10 Tips on Raising Your First Round in Australia by Duncan Anderson
Editors’ note: Duncan Anderson is a co-founder of Edrolo. Edrolo builds digital education for secondary schools and went through Startmate in 2013. They’ve raised 3 rounds of funding and are now in 55% of schools in Victoria and expanding in New South Wales. You can learn more about Edrolo’s experience going through Startmate here.
Below is a summary of a short talk Duncan gave at a Startmate info night on 10 May 2017 at Inspire9. Register your email to be notified of other events!
The next Startmate program starts on 1 July 2017 in Melbourne. If you are an early stage technology company with ambitions to build something world-class, then please apply by 1 June 2017.
1. Understand the legal terms
What is the difference between equity, convertible notes and SAFEs? What are the pros and cons of each? What is pre-money? What is a liquidation preference? What is an anti-dilution clause?
Understand not just the terms mean, but what they mean for you, financially.
2. Learn what metrics you need to have to raise for your type of company
You want to figure out if you can theoretically raise a round or not and you do this by looking at peers and other market transactions.
Different types of businesses (SaaS, marketplaces, hardware etc) have different sorts of metrics.
Edrolo is a SaaS business so we needed to understand what metrics that a SaaS business uses to raise and what metrics command what valuations.
The key SaaS metrics are
- Negative churn
- CAC vs LTV ratio
- Revenue Growth rate
- MRR or ARR
You need to know what these metrics mean and what yours are.
Then you figure out if you are better or worse than average and why.
Research online for companies similar to you on Crunchbase and Angelist. Ask founders of comparable companies what their metrics are, how much they raised at what valuation.
After this you should know roughly what you believe your company is worth and what terms you would be happy to accept. You should also know if you are too early to raise. If you don’t know what you are worth you haven’t done enough homework yet.
3. Build an investor list of at least 30 but ideally 50 investors
Then you need to speak to investors. An excellent starting place is Airtree’s open source google sheet with probably the most comprehensive list of Angels, Venture Capital firms and Accelerators in Australia.
Another good place is to google companies you know who have raised who are similar (but not competitive) to your company and work out who their investors are. Many investors also add this information to their Linked In profile.
Build a CRM for investors and note which are your ‘ideal investors’ and then your ‘learning investors’. More on this below
4. Practice your pitch on up to 10 ‘training’ investors
It is self-explanatory who your ‘ideal investors’ are — these are the people you really want to invest in your company. Your ‘learning investors’ are the investors who are not your ideal investors.
You will be really bad at pitching to begin with, so you want to warm up and tune your pitch on your ‘learning investors’. Have at least 10 people on your ‘learning investor’ list.
5. Get warm introductions to those investors
You need warm introductions to investors. Very few will give you a meeting without a warm introduction. This is because they trust others in the network to vet people for quality and relevancy before introducing.
The best way to get warm introductions for Edrolo was through the Startmate network. Seriously, if you are worthy you’ll meet pretty much every investor in Australia and many overseas. For example, I’ve met Sequoia, Accel, Dave McClure, Mayfield, Draper Fisher Jurvetson. This was all through introductions from Startmate.
6. Work in teams at the pitch meetings and take notes of every question so that you can practice your answers later
In the beginning, all co-founders should go to investor meetings so that if anyone gets caught flat-footed then the other person can help you out. Make sure you bring note-pads and write copious notes. Write down every question that someone doesn’t answer well and anything else that doesn’t go well. At the end you likely need to debrief with your co-founders for up to an hour to really make sure you found everything that didn’t go well so that you can improve for the next one. Don’t ever answer a similar question badly twice.
Only ever divide and conquer once you are nailing 90%+ the questions in a meeting.
7. Ask investors for introductions to gauge interest
One of the hardest things to work out is whether an investor is actually interested. Few will say ‘No’ directly. One way that worked for us is ask them if they’ll introduce you to anyone. This is a soft way of getting to know if they like you.
If they suggest it themselves and introduce you to 2x people they really like you.
If you ask them for introductions and they introduce you to 2 people they like you.
If they only introduce you to one person then it’s ok, they are neutral.
If they don’t introduce you to anyone, then they don’t like you!
Don’t bother trying to convince an investor who doesn’t seem interested; just move on and concentrate on finding ones who do.
8. Do as many meetings as possible at the same time.
Once you have your pitch down (ie you are nailing all questions, people like you, etc), then you need to get in front of your ideal list of investors and go hard.
Run a parallel process seeing as many as possible back to back. Momentum is your friend.
For example, for Edrolo’s Series A round in 2015, we did 27 meetings in Sydney in 2 days. This generates a lot of interest and a lot of interest turns into competitive tension. Investors may start to feel FOMO (Fear of Missing Out).
A week after we started the fundraising, we had 4x term sheets.
9. Once you start to have term sheets, tell others you have a term sheet but don’t disclose from who.
You need to get a ‘yes’ as fast as possible and then you tell other investors you are speaking to that you’ve received term sheets, and soon you will see others do the same.
Do NOT tell the other investors about each other, keep them separated! If investors ask you who the other term sheets are from, just tell them that they asked you not to say, so if it’s ok you can’t tell them right now.
10. Closing Investors
You have to ask for the order. With angels, ask them in the first meeting if they are interested in investing and for how much. In our experience, if they aren’t a yes by the second meeting it’s a no.
With VCs, either you’ll get serious progression to the partner meeting very quickly (ie within 1 week) or you won’t.
From my experience you’ll know after 2–3 meetings and if you don’t know, then it’s likely a no.
More tips on fundraising, building a great business and what Startmate is looking for here.
