And thank you all for coming. I know the weather's pretty miserable, which was a lovely welcome back to Oxford today.
So I appreciate you making the effort to come out. I suppose when you're giving a lecture which could be retitled How to Get Money,
it's not actually that surprising that people have made the effort to come out.
And so you all here for that reason, you are interested in learning about building a business.
Maybe you have a start up, maybe you want to have a start up, maybe you had one and you're thinking about having another one.
Either way, I'm sure you'll be aware just how fragile and delicate start-ups are.
Having a great idea or a vision for what you want to do is only a fraction of the challenge.
The execution of that idea is really what it's all about, and not the least difficult thing within execution is how do you finance your start-up?
How do you raise the capital to keep it going? How did you raise it at the right time?
How did you raise it from the right people? So that's what we're going to talk about today.
Having said that, in a lecture which is going to be about raising capital,
obviously we should start by talking about why you should not raise capital.
And there are a number of reasons why you might not want to.
Often people think that the big check would be a great thing for their start-up, but that's not always the case.
And there are a few situations that I'll talk about right now, which is why you might not want to.
Firstly, if you are running your own business, you're in charge.
That means you set the vision for what you want your business to be.
If you take investors, they have needs to grow a company very quickly and very aggressively that might
not suit the product you want to make or the kind of company that you want to run.
If you're in charge, you decide you want 100% of the shares, you want 100% of the upside, and you can run the business how you want.
If you do have ambitions to have a global business,
then starting starting a business on your own without capital can be great because it stops you getting lazy and it makes you start it quickly.
If you are financing yourself, you need to make sure that you're out there with product that people are prepared to pay money for from very early on.
And this is a great way to get a business started, especially in industries where first mover advantage is going to be important.
It can be really key to get out there. I'm sure you've all read or heard about Lean Start-Up and that way of doing things.
Bootstrapping is a great way to force yourself into that. It really does stop you being lazy, but maybe that's not what you want.
Maybe you want to be your own boss because you want to be lazy and you're good enough to be able to work just a little bit.
And having a business that you control and that you run where you're the boss and you're your own boss means you can do what you want.
And that's very important. But really, we are here to talk about why you would raise capital and how you should raise capital.
So what are the reasons if you're founding a business and running a business that you might want to think about raising capital to start with?
If you are extremely ambitious and you want to have a business that is global in scope and really a world leader,
having partners to help you do that can be key. The investors have big visions.
They invest in companies expecting to make significant returns on their money.
And to do that, typically the companies have to go very global and get very big.
So having a partner who's pushing you to do that can be a real.
So the aid and sort of agent in forcing you to be a global company, they can also provide you with global support.
If you're starting a business in Oxford or London or Manchester, thinking about expanding into New York can be a bit daunting.
If you have a partner who knows how to do that and can help you, that's really, really helpful.
Secondly, if you have those kind of ambitions, it's really expensive.
And so financing it yourself can be really hard.
You can constrain your growth rates by not having enough money if you're growing off the money that you're making.
It can be a linear growth rate. And this is a phrase you might hear me say twice or more today,
but I was always told when I was younger, dressed for the job you want and not the job that you have.
And quite often, this is what Start-Up Businesses need to do.
If you want to expand into a new geography or grow your sales channels, quite often you have to hire people in advance of doing that.
And trying to fund that from your own capital is very, very difficult.
So that's a reason to take on an investor who can give you the money to do that.
Finally, for those of you who have run businesses or currently are running businesses, you'll know just how difficult it is.
It is extremely tough and there are days where you will feel miserable and there are days where you'll feel great.
Having someone to share that with who understands and especially someone who's been there before is a real advantage.
So if you decide that capital is for you and your business and you want to go out and and raise some.
When when's the right time to do that? When in the lifecycle of your business, should you go and seek it?
The truth is there are many stages in a company life cycle and frankly,
you couldn't get capital at any one of them and you may need it at all of them, depending on the nature of your business.
So thanks to Mark Leslie, who is a professor of mine at Stanford, for this for this framework.
But. You'll see here that the five categories of business,
the seed the seed stage is when you've got an idea and you're formulating it into a business plan and building the models,
putting together that sort of presentation and really just sort of conceptualising what your business is going to be about.
You might not need money to do that. Maybe you do need a bit to live off.
