In my last post I wrote about exploring the right time to take the plunge and turn your good idea into a burgeoning start up. Of course the natural next question that I get asked as an adviser to an investor club is: when should I try to raise my first investment?
As mentioned, changes in tax regulations have opened up more risk capital into the UK startup ecosystem. SEIS in particular has seen investment at earlier stages, as there are a number of upsides for the investor and limitations on the total investment. For tech businesses this has meant that the UK investor market is more willing to invest in pre-revenue companies if it fits with their portfolio strategy or area of expertise. My advice to entrepreneurs is to be cautious. Just because money may be accessible doesn't mean that it is good for your business.
There is no hard-fast rule as to when it is time to start fundraising. I have seen companies with only a shadow of a business successfully fund raise and others with a well laid out path falter. In general, I think the following guidelines should apply before you take your business to investor clubs like the S100:
- Can I clearly articulate what I would do with the money and how it would help the business?
- Can I demonstrate there is a market for my business and I have something that differentiates me in this market? (note: this does not have to be technical superiority, even price can be a unique selling point)
- Do I have a product or a clear path to a minimal viable product?
- Do I have the right team to execute or have I identified the gaps I need to fill?
- Do I know how much money I need and how much of my company I would be willing to part with?
- Do I know how many more investment rounds I would require?
Remember, these are just some working guidelines. I would appreciate additional comments or points from members and partners of the club as I am sure there are more that investors are looking at.