Let’s Talk: Raising Capital (Part 2 of 2)
Fri 15 September 2017 - 8:00 amEditor's Choice | Expert | Featured | Let's Talk | Raising capital
This week, we launched our exciting, new initiative ‘Let’s Talk…’, which provides the entrepreneurial community with a forum to share rapid-fire views with you, our readers, every Wednesday.
Our very first ‘Let’s Talk…’ theme, Raising Capital, saw us pose the question “What’s a sure-fire way to make an investor sit up and listen?” We received a number of responses from entrepreneurs and industry experts eager to share their insights with budding startup founders. Consequently, we split ‘Let’s Talk…Raising Capital’ into two parts. Part One ran on Wednesday and is full of hot tips and actionable insights. Part Two, below, is no different…
“What’s a sure-fire way to make an investor sit up and listen?”
Colin Kinner, Founder, Startup Onramp: “All investors look for traction. But having run an early-stage fund, one of the things that always makes me sit up and listen is when a startup founder can show that they know what actions the company can take to generate traction. I call these ‘traction levers’. It might be as simple as knowing that when you spend $1 on Facebook advertising it translates into $20 of customer revenue. This is the type of economic equation investors like to hear.
“The important thing about traction levers is that once you know what they are, and have validated the economics (ie. you generate more revenue than the lever costs to pull), the only thing stopping you from growing your company is access to capital. In contrast, investors generally steer clear of startups that have yet to work out what traction levers will work for them. In these cases, the investor’s money could be spent exploring a lot of customer acquisition strategies without generating growth, and potentially without finding any that are economically viable.”
Scott Handsaker, Managing Director of cybersecurity startup accelerator CyRise: “Traction beats everything. Showing the core metrics of your business heading up and to the right over a sustained period of time is the number one thing that matters when raising investment. If you don’t have traction then raising money from angels or VCs is an order of magnitude harder than it should be.”
Hugh Stephens, Co-Founder, Galileo Ventures and Founder at Schedugram: “Money in the bank. Investors listen when people are paying for your product or service, no matter how crappy it is.”
John Bush, Founder, easyshare: “In my experience, investors are less concerned about day-to-day operational matters of running the startup than they are the role of the founding team. That leaves one topic for discussion: the numbers. The sure-fire way to make them sit up and listen is to know your numbers. Know the size of your market, the costs to acquire your customers, the lifetime value of your customers and how much capital is going to be required to hit your growth targets.”
Jess May, CEO, Enabled Employment: “Be authentic and tell your story. Investors invest in the founder, not the idea, so make sure you get across why you’re the right person to make this idea a success. You could have the best idea in the world, but if you’re not passionate about it there is no way you will be able to ride it out through the tough times, which are inevitable. Investors are looking for someone they know will be able ride out the rollercoaster of the startup world.”
Melissa Widner, NAB Ventures and Board Member of Heads Over Heels: “The internet is filled with advice on what makes a good pitch and with just a little research, entrepreneurs can learn more than they need to know. What’s important to remember is that VCs and Angels are, first and foremost, investing in people. When a founder can establish credibility early in the pitch by describing relevant experience, it piques the investor’s interest. In the case of a first-time founder without previous sector experience, credibility can be established through advisors. For example, if you’re starting a bricks-and-mortar retail clothing company (OK, not likely!) and have no experience in either retail or fashion, you should find a current or former senior exec from David Jones or Myer to be on your advisory board. Many people love to share their wisdom and expertise with enthusiastic entrepreneurs.”
Alli Baker, CEO, JobGetter: “Be real and know your numbers. The first hurdle is letting your personality and your passion shine through. Enthusiasm is contagious. If you’re excited, the right investor will get excited and want to come along for the ride. Once you’ve hooked their interest, then win them over by demonstrating that you’ve got a clear plan with a strong handle on your business levers. Hit them with your cost per acquired user or your LTV:CAC (Lifetime Value: Customer Acquisition Cost) ratio and they’ll find it hard not to be impressed.”
Eric Gao, CEO and Co-Founder, BMY Group: “If you want to make any investor sit up and listen about your business, the best thing you can do is make your business relevant to them. For instance, China is the largest investor in technology globally. They’re also a strong trade partner with Australia. So, when it comes to approaching investors and seeing who is best suited to help your business, always remember that foreign investment is an option. When evaluating any investor, remember that what they can offer is not just about the capital, they can also provide access to useful business networks or strong markets for your product.
“Particularly when it comes to China, the most important thing to remember for any investor is how your product or service can specifically relate to them, the space or the region they are in. Under the ‘belt and road’ initiative, Chinese investors are already strongly encouraged to invest in global technologies that can be brought back to the Chinese market. However, Chinese tech companies, for the most part, are far more superior than their western peers – particularly when it comes to areas such as e-commerce, shared economy and blockchain. So, if you were to approach an investor in China, you need to know what your product or service can actually do in that space to really get an investor’s attention.
“For entrepreneurs looking at raising capital from China (or indeed any other foreign market) make sure you study your market well. Prepare a comprehensive SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of your products and services in China, and the potential they already have to compete in that marketplace. If you can help investors understand the importance and potential of your business both here and overseas, the market in China will reward you massively. Because only the true disruptive tech or solution providers will be able to make Chinese investors sit up and listen.”
Natalie Goldman, CEO, FlexCareers: Investors like investing people they like and trust but they also look for…
- Burning problem – What’s the problem that you are solving? You need to be clear and succinct about the problem and your solution. Also, does it align with their investment strategy or them personally? For example, is it something that is important or relevant to them?
- Market-size – What is the opportunity? Investors want to know that there are many people out there in your target market that will buy whatever you are selling. This translates to good financial returns.
- Scalable – can your business grow big quickly? This also translates to good financial returns.”
Terry Gold, Managing Director, Techstars Adelaide: “Investors invest in people/founders first, and in the product or the business idea second. More often than not, it’s all about the drive of the founder and the capabilities of their team. Understanding this is crucial in grabbing the attention of a potential investor.
“Of course, the product needs to be a viable one that has been tested on the market first, but essentially an investor will be attracted by the founder’s hunger and genuine passion for the problem they are trying to solve. If you’re in it just for the money/profit, it will come across straight away and to most investors that’s a turn off, no matter how great your business idea or your product is. The best investors seek long-term relationships. They want to be in it for the long-run, and share the entrepreneurial journey with the founder.
“The investor also needs to feel confident in the whole team. If you can demonstrate what’s special about how you are solving the problem, and why your team are uniquely placed to serve your customers, you’ll grab their attention. After that, it’s all about showing you have the know-how and dedication to build and grow a startup. You need to be able to give investors a sense of how business-savvy you are, and show you’re prepared to hustle to get your big idea out into the world and make it a major success.”