Fund My Dream

“We are looking for investors who share our passion / dream” (translation = we haven’t really thought this through; haven’t really got a great deal to show; and hoping that we can find someone as naive as us to not be too bothered about detail).

Image by 123RF

Image by 123RF

I haven’t had much time for blogging these past 12 months but for good reason and more about that soon. In moments when I have time to catch my breath, I have realised an increasingly common recurring problem, or perhaps I should say, temptation. Today I am looking at the latest startup deal proposition in my inbox and enough is enough; I need to write a post about this and similar deal scenarios.

The proposition itself looks well put together and feels like it has decent entrepreneurs behind it but the essence and focus of the proposition boils down to two key messages:

  1. They are at concept stage expecting to start development in the near future.
  2. They have received “endorsement” from a big name and potential future customer.

Even if the team is really strong and even if they have a really tight business plan and have a couple of strong advisors tagging along, they haven’t actually delivered anything yet. They are in essence saying, “please fund our dream.” Of course, it may well be that the endorsements could indeed be strong validation but it would need to be checked out to see if there was any real intent behind it. If the endorsement was nothing but encouraging words (which is often the case), then the founders are left still with just aspirations.

It is not impossible to get a concept funded and it does happen but unless you are an A-grade founder with multiple successes trailing behind you, the chances are slim. However, there some things you can do to get a concept stage opportunity funded, such as, either apply for competitions or grant funding (matched or pure), or apply to a tech accelerator programme. A good accelerator will be there to get your opportunity ‘validated’ by its audience or a clutch of potential customers. Some of them will take on concept stage propositions but it is more likely that they will accept opportunities with at least some sort of development underway. Some accelerators are focused beyond validation and looking for early ‘traction’ (the opening of the revenue tap).

In closing, we’ve all been tempted to do it but don’t reach out to investors and expect them to offer quick and easy shortcuts to your tech nirvana, just based on a vague sense of a shared dream. Settle for the reality and inevitability that super hard startup validation work is required before you can compete with other startups for the cash on the table. Anything else is just naive, lazy or probably, an opportunity waiting to fail.

“Try to make your deal proposition an investment no-brainer.”

 

How much detail do angels & early stage (seed/pre-seed) VCs want to see in a SaaS financial model?

(Original post on Quora at bottom of this article. Answer by Aristos Peters):                              QuoraLogo

To a degree, it can depend on who you ask and what stage your revenues are. Jason has answered well from his perspective as a VC looking for post-revenue deals (very often VCs are looking for ‘established revenues’, or ‘significant early revenues.’).

For those that are willing to look at the riskier ‘pre-revenue’ deals, the answer to “how much detail” is largely a matter of personal investor preference.

Then you also need to qualify what those ‘details’ might be because in your text you mention three aspects: 1) projections/assumptions (usually taken to mean financial), 2) key (performance or validation) metrics and 3) costs.

My experience of deal reviewing both with angel and VC peers is that most investors usually look to see how you have arrived at 1 and 3 (hopefully via benchmarking), but investors worthy of a place on your capable know their way around key metrics such as CPA or churn rate, etc.

I am working on this very issue and can’t talk about it just yet but I’d be happy to continue the conversation offline. Catch me in Twitter? (@weklik)

How much detail do angels & early stage (seed/pre-seed) VCs want to see in a SaaS financial model?

6 Things To Do Before Approaching Investors

Here’s a quick checklist of a few things that you can do to make sure you’ve got all your ducks in a row before you take your deal out on the road to investors (if you are a concept stage business, or thinking of taking the programme accelerator route then this may be less relevant but still worth checking out anyway).

"Got all your ducks in-a-row before taking your deal on the road?"

“Got all your ducks in-a-row before taking your deal on the road?”

1 – Update all team Linked In profiles

This seems an obvious point to make but just a reminder that most people in business very often visit your LinkedIn profile ahead of a meeting or conversation with you. It goes without saying to not only make sure the profile is an accurate reflection of both past and present but it’s a good idea if you can stoke up your profile in other ways such as: adding any links to blogs and websites, getting recommendations from business colleagues, subscribing to relevant LinkedIn ‘Groups’ and connecting with a healthy number of peers, colleagues, friends and associates.  www.linkedin.com

2 – Outsider’s second opinion 

Get a company outsider with experience, perhaps a mentor or advisor if you have one, to review all investor communications, including: the executive summary, pitch deck, business plan and financial statements. In fact if you can get more than one outsider to look over everything, then that would be even better. Hopefully, they will spot any unqualified statements, areas that lack clarity or detail. If they feedback to you with similar ‘weak-spots’ then this could be an indication that an investor might query the same aspects. You will then need to considering de-risking these aspects before making investor contact.

