Growing Pains: Scaling never hurt so good
Let’s be real. Scaling a business is nothing like growing a startup.
Startup owners have a plethora of angel investors to choose from, and advice about how to approach them. The angels know the score — they’re taking a punt on a company and don’t expect high returns straight away, or to walk away with a big chunk of equity. Securing funding for a startup has its hurdles. But raising money for a scaleup is a whole different ball game.
The juggling act
Apart from the fact that it’s harder for scaleups to find the right investors (more on this later), scaleup owners have a business to run. They have clients to service, processes to oversee and everyday problems to fix. This is not low-priority stuff. It cannot be ignored. But combine this with the full time job of getting out into the market to raise money, and time management becomes a real challenge. The hunt for investors might almost seem a distraction, but it’s a vital one.The trick is to keep bringing yourself back to that big picture, and reminding yourself of those wider ambitions.
Know thyself
The better you understand your business, your team, your goals, the better placed you’ll be to get the right investment from the right people. Consider this: when you take on series A funding, say, £1M+, your investors are going to shape the next few years of your company’s life. As the money goes up, the stakes for the investor goes up, and so too their expectations of you and your accountability with them.
Here’s my point — you must have a solid understanding, of what your business is and what it needs before you go to investors. Almost invariably with tech businesses, scaling means automating processes to do things better and, well, at scale. The great thing about automating your business is that it forces you to understand your business.
If you don’t really get to grips with understanding your business, you risk getting the wrong guy, the wrong term sheet or the wrong amount and the consequences could be disastrous down the line. Know yourself better, and you’ll know who to look for.
Your team are good, but are they good enough?
The team that got you here, might get you there. That’s a hard pill to swallow for many business owners, but it’s true. Scaleup owners need to take a good look at their team.
Will investors buy into my team? Are they ambitious enough? Do they have the skill set to support the cofounders to grow 10x? The earlier you ask yourself these tough questions, the sooner you can take action to answer them.
Scaling isn’t just a case of finding talent. It’s about getting your team to a place where they share your vision and have what it takes to grow the business.
There are VCs, and then there are VCs
VCs aren’t always looked on favourably by entrepreneurs. Entrepreneurs, by nature, are independent, free-spirited people. In their startup days, the freedom of “being your own boss” is massively attractive — you can do things your way. Where the VC-business owner relationship falls down is when the dynamic shifts, investors crack the whip and demand lots of control and a whole lot of growth to boot.
What we’ve got to remember, is that the market is hugely diverse. There are, believe me, investors out there who can take a step back. Who want to help the business grow, not just to sit back and watch. Who take a real interest in your company and your sector.
These are the ones to look out for, and it’s worth taking time to find them. In London, organisations like the the London Co Investment Fund are a helpful stepping-stone from early stage investment and help to de-mystify the VC world by making the right introductions.
Making the right deal
Once you’ve found the “right” investor, you’re not out of the woods yet. Even with the ideal investor, it’s essential to strike a deal which works for your company. Ask yourself these key questions:
First, how much money do I really need?
Second: in what ways am I accountable to my investor?
And crucially: how much equity am I willing to part with?
Control vs stability
To scale any business, you need cash, and when you take on cash, you pay a price. Giving away equity means relinquishing some control of your business through the investor requiring at least one board seat. It’s not just you and your co-founder(s) anymore, suddenly you have to factor in another party when it comes to the big decisions. Before even seeking investment, it’s important to work out how much of that control you will give up so you know what you can handle and what you cannot when you get handed a term sheet.
Don’t forget the alternatives
Approaching VCs doesn’t have to be the sole investment strategy — far from it. Fortunately, the alternatives are out there, and are rising in prominence. Take Crowdcube, the crowdfunding platform which a number of Techspace members have raised on and reported a lot of good feedback. This is a strong option for funding, especially if you consider how being funded by the crowd can raise your market profile. Then there’s Private Equity, high-net worth individuals, or Super Angels, who may be harder to reach, but if you have your business down, they will come out of the woodwork.
One size won’t fit all, so be sure to take your time getting out into the market, and getting familiar with what options you have. The more you know, the better informed your decision will be, and you’ll be far more likely to scale successfully.
