I have to admit that I’ve been a bit behind on my blogging lately. Since November, I’ve been pretty flat out closing an investment round for BuyReply.
Last week, we announced that BuyReply, a technology that allows consumers to instantly purchase from any medium, had closed a $1 million seed round from a number of Australian and US investors.
This consortium was led by Adrian MacKenzie and Square Peg Ventures, with participation from Valar Ventures in San Francisio, which is Peter Thiel’s international fund. Additionally, we bought in six local angels to make up the rest of the round.
It was my first time raising funds having bootstrapped my first company, Lind Golf so it’s fair to say it was a new experience.
I thought I’d to share a few of the lessons that I learnt along the way. To seasoned entrepreneurs they might see naïve. However, if you’ve never raised money before, you might find these points helpful.
1. Back yourself before you ask others to back you
I invested a considerable amount of my own money and time in BuyReply before I looked for outside funding.
Doing this will give you a better chance of receiving a healthy valuation and it will also align you with your investors as they can see you have skin in the game and are committed to the business.
Depending how far you get with your own money, you’ll be able to demonstrate your resourcefulness. How far can you get with very little resource? We were able to build a fully working product and run three meaningful proof of concepts before we asked for money.
A note on founder vesting: My view is that this should be inversely proportionate to the amount of cash the founder(s) personally invests.
Some investors will want all your shares to vest over four years however if you’ve already taken a huge risk financially, why should you have to earn your company twice? Negotiate hard here if you can!
2. Your pitch deck should be a product not a PowerPoint
When we originally met with Valar, we had a pitch deck and an idea. We were told to come back with a product and a customer. When I met with Adrian I had a working product and a proof of concept business deal in the pipeline, so the conversation was very different.
You are doing yourself a disservice by trying to raise funds from a PowerPoint presentation. In the unlikely event you do get funded, you’ll get a terrible valuation.
Investors want to see a working version of your idea. This demonstrates that you can transform ideas into products.
It shows that you can manage a team and attract the right resources. It shows that you truly believe in what you are doing because you’ve jumped off the cliff before you’ve found funding, so to speak.
Most importantly, it gives your investors something to see, touch, feel and play with. At the seed stage they are investing in people and ideas and they need to be convinced of both.
Anyone can build an impressive PowerPoint presentation. It takes more than that to execute.
3. You can’t fake an orgasm
Passion sells. When an investor backs an entrepreneur they need to be convinced that the founder is 100% committed and passionate about their business and vision.
You need to sell the dream and take your investors on a journey which they want to be a part of. You need to convince them without an inch of doubt that you are whole heartedly committed, and that is something that cannot be faked.
4. Tell a compelling story
Raising money is not just about having an impressive product. It’s about having a story as to why your idea is novel, unique and worth backing.
It’s about knowing where you want to be in one, three and five years’ time and taking your investors to that place in the future. You need to sell your vision and your ability to execute to get to that position.
5. The entrepreneur runs the process
I thought that investors run the investment process and entrepreneurs build the business. I was wrong.
In our case, myself and one other ran the entire process. Once we had a term sheet, I engaged the lawyers, negotiated the deal, bought in other investors and drove the deal over the line. In some cases the investors might run the process however in this case, it was run by our team under my leadership.
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