3 – Do the ‘D RISK IT’ test

This business tool can help startup founders to spot any deal weaknesses and prepare their deal before they take it to angel investors. As well as two calculators that help suggest an early valuation starting point and ROI multiple position, there is also a tool that takes a deal proposition on a 7-stage review. Loaded into the app’s information files are suggestions of what investors are looking for, as well as how to address the weaker aspects of the deal that you are putting before investors:  www.drisk.it

4 – Try out a canvas or two

This one is debatable but the sort of focus that doing the ‘canvas’ brings will show when you get a grilling from investors when pitching. Do some business case ‘canvas’ testing (Lean Canvas, Business Model Canvas & Strategy Canvas, etc). In the absence of any early revenues and traction, having user/audience validation is the next best piece of good news that you can present to investors and is a major de-risking step in itself. Just like accelerators and crowdfunding websites, new canvas variants are springing up all the time.  www.leanstack.com  www.businessmodelgeneration.com  and http://strategycanvas.org

5 – Get an AngelList profile

This site has become ‘the’ online place to seek out investors if your are a startup founder. I’m not sure how true that statement is if you are outside of the US or Europe but if you are fundraising, or expect to be in the near future, then it is definitely worth (and increasingly expected) that investors may check  you out in this deal-flow portal. Startups can put up a deal profile, as well as search out investors (both angels and VCs) according to their location or sector.  www.angel.co

6 – Get a Gust profile

A close second to Angel List is Gust. This site started as an investors post-deal due diligence platform where investors could talk, share and huddle around a deal’s due diligence prior to making an offer but because entrepreneurs and investors can also submit/receive deal info at the pitch stage, it’s a pretty good international investment meeting place.  www.gust.com

_____________________________________________________

From the other side of the table, perhaps also take a look at the following article showing a particular investor’s checklist prior to engaging with a startup founder …  http://techcrunch.com/2011/06/18/my-angel-investor-checklist

Another article gives “Six tools used by startup investing insiders to – identify and invest in the next Facebook” … http://www.forbes.com/sites/zackmiller/2014/01/06/6-tools-used-by-startup-investing-insiders-to-identify-and-invest-in-the-next-facebook

Have I missed anything off? Do let me know.

Aristos

Why is Fundraising So Hard? (Part 1)

cashAre you Fundraising? Have you considered what you would do if your fundraising was not successful? 

As over 95% of startups fail in their fundraising attempts, surely this is a key question to consider before you consider stepping out.

So, you feel that you have a good deal to take to investors. You’ve spruced up your pitch deck and seemingly crafted a half decent executive summary and business plan. However, after pitching to investors for 6 months, the best bites you have received have been minor questions from a couple of supposed investors, who were just really tyre kickers and consultants pretending to be investors who were looking for fee based work. No one has seemed remotely determined to enter into a deal conversation, let alone make you an offer. This has invariably led you to ask questions; “is it me, is my pitching/presenting not good enough, am I saying something wrong, do they not believe in the opportunity, the space, the team, the product,” etc and of course the list goes on and on. Perhaps you’ve been fortunate to even get a partial offer but unless its a significant majority of the amount originally asked for (say at least 60%), you’ve still probably failed and won’t be able to proceed, even with a partial raise. When it gets to 6 months with no firm full investment interest, you need to be taking a long hard stare in the mirror. As Sir Alex Ferguson infamously said, “It’s squeaky bum time.”

Stress-testing

One of the main reasons that I believe makes fundraising hard for most is the lack of time founders spend ‘stress-testing’ their investment proposition / deal. What do I mean stress-testing? Well, just running it past one or two people who know what they are doing and who might have some spare time to spread a critical eye over your deal before you take it out. Be prepared though if they suggest some changes that are not quick to implement, such as, get a bit more traction or complete development before you go asking for development – these things can take time. The app D RISK IT (www.drisk.it) should help with stress-testing somewhat when it is released in September.

