Before we discuss raising funds, you might be wondering what does raising funds have to do with Virtual Numbers – you’d be right to ask and the answer not much, but this is about being the complete business and a virtual number and raising funds are two key components to keeping your business afloat for the long term.
Here are some commonly asked questions when we talk about funding:
Should I get investment?
When should I get it?
Is it the right time for me?
If I do get it how do I get it as quickly and painlessly as possible?
Do these relate to you? Have you been down this road before and found yourself asking the questions above?
Today we’re going to look at – equity investment, when I was doing it for myself, I made a lot of mistakes so I’m well aware of the pitfalls to avoid and how to get you to where you need to go faster so that fundraising does not become your life’s work and distract you from everything else.
Why you might want to raise funding:
Maybe you want to outsource some of your work because you’re getting burned out trying to do everything yourself, or perhaps you need to build a product or a technology and you don’t have the expertise to do it yourself or you just want to finally pay yourself a salary because you’re always paid last or perhaps your pre-revenue or low revenue with proof of concept and you need a cash injection to continue.
Ask yourself first before you even go down this road do you really need equity investment or is there another way so there are alternative sources of funding you can draw upon so grants government loans bank loans etc so ask yourself first if you want to go down that road instead and if you decide that you do want equity investments you need to do an estimate of how much you need to reach the next stage in your business so remember at an early stage you will have to give away a greater percentage of equity because the risk is greater for the investor to invest however you don’t want to run out of money in kind of one or two months either so don’t go too low with what you’re asking for so it’s really that look at balance there and the another thing that I just want to say is for example if you want to raise 100 000 pounds it is much simpler to have 10 investors putting in 10 000 pounds each then 100 putting in 1 000 pounds so one of my mantras is do not make your life harder than it needs to be get to the point you need to get to as quickly and painlessly as possible.
Other ways to raise capital:
You might have heard of SEIS and EIS relief so basically SEIS relief is for an investment amount up to 150 000 pounds and it’s really useful to have advanced assurance from HMRC that the relief will be available to investors into your business so what it actually means for the investor is that it mitigates the risk of making the investment because they get tax breaks, it’s especially useful for high-income earners because it reduces their taxable income and allows them to therefore save income tax and then there’s also capital gains and capital loss relief as well so it’s a useful thing to apply for from HMRC to make the proposition more attractive. Then you will also need a financial model with balance sheet profit and loss cash flow, and this will be your projections over the next three to five years you can either attempt to do this yourself or you can outsource it for usually a few hundred pounds. If it’s going to drive you insane you need a roadmap of how you’re going to build out the product and key milestones and that will also include tech updates as well if you have a tech start-up and having a team is really important, so investors are quite reticent to invest in one-man bands or one woman bans.
By team, I don’t necessarily mean a team of people that you’re paying but that could look like having advisors so those advisors would cover off the key skills that you need to make a business successful so for example, someone in charge of sales, someone in charge of marketing, someone in charge of finance and if you have a tech start-up obviously having a technology officer is also really useful so early-stage investors also really looking at the team because they’re thinking can this team of people make this start-up a success. If you have co-founders, then having co-founder agreements in place in the event of disputes is really important.
Who you approach for early-stage investment:
Now if you’re at an early stage it’s not the time to be approaching venture capital firms you know already I think that’s finally logical but to cover off that in blackwater the people that you will bring after at another stage are number one your warm network so that’s your friends and family and your extended network so that could be acquaintances it could be people you met networking events evolve with it could be um colleagues it could be ex-colleagues anyone that you know in some capacity falls into your warm network and basically they are the people that you start with when you are raising investment.
It’s interestingly the thing that creates most resistance in entrepreneurs because they’re like no I don’t want to tell people what I’m doing etc but it can be a way of gaining traction really quickly after you’ve plundered that network the next stage is really interested parties so what I mean by that it is people that really understand your pain point so for example if you have a networking platform for lawyers approaching senior lawyers that understand the pain point and buy into the idea and think it’s a really good one it’s a really good way of getting early-stage investors so think about who your market is and think about who that the top end of that market is and then think about how you can contact them to sort of start building relationships and pitching your ideas.
Then there’s also high net worth individuals and angel investors and groups so high net worth individuals usually are angel investors anyway with angel investors you can either approach them on an individual basis or there are groups of angel investors as well um I recommend using LinkedIn particularly to start putting your feelers out and building relationships with those types of groups and investors.
Then there are early-stage vcs so these are vcs that specifically invest at an early stage examples of that include the start-up funding club and another example is an organization called forward partners but I will just say that getting investment through that route is really competitive as you can imagine and the last thing I just want to cover off is crowdfunding so crowdfunding used to be a lot easier, in my opinion, five to ten years ago and there were lots of stories at that point where people like I raised six hundred thousand pounds in a minute but very quickly it’s a lot harder um nowadays to successfully crowdfund and it takes a lot of intensive work and effort so there’s one to two-month build-up even before you start crowdfunding and actually in an ideal world if you followed the kind of people that you should be reaching out to before you maybe don’t even need to go down the crowdfunding route.
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