The start-up business world can be cut-throat and many entrepreneurs are keen to raise money quickly to build their team and products.
Indeed, 老九品茶Cloud’s daily news output features many details of such capital raises.
However giving equity away in your new business at the crucial early stage may not suit everyone, especially if they have the means to bootstrap the business.
We brought together a panel of entrepreneurs and experts to discuss the right time to take investment.
Should you invest your own money?听
Investment veteran Chris Eccles has never forgotten his first experience of trying to raise money.听
Aged 30 he was trying to take his Liverpool-based business through an MBO.听
鈥淚 remember trying to raise money and one investor said to me 鈥榬ight son, what are you putting in?鈥欌�� he said. 鈥淚t was a lightbulb moment. I raised 拢100,000 personally and听that听 made听me the largest individual shareholder in the business.鈥�听
The business, now called ChargePoint Technology, was backed by US private equity firm听Arcline听Investment Management earlier this year in a deal that signalled an exit for LDC.听听
He said: 鈥淲e were in year four with LDC. We could see all these market opportunities but听in order to听do that we need to make acquisitions of our own. We鈥檙e looking at opportunities in the US and Europe.
“Last year we had a turnover of 拢15m and an EBITDA of 拢7m. Every time we鈥檝e taken investment we鈥檝e grown the business on the back of it.鈥澨�
Think outside the box
Tech entrepreneur Martyn Gould has no regrets about his 鈥榤auling鈥� at the hands of the Dragons on BBC鈥檚 Dragons鈥� Den.听
Gould left empty-handed and was branded 鈥榙elusional鈥� after asking for 拢250,000 for 2.5 per cent of his business听yboo.听
鈥淚t was a deliberate tactic to go on Dragons鈥� Den to get attention. If you鈥檙e an entrepreneur, you鈥檙e brave enough and you鈥檝e put your life savings into a business which we did, why not go on TV and push yourself to the edge of your comfort zone?鈥� he said.听
鈥淭hat TV appearance has done wonders for our new business. Everybody knows us. I pitched for a year to get funding for听yboo听and wore out my shoes. Now I don鈥檛 need to.鈥澨�听
Gould鈥檚 new business is called听rightsignal听and he warned people to do their due diligence before taking investment.听
鈥淲e bootstrapped听yboo听for two years before raising investment,鈥� he said. 鈥淲e raised 拢250k but when the investors asked for their money听back听we had no alternative but to go into administration.鈥�听
Do due diligence on听investors听听
James Bedford is the former head of investment partnerships at Tech Nation and warned people against rushing into taking investment.听
Now the digital cluster development manager at STFC, he said: 鈥淵ou鈥檝e got to think long and hard about taking investment on and what it鈥檚 going to do to your business.听
鈥淎 lot of people start a business because they make terrible听employees听and they need to be their own boss. Do your own due diligence on potential investors. Do you want to be acquired and go on that investment journey?听
鈥淭he worst pitch to any investor is 鈥業鈥檓 running out of money, if you don鈥檛听invest听we鈥檙e going under鈥�. That sounds like you can鈥檛 manage your cash properly.听
鈥淚n terms of your first investment, people are surprised at how much the investors expect you to have done before you raise investment.听
鈥淕et as much done as you can without any investment. The investor wants to see that this person can do X, Y and Z without any investment. Investors want to pour fuel on the听fire听but they want that fire to be going first.鈥�听
Bedford said the process of taking investment can take up to 18 months so do your due diligence before approaching an investor.听
鈥淎 good investor will be used听to听 being听asked these questions,鈥� he said. 鈥淭alk to the other portfolio investment companies about their experiences of taking investment.听
鈥淏e mindful of how much money you give away. I always recommend never giving away more than 20 per cent every time you raise because the investment journey might involve three or four raises before the exit.鈥�听
Exciting products in the pipeline听听
Preston-based tech firm听Redmoor听Health has enjoyed a record-breaking year after demand soared for their services during the pandemic 鈥� and is now being approached by potential investors.听
Founder Marc Schmid said: 鈥淏efore Covid-19 we were based predominately in Lancashire and Staffordshire.听 Now we鈥檙e working across the UK and most of London. The ability to be able to do things remotely has a huge impact.听
