RECAP: Get Investment-Ready – Strategy & Valuation
You’ve learned what funding is available to your business – but how do you get it? By getting two things right: your strategy and your valuation.
Last night’s ‘Get Investment Ready’ workshop covered a wide range of essential topics to help entrepreneurs get these two pieces of the funding puzzle in place. Here are some of their best tips for entrepreneurs seeking funding.
Understand the reasons why investors invest – and why they don’t.
Oliver Woolley of Envestors gave some important insights into the minds of investors. There are plenty of reasons why they might not want to invest in companies at all:
- Investments are illiquid stock, so investors can’t cash out whenever they choose.
- Investing in startups is always high-risk. They might end up losing money.
- There are plenty of other things they could do with their money, from AIM to peer-to-peer lending.
So why do they offer their hard-earned money to entrepreneurs? Usually, they aim to benefit from one or more of these incentives:
- The potential for spectacular gains.
- The opportunity to decide for themselves how their money should be used.
- Tax relief, such as EIS and SEIS.
- The satisfaction of helping a business succeed and being a part of something exciting – and talking about it with their friends!
Show investors how your business speaks to the reasons they invest in the first place and is well worth the risk.
Learn all about EIS/SEIS.
Martin Sherwood of Enterprise Investment Partners encouraged entrepreneurs to pay special attention to these UK tax relief schemes.
The Enterprise Investment Scheme (EIS) offers investors 30% relief, while the Seed Enterprise Investment Scheme (SEIS) offers 50%, offsetting the risks of investing in a seed-stage company. To take advantage of them, you need to be a UK taxpayer, but not necessarily a resident.
To register for EIS/SEIS, you’ll need to write to HMRC. You can do this yourself, but make sure you get it right. Submitting incorrect information could lead to a troublesome investigation by HMRC and cost you a lot of time. If you have any doubts, hire a tax adviser to do the paperwork for you.
Include your failures in your storytelling.
As an entrepreneur, you probably understand why storytelling is important, but do you know how to tell yours? According to Barry Pilling of No Mean Feat, it’s not about presenting yourself or your business as a picture-perfect success story. To capture investors’ attention and appeal to their human side, talk about your failures.
Pilling recommends dividing your story into five plot points that answer these questions:
- When and how did you get the ‘spark’ of inspiration that led to your business?
- What momentum did you generate? A degree? A successful presale?
- What storms did you weather? A failed business? Success that you were unready for?
- How did you overcome these storms that would have stopped others?
- Pulling all these experiences together, what is your future?
By showing investors that you’re a competent, experienced entrepreneur who’s onto something big, your story helps determine your valuation. Make it as compelling as possible!
Start small, but have a big vision.
Planning a funding strategy can be tricky, but Angelika Burawska of Startup Funding Club offered some great tips on keeping it in perspective.
- Set and calculate your business’s milestones. This will help you explain your vision to investors.
- Raise funding with a clear purpose. Too little money means you’ll have to ask for more too soon, but too much money leads to waste.
- Be flexible with investors. Sometimes cash and time are more important than equity. Remember the big picture.
- Quantify your traction, skill set, market potential and risks. All of these smaller numbers will add up to an overall valuation backed by solid evidence.
- Don’t compare your business to other startups. You don’t know what was happening behind the scenes in those companies.
Burawska also recommended that entrepreneurs seek advice only from people who invest, not ‘advisors’ who don’t do any investing themselves, and presented the Quick Guide on Startup Valuation below to give entrepreneurs a rough idea of what their business is worth.
There’s more than one way to reach – and present – a valuation.
Anthony Rose of SeedLegals identified one of three main ways to value your company:
- Decide how much money you want to raise.
- Decide how much equity you want to give away. The median amount of equity given away in an investment deal is 15%. If you offer 25%, you might be giving away too much, but if you offer only 5-10%, the investor might not find the deal sweet enough to consider. (However, now that technology is making investing faster and easier, there is a trend toward startups going through more, smaller rounds, sometimes for only 3-4% equity.)
- Use similar companies as a guideline.
When you think about how to include your valuation in your pitch, remember:
- Talk about your pre-money valuation, not how much your company will be worth after you receive the funds you’re seeking.
- Create two versions of your pitch deck. One will be simple and leave out your numbers, with just enough information to get investors interested. Once they’re hooked, follow up with the other deck, which will be more complex and include your numbers.
- However, don’t show your valuation. Keep this flexible so it can be negotiated.
- Don’t list your raising amount, valuation or equity before modelling the exact figures.
Strategy and valuation are the keys to success in business funding, so use these points as food for thought as you consider – and reconsider – yours before pitching to investors.
Ready to try out your funding strategy? Meet investors and other entrepreneurs at our Christmas Networking Soiree with Funders on 12th December. The event will be hosted at WeWork Moorgate and begin at 6:00 p.m. Secure your ticket now!
Can’t get enough funding tips and contacts? Meet even more funders and learn about every aspect of the funding journey at the flagship Business Funding Show 2018! Experience a full day of talks, showcases and one-on-one meetings at Canary Wharf’s East Wintergarden on 22nd February. Get your ticket here!