Module Overview
There are far more companies that bootstrap, who learn how to deliver value to customers by creating revenues and profits, and have no need for outside investors, than those that raise money from angel investors or venture capitalists. Raising capital is far from the only path to building and growing a business.
But it can take time and money to wrestle with the problem you are trying to solve. Founders often make the significant personal risk to get the business off the ground by raising money from friends, family, savings accounts, and credit cards. Capital gives you time to experiment with strategies, learn from failures and eventually bring in revenues and profits. Capital gives you the ability to hire more staff, buy more equipment, and ultimately accelerate your business’s growth.
Raising money from venture capital firms or business angels can often seem like something only possible for those with deep connections. It can appear to be a mysterious and confusing world.
Although the process to raise capital is not always easy to navigate, the good news is that the UK is one of the best places in the world to start and fund a business. There are various financing options available to entrepreneurs in the UK, including bank lending, asset finance, peer-to-peer lending, government loans and grants, crowdfunding, accelerators, angel investment, venture capital and private equity.
Funding your business is a means to an end, but how you support your business will have a material effect on the path you take and will often ultimately decide your business’s fate.
As the Founder, you need to determine what fundraising path most aligns with the interests of your business, your life, your team and your investors.
Overview
This 60-minute interactive workshop will cover the following:
In the first part, we will look into the big questions you should be asking yourself before embarking on a fundraising process:
- What should you consider before taking on investors?
- Who are the different types of investors?
- What are the advantages and disadvantages of the different types of investors?
- What does a fundraising process look like?
- When should you raise the funds?
- How much should you raise?
- How should you value your business?
In the second part, we will dig into what you can do to best prepare yourself for the Investor Pitch, including tips on presenting and how best to tell a story using the story arc.
In the final part, we will run through the Investor Pitch Canvas and help raise the questions you should be answering to shape your messaging for potential investors.
Required Resources
Additional Resources
Be Concise and Precise with Tim Pollard (LINK)| The Successful Pitch with John Livesay | Podcast
The key to effective communication lies in the brain. The left brain is about what is, and the right brain is about what things mean. The brain wants and needs to consume information in a certain way. When you align with how the brain works, you can be incredibly successful, but you’ll be remarkably unsuccessful when you misalign with how the brain works. In today’s world, most communication, which is dense, convoluted, complex, and PowerPoint-driven, isn’t annoying, but it almost entirely misaligns with how the brain works. That’s one of the reasons why so much communication is ineffective. It’s almost hard to pick the single worst brain violation. I would say there are three. We make three big mistakes because our brain is wired to learn, accept, and retain information in specific ways. Without it is a disaster versus pushing out too much information, secondly is confusing them, and then the third mistake you see people making is too sender-oriented.
Storytelling
Be Concise and Precise with Tim Pollard (LINK)| The Successful Pitch with John Livesay | Podcast
Tell a story in such a way that people see themselves in your account.
A good way of doing that is to imagine the customer has a problem and converting their pain into a story. Imagine you’re a doctor, and you’re exhausted. You’ve come off the night shift. You go and lie in the break room. You’re trying to clear your head, so you’re binge-watching Netflix on your iPad.
Meanwhile, that sucking of bandwidth prevents some critical patient monitors from sending signals to the nursing station, and lives are being put in danger. What I did is I taught you a message we built with a technology client. I took a sterile topic, network bandwidth reliability, and I turned it into a story. You visualise the doctor laying on the couch watching Big Bang Theory or Brooklyn Nine-Nine. You imagine the baby in distress and the nurse at his or her station not getting the signal.
Storifying a customer problem is a potent tool, and a keyword here and a critical word is the word visualise. Almost everything you’re doing as you try and engage the right brain of an audience or a customer is about helping them visualise either their problem or your solution. We’re huge believers in storytelling as 1 of 5 tools to engage the right brain. What I’ve shown you is the underlying science and purpose behind that.
