Funding for start up - experiences?
Discussion
I've had an idea whizzing round my head for a couple of years and finally sat and wrote a business plan over the last few weeks. It looks to be viable, financially and from a demand perspective, but would require a fairly significant (6 figure) initial investment. Sadly I don't have that down the back of the sofa.
Interested to hear of any experiences PHers have had with getting funding, successfully or otherwise. Who did you speak to? Pitfalls? Learnings? Cringes? Smashed it out of the park? Laughed out of the room?
Thanks
Interested to hear of any experiences PHers have had with getting funding, successfully or otherwise. Who did you speak to? Pitfalls? Learnings? Cringes? Smashed it out of the park? Laughed out of the room?
Thanks
Had a couple of experiences on this over the years.
At that level, you need to make peace with the fact that, assuming you do get investment, the business you create will not be yours - initially at least. If you need £100k and can only put in £10k then you will retain 10% of the business (might not be as straight forward as that but you get the idea).
That's not necessarily a problem because 10% of something is better than 100% of nothing. Assuming the idea flies, then your share can increase as the investor's exposure to risk lessens. But until you get to that magic 51%, you are the mercy of the investors who can, if they wish, sack you from your own company.
So first off, you need to accept this fact. And establish the level of ownership you would be happy with that will keep you sufficiently engaged in the business at the start. It's likely that until the company starts to make a profit, you could be drawing minimum wage or less from the business so you need to consider if that's going to be acceptable to you.
As to who to speak to.... start with your local authority. They will have an economic development department who can signpost you to appropriate institutions and funding sources. They can also highlight business grants. These are different to investment because you don't have to pay the money back.... but you will be required to report regularly and make important commitments such as employing people. Local Chambers of Commerce can be useful too. And research the support that's available that's specific to your sector.
Couple of other nuggets for you...
Before you go too far, you need proof of concept. Go and talk to the people that will be buying whatever it is you'll be selling. See if they will be buying and at what price and at what frequency. How will this grow and expand? When you do this, don't look for reasons why it will work, look for reasons why it won't and consider if these can be overcome.
You would be better placed if you launched the business and started trading, even to a very modest level. Register at Companies House, get the Website up and running, etc. Do this before you start applying and pitching for investment.
Be clear from the start what you're looking to do.... build a lasting business from which you earn a nice living before handing over to you children... or is it going to be a build-and-exit type thing?
Don't let your enthusiasm for the idea and business cloud sound business judgements. Read the contracts, consider all angles and be prudent.
Lot's of people will tell you that you'll never get that level of investment. They're probably right. But do not let that stop you trying because they might be wrong. By way of example, a friend of mine has just secured backing from a former Dragon's Den - er - 'Dragon', despite having had a very sporadic business track record over the past 20 years (including two failed businesses), no cash investment himself and being 60 years old this year! I'm known for my lack of cynicism and abundant optimism but even I was telling him that would never happen. But it did.
HTH and good luck.
At that level, you need to make peace with the fact that, assuming you do get investment, the business you create will not be yours - initially at least. If you need £100k and can only put in £10k then you will retain 10% of the business (might not be as straight forward as that but you get the idea).
That's not necessarily a problem because 10% of something is better than 100% of nothing. Assuming the idea flies, then your share can increase as the investor's exposure to risk lessens. But until you get to that magic 51%, you are the mercy of the investors who can, if they wish, sack you from your own company.
So first off, you need to accept this fact. And establish the level of ownership you would be happy with that will keep you sufficiently engaged in the business at the start. It's likely that until the company starts to make a profit, you could be drawing minimum wage or less from the business so you need to consider if that's going to be acceptable to you.
As to who to speak to.... start with your local authority. They will have an economic development department who can signpost you to appropriate institutions and funding sources. They can also highlight business grants. These are different to investment because you don't have to pay the money back.... but you will be required to report regularly and make important commitments such as employing people. Local Chambers of Commerce can be useful too. And research the support that's available that's specific to your sector.
Couple of other nuggets for you...
Before you go too far, you need proof of concept. Go and talk to the people that will be buying whatever it is you'll be selling. See if they will be buying and at what price and at what frequency. How will this grow and expand? When you do this, don't look for reasons why it will work, look for reasons why it won't and consider if these can be overcome.