Maybe you need to do some market research, but potentially you might need to take some small financing to get that done.
Development when you're creating the product sort of depends on the product or how much capital you might need.
But again, that's something that might require capital and resources that you just don't have.
When you go to market, this is what Mark Leslie calls the chasm, because you've been building these products and you've got to go out and sell it.
And it can be a really difficult bridge again, that can require resources for PR, marketing, sales, people spending on your product.
It can be a very expensive thing to do.
Market expansion, as the name suggests, that's taking your products from somewhere where it's been successful to new verticals or new geographies.
And that again requires extra resources that you might not have the capacity in-house to take a harvest.
You might not need cash because you are an established company with a product that people are buying and you're generating plenty of money.
The reason you might need it at harvest is for M&A purposes.
And if you look at Silicon Valley and some of the tech companies, how acquisitive they are, you'll see what I mean.
So as I said, financing happens at all stages and often in one company.
It could happen at all the stages.
But in every stage there are three questions which I think you should ask before you decide to go out and raise capital.
The first is, have we reached a growth ceiling? Now, I don't mean by that.
Have we reached a point where we're not growing anymore? But have you reached a point where unless you inject capital, your growth rate will slow?
This is very important because you want to take your company as far as you can before taking on capital because point to sorry, getting a bit excited.
Have we created all the value that we can? This is key.
You don't want to start raising equity and giving away stakes in your company at a valuation that's lower than what you could achieve.
You want to make sure that you've given everything you've got to the point where
you start getting diminishing returns before you go out and raise capital.
And then finally, do you know how much capital you need and what you need it for?
And this is the dreaded business plan and the Excel models and everything.
But unless you know and can conceptualise what you're going to do with the money, it's going to be very, very hard to ask anyone to give it to you.
And it's really important to have spent time soul searching in deciding on the
strategy of the business and where the capital will go to aid that strategy.
So you've decided you need capital. And you're ready to go and get it.
But where can you get it from? There are traditional sources of capital.
As you saw, I'm a venture capitalist.
We are one of these, and I'll just run you through some of the others just to sort of make sure that we cover everything.
Friends and family.
This is, as I said, often at the seed stage, you need a little bit of money just to make sure you're eating and not living off ramen noodles,
maybe, or to get some market research done early sort of idea testing.
And quite a lot of people turn to their friends and family, and this is a sort of pretty common thing.
The one thing I would say here is really beware. This has many pitfalls and it can go tremendously wrong.
So as a rule of thumb, I say don't take money from friends and family if they can't afford to lose it or you can't afford to lose them.
It's really key that you understand that because it can go wrong and you don't need the pressure.
On top of running a business of losing friends or family members.
Universities. Oxford is actually very, very good at supporting Start-ups, particularly in biotech.
So I understand, although I'm no expert in biotech, but there are plenty of programs going on.
I was just hearing about the the new workspace they're creating here at the side business school.
But there are also things around R&D and grants you can get and funding.
Stanford's where I was is just created a fund to actually seed entrepreneurs with money start-ups that they like as part of an incubator program.
So you should definitely look at the institution that you're a part of to see if they can offer you help.
Angel Investors. These are generally wealthy individuals, often with expertise in the area that they want to invest,
and they get tremendous tax benefits from angel investing.
If you structure it in the right way for them.
I won't go into the specifics of that, but essentially it's got to be an equity product and that materially reduces the risk.
So they're often very willing to help with with money.
And as I said, if they're people who have made their money in the field that you're in, they can also help with a lot more than just money.
Incubators are proliferating wildly. I'm sure you've seen many of them and there are some fantastic ones out there.
What's great about incubators is they put you in a community. They give you resources that you might not have as a small company on your own.
You know, simple things like access to Wi-Fi and printers is really important, but also access to other people who you can ask questions from.
They might have been through some of the issues you're going through.
And then also, incubators give you access to a broader network than you might be able to achieve on your own.
Typically, they take companies which have an idea and have a sort of vision and a business plan, but there are incubators out there.
Entrepreneur first is one actually who I have mentored with who take individuals and then create the teams as part of the program so that,
as I said, they come in all shapes and all sizes, but they can be a great way to get resources beyond your means.
Venture capital. This is what I do.
Venture capital comes in all shapes and all sizes and broadly covers the whole spectrum of the life cycle of a company.