Whoever tells the best story and gets people to visualise themselves in that story in a virtual world is the one that’s going to stand out and leave the competition behind. Whoever tells the best story wins.
The Right Way To Build Your Pitch Deck | Spero Ventures
The Right Way To Build Your Pitch Deck (link)| Spero Ventures
Storytelling may seem like a soft term. That’s something for fiction writers or the marketing department, right? Not really. When you’re a startup, storytelling is one of the most important things you can do, content expert Steph Patterson says. Nowhere is this more apparent than in the startup pitch.
How To Tell Your Startup’s Story In a Powerful Pitch Deck
How To Tell Your Startup’s Story In a Powerful Pitch Deck (LINK)| Liran Belenzon
At FounderFuel, I learned how to tell great stories. I have kept working on that skill ever since because storytelling is the most crucial skill every CEO must master. Telling your company’s story is not only for investors but also for employees, customers, partners, family, and more — t’s how you raise money, hire talent, manage crises, sell your product, and build your partner ecosystem. From my experience, a great story is the difference between success and failure. If you don’t believe me, ask yourself why some companies raise so much money when they haven’t achieved any of the usually required milestones. The answer: Their CEO tells a great story.
At FounderFuel, we learned a simple and powerful framework to tell stories. While there are many areas your deck should cover, it should always answer the following three questions:
- Why should I care?
- Why should I believe?
- Why should I join? If you can build a story to answer each of these questions correctly, I do not doubt that you will get multiple term sheets.
Pitching to VCs
How to Raise Money – It’s a Journey Not An Event (LINK)| Steve Blank
Every year I teach classrooms full of students who leave class understanding the basics of searching for product/market fit—and thinking their next goal is to “get funded.”
That’s a mistake. There are two reasons to raise money:
- You have a killer idea that is only partially validated, that you think can get to $50M+ of revenue in 5 years with 80%+ gross margins (if margins are lower, you need a lot more revenue), and you need money to get to product-market fit, or
- You (think) you have product-market fit with real customers and real revenue and need money to grow and expand. Not all startups need outside investment to grow.
What most founders don’t realise is:
- Every stage of a startup requires a different set of metrics and milestones, and founder skills. Knowing these will help a founder position her pitch to get investors’ attention.
- Founders need to keep their eye on the prize — not just the next funding round.
2 Lessons learnt:
- Every stage of a startup requires a different set of metrics and milestones, and founder skills.
- Knowing what investors want at each stage provides founders with guideposts.
- Founders need to keep their eye on the prize, not just the next funding round.
How To Pitch Startup Investors | Distilling Venture Capital
Distilling Venture Capital Podcast: How To Pitch Startup Investors | Luminary (luminarypodcasts.com)
In this episode, we look at advice from Hyde Park Angels and Rog Go of NextView Ventures about how best to pitch your startup to VCs or angel investors. Don’t start with the team or the solution. Start with the problem. Got to be able to show you can solve it uniquely. VCs are looking for outside validation.
Master Your Pitch | Techstars Entrepreneurs Toolkit
Topic 12. Master Your Pitch (LINK)| Techstars Entrepreneurs Toolkit
For all the effort entrepreneurs put in to understand their audience, solve their customer’s problem, and build a compelling business, it seems almost impossible that they would make a terrible pitch. And yet, it happens all the time to most entrepreneurs. The purpose of this video is to give you an overview of how to build and deliver a compelling pitch so you can get a meeting with an investor.
How to pitch to a VC | David Rose | TEDTalk Thinking start
How to pitch to a VC (link)| David Rose | TEDTalk Thinking start
up? David S. Rose’s rapid-fire TED U talk on pitching to a venture capitalist tells you the ten things you need to know about yourself — and prove to a VC — before you fire up your slideshow.
What I Wish I Knew Before Pitching LinkedIn to VCs | Reid Hoffman
What I Wish I Knew Before Pitching LinkedIn to VCs (link)| Reid Hoffman
MYTH: The startup financing process is about one thing — money.
