Funding for Startups: Find Some Grey Hairs

Or “You Can Outsource Experience”

I began writing this blog post with a plan to make a Startup’s Guide to Funding Strategy. This would cover how much to raise, from whom, when, etc…

But the advice was hard to pin down and I kept going back to the Silicon Valley saying that it takes seven years and $30m lost to make a good early-stage venture investor — people who had experience, made mistakes, and learnt from them.

Eventually I realised my actual advice was this: find someone with years of early-stage investment experience, who’s lost millions (maybe even made a few), and get them to be your funding advisor.

It takes seven years and $30m lost to make a good early-stage venture investor

-Silicon Valley saying

Their experiences (losing money) will have given them grey hairs. In both the metaphorical sense and possibly the literal sense: I remember finding my first silver strand after my first year in VC, at the ripe old age of 27.

The Founder’s Dilemma

Here in London, it’s an exciting time for the startup community; new Venture Capital (VC) firms keep cropping up, as well as angel syndicates and accelerator programmes… not to mention the number of successful crowdfunding campaigns! All in all, as a founder/CEO you are spoilt for choice.

Not all investors are made equal, though, and your challenge now has changed from finding capital, to finding the right capital. To understand what constitutes the right capital, you need to know your company’s financing needs, which is where your financing strategy comes in.

Your financing strategy sits alongside your commercial and technical strategies and correlates financing needs with key points in the company’s development. It lays out how much money the company will need, what the money will help achieve, what milestone triggers the fundraise, when to time the fundraise, what valuation to negotiate, whose investment you want to attract, how to best approach them, how to position yourself, etc…

This financing strategy is often the hardest one for an entrepreneur to tackle. It gets worse when you realise you need to account for unexpected mishaps, be it within your company, your planned funding sources, or even the broader community (yes, remember late 2008).

Enter Your Knight in Silver Armour

You cannot account for all the possible scenarios your business will encounter. But you can get close. This is where the grey hairs I mentioned come to play. A good mentor, investor, or serial entrepreneur with fundraising experience will have war stories and the attached invaluable advice to share with you. By learning from their mistakes, you can strengthen your own strategy and increase your likelihood of success. In other words, by learning what caused their grey hairs, you can help prevent your own.

Hopefully your advisor will have had multiple and varied experiences, enough to avoid the trap of over-extrapolating from just one or two cases. Remember that in statistics, a minimum sample size of 30 is required for statistical significance. It will be challenging to find an advisor with 30 investments or more, so try to identify breadth in experience.

So, while I wish I could boil down the lessons learned into an easy checklist, my real advice is just this: find someone with years of early-stage investment experience, who’s lost millions and get them to be your funding advisor. This doesn’t need to be a formal relationship: Sheryl Sandberg’s book Lean In has a brilliant chapter on effective mentorship (and no, not just relevant to women) about how to solicit ideas and advice from these high level people by providing them benefit.

Tips for Your Pursuit of Perspective

Now that you are looking for advice and insight into your company’s finance, I would like to share with you a small list of considerations to take when hunting for opinion.

• Aggregate advice: find a few people you can turn to and look at the issue from different angles
• It’s a network: if you’re lucky, your advisor will be willing and able to connect you to other knowledgeable folk
• Make it relevant: your ideal advisor will be interested in your industry and what’s new in it
• There are two sides to a coin: try to get insight from both investors (angels or VCs) and entrepreneurs
• Funding strategy is a skill of its own: make sure your advisors have first-hand active experience in early-stage fundraising

The final point is perhaps the most critical. A financing strategy requires different skills and insight than commercial or technical strategies. Most of our CEOs are extremely experienced and competent in commercial, technical, and operational matters — and that’s why we hire them. Yet, when the time comes for a company to raise money, I, alongside other investing and entrepreneurial veterans on the board who serve as advisors, feed in our grey-hair-inducing experiences and collaborate to plan the company’s financial future and how to best get there.