This week I had the nice privilege of sitting down with Andy Davis, serial investor and co-founder of 10×10 Capital, a fund that invests in early-stage black founders within the UK. Andy took us by some key questions founders ought to contemplate when fundraising.
How a lot fairness must you give away early on?
There are some things you must know for those who’re a founder concerned in fundraising at the moment. Firstly, how a lot fairness must you give away? For my part you must give away not more than 10-15% of your fairness within the first spherical of funding. After you develop, you may probably give away a bit extra. You want to give away smaller quantities earlier to protect your fairness to have extra afterward.
It places traders off once we see firms as they’re rising, they usually’ve already given away a major quantity of fairness of their enterprise. It makes us imagine that they received’t have sufficient left to be motivated to continue to grow their enterprise long run.
What sort of validation does your organization want?
Validation is tremendous vital, but it surely shouldn’t be quantified by self-importance metrics – for instance the variety of downloads for a cell app. Validation means precise engagement with customers. I don’t wish to hear that you’ve 15,000 downloads and solely 200 customers. I’m not apprehensive in regards to the numbers. I wish to hear about how a lot these 200 customers love your product, and the way they’re spending their time with you. I wish to know who these customers are and the way you’re planning to succeed in extra of them. That’s tremendous wholesome and constructive for you in these early days.
Should you’re a B2B firm, validation must be a pipeline of pilot clients or precise signed and paying clients. Having individuals simply on a waitlist, who could also be is simply not sufficient these days as a result of the world is so aggressive and it’s comparatively simple to launch merchandise, particularly with no-code instruments and numerous issues you need to use to validate your merchandise.
So, for validation, for those who’re B2C, you wish to have engaged customers, whatever the state of the product. Should you’re B2B, you wish to have some paid pilots ideally.
What questions must you ask a possible investor?
If you speak to an investor, you wish to ask what stage they put money into sometimes. Pre-seed? Seed? Pre-product? Pre-revenue? Discover out the place they’re snug. You want to ask them how a lot they often make investments, how a lot they invested in the previous couple of firms. You wish to perceive what their timeframe is to make a brand new funding. In the event that they see you at the moment, do they want just a few extra conferences with you? Do they like to speculate over a three-month timeline or are they completely happy to decide in a day or per week?
Additionally ask them what they anticipate as a return. That’s a crucial piece, particularly for those who’re speaking to a fund. The fund might love you and obsess over the issue you might be fixing, but when they see how your resolution will work economically and allow them to see the sorts of return they want then they will be unable to do the deal. Asking potential traders what sort of return they anticipate will let you know whether or not or not the deal is viable.
The way to make the best introduction to an investor
Everybody says you want a heat introduction and that you must by no means name somebody chilly, however that’s not precisely true. There are some actually good methods to chilly DM or chilly electronic mail potential traders. If I open an electronic mail and it seems to be like a ebook, I’m going to “come again to it later”. Who is aware of when “later” is? You wish to make your electronic mail tremendous succinct. It must be clear and I ought to have the ability to learn it on my cell phone, with out scrolling. It ought to have a hyperlink or an attachment to your deck. Hold it easy: one line about what the enterprise does, how a lot you’re elevating and when you have any cash dedicated. Then put in three to 5 highlights in regards to the enterprise and one of the simplest ways to contact you. Good and easy. Belief me, that’s the e-mail to ship.
The identical factor with DMs. Should you’re DMing somebody, additionally maintain it tremendous succinct and take up perhaps half a cell phone display. Inform them what what you are promoting does in two and a half traces with a hyperlink to your website and a hyperlink to your deck. Even be very particular about what you want. Inform them, “I would like half an hour with you to debate A, B, and C.”
Chilly emails and DMs can work, you simply should know the right way to leverage them.
For extra ideas and recommendation on fundraising and constructing a profitable startup, join Microsoft for Startups Founder Hub at the moment.