Up until the very mature stages, venture capitalists are looking to invest money in Start-ups and see significant returns from those start-ups.
They know that they won't get returns from all of them. So it's important that when they do, they're very big.
So they look for start-ups with global visions playing in big markets with
entrepreneurs who have the talent to execute and create a really meaningful business.
Banks. You would have read in the British newspapers, I'm sure, about banks and small business lending,
and there's not enough of it going on and there's lots of government initiatives to encourage them to try and sort
of lend more to entrepreneurial businesses and especially sort of the backbone small medium enterprises in Britain.
The truth is they do offer a means of financing and they'll lend you money often at quite good rates.
The difficulty is for for start up businesses, it can be hard with no track record if you're not cash generative,
which you may not be as a tech business especially. It can be hard as well.
So banks are an option, but only for certain types of businesses. Now we're getting into the late stage stuff.
Growth capital, you've made it when you're talking to growth capital investors,
these late stage venture capitalists or often private equity investing fairly sizeable checks
which are not leveraged to help companies expand into new geographies or new verticals
on a proven model that already shows that it generates money and they're just trying to
help roll it out when you've really made it is when the buyout funds are coming after you.
So they're looking for cash flow and they are going to leverage against that cash
flow and use it to pay the debt that they have taken on against your company.
And public markets. So if any of you IPO your business and you think back in many years and say,
oh, that Henry Davis lecture was crucial, please ring me up, buy me a beer.
So where do these guys play? This is not 100% right,
because things move around and you'll see angels popping up all over the place and you'll see private equity people moving lower.
But broadly speaking, this is how I see the map.
You'll have your traditional very sort of early stage people, which are your angels, your friends and family.
The incubators come in generally just after that, once you've got an idea of what you want to do.
Venture capital. That, too. So you can pitch some venture capital firms,
the seed firms with a business plan as long as it's credible and venture capital funds go all the way through to to growth capital, as I said.
And then towards the end, once you've got a track record, you can get the banks.
And once you're growing very quickly, the growth capital. And then the exit scenario is the private equity and the IPO.
So I'm sure you're all thinking up. But what about the non-traditional sources?
And this has been a great change in the landscape, especially for entrepreneurs,
because now there are so many more ways for you to finance your business than there ever was before.
Many of the new ways are actually entrepreneurial successes themselves.
This one's probably top of mind. Crowdfunding and Kickstarter.
There's some great success stories.
Blaze being one, the guys that make the The Cycle Lights and they launch the product on Kickstarter and it was very, very successful.
And Kickstarter can be fantastic way to finance your business. You choose how you raise the money.
Often that's presale of goods, which means you're not even selling any equity or anything like that.
You're selling goods before you've even made them, which is fantastic.
The downside is it's all or nothing, so you can't raise a bit of what you say.
You've got to get it all or you don't get any of it. And the truth is, it is specific to certain industries.
I personally haven't seen any enterprise software businesses, for example, on Kickstarter.
Please correct me if I'm wrong on that.
Peer to peer lending funding cycle, actually an index backed company and some really talented entrepreneurs themselves.
This is a way to get debt financing. Often in places where banks wouldn't lend and essentially, as the name suggests,
it comes from people who have invested in the platform to fund businesses.
It can be relatively accessible and cheap, but it's debt.
So you need to be able to pay it back, often with interest, which means you need a business that's producing the cash to do that.
So it's only suitable again for certain kinds of businesses. Microloans.
The SBA is a government organisation in America with a social purpose, often geographic or trying to back certain groups within society.
And they have mandates to lend money and help businesses get off the ground.
There's talk in the UK of that being what's imaginatively called the business bank, which Vince Cable is kickstarting,
and that's going to do a similar kind of thing and try and get entrepreneurs money and get small businesses money.
It can be great if you fall into some of the criteria that they're looking for.
It can be extremely bureaucratic and frankly, they don't massively understand innovative new businesses.
So there are companies that do understand this, the new small, medium enterprise lenders on deck.
Another Start-Up has raised a lot of venture capital itself, and they specialise in lending money to small businesses.
They do it all online. It's all very efficient. It's all very quick. They have algorithms which help them assess the risk,
which means that they can generally lend to people banks wouldn't, and it rates potentially lower.
It can be expensive. That's that's the thing. You need to make sure that, again, it's that you've got to pay it back.