You would be better placed if you launched the business and started trading, even to a very modest level. Register at Companies House, get the Website up and running, etc. Do this before you start applying and pitching for investment.
Be clear from the start what you're looking to do.... build a lasting business from which you earn a nice living before handing over to you children... or is it going to be a build-and-exit type thing?
Don't let your enthusiasm for the idea and business cloud sound business judgements. Read the contracts, consider all angles and be prudent.
Lot's of people will tell you that you'll never get that level of investment. They're probably right. But do not let that stop you trying because they might be wrong. By way of example, a friend of mine has just secured backing from a former Dragon's Den - er - 'Dragon', despite having had a very sporadic business track record over the past 20 years (including two failed businesses), no cash investment himself and being 60 years old this year! I'm known for my lack of cynicism and abundant optimism but even I was telling him that would never happen. But it did.
HTH and good luck.
Edited by StevieBee on Wednesday 25th January 08:22
Edited by StevieBee on Wednesday 25th January 09:12
As above, if you can even get something running in your spare time, on a small scale it will hopefully demonstrate product/market fit at some level. This is called MVP (Minimum Viable Product). I would say this is a good idea to do *even* if you had the money to put in on day 1, simply because there are lots of great ideas but they don't necessarily make great businesses for a number of reasons. And it's not always possibly to see the difference between the two until you actually get started.
Once something is up and running, you can go to a business angel or similar and show your figures and say you need xyz to take it to the next level.
Once something is up and running, you can go to a business angel or similar and show your figures and say you need xyz to take it to the next level.
You didn't say what type of business but, if it's something that can be classed as innovative, then there are government grants for innovation. Last time I went through the process there was no loss of equity, and I think amounts were up to £500k, but naturally the application process was pretty detailed.
Funding for pre-revenue startups isn’t as easy to come by as it was a couple of years ago but it is still out there.
Typically the very earlier stages will be founder, friends, and family type round to raise enough to validate the concept. From there you tend to be into the angel investors, either individuals or small groups, as you start building some foundations and demonstrate product-market fit. Beyond that you tend to find yourself heading towards the world of venture capital and private equity.
The amount you’d raise from each isn’t fixed. For the right idea, with the right team, showing the right progress, it’s possible to raise 8 figure sums without ever going near VC/PE.
I’d say that the keys to success are, in no small measure, recognising that:
1) What people are investing in changes as you progress. Initially it’s mainly you, plus the concept in general. As you start to tap up a broader range of parties for increasing sums it becomes about progress to date, team, and trajectory.
2) The level of sophistication you need to pitch increases in line with the money being sought. As does the work involved in each round.
3) Investors don’t expect you to have all of the answers. Knowing where there are knowledge and skills gaps and having a broad plan to address them is vital. If you appear to have too many blind spots you won’t close a round, and people want to know what you’re going to do with the money.
4) % shareholdings don’t matter as much as many founders think they do. People often get too emotional about this and assume that <50% shareholding means they’ve “given away” control. It doesn’t.
5) You need to evaluate what you want from investors and their ability/willingness to provide it. If you just want money, there are people out there who will provide it. They’re probably not the right investors at an early stage. If it’s your first start up, the insight and advice you can get from someone who has been there before is invaluable. That insight and advice does however often come at a higher cost than that for dumb money.
6) Investors can attract or drive any other investors. I walked away from a transaction last year because the other prospective investors in the round weren’t concerned about a very obvious issue that a) had the potential to seriously impair or even wipe out all investors holdings; and b) could have been quickly addressed by the company; and c) will definitely need to be addressed before they can raise the institutional money they want at their next round.
7) A good investor will give you something as part of their DD process even if they don’t invest. They won’t rewrite your business plan for you or give you all the answers but I’ve very wary if all they’re doing is taking information.
8) You need to deliver what you commit to, both during and after any investment process.
9) Building a business is a long haul and requires tremendous tenacity. You need to be up for the challenge and expect investors to explore the extent to which you are.
10) Don’t forget that early stage investment is risky. Expect investors to be thinking about returns as multiples rather than percentages.
That’s a longish list so I’ve saved split the most important point: an investable idea/business achieves or delivers something of value in a way that can be sustainably monetised. You have to be able to explain the problem, your response, the value, and the sustainability (taking into account competing solutions).
