.”
“Another thing I learnt is that a high valuation doesn’t mean you’ve nailed it,” adds Emily. “You want to be seen to be doubling in value every time you raise investment, so if you start too high, you can really shoot yourself in the foot. You also have to be really confident talking about your valuation. If you’re nervous to say it out loud, it probably isn’t right.”
With your valuation all set, you’re ready to start meeting with investors and pitching your business! So, what are the dos and don’ts when meeting investors?
“The best meetings start by asking your investor to imagine a scenario 5 or 10 years into the future,” says Vanessa. “Sell them the dream and future vision of your product, asking them to visualise it is a great way to start a meeting. I want to see that you have a plan and that you understand your numbers. I refuse to do anything until I have a metrics sheet. Having a founder that relies on others to explain how decisions will affect their finance and business model is a recipe for failure, you need to understand your own numbers.”
Vanessa speaks from experience, at Founders Factory she works closely with start-ups on fundraising and has heard countless pitches – so what makes a bad one?
“An investor has around 3.5 seconds to judge a pitch, I hope they’d pay more attention but that’s the essence of it,” she says. “The most important thing is that in the first lines of what you send, you convey your story and what you are doing. The worst pitches are the ones I read and am still like ‘huh?’ because I can’t work out what your product is or what you’re doing. It’s best to explain your product, then your story and then talk about your team – that’s what I’m most interested in.”
So, you've been going to loads of meetings and pitching hard to investors! But as a start-up, what do you do if an investor wants to change your ideas?
Sharmadean faced this issue when raising investment for WAH, as investors gave their two cents on how the business should change in the future.
“When I first started raising investment, I found myself becoming a chameleon,” she says. “At each meeting I would change myself to what that investor might want. I had to take a step back and stop, because I needed to figure out what my mission and true North was. I literally found myself being moulded every time, but you have to hold your ground. Having said that, it’s important to have an understanding of why you’re going to say no. If you aren’t willing to compromise part of your business, you must have a valid reason for it, otherwise you just sound like a brat.”
That valid reason can be as simple as knowing what makes your company special and sets it apart from the competition, adds Georgina.
“It’s important to know that you aren’t a company for everyone,” she explains. “It’s okay to put a marker in the sand and say what you stand for, whether people like it or not. In every sector there is so much competition, you need to give people a reason to believe in your vision, and if you’re going to be swayed as the founder, then your investor will be swayed and so will your customers. If you don’t believe 100% in what you’re doing, how can you expect anyone else to?”