TRUTH: A successful financing process results in a partnership that delivers benefits beyond just money.
MYTH: If your team is strong, show the team slide early in your pitch.
TRUTH: Open your pitch with the investment thesis.
MYTH: All investment pitches have the same structure.
TRUTH: Decide whether your pitch is a data pitch or a concept pitch.
MYTH: Avoid bringing up anything that might paint your business as risky and decrease investors’ confidence.
TRUTH: Identify and steer into your risk factors.
MYTH: Arguing that you have no prospective competitors is a strength.
TRUTH: Acknowledge all types of competition and express your competitive advantage. 3
MYTH: Don’t compare yourself to other companies because you think you’re unique.
TRUTH: Pitch by analogy.
MYTH: Focus on today’s pitch. The future will take care of itself.
TRUTH: Think also about the round after the one you’re currently raising.
The 7 Questions A Startup Should Answer in their Fund Raising Pitch
The 7 Questions A Startup Should Answer in their Fund Raising Pitch | Tom Tunguz
Distilling the investment analysis into a small number of general questions is challenging because of the diversity of businesses we see, but I gave it a try. I came up with the following questions I might ask a startup to answer in an initial meeting.
- [Value prop] What is the problem, and is it worth solving? Why is now the right time to solve it?
- [Team] Does the team have the vision and the wherewithal to build this company?
- [Go to market] What is the competitive angle (competitive barrier to entry and/or go-to-market) that will enable this company to succeed where others have tried and failed?
- [Sales effectiveness & product validation] Who does the startup sell to? Which customers have used the product, and how have they received it? How much is each customer worth?
- [Product distribution] How does the company acquire customers cost-effectively? What are the unit economics (customer acquisition cost, contribution revenue, and churn rates)?
- [Revenue model] Does the company have the revenue model to build a significant (>$100M annual revenue) business with good margins (gross ~ 50 to 60% / net ~15 to 25%) under reasonable assumptions?
- [Market size] Can the market enable or bear a $100M revenue? Alternatively, is this product in a quickly growing market or riding a disruptive wave?
Building the Perfect Pitch | Hyde Park Ventures
Building the Perfect Pitch (link)| Hyde Park Ventures
Your pitch deck is one of the most important sales tools in your arsenal. It isn’t just your means of getting investors to back you, but the actual story of your business. And to succeed, you need to be able to tell a compelling story. But how do you craft a compelling story that hits on all of your most important metrics and stays high-level and succinct enough to keep your audience’s attention?
The Art of the Investor Pitch Deck: How To Make a Presentation That Will get Noticed
The Art of the Investor Pitch Deck: How To Make a Presentation That Will get Noticed (link) | Techstars
In many cases, your pitch deck will be your calling card: It’s what investors will see even before they agree to meet with you. The investors we spoke to tell you what should go in it — and what shouldn’t. Ultimately, preparing a pitch deck is an exercise in communications — you must tell a story that hits all the right notes. Blake Armstrong, Director of Strategic Partnerships for Startup Banking at Silicon Valley Bank, talked to VCs about what they’re looking for.
How To Convince Investors | Paul Graham
How To Convince Investors (link)| Paul Graham
Inexperienced founders make the same mistake when trying to convince investors. They try to convince with their pitch. Most would be better off if they let their startup do the work — if they started by understanding why their startup is worth investing in, then simply explained this well to investors.
The Fund Raising Wisdom That Helped Our Founders Raise $18bn In Follow-On Capital
The Fund Raising Wisdom That Helped Our Founders Raise $18bn In Follow-On Capital
In this article is an inside look at how we run the Pitch Assist program, and what startups everywhere can apply from what we’ve learned, helping create fundraising pitches and processes for over ten years.