Someone has mentioned MVP. Don’t fall into the trap of thinking that it’s all about the product. It’s about your prospective customers reaction to your product. As a result, I’m a big advocate of thinking in terms of a Minimum Saleable Product and taking into account a little more about what you’d need to take it to market.
Lastly, depending on your product, be very careful about how you deal with your first customers. It is easy, very easy, to be overly responsive to their needs/wishes and accidentally create something that works for them but not the wider market.
All of the above just personal views and others will have different perspectives.
Typically the very earlier stages will be founder, friends, and family type round to raise enough to validate the concept. From there you tend to be into the angel investors, either individuals or small groups, as you start building some foundations and demonstrate product-market fit. Beyond that you tend to find yourself heading towards the world of venture capital and private equity.
The amount you’d raise from each isn’t fixed. For the right idea, with the right team, showing the right progress, it’s possible to raise 8 figure sums without ever going near VC/PE.
I’d say that the keys to success are, in no small measure, recognising that:
1) What people are investing in changes as you progress. Initially it’s mainly you, plus the concept in general. As you start to tap up a broader range of parties for increasing sums it becomes about progress to date, team, and trajectory.
2) The level of sophistication you need to pitch increases in line with the money being sought. As does the work involved in each round.
3) Investors don’t expect you to have all of the answers. Knowing where there are knowledge and skills gaps and having a broad plan to address them is vital. If you appear to have too many blind spots you won’t close a round, and people want to know what you’re going to do with the money.
4) % shareholdings don’t matter as much as many founders think they do. People often get too emotional about this and assume that <50% shareholding means they’ve “given away” control. It doesn’t.
5) You need to evaluate what you want from investors and their ability/willingness to provide it. If you just want money, there are people out there who will provide it. They’re probably not the right investors at an early stage. If it’s your first start up, the insight and advice you can get from someone who has been there before is invaluable. That insight and advice does however often come at a higher cost than that for dumb money.
6) Investors can attract or drive any other investors. I walked away from a transaction last year because the other prospective investors in the round weren’t concerned about a very obvious issue that a) had the potential to seriously impair or even wipe out all investors holdings; and b) could have been quickly addressed by the company; and c) will definitely need to be addressed before they can raise the institutional money they want at their next round.
7) A good investor will give you something as part of their DD process even if they don’t invest. They won’t rewrite your business plan for you or give you all the answers but I’ve very wary if all they’re doing is taking information.
8) You need to deliver what you commit to, both during and after any investment process.
9) Building a business is a long haul and requires tremendous tenacity. You need to be up for the challenge and expect investors to explore the extent to which you are.
10) Don’t forget that early stage investment is risky. Expect investors to be thinking about returns as multiples rather than percentages.
That’s a longish list so I’ve saved split the most important point: an investable idea/business achieves or delivers something of value in a way that can be sustainably monetised. You have to be able to explain the problem, your response, the value, and the sustainability (taking into account competing solutions).
Someone has mentioned MVP. Don’t fall into the trap of thinking that it’s all about the product. It’s about your prospective customers reaction to your product. As a result, I’m a big advocate of thinking in terms of a Minimum Saleable Product and taking into account a little more about what you’d need to take it to market.
Lastly, depending on your product, be very careful about how you deal with your first customers. It is easy, very easy, to be overly responsive to their needs/wishes and accidentally create something that works for them but not the wider market.
All of the above just personal views and others will have different perspectives.
dazmanultra said:
As above, if you can even get something running in your spare time, on a small scale it will hopefully demonstrate product/market fit at some level. This is called MVP (Minimum Viable Product). I would say this is a good idea to do *even* if you had the money to put in on day 1, simply because there are lots of great ideas but they don't necessarily make great businesses for a number of reasons. And it's not always possibly to see the difference between the two until you actually get started.
Once something is up and running, you can go to a business angel or similar and show your figures and say you need xyz to take it to the next level.
Reading your OP, my immediate thought was this. I don't know what your business idea is, but if there's a way you can start out smaller and with less capital, take it. Any money in is going to want their slice which means you end up with less.Once something is up and running, you can go to a business angel or similar and show your figures and say you need xyz to take it to the next level.
You'll probably get better replies from some of the more experienced guys on PH.
But its very tough to get start up funding.
If you cant get investors then chances are you will have to remortgage the house to release money to fund it.