Two reasons why stress-testing doesn’t happen …. (i) Time. It can take around 6 months. There is a misguided belief that you just ‘write up’ your deal and take it out on the road. Also, (ii) Money. There’s an unhelpful aversion to paying for help. I know most startups have little spare money to help them hunt bigger money but focusing solely on a ‘free’ only strategy is not a great way to advance in business. Free is ok when it’s digital but it’s human equivalent (i.e. fee) is not based on the revenue models that the digital freemium model is. Just as software-as-a-service has a fee ticket association, why shouldn’t consultancy, development or fundraising-as-a-service? Another reason that fundraising is hard is that ‘success fee’ only professionals would rather minimise their risk by working on larger deals that are at a later stage of development, preferably post-revenue. So they rarely accept a request to fundraise from a revenue startup unless they are totally hot. Most think they are but they are not, so the source of help moves on to a bigger more juicy and importantly, ‘traction laden’ opportunity.

As a founder, if you’re not a fundraising expect, what should you do? Obviously, get some help. If you can get it free, then fine, otherwise pay for it. Someone, said to me a long time ago, “it costs money to get money.” Don’t make the mistake of think it’s just a case of writing up your executive summary then going knocking on the door of as many angels as you can find.

So, what to do? …. Well, there is some good news in Part 2, coming soon.

(To get automatically notified when Part 2 is out, sign up to ‘POSTS’ using the RSS link above, top right-hand-side)

Easy Money, Cozy Deals

Comfy_ChairMaybe it’s the fault of the BBC’s Dragons Den for sitting down a handful of business angel investors in cosy chairs whilst they quiz a few entrepreneurs. With the investors making some sort of deal judgement after 20 minutes, the programme makes ‘deal chasing’ look so easy and gives the impression that you’ve just got to be passionate, convincing and have the ability to trott off some well rehearsed numbers and information. Maybe that’s being a bit unfair on a program that has overall given quite a helpful tutorial into how to prepare your business for angel investors. The problem is that it does somewhat skew the perception of the real world realities of early-stage investment fundraising because it makes it look so instant, so cosy and so easy. The reality is far from this and even for the most experienced serial entrepreneurs find themselves entangled in long drawn out deal conversations and due diligence that can span upwards of six months. Chasing an investor, or series of investors, can be umpteen times more challenging (and long winded) than achieving a sales milestone, or winning a prized client.

I’ve had a run of entrepreneurs recently that I’ve agreed to work with who either feel that the investor has lacked serious intent because of their propensity to ask too many questions or take too long, or on the other hand have presumed that there is an unlimited supply of suitable investors to which they can talk to. The current climate is extremely challenging for startups (I’ve even had fundraising requests for help from US west coast startups).

Accelerators provide a well structured path, not only towards early-stage growth but also presentation to investors, with higher ratios of fundraising success. The reality that many are realising, even entrepreneurs that have raised successfully before, is that there is no easy money and that there are no easy deals being done out there. It’s darn hard work fundraising and founders are being unsuccessful not because of a lack of money in the system but more because their deals are not ready to put in front of investors. Even when a founder is ready, the competition for that money has become so intense. Investors have a batch of great opportunities to choose from. I know investors that have given up on startups for a while because they can’t find a well crafted deal with a good founding team behind it. Don’t tell me that there’s not enough cash out there. There is. There just aren’t enough good deals to match the cash.

Getting your deal ready before talking to investors is key and hence the reason for me creating the startup fundraising and valuation tool, D RISK IT (www.drisk.it). The project will launch sometime in the summer and is also currently crowd funding at:  https://www.crowdbnk.com/p/d-risk-it For a limited time, CrowdBnk are 50% matching any contributions (if you reserved a reward, do let me know).

6 Key Thoughts Along The Fundraising Journey (Summaries)

This article summaries the recent  set of 6 articles that I put together under the above title.angelinvestor

No1 – You Think You’re Ready To Talk To Investors But You’re Not

A lack of understanding, training and experience as to how to configure your business to attract investment is a very real issue and the main stumbling block for entrepreneurs and founders as they seek finance from business angels.  Knowing how to configure and execute an investment proposition is the key component missing from most founder approaches to investors. The solution is two-fold. Firstly, in your executive summary or pitch deck, ensure you tell your investment story and not just your business story. Secondly, get some help from someone who has previously been through the process and who can make you ‘investment ready.’

