We were delighted to welcome back Bill Morrow to our most recent Founders’ Forum to talk about investment readiness. As the Founder of Angels Den, Bill is a well-known and hugely respected member of the investment community and his insights are always valuable.
The Founder participants were an interesting mix. Some with multiple businesses under their belt, others on their first. Some early on their journey with Founder + Lightning, just completing discovery, others well-established in the market. All were united by one thing: the ongoing (and near-constant) need to raise capital.
The conversation started by chatting about the importance of the Founder themselves. The obvious conclusions were reached – namely that having started several businesses is better than none and more experience is better than less – but the main point is that the investor needs to buy into the Founder, their passion and drive, and the progress made so far. Relevant experience and domain expertise are irrelevant if the young business cannot demonstrate sales traction, hasn’t built high barriers to entry and lacks a Founder with “the right stuff”.
We moved on into preparation for investment, namely - why are you raising, what are you looking for, when and how much? Bill was very clear that Founders need a high level of self-awareness, especially on their weak spots, and may consider bringing in investors with the know-how they lack. Smart investors and smart money should want to help. One interesting observation from Bill was that the one “why” answer that they seldom hear, but should, is “because I want to be in business in 5 years’ time”. Too many Founders focus on the short-term – “I’m raising to build an MVP and take it to market in 4 months’ time” – rather than aiming to build a sustainable and successful business.
Timing is always a challenge but, at a minimum, you should be raising three months before you need it (regardless of where you are in the funding cycle). Investors will want to see that you have committed your own capital to the business, have some risk and exposure, and always like it if you have convinced friends and family to invest. After all, if the people who know you and trust you the most won’t back you and your idea, why should anybody else?
It’s essential that you are clear not just why you’re raising and how much, but also what you’re going to do with it at a granular, month-by-month, level. So from a starting point of now, month zero, you’ll spend X per month on product development, Y per month on go-to-market, and Z per month on administrative miscellany, and in doing so you’ll add ABC functionality, win XX new clients and generate £XX,000 in revenue.
Bill had a great quote on the importance of having clarity on the figures for investors:
“The numbers are the only common link you’ve got.”
In other words, investors don’t have intimate knowledge of your business, they’re not experts in your industry, and they don’t know how your product works. But numbers are the lingua franca that bridges the gap between you to reach a shared understanding of plans and performance.
We moved on to talking about materials, pitch decks and the like. Again, there were some clear messages: “it’s not a business plan, it’s a product brochure”. Your investor slides need to be different to your “about us” materials. You need to have stuff like the problem, the solution, market sizing, financials, etc, in the raise deck that you probably wouldn’t put in your customer presentation.
Brevity and punchiness are essential here too. You don’t necessarily need an executive summary – though if you’re dealing with people like Bill that have dozens of pitch decks coming across their desks daily – it’s usually a good idea to have a quick one-page attention-grabber so they want to read on. Bill borrowed from Einstein:
“If you can’t explain it simply, you simply don’t understand it.”
Never assume that the investor is an expert in your field. Most investors, especially angels, are generalists. Even if they have a focus on technology, they’re still not a specialist in any area. If you can’t explain what you’re doing in a maximum of 15 slides, you’re making it too complicated.
One of my personal golden rules on this topic is “don’t make me do any work”. I don’t want to have to fire up Google to decipher your jargon and I’m certainly not wanting to burn a lot of mental energy working out why you exist, let alone what you want to do for a living. Your storytelling needs to be clear and simple, and leave the audience wanting to learn more. A teaser deck is called a teaser for a reason.
As a final thought, to repeat and emphasise what I said earlier, the storytelling can’t just involve your purpose and the macro-level trends, market and customer needs. You need to outline three things:
- Traction: how have you performed from a sales, user onboarding and revenue perspective.
- Barriers to entry: where do you have IP, sustainable differentiation and a competitive edge.
- Founder(s): what’s your story (and that of your team if you have one) and how does that makes you backable.
As is always the case when we have the privilege of spending two hours in Bill’s company, there are far too many anecdotes and pearls of wisdom than we can capture in a short blog. But I hope this is useful and don’t hesitate to get in touch if you’d like to know more about how we can help with investment readiness and raising, or if you’d like to join us for a future funding-related event.