5 Keys To Successfully Funding Your Startup
It seems as though Brexit speculation will never end, for start-ups in particular, there is still a lot of uncertainty and it is important that entrepreneurs arm themselves with enough information to face whatever may come from the current political climate.
There have been some high profile investments in the news which are showing the continued strength of the UK’s tech hub status, such as Entrepreneur First — an accelerator business which has successfully funded 75 start-ups, with a further three investment deals signed since the EU Referendum result. WeSwap, the peer-to-peer travel money start-up has raised $6.5m, showing no signs of letting the referendum slow them down.
The Telegraph reported that European investors have not been put off by the referendum results, still aware of the benefits of investing in start-ups within the UK’s tech-hub. The wealth of education opportunities, tax benefits and the large English-speaking market are still huge benefits in the business world and the country’s politics do not seem to have impacted on the great reputation we have.
The drop in the value of the pound has given foreign investors and opportunity to invest in the companies which were previously too expensive to assist. No-one is sure how long the dip in value will last, but at least there is a silver-lining for start-ups in that foreign investors still know that UK start-ups are strong seeds and worth investing in, especially now that a window of opportunity is present.
However, while attracting investment is import if you’re looking to rapidly grow your businesses, there are a number of reasons why self-funding (or “bootstrapping”) is actually a better way for a start-up to grow.
Is It Absolutely Necessary?
My perspective on funding is that there are clearly benefits to have a bank full of cash. You can hire the right people, you can get the office where you want it to be (geographically and operationally). However, there is a beauty, and a certain clarity, in starting with nothing.
There is a saying: “the only thing scarier than a man with everything to lose, is one with nothing to lose”. I found that starting a business with no money taught me how to be frugal and go without certain expensive luxuries. It made me think carefully about where we were spending the money, and why. It also meant that we grew our company in line with our financial growth so that we never over committed. We didn’t have finance agreements for IT equipment — not because we didn’t want it — we simply couldn’t have it! So everything was bought and paid for up front. This meant that we retained ownership and therefore control in the direction of the company.
Another thing to keep in mind is that if you do have investors in place they will often look to put clauses in place where they can take control of the company if targets are not met. This combined with the fact that it’s more than common to be over optimistic when presenting projected figures to an investor put the founding team in a tricky spot.
My 5 Keys To Investment Success
1. Do you really need it?
Think about if you really need money, or if it would just be nice to have more. If there is no real plan as to where the ‘wanted’ money is going, it can become more of a burden — unspent money will prove to investors that you didn’t need the amount you asked for and will show bad planning skills, whilst money which is spent unnecessarily will cause problems further down the line.
2. Look for the Right Partners.
Investors who understand the realistic growth of the company are more valuable than those who are willing to throw money around without asking about goals. Investors should be partners and it is important for them to care about the growth of your business — and in order to care, they need to know what to expect. This applies the other way, too. If your investors grant money without fully understanding what they will be getting in return, you may find yourself in a situation where investors expect more than you can provide — or something completely different.
3. Don’t make ‘getting funded’ a goal unto itself.
Getting funding gives you the opportunity to started on your journey with a better chance of success. But it doesn’t mean that success is guaranteed. Try to avoid making funding into a big goal, it is merely an early step toward other business-oriented goals.
4. Treat the money as your own.
Bearing in mind that money spent will impact the business valuation. E.g. If you forecast that your valuation will be 8 times profit, then every single pound spent unnecessarily is £8 less for your valuation!
5. Be transparent.
I think that it’s good to keep your team in the loop about the company objectives including financial ones. So let them know what money is in the bank and when it runs out. You will find a few sense of team spirit is created when people know that there isn’t an everlasting pot of cash. However, the fact that the business has procured finance can boost work ethic and morale.
These are my top 5 tips and they worked for me; maybe you have a different take on them, or maybe you’ve taken a different route to financing your startup? I’d like to know more: DM me on Twitter: @bradindigital or leave a comment below and I’ll get back to you.
How Funding Works
I came across this great infographic on the Funders and Founders website that neatly explains the funding process, and the roles of the key protagonists, from startup to sale: