Funding is a crucial element to any startup with dreams to expand and grow, to get bigger and better.
Attracting the interest of an investor and asking them put their trust — and money — into your creation is no easy task.
With this in mind, Business Insider spoke to some of Australia’s most successful entrepreneurs to find out their secrets and advice to securing funding.
Here is what they had to say.
James Wakefield, co-founder of InStitchu
“In our experience, securing funding is a difficult task in Australia. It’s important that you find investors that you can connect with. Once you are able to develop a strong personal relationship with the investor, everything else becomes much easier.
My co-founder Robin McGowan’s dad always says, ‘plan your work and work your plan’… The old ‘beer test’ is our secret weapon. This not only helps us decide on who to do business with, but it also subconsciously works for the investor. If we can sit down and have a beer with them, the relationship is strengthened, conversation flows and everyone has a good time. The rest is history! Friday afternoons work well… Very few investors will feel like a beer on a Monday morning.”
Dave Stevens, CEO of Brennan IT
“1. Offer the lender some security, like your house, with a written agreement that they will return the security to you after you have ‘proven’ your ability to re-pay – like 2.5 years into a 5 year loan.
2. Be extremely professional with them, have ALL the information they need ready so that it makes it easy for them to asses your business.
3. Accept rapid pay-back periods and also high covenants, and if you can’t accept those then maybe you shouldn’t borrow the money in the first place.”
Jeremy Colless, Managing Partner of Artesian Venture Partners and VentureCrowd
1. Referrals: A warm introductions from a trusted source will open many more doors than a cold call. Use your networks on and off line to work out what are the few degrees of separation between you and your target meetings and then try to find a willing referrer.
2. Preparation: You cannot be over prepared when you finally do talk to investors, angels or VCs. You may believe that you are the 1 out of 100,000 entrepreneurs that can build a billion dollar business, but the investor will have been pitched by hundreds or even thousands of equally enthusiastic startups that also believe they are the chosen one. With so much competition you have to really dazzle to stand out. Ensuring that you have excellent answers to any question that may be asked requires enormous amounts of preparation not only in respect of the details of your startup but investors will want to see that you have studied the competition as well. Remember, ideas are cheap and execution is everything. You will need to convince the investor that your team will emerge victorious against the many other startups that may be executing a similar or same idea.
3. Multiple capital sources: You will need to target a wide range of possible investors including high net worth individuals, organised angel groups, government grants and rebates, VC firms, accelerators and incubators, reward and equity-based crowd funding like Pozible and VentureCrowd. All of these investor types have their own quirks and idiosyncrasies, so do your research and understand the investors’ motivations and criteria.”
Mitchell Harper, co-founder of Bigcommerce
“Bootstrap your business and prove product-market fit before raising money. The more revenue (not necessarily profit) you can bring in, the better your valuation and leverage when you’re out raising capital. Access to money is cheap and available for great businesses, but make sure you really understand your unit economics and how much it will cost to scale your business before you dive in.”
Nick Bell, Managing Director of Web Marketing Experts
“Ensure you have a solid business plan that gives potential investors a clear cut idea of what to expect in terms of money, competition, and what exactly you intend to do with your business. When I was seeking investment for my first company, SkinB5, I also presented a prototype of my product so that investors were able to see something tangible.
Be confident in your product and in the delivery of your proposal. Don’t give your investor a chance to say no. Someone is always willing to invest in a great business idea, so tenacity can really pay off.
Always maintain a sense of urgency in your work. Build confidence with your potential investor by responding to queries or requests immediately. It shows that you are serious about your business and dedicated to working hard.”
Steven Beinart, co-founder of Assetline
“Consider raising finance against assets that you already own, for example a yacht or art collection. Asset-based loans are much quicker to arrange than selling your asset, and also allow you to hang onto it after your short-term cash crisis is past, or your startup is up and running.”
Zakaria Bouguettaya, co-founder and Director of Imagine Team
“When we first started looking for investment, we went in thinking it would be like a business transaction. Demonstrate some value, put a dollar figure next to it along with some expectations, and walk away with a signed contract in hand. After talking to a number of angel investors with no results, we realised we were going about it all wrong. Here are three things we took away:
1. Meeting with investors was surprisingly personal. Most investors have particular industry interests, and look for more than numbers when investing in a team. In our meetings with investors, our personal interests were often the focus of the conversation, and we were often asked about our backgrounds and other projects we had worked on. Questions on growth and revenue often seemed like an after thought.
2. Be prepared. There is nothing worse than being asked a question on an aspect of your business that you don’t know. Make sure to have every aspect of your company analysed and ready for inspection.
3. It takes forever. Investors are often very thorough in exploring an investment, and it can take several months of discussions and exploration before the cheque comes in.”
Andre Eikemeier, CEO of Vinomofo
“I’ve had three rounds of fundraising – one when trying to raise money for Qwoff, our online wine community site, and two raising money and finding strategic partners for Vinomofo, our online retail site. And what I noticed is that the strength of your product is more important than ANYTHING. As are runs on the board. For Qwoff, all the time and effort went into trying to communicate our business plan in a 20 minute pitch with 15 slides. But that was difficult, I only realised in hindsight, because we didn’t HAVE a good business model. Good product, but poor model. So all the slick pitching and cool graphs in the world didn’t really help – better to have spent the time improving the business model. When we were pitching for funds for Vinomofo, which DID have a very good business model, those same people were jumping out of their seats to invest.”
So MOST IMPORTANT – have a good product and a good business model, and the rest is a lot easier. Also important – the further along with your product, the more time in market, the more runs on the board, more customers and more revenue you have – essentially the further progressed from simply an idea you are – the easier it’s going to be for investors to SEE and UNDERSTAND your business. Of course, the further along you are, the more money you’re going to need, most likely, but MOST investors would rather invest a bit more in a less risk-driven venture, with more indication that it’s headed in the right direction.”
Andy Sheats, CEO and founder of health.com.au
“Talk to people who have already invested in and made money from the sector you are targeting. The first questions for a experienced investor is ‘if I give you a hundred bucks, how much are you going to give me? When? What could screw that up?'”
Dean Ramler, CEO and cofounder of Milan Direct
“We have been privileged at Milan Direct to have never needed to source external funding and we have funded the entire business organically via the reinvestment of profits back into the business. I am however aware of the VC market and through close ties with many entrepreneurs that have successfully sourced funding I have learnt many key tips to doing so.
1. Be Committed: Investors like to know that the person asking for funding is 100% committed to the business. A mate of mine quit a very high paying job in the corporate world to start a business, and so had all his eggs in the one basket. This level of commitment impressed investors and led to receiving funding.
2. Be Confident: You must be 100% confident in your own abilities to run the business plus in your company’s abilities to be successful and profitable. Simply people want to invest in confident people who back themselves!
3. Showcase your passion, charisma and brutal determination: Having a great business idea is one thing. But investors are backing people more so then the business as there are many great business ideas going around with not so great people trying to turn these ideas into a profitable business. As such, to secure funding, you need to show your passion, your true persona and charisma and brutal determination. If you do not have determination, and this is not evident to the investors, you will not be investable.”
Vicky Lay, COO of Zookal
“1. Getting in front of the right person: Make sure you do your research. No matter how good your pitch is, it’s only a deal if you hit an investor’s ‘sweet spot’. Similarly, each partner within a VC fund will usually take on a specific type of business model or geographical location, for example, at Zookal we try to get in front of investors/partners who have done previous deals within ed-tech, e-commerce or the Asia-Pacific region. Also, when securing a meeting try to get an introduction as a warm lead is always better than going in cold – you can get in front of almost anybody with a little creativity.
2. Acing the first meeting: First, make sure you’re completely prepared – know your industry, know your slide deck and most importantly, know your numbers. There’s nothing worse than being asked ‘what is your cash burn/ marketing ROI / EBIT?’ and not knowing the answer. Secondly, keep them engaged. The best pitches I’ve done have been two-way conversations instead of me pitching non-stop for 20 minutes which, by the way, is all you have – so use it wisely! Give them the information they want to know (not what you think they want to know).
3. Choosing the right investor: Make sure that both your goals about where you want the company to go are aligned from the start. At Zookal, we are swinging for the fences and our vision has always been long term so we are careful to only bring on investors who share this vision. Too often, the due diligence phase is only initiated by the investor when it should really be a two way process. Remember that effectively you’re bringing on a team member who can never be fired so make sure you do your homework.
Rohan Gamble, MD of Mozo.com.au
“It’s critical to put together an information memorandum for potential investors, as no investor will take you seriously without one. While it’s time consuming it’s also incredibly useful because it forces you into the discipline of thinking about your business. The trick is you have to describe the end point, what the business is going to become. It will also help if you accept that the timeline has to be on the investor’s terms. With Mozo I originally put deadlines and processes that were more akin to what I was used to in a corporate environment and they just don’t work. Any time I tried to put a deadline on negotiations it cost me the deal.”
Gen George, founder and CEO of OneShift
“I managed to secure the investment by staying committed to the business without allowing distractions to faze me. When I felt like things were becoming difficult or weren’t going to plan, I was able to persevere and push forward by adapting to the situation and utilising all my available resources.
My advice: Don’t ever let a few little (sometimes not so little) hurdles get in the way of your business success!”
Alexandra Tselios, Publisher of The Big Smoke
“The best thing you can do is focus on preparation before pitching to potential investors or apply for a business loan. I have successfully secured both types of funding in the past and you need to really understand your business and be realistic about it. Don’t create a best scenario forecast and live by it, you need to be flexible and aware of the fluctuations.
One of the greatest things I learnt in law school, which helps me in business, is this idea to always pre-empt an argument or point of view ensuring you always have a response. It is the same in business. I have been bamboozled in the past by a question mid pitch, it is the worse feeling and I won’t allow it to happen again. Know your stuff, and have always have a solution to a problem rather than hoping problems won’t occur – they will. Investors and Banks want to know you have considered all possible scenarios and have done your due diligence before releasing any funds to you. Understanding all parts of your business’ financial health is absolutely crucial prior to even discussing options with a third party.”
Sebastian Eckersley-Maslin, CEO of BlueChilli
- Commit your key metrics to memory now, and how you expect them to change when you secure funding.
You need to be able to reel them off rapidly and with confidence — investors want to back founders who’re on top of their metrics. The key metrics are: customer conversion rate, customer acquisition cost, average revenue per customer, and average customer lifetime value. If your business is too early to know all these metrics, see if you can research the same metrics for another business similar to yours.
Sam Chandler, Founder and CEO of Nitro
My two most important pieces of advice for budding entrepreneurs are (a) to have a clear plan in place for how you intend to spend the money, and (b) don’t forget to try and generate as much revenue organically as you can.
Money should always be raised with a clear purpose – whether it is for an accelerated hiring plan, product development, market expansion, sales and marketing activities, partnerships, or other specific business objectives. If it’s just for operating expenses, that’s fine, but be explicit about that, and be clear about your operating plan.
Not all start-ups require initial capital support. Some starts-ups can generate meaningful revenue to cover their overheads for the first couple of years, or longer. At some stage however, many companies will need an injection of cash to take the business to the next level beyond what organic cash flows could have sustained. But regardless, the sooner you can generate revenue, the more firepower you will have to grow the business, and the more negotiating leverage you will have with prospective investors.
For example, at Nitro, we generated revenue from day one and were profitable even in our first two years, allowing us to bootstrap the company through that period. When we did raise an initial $1 million from private investors in Australia in 2007 and then a further $6.5 million in 2012/13 from Australian venture capital firm Starfish Ventures, in both cases we had explicit purposes for those fundraisings, be it sales and marketing expansion, or product R&D. And we were able to raise money on acceptable terms, because the business had a track record of performance, and generated real revenue already.
Nitro never raised money to keep the lights on – it was always about using the funding we secured to propel our business growth and increase our operating velocity.
So whether you raise money to give yourself a year or two of operating runway, or to launch a sales and marketing offensive, or launch a new product; make sure you have a plan.
And if you can, focus on generating revenue organically, so you can pay your own way if you need to, and raise money at the best possible price.
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