.. to Maximise its Potential and your own Return
At a recent meeting with more than ten Entrepreneurs from the Technology sector, all of whom had started, scaled, failed or exited their companies, the question was posed
“What were your key tips to other Entrepreneurs on Funding”,
their comments inspired me to summarize them into the top 9 tips for funding your company to maximise its potential and the potential outcome for you and the team that founded the company:
- Get Advice from People who have been there and done that: The CEO’s had more negative experiences than positive around their funding journey and all said “if they knew then what they know now” they would have been more successful as a company and received more value for themselves after all their hard work. Their professional advisers did not help them much because they did not know the tricks of the trade and give them the inside track on what they should do.
- Paid More Attention to the Funding Strategy: As an entrepreneur we were always focused on the product / service and sales but not as focused on the strategy for funding, we now know that funding is a key pillar for accelerating the growth of a business. If we had been more strategic we would have been much more successful, it became our Achilles Heal over time.
- Avoid Friends and Family: Many of us take on funding from friends and family in the early days of starting a company mainly because there is nowhere else to go. But most companies start with one idea and end up in a very different place over time as you figure out your growth strategy. These can be very difficult conversations with friends and family when you need to go back and say we got that wrong.
- Timing of Large Scale Funding is Critical: Getting the timing right is a key component for maximising your own position as founders, if you go too early you will give away too much value to the funders. This can make things more difficult in the early days while you prove out your business model and sign customers but you will be in a much stronger position to negotiate a good deal for yourself if you can hold off longer before bringing in equity type funding.
- Find out about the Different Options that are Available: All of the entrepreneurs in the room said that they were making it up as they went along and learning about different types of funding as and when they presented themselves. If they had known about the different options and how they worked they would have used a very different funding strategy and had much more control, less cost and a better outcome. So find out about the different funding options from VC, to Private Equity, Bonds, IPO, Customer Funding etc.
- Get the Right Advice from Professional Advisers: If you are not an informed buyer of different funding options and you need professional advice to understand or negotiate terms, you will spend a significant amount of additional money on professional fees, money that you don’t have at a point when you are bringing in additional funding.
- Know your Value Drivers: These entrepreneurs commented that they did not understand the key value drivers until much later in the process of bringing in new funding or when exiting. If they had known these drivers they would have focused the business more on delivering these key drivers to maximise the value of their business. For example moving the business from services to SaaS or from once off fees to managed service fees etc.
- Practice your Pitch and make it Compelling: Entrepreneurs will say that they did not understand the difference between an Equity Pitch and a Sales Pitch, the equity pitch being the ability to get investors or buyers excited about buying in to your business (ie buying equity) as opposed to buying your product or service. This involves understanding key drivers of value such as your Annual Compound Growth Rate, your EBITDA, Cost of Acquisition versus Annuity Revenues giving Whole Life Value etc.
- Understand you Funding Journey: Different forms of funding are appropriate and suited to different stages of your companies evolution. Getting these wrong will mean paying too much, curtailing your growth, giving up too much control too early etc. If you understand the appropriate funding type at the right stage of growth you can maximise the benefits of that type of funding. So for example if large scale growth on a global scale is possible through acquisitions of other companies maybe you are ready to do an IPO but what does that look like and how do you do it?
Brendan Dowling is the Programme Director for ISA Software Skillnet Zenith CEO Programme , developed and run by IMI. He is an executive coach, author and serial entrepreneur in the telecoms and technology sectors, having built a number of successful internationally-traded companies.
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