Pitch Deck Examples
Pitch Deck Example From Successful Startups (Airbnb, Uber, Facebook) | Caya
Several authors, venture capitalists, startup founders and evangelists have created different versions of what they consider required elements to successful pitching presentations. Most of them agree on the following Pitch deck outline:
- Problem
- Solution
- Product
- Market Size
- Business Model
- Underlying Magic
- Competition
- Better/Different
- Marketing Plan
- Team Slide
- Traction / Milestones
Most Common Mistakes In Pitch Decks
Part 1: Pitch Deck Mistakes | Hustle Fund – Too Long
Part 2: Pitch Deck Mistakes | Hustle Fund – Ineffective problem slide
Part 3: Pitch Deck Mistakes | Hustle Fund – Not standing out from the crowd
Part 4: Pitch Deck Mistakes | Hustle Fund – Not explaining economics and growth potential 5
Part 5: Pitch Deck Mistakes | Hustle Fund – Lack of focus
But for the other 99% of us, pitch decks are a critical step in the fundraising journey.
But for every 100 pitch decks, we review at Hustle Fund, only about 5 of them are invited to pitch our team over a video call.
This got me thinking… what’s happening in those other pitch decks? What changes should those founders make to increase their odds of getting a meeting?
Pitch Design
The Step by Step Process to Create a Killer Pitch Deck For Investors | Neil Patel | neilpatel.com
There are a lot of ways to create your pitch deck. You can use Microsoft PowerPoint or Apple’s Keynote, which are both readily available. Keynote is free on Apple computers. If you’re using an iPad or just want a simple way to create a pitch deck online, Canva is an excellent tool. It has pre-designed templates that you can customise. Your pitch also gets saved to your online account so that you can work on it anywhere.
How to Design a Better Pitch Deck | Kevin Hale | Y-Combinator
If you just communicate your points clearly, you’ll do better than 99% of startups. Because before anyone can remember, they have to understand. Here’s how I make things easy to understand:
- I make it legible.
- I make it simple.
- I make it obvious.
Email Templates
Email is still one of the most effective tools for startup fundraising. The question most have is what to send? This email templates series makes it super easy to leverage this free communication method to raise the money entrepreneurs need to launch and fuel new ventures.
Due Diligence On Potential Investors
Due Diligence on Potential Investors | NextView Blog (link)
One of the often neglected parts of fundraising is the process of doing due diligence on potential investors. Raising money is super hard. But assuming success, a moment will come when a founder will have multiple funding options. Partnering with an investor and/or board member is a very long term commitment, and I’m always surprised by how little diligence founders do before signing up for what could be a 10+ year collaboration.
Finding the Right Investors
For Startup CEOs, Here’s The Best Process to Find Relevant Venture Capital Investors | Jeff Epstein (link)
Investors specialise by Sector, Stage and Geography. Investors are much more likely to invest in something similar to what they’ve done before than to try something completely new. Research which investors have invested in companies similar to yours, then focus on your target investors. Useful resources:
Alternative Method to Raising VC
Product Development – Getting Funded as The Goal
In a traditional product development model, entrepreneurs develop an idea or concept, write a business plan and try to get funding to bring that idea to fruition. The goal of their startup in this stage becomes “getting funded.” Entrepreneurs put together their funding presentation by extracting the key ideas from their business plan, putting them on PowerPoint/Keynote and pitching the company – until they get funded or exhausted.
Given that the traditional pitch has no hard customer metrics (and VC’s don’t demand them,) you get funded based on intangibles that vary from firm to firm: Do you fit the theme or thesis of the venture firm? Did the VC’s like your team? Do they believe you have a big enough vision and market? Did the partner have a good or bad day, etc.? Tons of advice is available on how to pitch, present and market your company.
I believe all this advice is wrong. It’s akin to putting lipstick on a pig. The problem isn’t your pitch; it is your fundamental assumption that you can/should get funded without having real customer and product feedback. No amount of learning how to get a VC meeting or improving your VC demo skills will fix the lack of concrete customer data. You might as well bring your lucky rabbit’s foot to the VC meeting.
Here’s What We Thought, What We Did, What We Learned
Notice that each of the “Lessons Learned” slide has three major subheads and a graph:
- “Here’s What We Thought.”
