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Techleap.nl Updates

Rise insider #2 - A match made in heaven: the ups and downs of raising capital

Techleap.nl

Wednesday, October 7, 2020

Through the series of "Rise Insider" articles, we share learnings from the #TechleapRise sessions where the Netherlands' leading scaleup experts share great insights to the most promising Dutch scaleups. A must-read!

This second piece of the Rise Insider series is gathering the most valuable insights from the session dedicated to Capital topics. The 11 founders from Batch #2, edition “Flattening the climate curve” could ask all their burning questions and get great tips & tricks from our scale icon Chris Hall (Founder at Bynder), scale coach Jan-Willem de Groot (Director at Oaklins) and Maurice van Tilburg (Capital director at Techleap.nl).

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Introduction

For most entrepreneurs, your business journey is likely to include at least one round of fundraising. What that looks like depends completely on your own model, the sector you’re working within and the geographical market you want to target. Finding the right investor holds the potential to catapult your business forward, giving you the resources and expertise required to take you to a whole new level. With that being said, taking the time to weigh up your options and ensuring whoever you’re partnering with is a good match, is far more important than any amount of money.

1. Taking the plunge

Going into any pitch, being prepared seems like a relatively basic bit of advice - but it’s imperative that your presentation is polished, in-depth and covers absolutely everything that any investor will want to know before committing to your business.

That starts with fully understanding who it is you’re pitching to; research what they’ve invested in previously and how much they’re usually willing to put in. Ideally, you want to be speaking to people who already have experience in your sector, as they’ll generally be more willing to take a risk on you. Anyone thinking about investing will want to see solid financials and a clear plan that factors in potential setbacks. They’ll also need to see credibility in your case, in terms of both the work you’ve done so far and the opportunities you are laying out for the future.

That doesn’t mean you can’t be ambitious. There’s no use in underselling what it is you’ll actually need as this will only cause setbacks in your growth plans, causing frustrations for all parties involved in the relationship.

4 Capital top tips

✔️Before meeting an investor, prepare well for questions, get your numbers in order and be ready to back up your story with the hard evidence.

✔️Look at where VC’s are invested in the past, e.g. which exits did they do, and you will get a better idea of their focus and if they will be a good fit for you and your company.

✔️Remember at the negotiation table – it is better to get the right investor than the best deal.

✔️Most importantly be cautious - go in knowing who and what you’re looking for, as they’re going to be a huge part of how you run your business on a daily basis.

Maurice van Tilburg, Capital director @Techleap.nl

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2. This is a marriage. Marriages aren’t always simple.

This is a big commitment, so making sure you get the right person on board will go a long way in alleviating any issues further down the line. Getting an investor who is a better cultural fit but perhaps offers a little less capital to start, is far more important than getting the extra capital but encountering issues with the person six months down the line.

Having thick skin is also going to be essential throughout. Any professional investor is going to grill you, they need to be sure they’re getting a return so don’t take it personally - rather see it as an opportunity to grow and learn as an entrepreneur. Be clear and transparent with any other investors that may be involved. It’s essential that everyone is kept in the loop and has the latest information.

Again this will go a long way in avoiding any nasty surprises later in the process.
Just because someone chooses not to invest the first time, keep in touch with them about future opportunities. Things move fast, particularly in the tech world, so having these strong relationships could save valuable time in the future.

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3. Think like an investor

Ultimately an investor’s main goal is to make money. That means you must make it clear how you’re going to do that for them. Understanding how your services translate to revenue is vital, for example; a subscription fee is a more reliable revenue stream than Research and Development, so this could affect how much capital they’re willing to part with.

Equally as important is offering realistic predictions on when they’ll begin to see ROI. This often requires stepping out of your role as the CEO and looking at things more subjectively. The emotional attachment you have to your business can get in the way when it comes to these financial conversations. 

An investor needs to believe in your story while also seeing that clear and predictable revenue stream. Do everything you can to show them you understand your market better than anyone else around you - and more importantly, show them exactly how your business is going to fit into that market and prosper in the long-term.

It’s also worth thinking about potential exit strategies. Again, being realistic with whatever this looks like can play a massive part in the level of capital an investor is willing to put in. Even if your vision looks different to theirs initially, they’ll be glad to see you’ve put that long-term planning in place.

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4. Risks. Hard times. Good times

Striking that fine balance between optimism and realism can be difficult, but can be the difference in your business’ success. Be ambitious with your forecasts but ensure they’re driven by concrete and achievable figures. Overvaluing your company and falling short will be far more painful than undervaluing and over-delivering. 

The life of an entrepreneur can be wildly rewarding, it can also be incredibly lonely at times. You must be prepared to be cut-throat and accept that along the way, you’re likely going to have to let people go who you consider friends. Separating the personal from the professional is something which any successful leader must be willing to do. 

Making tough business decisions is never going to be pleasant but they’re unavoidable. Any investor will need to see you’re capable of taking on that responsibility in order to protect your business, and ultimately, the resources they’ve provided. 

Aligning the views of investors and leadership teams can be another tricky hurdle, so be sure to dedicate enough time when it comes to managing the expectations of both sides. These conversations should be extensive and regular as to avoid any miscommunications. 

Seeking investment is a massive decision for any entrepreneur, one that can completely reshape your business journey. Doing the legwork before you go into your fundraising round is vital in not only ensuring you get the resources you need but that it’s also coming from the best place. 

Funding news 💸

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