鈥淭here鈥檚 a lot of investment going into digital health. We鈥檝e got low overheads and our profitability is between 30-40 per cent. Our challenge is getting into more areas. We鈥檝e had four approaches from interested investors and have some exciting products in the pipeline.”听听
At a crossroads… 听
Paul Woods is the founder and managing director of successful North West-based courier business Proactive Despatch.听听
As the only shareholder he鈥檚 been attracting lots of attention from potential investors.听
鈥淚 bootstrapped my business on day one and I鈥檓 a 100 per cent shareholder,鈥� he said. 鈥淚鈥檝e had four听companies听 reach听out to invest in us recently. We are going to have our best year yet. We听have to听grow because nothing stands still in business.听
鈥淭here鈥檚 a lot of complacency and lethargy in our industry but we鈥檙e passionate about customer service and have a good reputation in the North West.鈥潀听
Learn from your mistakes 听
Amman Ahmed鈥檚 latest business is helping de-stress 42 million cats and dogs.听
He hit on an idea to stream music and videos to calm anxious animals through his businesses Relax My Dog and Relax My Cat.听
However听he said he鈥檚 learned the lessons from his previous music video app business听Rormix, which attracted 拢250,000 in funding before being wound up.听
鈥淚 was in my mid-20s at the time and it was a learning experience,鈥� he said. 鈥淚t was my first time as a CEO. I had limited options for investment and I was rushed into the process.听
鈥淥ur investors wouldn鈥檛 commit to another round until we had other investors. My advice is to try and make money from day one. Your best investors are your customers.鈥�听
Raising investment isn鈥檛 a 鈥�蝉濒补尘-诲耻苍办鈥�听听
Laura Simpson is the co-founder of online interior design company My Bespoke Room and has raised 拢2m in the last five years.听
鈥淲e identified early on if we were going to be听successful听we had to invest in our technology to bring automation and ease of use to the forefront of what we do,鈥� she said.听
鈥淲e got as far as we could by bootstrapping before going for investment. If I could go听back听I wish we鈥檇 consolidated our raises into two larger ones (rather than numerous smaller raises). This may have helped us scale quicker and certainly would have saved us time out the business.听
鈥淲e鈥檝e always gone to angel investors and have around 40 on our cap table. We鈥檝e always been really focused on getting the right investors who can add strategic value along the way. Our investors have been a great help. We haven鈥檛 needed to go down the VC route, yet.鈥�听
The entrepreneur warned that raising investment takes you out of your business for long periods of time. 鈥淲hat you think will be a quick three-six month听slam dunk never is,鈥� she said. 鈥淒o it right and do it well.鈥�听
Investors must be about more than just听money听听听
Chris Reid is the founder and CEO of Lancashire-based Connect Childcare and its software is used by eight of the top 10 nursery groups in the UK.听
He said: 鈥淚 founded the business in 2005 and bootstrapped it until taking the first of three raises in 2011. It鈥檚 quite lonely at the top so I brought in a non-executive chairman in prior to raising funds. By 2017 we were up to 30 staff.听
鈥淥ur most recent raise was with听Mobeus听Equity Partners and landed at the very end of 2020. Any investor wants to see their investment work. If everything is going well their involvement may only be limited to a monthly board meeting.听
鈥淵ou should be able to discuss your issues with your investors and they should be able to help you. Their value should be bigger than the size of their cheque. Make sure the culture of the investor matches your culture.”听听
Ask tough听questions听听听
Jon Davage is head of corporate at law firm听Bermans听and said companies shouldn鈥檛 be afraid of asking testing questions of would-be investors or potential non-exec directors.听
He said: 鈥淲hen it comes to taking investment don鈥檛 give away too much equity unless absolutely necessary. Also choose your lawyer and accountant carefully because they鈥檒l accompany you on the journey.听
鈥淵ou need to be careful which investor you choose. Don鈥檛 be afraid to ask tough questions.听 In relation to NEDs, if you鈥檙e not sure work with them for a few months on a consultancy basis to see how you work together.听
鈥淧rofessionalise yourself as early as possible because it will help when you bring in investors. Have听really good听corporate governance. Act as though you鈥檙e a big company even though you may be a small one.鈥�听
* Glenn Cooper, chairman of St Helens-based Inovus Medical and the founder of bollard manufacturer ATG Access, also took part in the discussion – see below
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