Month: August 2020

Aug

2020

5 Steps to Find the Right Investors for Your Startup

Finding the right investors for a startup is difficult and a critical stage for any startup — even the smallest amounts of capital could prove to make a difference. These initial investors in the growth process of a startup will prove to have an impact that resounds for years to come, be it through capital, advice, or connections. Thus, knowing how important this stage is, here at VenturX, we have simplified the process into five of the most important steps to follow in order to find that perfect investor.

Image for post — The Importance of Finding the Perfect Investor For You

Invest in Yourself and Create a Cap Table

To begin, let’s start with personal finances: are you confident that your startup can be financially sufficient? If so, then the first step is to begin investing in yourself, or “bootstrapping.” Invest in yourself, your knowledge, and your health, and as Paul Clitheroe, founding director of InvestSMART says, “Your career is the engine of your wealth.” Many successful businessmen or businesswomen of today understand that enhancing one’s own skills and abilities are necessary to survive in an economy that is constantly changing.

Another key step before beginning to raise external capital is to plan a capitalization table. With reference to our article, “All You Need to Know About Capitalization Tables,” this is “a spreadsheet for an early stage venture or a start-up that lists all the company’s securities, their holders and the price paid by the investors to hold these securities.” Essentially, this will help in organizing what sort of equity stake — the percentage of the business owned by the owner of some shares of stock from that company — founders want to have. Visualizing a cap table will be crucial to show potential investors and stakeholders and their level of control over certain assets and can allow for them to forecast potential payouts and leverage control in the future. This will guide entrepreneurs and their startups to having a clearer vision of what they want from investors, a crucial detail when seeking investment.

Narrow the Investors You’re Interested In

“Investing is laying out money now to get more money back in the future.” — Warren Buffet

Essentially, investors also expect to get a return from their investment and knowing the different types of investors their differences can be crucial in making or breaking a pitch to someone.

During the researching process, it’ll become clear that investors also specialize in terms of what they invest in, whether it be a certain business model, an industry, or they have a specific demographic they want to cater to. For example, in our Spotlight Show featuring Keith Ippel, he provides some valuable advice.

“You need to equally discuss impact and your business model, your financial structure, and your revenue model.” — Keith Ippel, Canadian Impact Investor

Overall, it’s clear to see that, while it’s important to focus on “impact”, other factors should not be neglected in a pitch.

Within the startup community, there are two major types of investors to look out for: angel investors and venture capitalists. It’s crucial to know the differences between them and know what they’re looking for because after all, it could make or break a pitch. Angel investors are individuals who usually invest in early-stage startups and it is said that they reject 75% of the investment proposals they receive. This means that their approval is not one that is readily given, although if an idea manages to pass, it has a significantly higher chance of being successful. On the other hand, venture capitalists are employees of larger venture capital firms and, instead of investing their own money, they invest other people’s money in the form of a fund into companies. They usually invest a larger amount of money into startups, so it’s important to know if a company will scale substantially and quickly. Ultimately, it’s ideal to decide on if the target audience will be angel investors or venture capitalists —there are pros and cons to each, and it depends on what your investment strategy is.

Network Strategically and Innovatively

Now for the hard part: reaching out to these investors. The first thought that comes to peoples’ minds when they think about reaching out is usually by cold emailing or cold calling. These are effective ways and if one has enough perseverance and persistence, it could work out in their favour. However, it is a tedious method and there are other ways to network strategically as well. One possible way would be going on online platforms and pursuing connections through there. Some of the most popular ones include Angel Investment Network and AngelList. It’s through these platforms where you can get a better idea of how versatile some investors can be and where one can exhibit their startup to the world. Another way to show off a startup amid experienced investors would be by going to an industry conference or summit. It is here where you can build some lasting relationships with investors and gain advice and insight from their perspective or access to their own connections. In any case, the key is to nurture investor relationships, as there’s no such thing as a bad connection.

Be Specific with Your Pitch

This next point may seem obvious, but it’s one of the most important ones on this list. Before going to anyone about an idea, it’s paramount to be prepared, whether it’s through a pitch deck or a presentation. The best presenters are those who can make the other party feel special as well as earn their trust — it takes a considerable amount of effort to convince investors, as they look for hardworking individuals. It would also be valuable to research the investors’ existing portfolio companies; having this network in your roster can be a benefit in the future. The visuals are also as important as the content itself, so it’s best to invest in an aesthetic slide deck that will compliment a business proposal. As for the presentation itself, it goes without saying that it should be practiced and run through multiple times before the real deal. The key point of the entire presentation should be clear, as well as the questions it intends to answer: What problem is this solving? Why should this program be solved? Why is this the best solution? Lastly, in the end, make sure that the value proposition and the ask are clear as well, as these are the raisons d’être of the work a startup has done to prepare for this. Time is truly one of the most precious resources one can have, so as an entrepreneur, don’t waste your own time or that of your investors and be prepared.