No2 – Investor Criticism Now Can Lead To Investor Funding Later

It is a kind and helpful investor who despite their busy workload, chooses to give feedback and their thoughts as to why they do not want to look further or invest. This information or advice can almost be worth paying for because in the long run it could save time, effort and financial resources. Think about working with the feedback to see if some strategic changes can be made, or take their comments and try to find a way to de-risk your opportunity for the sake of any future investor conversation. If you are fortunate to have put yourself in front of several angels but received a rejection at each turn, see if there are any common criticisms. If they are all saying similar things then you have good food for thought as to why you might not be getting funded.

No3 – It’s Not All About Your Business Idea

The statistics show that the odds are heavily stacked against every milestone of business success that you are hoping to hit. From staying in business more than 3 years to procuring angel investment, the odds are not in your favour. Business ideas that have not developed into an investment proposition just won’t catch investor eye-balls. My belief is that founders often feel that if they can just hook the investor with the opportunity then all other considerations will take care of themselves. Most investors are not looking for good ideas per se but for ideas that have begun to prove themselves by gaining some form of validation and/or traction. The potential of the opportunity does not override all other considerations. There is always an abundance of investment opportunity out there for investors but an ‘investment proposition’ is different, it’s an idea or an opportunity wrapped up in as much tangible market place proofs as possible.

No4 – Validation & Traction – Two Crucial Words When Looking For Investment

Providing proof points to show that potential customers are both interested and then likely to buy is vital in gaining investor interest. These two proof points are called validation and traction and achieving them can both significantly de-risk the opportunity for the investor and increase the possibility of a deal being struck. Validation is about proving that there is market interest. Engaging a little bit with that audience and getting early feedback helps your investor see that real people or real customers believe in your offering also. Traction is about giving your investor an early and mini demonstration that real people will pay for what ever it is that you are offering.

No5 – Investor Contact – A One-Hit Pitch or Contact, Not an Unfolding Mystery

A frequent frustration when receiving incoming investment enquiries is when the enquiry is drip-fed or trickles across the internet to me via a string of emails. You may not like it but you will be sifted and most likely moved on quite quickly. Remember, investors are looking for the best of the bunch, as soon as they see the investment opportunity, if it’s not in the top bracket, then they need to drop it quickly and move on. You get one shot, so make sure it’s your best. Be prepared, be focused and be thorough.

No6 – Don’t Treat Fundraising As Just An Access Issue

I get many requests from company founders asking if I can introduce them to angel investor. The problem is that there are several assumptions usually being made when someone says this to me and they broadly fall into two categories.

1) They believe they are ready to speak to investors, overwhelmingly, they rarely are. Even if they are investment ready, they still might not be  ‘deal ready.’ This means configuring the deal opportunity with the aim of de-risking it as much as possible to make it easier for an investor to say ‘yes’ to.

2) The deal is good enough and if they had access then they could do a deal. A broker (including angel groups and networks) is also a gatekeeper and deal sifter. Before they will give access, a review of the proposition is needed. If it’s not ripe for an introduction then it will be rejected. I see many founders wandering around from angel to angel or angel network to angel network, hoping that eventually someone will believe in them and their propositions and say yes.

D RISK IT – An app to get your fundraising on track

Driskit logo rgbA large part of my work involves helping companies with their fund-raising. I turn down over 90% of the companies that land on my desk because quite simply they are not investment ready, let alone deal ready. Even though the proposition often seems to be quite good, if not excellent, there are still many other reasons why an investor is likely to reject it. This all makes for a lot of frustrated entrepreneurs out there. Well, I’ve decided to do something about it by taking some of the real world processes, guidance and help that I give out and wrapping it all up in a smartphone app. The app is called ‘D Risk It‘ because that’s what founders ultimately need to do when they are configuring a deal proposition for investors; they need to de-risk it.

App icon with bevel CMYK

The app should be ready Autumn 2013. If this sounds interesting then you can follow the link to do a simple registration and get an alert when the app is ready …. www.drisk.it

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