- “Here’s What We Did.” 7
- “Here’s What Happened.”
- A Progress Graph
Here’s What We Thought is you describing your initial set of hypotheses. Here’s What We Did allows you to talk about building the first-pass of the products minimum feature set. Here’s What Happened is the not so surprising story of why customers didn’t react the way you thought they would. A Progress Graph on the right visually shows how far you’ve come (in whatever units of goodness you’re tracking – revenue, units, users, etc.)
Telling the Customer Discovery and Customer Validation story this way allows you to take VC’s on your journey through all the learning and discovery you’ve done. After three of these slides, smart VC’s will recognise that you have dramatically reduced risk by iterating on your assumptions– on your nickel, not theirs. They will realise that you have built a startup that’s agile, resilient and customer-centric
Where Does Startup Capital Come From In The US
Where Startup Funding Comes From (Infographic) | Entrepreneur (link)
According to data compiled by Fundable, only 0.91 per cent of startups are funded by angel investors, while VCs fund a measly 0.05 per cent. In contrast, 57 per cent of startups are funded by personal loans and credit, while 38 per cent receive funding from family and friends.
Fundraising Strategy
Where Startup Funding Comes From (Infographic) | Entrepreneur (link)
According to data com
How to develop your Fund Raising Strategy | Mark Suster (link)
For those that want the answer without reading a long post — here it is. Fundraising (as is much of life) is a sale — pure and simple. The sooner you understand that, the sooner you can plan your campaign.
piled by Fundable, only 0.91 per cent of startups are funded by angel investors, while VCs fund a measly 0.05 per cent. In contrast, 57 per cent of startups are funded by personal loans and credit, while 38 per cent receive funding from family and friends.
Angel Investing
Top 17 Most Active Angel Investors In the UK | Seedlegals
Here are the angel groups, networks and syndicates that have invested most in London startups across the last two years.
UK Business Angels Association Website
Angel Investment Network Matching entrepreneurs with angel investors.
Friends And Family
Friends and Family Round vs Angel Round | DLA Piper (link)
Many entrepreneurs setting out to found a business believe they should begin by focusing on venture capital. That, however, is a misconception: in reality, venture capital comprises only a small percentage of startup financing. For startups, there are two common sources of early-stage financing.
This article briefly describes the differences between two common sources of early-stage financing for startups.
The Ins and Out Of Raising Funds From Friends And Family | The Entrepreneur (link)
What it is: It is one of the most common forms of startup funding out there. Banks and independent investors might not want to risk money on you. But those who are close to you and believe in you might be willing to take a chance on your fledgeling business.
How To Get Funding From Friends And Family | The Entrepreneur (link)
Most entrepreneurs have learned that it’s almost always quicker and easier to get cash from someone you know rather than angel investors or professional investors (VCs). Most investors “require” that you already have some investment from friends and family before they will even step up to the plate.
You see, investors invest in people before they invest in ideas or products. Since they don’t know you (yet), their first integrity check on you as a person is whether your friends and family believe in you strongly enough to give you seed money for your new idea. If they won’t do it, then why would I, as a stranger invest in you?
Friends and family will likely not expect the same level of sophistication on the business model and financials as a professional investor, but they expect to see certain things.
Internally Generated Funding
Link: Go fund yourself: The power of working capital for start-ups | Greg Dickens (Medium)
For years now, the largest corporations in the world have been looking to extract as much efficiency out of the way they manage their cash so they can use that cash to self-fund new investments.
This is such a massively important source of funding for large companies that there is a vast banking industry that exists to support it that is almost entirely overshadowed by investment banking and trading desks.
But somehow, these cash management strategies are virtually unheard of in start-up circles. All of the talks seems to revolve around venture capital and equity funding. And with this comes a considerable interest in valuations and creating models to calculate them.
Nobody talks about optimising the cash-flow of your start-up. But if you understand this and do get it right, you might not need any outside investment at all.
