If you believe in your idea, it doesn’t matter what other people think, right? Not quite. If you need funding to get your business off the ground, you must get investors to believe in it too. Here are some basics to put in place to convince funders to (literally) buy into your vision.
One of the first things an investor will want to know is – do you have a founders’ agreement? So let’s start by talking about that…
Protecting you from each other
No matter how trustworthy your co-founders seem, the loveliest of people can sometimes fail to fulfil their responsibilities. Ten per cent of founders split up before the business is even off the ground. Even close-buddy alliances can go bad (greed can corrupt, illness can debilitate, and disagreements can sometimes be irreconcilable).
This is why it’s wise to prepare for the worst while you’re at your best – and safeguard yourself from the outset with a founders’ agreement. This is a document that sets out your rights and responsibilities towards your business and protects you from your co-founders.
Your agreement should include a share vesting schedule. This is a time-based agreement stating that founders must give a certain percentage of their shares back to the business if they leave before an agreed-upon amount of time (usually three years). Investors won’t care about your relationship with your co-founders. They want to be sure their funds are protected, so they’ll expect to see a share vesting schedule.
Your founders’ agreement should also include an intellectual property (IP) assignment. IP is everything that makes up your business – your website, the design of your newsletters, brand presentations, app ideas – all the things that make your business unique. Your IP assignment should state that you own the rights to any content or design elements of your business. It should outline an agreement between you and your co-founders about what would happen if your IP was sold – who would get the money, whose decision this would be, etc.
There’s no fixed structure to a founders’ agreement and it’s up to you what you include. You might want to use this free founders’ agreement template to help you get started.
The long and short of pitching your vision
Now let’s talk about selling your idea. When speaking to investors, it’s best to have two pitch decks:
Shorter pitch deck
Your shorter pitch deck should outline who you are, what you do, why you do it and the way you do it. If you’re solving a problem, make sure investors understand how. You should send out your short pitch deck when you sign up for an accelerator programme or when you reach out to venture capitalists who want to hear from you.
Longer financial deck
This more detailed deck should include your financial predictions, revenue model, business model and all your essential data. Only share this deck with serious investors, as it contains such key information, you may be taken advantage of if you just ‘share it around’. Interested investors might be put off if you leave yourself vulnerable by showing your full deck to everyone.
How to network and find like-minded investors
So, where do you look for potential investors? They may be closer to home than you imagine – and it’s wise to start with who you know.
Get warm intros
Speak to other founders. If you know someone who has recently raised funds, ask them to introduce you to their investor. This is more effective than going in blind, as there’s already an element of trust established. Even if they don’t invest in you, they may know someone who will.
Ask advice first
Cold calling and begging investors for money doesn’t go down well. A better approach is to ask them for advice before asking for their money. If your pitch deck is terrible, you’ll want to know this before using it to try to raise funds. So start by seeking feedback from investors – and take the time to make improvements. Then go back and thank them for their advice and demonstrate how you’ve benefited from it.
Do this several times for the next few months, showing how your business has grown and developed. In doing so, you’ll develop a relationship of trust, so if you do come to ask them to invest, they’ll be more confident their money is going to the right place.
Use LinkedIn connections
Angel investors are often people you know but didn’t know you know them. Send a message to everyone in your network with your short pitch deck. You may be surprised who’s interested – don’t assume you know who your would-be investors are.
Look like a pro
Always look professional, even if it’s just on Zoom. Give thought to your background, make sure your camera and microphone are working properly, have good lighting and a strong WiFi connection, position your screen properly and wear smart clothes.
To sum up, let’s look at the biggest mistakes founders tend to make when seeking funding:
- Not protecting yourself by having a founders’ agreement.
- Giving away too much equity too early.
- Taking on the wrong investors. Investor-founder relationships last longer on average than marriages, so choose carefully.
- Mis-timing an EIS and SEIS application. These HMRC schemes offer significant tax reliefs to people investing in eligible startups. Make sure you submit your SEIS applications first. If EIS funds come in first, they annul your SEIS funds, so you could be liable to pay your SEIS investors their tax breaks. The gov.uk website explains all about these venture capital schemes.
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