I tried roughly 5 years ago and it was very tough, you might be able to get £15k or so unsecured but above that kinda level
I was asked to provide security.
good luck OP!
But its very tough to get start up funding.
If you cant get investors then chances are you will have to remortgage the house to release money to fund it.
I tried roughly 5 years ago and it was very tough, you might be able to get £15k or so unsecured but above that kinda level
I was asked to provide security.
good luck OP!
evenflow said:
I've had an idea whizzing round my head for a couple of years and finally sat and wrote a business plan over the last few weeks. It looks to be viable, financially and from a demand perspective, but would require a fairly significant (6 figure) initial investment. Sadly I don't have that down the back of the sofa.
Interested to hear of any experiences PHers have had with getting funding, successfully or otherwise. Who did you speak to? Pitfalls? Learnings? Cringes? Smashed it out of the park? Laughed out of the room?
Thanks
I have my own investment fund (renewables mainly) and when someone pitches an idea of something different to me, my first question is "what is your investment into the business?".Interested to hear of any experiences PHers have had with getting funding, successfully or otherwise. Who did you speak to? Pitfalls? Learnings? Cringes? Smashed it out of the park? Laughed out of the room?
Thanks
Most people think I'm talking about money (sometimes I am) but it's kind of a loaded question as a lot of start ups are started (like me when I set my first company up) with absolutely zero cash.
When you have someone willing to give up a 6 figure salary to spend all of their time making the business work, it peaks my interest.
Especially when they're willing to commit all of their time into it.
Those who are willing to re-mortgage their house more so again.
After all, why should I have all the risk on what you think is a good business? If you think it is a winner, you'd risk more than just someone else's money, surely?
Geoffcapes said:
I have my own investment fund (renewables mainly) and when someone pitches an idea of something different to me, my first question is "what is your investment into the business?".
Most people think I'm talking about money (sometimes I am) but it's kind of a loaded question as a lot of start ups are started (like me when I set my first company up) with absolutely zero cash.
When you have someone willing to give up a 6 figure salary to spend all of their time making the business work, it peaks my interest.
Especially when they're willing to commit all of their time into it.
Those who are willing to re-mortgage their house more so again.
After all, why should I have all the risk on what you think is a good business? If you think it is a winner, you'd risk more than just someone else's money, surely?
I get what you're saying, but I'm not sure those are the only ways of showing commitment. Some people just don't like the potential to lose the roof over their family's head and would rather give away equity in the company that they might not otherwise do if they remortgaged, it doesn't mean it's a bad idea, it's just an indication of their own level of risk. Similarly, it only takes watching a few episodes of dragon's den to realise that some people will remortgage for absolutely hopeless businesses!!Most people think I'm talking about money (sometimes I am) but it's kind of a loaded question as a lot of start ups are started (like me when I set my first company up) with absolutely zero cash.
When you have someone willing to give up a 6 figure salary to spend all of their time making the business work, it peaks my interest.
Especially when they're willing to commit all of their time into it.
Those who are willing to re-mortgage their house more so again.
After all, why should I have all the risk on what you think is a good business? If you think it is a winner, you'd risk more than just someone else's money, surely?
I guess it all comes down to the sums involved and how good the idea is at the end of the day.
AyBee said:
I get what you're saying, but I'm not sure those are the only ways of showing commitment. Some people just don't like the potential to lose the roof over their family's head and would rather give away equity in the company that they might not otherwise do if they remortgaged, it doesn't mean it's a bad idea, it's just an indication of their own level of risk. Similarly, it only takes watching a few episodes of dragon's den to realise that some people will remortgage for absolutely hopeless businesses!!
I guess it all comes down to the sums involved and how good the idea is at the end of the day.
Commitment and belief in their business. If your home is at stake, you're going to work your arse off to make it work. I guess it all comes down to the sums involved and how good the idea is at the end of the day.
You're going to have to give away equity to get funding in the first place.
I like those we work with to have some skin in the game, so there is a commitment and a reward for them if it all goes well.
As for those idiots on Dragon Den who remortgage for a crappy idea, someone surely needed to tell them before they remortgaged that it was a bad idea.
It's when you work out that someone has to work for 300 years at 5 times the rate they are going to get the investment back is what makes me laugh.
And some of the valuations they come out with........
Gassing Station | Business | Top of Page | What's New | My Stuff