You need to make sure that you can and you can cover the interest. Factoring another Start-Up.
In fact, Kabbage, which does this factoring, is basically borrowing against your receivables.
So it really is only for e-commerce and businesses that sell online.
Specifically, if you sell through eBay or Amazon or platforms like that where it's very easy to see how your business is working.
And this helps you find the working capital that you need to sell products.
Finally there's you. Lots of entrepreneurs have funded their businesses themselves.
I'm sure you've all heard the stories. Oh, I mortgaged my house, or I took out seven credit cards to start this business.
Certainly the Dragons Den seemed very keen. You know, you're not a committed entrepreneur unless you've gone to these kinds of sacrifices.
My personal view is that financing a business yourself is a really difficult thing to do because it puts additional risk on you.
The entrepreneur who's already taking a massive chance to start a business, potentially giving up income and all the rest of it from your job before.
And it can make you take decisions to solve for your own personal risk, which might not be in the best interests of the business.
So think very carefully before you put yourself on the hook.
The truth is that most businesses will raise traditional capital, especially if you get to a meaningful size.
At the moment, the non-traditional backers haven't raised the capital needed to fund companies all the way through the life cycle.
So if you are going to have a successful backed business, it's probably going to be from traditional sources at some point.
And that's really what I want to talk to you about now. How do you go about asking for that from traditional sources?
See the right people the right way. What does that mean?
So the first thing I'd say is select the right investors.
I said before, venture capitalists come in all shapes and all sizes and all countries and so on, so forth, and they all have mandates.
And generally they're pretty open about what they will and won't do. If you spend time on their websites, angel investors, too, have public profiles.
They talk, they put themselves out there.
It should be quite easy to find out who the right investor would be for your stage, your sector, and your geography.
If you do a bit of homework, you can save yourself a lot of wasted time chasing the wrong people.
Seek a warm introduction. So a couple of you already come and said hello to me today and I'll be around, as was mentioned earlier, for drinks.
Please do later. But that's a really good idea.
In in raising capital is make sure that you get yourself out there and get known because all investors, angel investors,
venture capitalists, everyone else get literally tens of emails a day from start-ups looking for money and to stand out from that,
however good your idea is, is really, really hard, you know,
from a cold email where you're just trying to pitch your business and it's really, really difficult.
So if you can get out there, get known, at least get your word about your company out.
That's a really, really good thing to do. Be sort of as dogmatic as you can be without being over the top.
You don't want to scare anyone. But what I will say is that the best introduction you can have is a warm introduction.
So rather than coming up and shaking someone's hand, if someone the investor trusts introduces you, that is going to get you a lot more airtime.
So if you know a way into an investor, I would definitely explore those avenues.
LinkedIn is obviously great for that and a warm introduction is by far the best way.
Now, however, you go about finding and approaching your investors, the one thing that I would say is.
Be prepared for people to say, no, it is going to happen.
And even the best businesses in the world, the most successful start-ups in the world, had venture capitalists say no to them.
Obviously, in those cases, the venture capitalists probably regret it now.
But you do need to be prepared to hear the word no.
Probably quite a lot, unfortunately. And if you're prepared, hopefully you can be graceful about it, because if your company is successful,
you will come across this small network of investors again for sure.
And they may be able to help you in the future. So I would say be prepared and, you know, be graceful about it.
When they do say no, they may well be wrong and hopefully they are.
And that would be awesome that you can prove them wrong in future. But it is something that will happen and you do need to be aware of that.
So if you do get the meeting, you get the introduction.
You're in that. You've got the meeting with the investor. How do you convince them to fund you?
So this is, I suppose, the art of the pitch caveat that there is no right way to pitch.
And this is very much subjective thought. This is what I think a good pitch should have.
And if you can answer the six questions that I'm about to show you,
I think that's got the makings of a great pitch and has covered everything that an investor should want to know.
So what are the six things? Number one, why are you doing this?
Why did you quit your job or do whatever it is to give up whatever you were doing before to do this?
What specific insight or disruption or special technology or gap in the market did you see that made you want to do this?
Oh, sorry. Number two, given that insight that made you want to do it, what are you doing to address it?
So it's actually fairly common that you look you sort of meet entrepreneurs
or look on their websites and you're not quite sure what the business does.
So it's really key to just make it very clear how you're addressing the the thing you identified in point one.