Learn from Others

Last, but certainly not least, is to learn from as many other founders and investors you can. Raising capital is a daunting experience, especially for first-time entrepreneurs, and it can be extremely valuable to hear the opinions of those with more experience. Other founders can provide you with investors or advisors from their own networks which would help leverage one’s lack of experience. Additionally, when talking to investors, it can be incredibly enlightening to hear what they think of pitches and their “do’s and don’ts” when it comes to raising capital. On our Spotlight Show, you can gain access to the knowledge of many prominent investors who each adhere to a different industry and could possibly help.

Ultimately, picking investors that are critical to success is a timely process that needs a lot of care and delicacy. There are obviously so many other factors that will come into play when finding an investor for a startup, but these five steps would be the most important ones to consider:

1. Invest in Yourself and Create a Cap Table

2. Narrow the Investors You’re Interested In

3. Network Strategically and Innovatively

4. Be Specific with Your Pitch

5. Learn from Others

And remember, finding a good investor doesn’t always have the reward of capital being granted; in other instances, it can come in the form of experience and advice, something that can often be just as valuable.

5 Ways the Coronavirus Affect Startup Investment

March 2020 is unlike any other time in history not just for startups but for everyone in the world. We enter uncharted waters and here is what our team observed…

1. Investor Crawl-Back

Unfortunately there are high net-worth investors who lost a lot of money in the market when things started crashing and layoffs happened everywhere in the world. Just like entering the last Bear Market, some investors are faced with uncertain times for themselves. Consequently, startup funding has started to disappear at some firms and contracts are left unsigned.

2. Startup Valuations Get More Conservative

YC’s demo day was the first one done after the lockdown occurred in Silicon Valley, it was clear to see that valuations dropped since the last year’s cohort. This was favourable to investors who still had funds left to invest. The unfortunate thing was that not all accelerators were equipped to take things digital instantly, so some did not have real virtual demo days and only slide decks were sent to venture capitalists. As a result it is taking a bit longer to do due diligence and close deals.

3. Governments Hand Out Money

Even though there were hand outs of relief funds, not all startups qualify. In most cases, they were not meant for ‘tech startups’ but those who got it showed immense support for the rapid relief fund across social media. The tricky thing is it is difficult to establish how long these would last and who got it and who didn’t.

4. Venture Capital Firms Postpone Fundraising and Reinvest in Existing Portfolio

(As we work in early stage startup investment at VenturX, we can only state what we know about this stage.) Because it might take longer with unforeseeable circumstances when it comes to raising the next fund, the schedules have shifted to focus on their existing portfolio companies (those that they already invested in). In other words, some are halting their fundraising and reinvesting their remaining funds to their current startups in order to give them a bit of relief until the next fundraising round. This would ensure their runway of cash will not run out during the lockdown period.

5. How do Their Clients Cope?

Not only are the questions at pitches about the startup’s business model but also about their clients. Who are your clients? Have they been able to remain open during the lockdown? If they are not open and there are layoffs in their industries, how can they pay you? How will you be able to maintain revenue and growth during these times?

It all goes to say that we need to shift our mindset as as we enter this new normal.

The Importance of Giving Back to the Startup Community

Entrepreneurs and founders make so many sacrifices in order to pursue their ideas in hopes that it will change the world for the better — one can only truly understand the extent of their sacrifices if they do it themselves. Whether it is managing and hiring new people in the company, contacting investors in hopes of obtaining funding, or consistently marketing to new audiences to expand, the role of an entrepreneur can seem endless. Yet, amidst these tasks, many founders have managed to add a new one to the list: giving back to the community.

Why You Should Give Back

It’s easy to disregard giving back to the community, especially when you feel like you’re stretched so thin between your other responsibilities. Many entrepreneurs think that giving back to the startup community is an option, something to do only because it’s the “right thing.” However, there are so many other reasons why it is beneficial to start thinking about philanthropy from an early stage.

