Welcome to the fifth article in our advice column here at Tech Trailblazers. Entitled “Don’t do that, do this!”, we have some assistance to help your startup negotiate the tricky topic of getting the funding going in those early stages of starting up.
Today we have the pleasure of introducing Simon Wax, Partner at Buzzacott. “The first years of a tech company’s life are the most exciting. They are also the most precarious,” he warns. “Mistakes made at this early stage can be costly – but get it right, and you’ll reap the benefits.”
“In the beginning, funding – and the question of how to secure it – is a tech SME’s primary concern. But you need to keep an eye on what you will be doing after. Failing to prepare for the moment you get funding is a mistake I see too often from young businesses that would otherwise have huge potential.”
Simon has prepared his top tips for tech SME’s in the funding process. Here are his key dos and don’ts to help you in your search for investors – and your years of trading beyond.
- Don’t spread yourself too thin. Raising funds is a full time job, so who is going to run the business if you do this yourself? Being able to delegate is an important lesson to learn at this early stage.
- Don’t devote all of your energy to answering valueless demands. Early-stage funding is a punt for most investors. If they get too caught up in the detail, they are probably time wasters.
- Don’t get ahead of yourself when funding does arrive. It’s hard to stay objective when you’ve just achieved something you have spent years pitching for, but you need to keep your head and avoid frittering your hard-earned capital away.
- Don’t waste the investment. Be careful not to pour investment into areas that bring immediate gains but won’t necessarily sustain and drive the business forward in the next five, 10 and 20 years.
- Don’t obsess about size. Tech SME’s need to separate the idea of success from growth. You can be hugely successful without becoming a unicorn.
- Don’t forget raising the funds is hard. Altough it’s easy compared to growing a business once you have the money. Ensure that when you have the funds you need, you stick to the plan that you initially set out, one that t will enable the business to grow.
- Make sure your business has a USP. You need to have a solid understanding of where your company adds to the technology market and clearly understand its place within it. By having a balance vision and reality, you will be able to truly reflect where your business is and where it can go.
- Get good at networking. Often money comes from a person that knows someone that knows someone you know…
- Maximise the value of funding. Develop a plan to maximise the value of your funding in the long-term. You should draw up a holistic and honest plan before a penny is spent. If the plan then dictates that hiring or office expansion is the right option, then that’s great. But it’s that long-term planning stage that’s needed – and the reality is that it simply doesn’t happen enough.
- Read the small print. All too often businesses accept funding without appreciating the broader business implications. Businesses need to thoroughly investigate fundraising, its long term impact, and the contractual implications attached to it. This is particularly important as those who don’t do their research can end up tying themselves into unforeseen obligations.
- Distill a sales pitch. Have a document that explains the business, what you do, how it works, what the opportunity is and what you want – in no more than a few slides. This ‘elevator pitch’ is good for investors, and it will help remind you of what’s really at the heart of your business.
- Be ruthlessly efficient. Explain the idea – send across the information – and chase for response. It’s a numbers game at this stage, so pitch to as many different people as possible!
- Get government help. Apply for Seed Enterprise Investment Scheme or the Enterprise Investment Scheme. This is a government initiative introduced to help small and early stage companies raise funds through investors. It provides significant tax reliefs for investors of companies which have EIS approval.
- Be open to advice. And finally, but just as importantly, learn from people and listen to advice.