Capital Raising: How I raised over $1m in funding for my startup Recomazing
Recomazing is Australia's largest shared knowledge bank of recommended tools and services for startup growth. Members of the Recomazing community get access to weekly recommendations on solving common startup problems from the likes of Canva, Atlassian, Airtasker, zipMoney, DropBox, Hubspot, Slack and more. In this article, we've included the Recomazing profile links for Marc's recommended tools and resources. Feel free to visit the profiles to see tips and insights from other leading entrepreneurs.
When I first quit my job to start Recomazing I had absolutely no idea about the world of capital raising. I found the entire process incredibly overwhelming. Around every corner lingered a new term I had never heard of before...'Term Sheets', 'Pre-Money Value', 'Equity Splits', 'Series A'… it was like learning a new language
To make matters worse, I found the info online to be conflicting and rarely would I find anything from the entrepreneur's point of view. As a solo founder, I was already working 20 hours a day getting my business off the ground, so the thought of trying to piece together hundreds of separate articles to paint a full picture was utterly exhausting
Two and half years on and I’m happy to say Recomazing has completed two successful (read gruelling) rounds of funding and I've basically made every mistake you could possibly make. I've pitched 100+ times, received helpful advice from leading investors in the industry, spent countless hours researching online and attended numerous seminars
This guide is an attempt to condense all my learnings in one place so any wide-eyed founder reading this will start from a better point than I did. To be as helpful as possible I will share my recommendations for all the tools and resources that helped me navigate through 2 successful rounds of funding
I've organised my reco lists into the 3 most important segments of my journey:
● The Approach
● The Pitch
● The Money
The first rule of startups is NEVER RAISE CAPITAL! Instead, go back, interrogate your business model and try to work out a way to create a case where you don't need to raise capital.
You should strive to get to a position where if investment is needed it is only to SCALE your established business, not CREATE your business (just ask the founders of Atlassian, Australia's most successful startup, who never needed a dollar of investor money until they wanted to scale).
Not every startup needs to raise capital, nor should they. Take it from someone who is stupid enough to have gone through this process multiple times; there is no greater distraction to your business than raising capital
However, if you do need to go down the path of raising capital, here are some tips.
How do I get an investor to invest in my startup?
Think of it like it is your own money. If someone comes up to you and says "hey, I’ve got a good idea but I need 100k from you" you're going to have some pretty serious concerns about the risk involved. What would it take to convince you to invest? No doubt, it would require a hell of a lot more than just an idea on a swish looking presentation.
Here are my top recos for connecting with investors and making a great first impression (so you’ll get a chance to make a second).
Recomazing Score Card
Investors will look to minimise their risk. The less risk, the more likely they will invest. I’ve created a graphic outlining some of the most common 'scorecard' factors discussed in my pitch meetings.
A warm referral beats a cold intro every day of the week! The investor will be more open to hearing your pitch if you come with a warm intro.
Always write a suggested intro email for whoever is referring you. It makes everyone's lives easier and no-one should be able to sell it better than you. Pitching Hacks is a great resource to check out if you want to dig into the detail of how to structure your emails. I found out about Pitching hacks by checking out Will Davies’, founder of Car Next Door, profile on Recomazing. Will has raised millions so I jump on any reco he has to offer.
Before you start identifying which investors are right for you, you'll need a place to store all the info. Put down that excel sheet and download Streak. Streak is a FREE CRM tool that lives right within your Gmail account. The templates are perfect for keeping track of your investor details and comms.
LinkedIn is the ultimate tool for professional stalking. Find someone that knows your lead and get an intro. If you don’t know them stalk them. Look at what events they are going to, go to the next one. Comment on their posts and build your online reputation. Make sure you get your profile looking schmick before you outreach.
A lot of the top investors regularly speak at meet ups and seminars so it really isn't hard to introduce yourself. Download meetups and type in 'startups' - there's a stack of events to attend. Remember, an investor's job is to find startups worth investing in so don't feel bad about sharing your elevator pitch.
P.S. I met my first investor by bailing him up after he spoke on an angel investment panel at a Meetup seminar. He has been our ‘fairy god father’ ever since (Hi David!)…so get out there to some meetups and hustle.
What should I say when first reaching out?
