Getting funding is one of the biggest dilemmas for a new business. When to take investment, from whom and how much? When is the investment (and investors) worth the price you will pay in stock or loss of control? How do you deal with your investors after you have received the money? Here’s the advice of some of TechCrunch Europe’s readers:
Be clear about your zero cash day
Julian Ranger – Angel investor
This is the date on which, assuming no sales or sales growth, the money will run out. Why is this important? Simply, it tells you what you must have achieved by that day, either an investment or real sales with real cash attached or both. If your zero cash day comes before you are ready for it you may end up in an unplanned round of investment. Your investors won’t be happy and they’ll request a greater pound of flesh for the unplanned second round (i.e. greater percentage of shares) or they won’t invest at all, in which case you’ll have to go cap in hand to new investors who, seeing the original investors not invest, will ask for a greater percentage. So build in contingency when doing your planning; better to ask for slightly more than you need up-front than being under-funded.
Create an advisory board
Angel Gambino – Entrepreneur and board advisor
Create an influential and passionate advisory board who who can give reassurance to potential investors. Some choose to do this after raising finance, since there is a cost associated with the creation of the advisory board but advisory board members often lead to more money.
One big difference I see in Europe compared to the US is that people here are often ashamed of prior entrepreneurial failures. In the US, failure is considered more of a learning experience as long as the successes outweigh the failures. My advice to many other young entrepreneurs here is not to hide past failures, but highlight what you learned.
You only get one chance to make a first impression
Barak Rabinowitz – CEO of Amuso
First impressions are critical so your initial approach to potential investors should be orchestrated with care. Cut through the clutter with an intro from a respected industry insider. In the first round of funding you are selling a vision and your ability to execute it so it’s vital that you show off the right mix of talent and complementary skills to engage and inspire an investor.
Look for an angel
Lucien Burm – Founder of Kimengi
Go with angel funding in the beginning since Angels will give you much more personal support. Don’t take all the money on offer just because it’s there. Define your own targets and figure out how much money you need based on that. It can take a long time to conclude the investment. Often a lot of time is spent on the “getting to know you” phase rather than on the negotiations themselves.
Break bad news early to your investors
Sake Bosch – Managing Partner of Prime Technology Ventures
This builds a lot of trust and allows the problem to be tackled earlier. Be very transparent and make the VC part of solving the problem. A typical issue is that the startup burns through capital faster than expected. In this case, the support of your current investor is very important even if you are seeking new funding from an external source so you need them on your side.
Stand your ground
Stefan Fountain – Founder of Soocial
One thing I have learnt from doing several investment rounds is to be more arrogant with investors. Be confident in what you know about the business and don’t deviate from that if you really don’t want to.
Apply to specialist funding programs when you are eligible
Women led companies can apply to particular programs and funds which are specially set up to encourage female entrepreneurs. Such options include: Astia, which offers an investor readiness programme in both the UK and SiliconValley (applications now open); the new Illuminate Ventures of Cindy Padnos in the Valley, and in the UK, the Aspire Fund which matches the amount injected by a co-investor.
Establishing good relationships with possible investors is essential, but ensure you gain independent advice from your peers. Finally, don’t forget, with investors you are always pitching, even in an informal setting.