Number three, who else is doing this? Now, obviously, by nature of being an entrepreneurial business, you're trying to do something new and different.
You're trying to do it in a different way. But you need to be really honest.
The truth is that there are substitutes. Even doing nothing on the customer's part is a substitute of sorts.
So you really need to be honest about what the options are that are out there and be honest with yourself and also the investor.
So you can then go on to point four and tell them why you're going to blow those guys out of the water.
What is it about your product, your team, your strategy, which is going to enable you to beat everyone else and every other option?
Number five, money. Now the top 36 venture capital.
Backed businesses was released this week. You might have seen it. I think it went out on a LinkedIn article.
Actually, two of those do not make revenue.
Does anyone know what they are? I didn't hear.
So it does make revenues and it's it's sorry, these are non-public companies.
I should been clear. GOODMAN And I'll say the other one is Pinterest, but only two out of 36.
So it's not 1998 anymore. Revenues are important.
People are thinking about this. They want viable business models and they want proof that they work.
So even if it's many years out that you're going to make revenues,
it's important that you've thought about it and you have an idea how your business turns into one that generates money.
Number six is a slight variation of that you can show.
Amazing. Understanding of your business and your model.
If you can show the KPIs that are going to be important as you grow and how they flex and scale with the business,
if you show a deep understanding of the metrics, that shows success.
So if you're an e-commerce business, you might want to look at conversion rates and so on and things like that.
Each. Each sector has its own sort of terminology, which I won't bore you with because it is essentially terminology.
But underneath that,
it's things that will show that you really understand what drives your business and will help all the other things fall into place.
So you've decided that you want to raise capital.
You've approached the investors, you've pitched them, and you've convinced them that they should invest in you.
What happens then? How does a financing round work? So pre-funding.
Let's say your business is worth £4 million and we will talk about valuation.
So don't panic. But congratulations. You have a business that's worth £4 million.
You started it yourself. You own it all. 100% of the equity is yours.
And you've done your work, as we said, and you've worked out how much you need to raise to get to the next stage, and that's £1,000,000.
And so your investors are going to put in £1,000,000. What that means is after the capital raise, you'll have a company that's worth £5 million.
Now, this is called Post-money valuation. This is something that you will hear when you raise money.
The post-money and the pre money. The 4 million is the pre money.
You add the one, you have the post-money, which is the five, and you now own 80% of 5 million, which is still the same 4 million that you had before.
But you've got the additional capital from the investor.
You should never really think about selling your own shares, only taking on new capital as an early stage business.
Only sell your own shares once you're very, very mature because it's a very bad signal.
So all the new capital that you take in shouldn't go to you. It goes to the company and helps the company grow.
But as I said, we would talk about the dollars and cents. So how much you should raise is obviously a really important thing.
And we talked a bit about it before. You should work it out using a model and you should think about the business needs,
but you should only really raise as much as you need to get the next to the next stage.
So what does your model tell you? You need to get to either breakeven or another point for a financing round.
You don't want to raise more than that because essentially then you'll have to give away more
of your company and you want to get enough to get the business to the next stage for sure.
But you don't want to give up too much of your business more than you needed to.
You need to be prepared to give up some of your business for the benefit of it.
A smaller percentage of a bigger value business can be worth more than a bigger percentage of a smaller value business.
Remember that. But try and get the balance right that. And then how does valuation work?
Well, frankly, it's not that simple. It's a bit of an art and not a science.
It will be driven by demand. If you're a super hot valley, start up with venture capitalists beating your door down, the valuation will be very high.
If you've only got one investor, really it's up to them.
So it's driven by demand for your company and the parameters will be led largely by the investors appetite,
which is how much they want to invest and how much they want to own.
So in the last example, it was 1 million for 20%, and investors will have a pretty good idea about that.
And a good investor shouldn't try and sort of get one past you here.
If you're picking the right investor,
then they should be behaving in a way where they realise that screwing up early is going to lead to misaligned incentives.
It's important that you understand that you shouldn't be too defensive.
You should obviously be aware, but investors really are aligned with you and so they need to keep you incentivised and not get one positive.
So once you've agreed on the parameters of the deal, the valuation and the amount you're going to raise,
you will get to a point where you're given a term sheet.
And these are terrifying things with all sorts of language in them that will scare the [INAUDIBLE] out of you.