“There’s no reason why your business, your personal philanthropy and your corporate philanthropy can’t be integrated. On the contrary: If you can get all the wood behind one arrow, that’s how you’re going to increase your impact.” — Marc Benioff, CEO of Salesforce

To start off with, a socially responsible company will attract socially aware and responsible employees. When employees feel as if they’re contributing towards something that they’re passionate about helping, there will be an increased motivation to be productive and contribute to the company’s success. In fact, 60% of employees say that a company’s sense of social purpose is the reason they chose to work for them, revealing that the success of a company is largely synonymous with its ability to be philanthropic.

Another solid benefit that giving back to the community brings is the ability to build a connection with customers. Socially responsible companies pride themselves for their philanthropy, and consumers often take note of that; when a consumer does something to support the company, it feels like they are also contributing to whatever cause the company is supporting and making them feel like they are also doing their part. Statistically speaking, about “84% of consumers would switch to a brand affiliate with a good cause,” and more significantly, “95% think that it’s a good idea for companies to support [social] causes.” Ultimately, this only emphasizes how important giving back to the community is, for both ethical and economical reasons.

Lastly, showing you and your company care about the community in some sort of way will differentiate your company from competitors. Showing that even that you are a founder with many, many tasks at hand, while still making time to give back to the community, truly will set you apart and build your brand’s value in the market. One act can send a message to your employees, your investors, and other stakeholders about your firm beliefs in your company and it’s socially aware orientation.

How You Can Give Back

Often, when faced with the choice of giving back to the community, many entrepreneurs don’t know where to begin. The first thing that comes to their minds is to donate their money or contribute some part of their assets, something they can be reluctant to do since they’re already spread thin in terms of investing as many of their resources into their company. However, what many entrepreneurs fail to realize is that there are other ways to help out that don’t necessarily involve monetary assets. You might have heard of this before, but we’re going to talk about the “three T’s of philanthropy.”

Time

Being generous and flexible with the time you offer to others can be a great and simple way to start. One way entrepreneurs can put this to use is by mentoring others or putting forward some advice into the community so that others can learn from them. An example of this would be our Spotlight Series: we value what startups want to know and thus reach out to prominent investors who are able to give some time to us to share any knowledge that would help.

Talent

What we mean by this is a certain unique product or service you and your company can share with everyone. Offering your specialty to charities for no cost is a way that you and your company can implement on, and since your own “talent” is readily available, the cost of providing this is very low. One company that implements this strategy is TOMS Shoes: for every pair of shoes sold, they in turn donate another pair to a child in need.

Treasure

This is what most entrepreneurs associated with donating — monetary resources. This isn’t recommended for most startups, since financial gifts should be last on the list of what they should give — it’s essential to first grow into a sustainable business before donating a substantial amount of money. However, once stabilized, giving donations to charities can be seen as almost essential, as it directly impacts a company’s brand image. In 2011, Apple had a reputation as “the least charitable tech company,” so once Tim Cook stepped in as the CEO, he focused on changing this, starting with a $100 million donation in the following year.

Lush’s Charity Pot: Setting an Example

One company that has been exceptional in retaining bright employees who have similar values is Lush. Lush is a retailer of cosmetics, specializing in skin and body care, and they pride themselves with being naturally sourced, cruelty-free, and environmentally sustainable. Founded by Mark Constantine and Liz Weir in 1977, Lush had humble beginnings but innovative ideas, especially with pioneering the trend of bath bombs, solid shampoo bars, and bright colours. They also had the benefit of being a private, independent company, giving them the freedom to choose ingredients from socially responsible suppliers that do not test on animals, a prominent value they still uphold today. Being a “campaigning company,” Lush frequently embeds various social missions within marketing their products. One prominent example is their Charity Pot program, a line of lotion they sell that aims to donate all of the proceeds that are made from a sale of that product to a certain charity that is listed on the packaging. By doing this, Lush is allowing consumers to choose what charitable cause they want to donate to, providing a straightforward and transparent process for consumers who want to help the community and themselves.

Ultimately, when it comes to going back to the community, it truly is a win-win situation, whether it be improved consumer, employee retention or differentiating yourself from the competition. There are definitely more ways to donate than just money, and this includes your time and talent as well. And lastly, the best thing about giving back to the community is the fact that you don’t have to wait until you’re a Fortune 500 company to start the process since anyone can start giving back and pay it forward right from the beginning.

“Goodness is the only investment that never fails.” — Henry David Thoreau