I always found it helpful to have 3 key items sorted before reaching out to investors:
1. Your one sentence pitch.
2. Your elevator pitch.
3. Your pitch presentation.
Your one sentence pitch
This is your ‘sound bite’ that should immediately convey the essence of your startup and commonly (but not necessarily) references a well known business model (eg Recomazing is the 'Trip Advisor' for the best tools & services to run a business.)
I actually hate using this sound bite as I view Recomazing as so much more than a review site with a real sense of community, collaboration and curation...but that's not the point of the soundbite.
I came to realise that the point of the one sentence sound bite is to give your investor an immediate grasp of your model (and the strengths/weaknesses you may be incurring). It's an entry point to then talk about the rest.
The truth is a lot of startups just apply a well known model to a different industry. It's the reason you hear so many startups refer to themselves as the "Uber for XYZ". It keeps things simple.
Your elevator pitch
This needs to be a bit longer than your sound bite and provides a bit more insight into your secret sauce eg.
Recomazing helps entrepreneurs discover the best tools and services to grow their business.
We believe in the 3 C's:
Community: Our members help each other by contributing to the shared knowledge bank of trusted recommendations.
Collaboration: We partner with leading business communities to foster greater collaboration between members (eg coworking spaces, accelerators, online networks etc).
Curation: We source expertise from leading tech entrepreneurs who want to 'give back' and help our members grow (eg Atlassian, Dropbox, AirTasker etc).
Your pitch deck
Typically, investors will request your pitch be 10-12 slides with time for Q&A at the end. I always found there were similar questions at the end so I prepared those slides in advance and put them in the appendix in case they were asked.
Here's a little infographic to demonstrate the basics on what to include. After your first pitch you should get a sense of how to adapt it and where you need to potentially add more detail but this is a great base to start from.
If you are constantly getting asked questions to clarify your slides it's a sign your pitch isn't clear and needs updating.
If you find you are getting asked more detailed questions than what is expected from your 10 slides, that's typically a good sign.
If you leave a pitch feeling like the investors just aren't understanding how awesome your idea is then try to avoid shifting blame to them, instead you need to ask yourself why they aren't getting it:
● Are your slides clear enough?
● Are you not encapsulating the vision well enough?
● Are you getting stuck in the detail instead of focusing on the core premise
Startup Pitch Decks gives you a view on how some of the world's top startups initially pitched their businesses (including Airbnb, Intercom, Buffer etc)
Pitchbot is a great tool I wish I had before starting my raising process. It's a bot that asks you common questions from pitch meetings - give it a crack!]
It’s exciting when you get to this stage, but, for a first time founder, this can be the most confusing and harrowing bit of the entire process. Here are some fantastic tools, resources and partners that helped me to demystify the investment process and more efficiently work my way through terms sheets and agreements. AND, this guide would not be complete without including recos for my investors in each phase. I wouldn’t be writing this without them :)
I found a great infographic on Fundersandfounders.com that was really helpful when trying to wrap my head around the investment and valuation process.
You can view the open source seed financial docs released by Avcal here to get an idea of the terms you can expect to see in a term sheet. A number of major VC firms have pledged to use these templates.
Airtree have released a 'plain english' term sheet which is available here.
Our friends and valued partners at Muru-D just implemented SAFE (Simple Agreement for Future Equity) docs after they were created by the world's leading accelerator, Y Combinator. It's a great move for our ecosystem. To see how the terms differ you can view the details of a SAFE doc here.
My experience with Monash Private Capital for our seed round was great. A lot of investors say they ‘invest in people’ above all else but personally I found that revenue often gets a higher priority over people (which is understandable). I found Monash truly believe in investing in people (although those people need to have a very good commercialisation strategy in place).
Our Innovation Fund is the VC fund that led our second round. I speak to a lot of founders who aren’t happy to recommend their investment team but I can gladly say that’s not the case with us. We love working with the OIF team, they’ve always helped in any way they can.
Investible have been very helpful in introducing us to their networks and setting up key partnerships.
Get insights from the Y Combinator Blog, the #1 accelerator in the world. This blog is full of startup wisdom. I wish I discovered it earlier in my startup journey.
And there you have it, everything I wish I knew when I started out. I hope this has helped demystify the space and give you some immediate shortcuts on your own cap raising journey!
We hope you found this content helpful. If you’ve had a good experience with BizSpark, we’d love for you to share your 'reco' with the rest of the startup community on our profile.