I won't bore you with the minutia. We could have a whole day's worth of lectures on timesheets and still not agree.
So what I'll do is hit the five key points that I just want to flag to you now.
So if you ever see them in a time sheet, you sort of thought they were coming, and you'll be a better place to deal with them.
The first is the type of instrument.
So in the worked example before it was just sort of 20% of the same shares that you had, which is the common equity.
And often that's what investors take, but sometimes they want preference shares.
And what that means is shares that have either different economic or legal rights to yours.
So they might be entitled to a dividend or they might have more rights over what direction the company can go in than the common shares and finally,
convertible shares. These are things that generally happen in early companies and they're great because they don't need a valuation.
So before you have anything to really value convertible shares a great because they work like a debt instrument with
an interest rate which just accrues you don't actually have to pay it it just accrues in value on the on the loan.
And then when you do raise around with the value, it converts into equity at that valuation.
The thing about convertible shares is back to the angel investors and it sort of tends to be around that early stage when angels might be involved.
They can't get the tax relief on convertible shots, so be aware of that.
Legal restrictions. There will be a bunch of these in the timesheet and these will be the investor
putting restrictions on primarily when you can sell shares in your company,
when you can issue new equity,
i.e. when you can go out and raise a new round and when you can sell the company or materially change the direction of the company.
Now, this is not because they want to repress you.
It's a shield for the investors, not a sword. They're investing based on a vision.
And and they hope that your interests are aligned. So what they're doing here is just trying to make sure that your interests are
aligned and and protecting themselves as minority investors in your business.
Thirdly, the the Aesop. This is really, really important.
So when you raise money certainly later on. So not not at the very, very beginning, but but series and beyond,
investors will probably ask you to put aside a bit of your business into a share option scheme.
Ten 15% is typical. So as well as selling the 20%, you'll have to give another ten or 15% into this option scheme.
The culture in the UK is not that in favour of option schemes in America that
extremely popular and extremely sort of well-liked and entrepreneurs don't mind.
Here people are a bit less sort of bullish on them.
My view is that they are extremely important and it will really help your business to have one.
So I would not be too worried about giving equity to a to an option scheme.
The reason for that is if you're going to be a world class start-up, you need world class people.
And to get world class people and then incentivise them to remain world class,
you need to give them some skin in the game and an option plan does that.
Diligence. So there will be requirements in the time sheet about what investors want to do to make sure that your business is what you say it is.
Three types legal, which is pretty much what it sounds like it will be checking that your company exists and it was
registered in the right way and you own the copyrights and the trademarks and things that you need,
checking that your employment agreements all work. This is pretty arduous.
You'll get asked to provide a ton of documentation and it's really, really painful, but it's important and it happens in every deal.
Financial doesn't happen in every deal, especially at the earliest stage.
But if you have financials, you've been making money.
The investor may want to go through the accounts and just make sure everything adds up and that your cash balance is what it should be and so on,
so forth. And commercial diligence again, doesn't always happen because quite often the commercial diligence is done before you get the timesheet.
But that's the investor just checking that the market size is what they think
it is and that you're strategic direction is is what was agreed and what.
You know, they think it is. And so that's that's the third element. So you will definitely have to do legal whatever.
And the other two you may have to do especially at a later stage. Finally liquidation preferences you may have heard about.
They're extremely complicated. They can be.
Very difficult things to get through. Essentially what they are are the rights of an investor to get a different return at certain thresholds to you.
Again, they fall in the category of the investor just trying to align incentives.
So the investor is is looking for a return that sort of five, ten, 20 times.
They want you to grow the business that much and it might be good for you to double the value of the company and sell it for a few million pounds.
And that's a great positive outcome, but it's not good for the investor who needs to get these big returns.
So what the liquidation preference does is sort of stop you selling to cheaply, if you will.
So again, a good investor shouldn't use this to to beat you.
They should use it as a sort of a way to align incentives.
And you should just be aware of it because it does have material outcomes on your returns at the end of the day.
So what do you need in a financing? Really?
You need a good lawyer. It's really important. There's a lot of stuff in there that you probably won't understand.
And the table is stacked against you because chances are the investor's done it before and chances are you may not have done so.
Make sure you hire someone. It's worth spending a bit of money on.
So I've said a lot about the rights. Investors are not doing things that go against your interests and working with you as a team.
