News

Por: Marco De Biasi

Raising funding for your small business is one of the first hurdles that a new entrepreneur may face. Take a look at all the small business financing options and the main questions and the answers from some startupper to outside investment, to help you decide the best way to raise finance and fund your small business.

What do you wish you had known before you raised funding?

A: “When I started raising funds, I had to get to grips with valuing my business at the right amount – when you’re pre-revenue it’s really hard to do and that was the first hurdle.

A. “You need to look at what your break even point is. Be realistic and look at the size of the market.

A.“The second thing I would recommend is to pull together a strong team – we had a finance director, and mentors that had already done it and been through [the funding experience]. Get a credible branding agency too. Make your business as scalable and credible as possible.”

A.“My advice would be to get as far down the line as you possibly can before you raise funding.”

A: “It’s difficult to gain confidence in a product which is pre-revenue, that’s what I found hardest, you have to network.”

What made you choose your funding route?

A.“I chose crowdfunding as it was great to have so many people backing my business – they’re ambassadors of the brand.“I also went with it as I needed a specific amount of funding and I needed the marketing push which it [crowdfunding] gives you.”

A.“The funding route I least enjoyed was venture capital (VC) funding as it was all based on quarterly milestones and you had to follow the business plan to the tee – you weren’t able to swerve off the plan at all.”

How does angel investing compare to crowdfunding?

A.“Most important thing to remember is this [angel investment] is not a quick process, whereas crowdfunding has the advantage of speed.”

A.“With angel investors, it takes time. You may have to pitch your business several times, you need to know contacts and know your market. Get your head inside the investors mind and understand why they would want to back your business. Think about the benefits to them.

“Consider:

• What will an investor want to know?
• Can you bring them a return?”

A.“Crowdfunding and creating a crowdfunding campaign gets you to break down your idea to the very salient points.

A.“There’s a momentum you need to have when crowdfunding, the sweet spot is reaching 33% of your target as that can validate your business. For my own piece of mind, I needed to get to a certain point of funding in the first few days..”

How long can the funding process take – from pitching for investment to securing the funds?

A.“Preparation takes the longest time. For crowdfunding you’ll need to have a video and a well thought through pack of information.”

A.“I had investors lined up from when I had pitched to them before so I knew I was going to be able to hit at least 80% of my target. I was able to pool all the investors together. The process is really quite simple – due diligence was done before hand.

“[My advice is to] line up as many investors beforehand.”

A.“It took me six months to get the funding I would say. There was due diligence which took about two months.”

A.“There’s a lot of prep. Due diligence is huge – you’ll be asked 100 questions to make sure everything you say is correct about your customers, sales etc. You’ll have a term sheet which will be agreed; we use this to keep the legal time short.

A.“Angel investors aren’t really worried about working capital, they’re more concerned about growth and expansion. They have a long-term view.”

What amount of control should investors have over your business?

A.“It’s a bad thing if an investor tries to redesign your logo, put it that way! If they only want to play with your company it’s not right.”

A.“The entrepreneur and the investor shouldn’t be working against each other but should be complimenting one another.”

A.“But you are giving up some of the controls via equity.”

What returns do investors usually look for?

A.“As an angel, I look for a 10 times return. That may seem steep but I know that, of my portfolio of businesses, 50% of them will fail. It’s a horrible thing to say but that’s why we look for those kind of returns.

A.“Angels are very patient. Waiting five to seven years for a return is perfectly normal but you need to think about whether you’re prepared to head towards an exit or management buy-out. If you’re not then go with the crowdfunding route.”

A.“It’s a common mistake to say you’ll be where you want to be within three years, it’s just not achievable. As part of Fund, I look for when the business will break even at the earliest stage.”