Advice for start-ups from three experienced individuals talking on the panel hosted by Standard Ledger.
I went to a brilliant event last week which focused on the essentials of raising capital.
The panel were Anthony Rose, Mona Tiesler and Elliot Gaspar who all offered some great insights for startups at different stages of their growth and investment.
This was one of the most useful talks I have had the pleasure to attend, and I hope my notes can be of use to others.
To the panel - if I missed anything key, or didn't quite capture your points perfectly, please feel free to let me know and I will edit! I have done my best to capture as much of the insights as possible, and must stress that this doesn't constitute investment advice.
At Untapped we work with a lot of startups who are either growing from a successful prototype/MVP or are working to turn their vision and idea into reality. We help with the strategy, delivery, design and technical elements of digital product launches but sadly can't help with finance yet (watch this space 👀).
It's also worth noting that the attached notes are insights from 3 different people.Do you have something you would contend with or add to this list? Let's get a discussion going in the comments.
General advice
- Need financial models at the bare minimum or revenue to get investment at the moment as the market is harder for angels to get finance so they need more reassurance.
- A deck isn’t enough - they need to see something that's been built - that's where the money is going at the moment.
- Top-up rounds and 5/10k investments are brilliant strategies. I'm sure SeedLegals could help with the legal paperwork here!
- The market is down at the moment so valuations are down. More due-diligence. Everything is taking longer.
- Equity alternatives for founders - bootstrap, R&D tax credits. Grants are worth looking at but often need a matching fund.
- Crunch base as well as VC's will help you work out a valuation.
- Don’t give away more than 10/20% each round.
- Average investment:
Data shows a median raise at 15% of a company's valuation.
A deck and idea - often valued at 500k.
Built something but not getting revenue yet - often valued at 1 mill.
Got revenue and growth - often valued at 5-10x revenue. - Good time to raise:
Idea - with prototype and user validation.
Months after launch. - Bad time:
Right after you launch. - Raise up front. Don't just raise to get to launch but for 6 months after as well.
- In the blockchain space - look at eco-system grants or funding from larger projects.
- Revenue and letters of intent key for investors.
- VC world is seeing smaller cheque sizes at the moment as a result of the economy and market.
- A better, more realistic/lower valuation = more interest.
- Preference shares - Used by VCs more than angels. On the sale of company, they get their investment back first before equity split.
- Anti-dilution - your valuation is too high and you will top up from founders shares.
- If you are not SEIS registered and a UK startup then get registered. You will lose potential angel investors to other opportunities who are set up for SEIS investment.
- Don’t want a big board - 4/5 is large - 7 huge.
- At seed rounds - founders have power - this has come after the rise in crowdfunding etc.
- Director loan accounts - make sure it’s reasonable but doesn't have to be zero.
- Ensure your cash flow and balance sheets are up to date.
- Keep in mind valuation pre and post investment.
- A VC is a good partner if they have money AND industry knowledge and connections.
- Angel with SEIS often look for 3x-5x exit - VCs often look for 10x-30x.
- If you take money you have to grow - that’s the pact you make.
Legal advice
- Ensure you have a founders agreement contract in place with your co-founders.
- Trademark - worth it but be careful. Worth doing when you get traction but not before in case you alert others to your presence. IPO is required to tell everything in your registering class that you exist in case they would like to oppose a trademark registration.
Pitch Decks
- Don’t focus on what it does, focus on value.
- Pitch - think of it as 3 acts - excitement, detail, teaser.
- Tech detail often lacking.
- Team at end of deck.
- Make sure you mention the ASK and mention SEIS.
- Create drama and a story and get feedback.
- Art of the pitch is presenting:
Make it slick - VCs are very busy, need a pitch deck first to validate time for a call. Maybe some angels are different.
- Do your research on VCs before a call:
I added this one afterwards but always do your research on anyone you are going on a call with. Being prepared gives a great impression and gives you valuable insight into who you are speaking to and what their drivers will be. - Have a short and long version of your pitch deck. Get into a call with a teaser with no financials and business plan.
- Back up pitch deck with facts and figures.
- Need at least a 3 year forecast minimum.
Key metrics
- Life-time values.
- Customer acquisition cost.
- Customer acquisition cost comes down over years as your brand/product is better known.
- All assumptions need to be approved.
- SEIS and HMRC need a forecast to offer.
- Forecast can show investor if you are too ambitious.
- 100m valuation puts investors off.
- 3x/2x year on year growth is a realistic metric to aim for.
- Justify all numbers.
- Justify all numbers - I put this again as it’s so important.
Personal Characteristics
- Are they the right people for this idea?
- Integrity - level between optimism, ambition, realism, taking feedback, changing course when needed.
- Ability to deliver the vision.
- Know your market - are you your mission.
- Need to deliver.
- Need to hustle.