How is it that you can go about choosing those right investors?
Well, first, let's just talk a little bit about what a syndicate looks like.
Typically, you have a lead investor and as the rounds get bigger, so series and beyond, even at seed stage, you'll have other investors.
So the lead investor. Well set the terms of the deal and will drive the diligence and drive the deal and be the key sort of investor going forward.
Generally, they take the largest state, not always, but mostly,
and they'll also help you structure the rest of the syndicate with the other investors.
So they'll sort of help you decide who's good and who's who's not.
The other investors follow the terms set by the lead so they don't negotiate separately.
You all sign one set of documents, which is great because you don't have to do it four times.
They can be heavily involved in the company despite not being the lead.
So they might take board seats if they've got enough stake, for example.
And it's important that you like them. They're not just sort of dumb money to tag on.
They can be very important partners as well. So what should you look for?
Well, in your lead investor, I think it's really important that they have a solid reputation.
Raising money from someone who has a great reputation puts you in a pool of that reputation.
So you can really do a lot for your company by being backed by the right investor or the right venture capital fund.
Secondly, relevant expertise and a good track record. Someone who's done it before.
I'm showing you that they've done it before and can prove that they know what they're talking about so they can help you.
Breadth of network. It's really important that they can help you with contacts, introduce you to people that you might want to hire.
Introduce you to people who can give you advice, help you scale into new geographies.
And other resources that can help you. As I said, hiring PR more money is also quite important.
It might be helpful to go with an investor who can follow on in the next round.
They don't always do that for various reasons, but it could be helpful to have at least one in the syndicate who might.
You need an individual in the deal who you like and trust.
This is really important. They're going to be on your board. You're going to see them once a month.
You're going to call them probably more than that. You better like them and you better believe that they believe in you.
It's really important that you spend time with them before signing anything and make sure that
you like them and also make sure that there's a clear commitment to you and your business.
Obviously, portfolios are big, so you need to understand how you fit into that portfolio and what kind of attention you'll get.
So with the other investors, I think a lot of the above is true for them too.
But additionally, you want to make sure that they'll work well with the lead investor.
You don't want to have investors who disagree and clash. So it would be good to see that they've worked together before, or at least they're aligned.
And what they want from you sector expertise or deep knowledge of your company can be helpful.
You might want to take a small investor, for example,
who knows a tremendous amount about what you're doing or who has mentored you through the early stages.
And finally again, the ability to follow on.
This can be so often you take an investor with a small stake with the hope that they'll take a bigger stake in future out.
So how do you then sign the deal? You've got to a point.
You've decided you want to raise capital. You've worked out which investors you want, approach how to approach them, you've pitched them,
you've worked out how much money you want to raise and at what valuation you've gone through.
The time she, you've chosen the right syndicate. How did you sign?
Generally with a pattern. So where does that leave us?
What have we learned today? I think there are a few key takeaways that I would like to just reiterate from from our conversation.
Firstly, capital can be vital for your company to grow.
Don't be scared of raising capital. It's not giving away your business. It's really opening doors and opportunities.
If that's the way you want to go. You may need capital more than once at every stage.
As I said, it can be crucial to you to have capital sometimes.
Sometimes you only need it once, sometimes twice, sometimes five times. You know, go and crunchbase and just click through companies and you'll see.
There are a lot of places you can go for capital and you should pick the right one for you given your stage and what you're doing.
So that could be traditional, it could be non-traditional, but really be aware that there are a lot of places to go.
And we've talked about a few of them today. You should approach investors with care and do your homework and make sure that you're ready for the
conversations that you're going to have because you don't generally get more than one go at it.
And so we've given a few tips about how to do that,
but make sure that you're definitely sort of ready to answer the difficult questions when you go to investors.
Beware the details. So we talked about a few of the things in the time sheet and evaluation, but it's really important that you do.
When signing a deal, it's never simple. It's never, Oh, I'll just take the money and it's all done.
There will be things that will impact the future of your business and your life materially going forward.
So make sure that you do personally spend time because you're the person who's most invested in your Start-Up.
And finally pick investors that you trust and you like and you think are going to be good for your company.
If you are aware of all these things, as you scale your company and grow it, this will really help you on the financing side.
They said it's only one part of having a successful company, but it is a really important one.
So I hope that you can take away some good advice from this presentation.