We recently hosted a meetup for Brisbane startups keen to discover how to attract investors to their company, and experienced capital investment specialists shared their tactics and success stories with an impressive group of entrepreneurs.
An expert panel including Elaine Steed (Blue Sky Venture Capital), Angad Soin (Deloitte Ventures), Chris Titley (Morgans) and Leigh Kelson (BeachCity Group) shared their top tips for securing capital investment, while Wayne Gerard (Red Eye Apps) and former Federal MP Wyatt Roy added further insights about the best way to connect with investors thanks to a Q&A from a full house audience.
In my experience, I know raising capital can be challenging no matter how well-founded and high-performing your business may be. From valuations and timings to securing effective and supportive partnerships and delivering upon expectations, the process can be daunting.
But with competent planning, realistic expectations and industry expertise to guide you, securing investment can be done.
Here are the top 10 venture capital-raising tips I took from the event.
1. Nail your value proposition
Investment managers see thousands of investment presentations every year, so the need to sell your story and connect quickly and effectively is paramount. Make sure you can accurately describe your business in just two or three sentences – brief and persuasive is key.
2. Tell the back story
Elaine Steed (BlueSky) talked about how angel investors want to know the back story as much as the projections ahead. The reasoning and research behind the establishment of your business typically underpin your capabilities as an owner/manager, so be sure to present thorough market research and identify the need that drove the business to inception.
- What problem are you solving?
- Why now and why you? Articulate the value and expertise your leadership team brings to the business.
- What is your differentiator?
- What is your plan to reach the next milestone?
- Demonstrate your understanding of other players in the market
Don’t look at new investment as a one-off. The best way to get investors for a small business involves long-term plans that evolve. Investments can take many forms (convertible notes, private investment, IPO, among others) and appear at different stages of your business’s evolution. Make sure you are looking both short-term and long-term, and have a five-year investment horizon.
“Different types of startups require different timeframes to make them successful. My experience running an enterprise software as a service (SaaS) startup is that it takes 10 years to become an overnight success,” Wayne Gerard said.
Elaine Steed also made the comment that “you don’t have to think global from day one”, indicating that validation and growth in Australia can still bring about positive investor outcomes.
There are three key approaches to valuations: what you think your business is worth, comparable valuations, and what is the internal rate of return (IRR) for the investor? Be realistic – overestimating the value of your business may hinder your ability to demonstrate future growth and profitability. Leigh Kelson made a great point in that an investor ultimately wants to know:
A) Will I get my money back?
B) What multiple will it return?
C) What’s the timeframe?
5. Terms & Conditions
“You need to really understand the terms and conditions of the term sheet and shareholders agreement. You need to understand what ratchets and liquidation preferences are being requested by the investor and whether or not these are suitable for your business given the time it will take to hit agreed milestones. It always takes longer and costs more than you think,” Wayne Gerard said.
6. Nail The Pitch
Short and sweet is best. Due to the high volume of investment opportunities in the market, you need to stand out quickly. Keep the investor front of mind by always referring back to what’s in it for them. Clearly and succinctly define your value proposition, your back story, your unique selling proposition and the competitive landscape, your business milestones and achievements to date, lessons learnt and projections. And, of course, clearly outline the investment opportunity and terms of investment.
7. Listen to the customer
Don’t underestimate the power of customer advocacy, your tried and tested consumer. “One of the more critical components of your investment presentation is validation from your customers and the feedback they are giving you,” Chris Titley said. “Continue to test and evaluate your value proposition with your customers. They are the heart and soul of your business, and if you make their life easier and more satisfying by providing a product or service with integrity, they will help you grow and attract investment.”
8. Find the right match
In the fervour of acquiring an interested investor it can be easy to jump at the first funding offer. But the wrong investor to start a business with can be detrimental to your business’s long-term success. My advice is to avoid mismatch and the (natural) desire to accept any offer. Do your homework first. “Spend some time identifying the investor’s thesis – you can normally find this online,” Angad Soin said. The right investment partner should bring more than just capital.
9. Spread your wings
There seems to be a bit of a gap in the Brisbane market for early stage venture capital investment right now. You may find that you need to cast your net further to NSW and Victoria to find suitable capital investment. For now, that Brisbane void is being filled in part by high net wealth friends, family and “fools”. Don’t be perturbed when you get knock-backs – many founders pitch many times before securing investment.
10. Change management
Prepare your business for change. External investment can change the business’s dynamic, which is why securing the right investor who supports your business ethics and vision is critical. Expect a greater focus on profitability and accountability, and consider how this may impact your workforce around KPIs, reporting and accountability, and how you maintain your unique corporate culture into the future.
The next Stellar Technology MeetUp is on 29 November 2016 where we will have Mark Sowerby (Brisbane Chief Entrepreneur and founder of BlueSky Alternative investments) and Maxine Horne (CEO of Vita Group) talking about “How to build a business and the people around you” at KPMG.