Giant Warm Intro Early-Stage Startup Funding
Cracking the Capital Code: Insights from The Giant Warm Intro
One of the most vital things a startup needs to do is to raise capital. After figuring out what kind of money you need and how much is required to run your business at a certain stage, you have to look for someone who will fund you. But where does one look for an investor?
Investors can be found almost anywhere–through friends or colleagues, online, networking events, or actual introductions. One opportunity is The Giant Warm Intro! An initiative by Rampersand, The Giant Warm Intro matches early-stage startups with active investors from Australia and New Zealand's leading funds, angels, and accelerators. The event is open to all founders, but it especially welcomes women and underrepresented groups.
About the Speakers
- Moderator: Sarah Gibbins, Head of Experience at Rampersand
Jason Atkins, Co-founder of Cake Equity
Lauren Capelin, Venture Capital BD at AWS Startups
Cheryl Mack, CEO of Aussie Angels
Sarah Agboola, Founder and CEO of m-Time Pty Ltd
No cap! I need to know what kind of capital I need
There are different ways to get capital to help you grow your business. But first, you have to figure out what you need that funding for. Knowing what you’ll use the capital for gives you an idea of how much you need and later on provides information to investors on exactly where their money is going. Capelin begs the question, "What can we do for as little as possible?"
The idea is that in your company’s first few months, you need to spend as little as you can in order to build your business. These days, the cost of building a startup has significantly decreased that you can do so much for less. She continues,
Once you feel like you have proven this assumption, there is a process where you need to figure out where to pour fuel on the fire… You need to be testing each thing individually and figuring out where you're going to get that exponential growth.
Some founders survive on bootstrapping. Others look strongly to their customers to self capitalize and get revenue. While there are those that may need accelerators, grants, or lines of credit. Each type of funding comes with obligations, so always practice due diligence and research!
Stay as non-dilutive as possible in these early stages of your company. Once you’ve reached enough growth and are in need of more funding, consider angel investors, venture capitalists, or equity funding. These types of capitals mean signing up for a longer trajectory and exponential growth. Before entering into these long term agreements, be clear and decisive of the journey you want to partake.
It’s good to remember though that more funding doesn’t necessarily mean a successful business. Capelin advises,
Money does not make your business grow faster. The reality is the things you do to your business make it grow faster.
Time to raise the capital roof!
There’s a difference between raising capital during pre-seed stage and seed stage. Atkins explains,
Traction is probably the big differentiator between pre-seed and seed. You're talking real sales, real revenue, real sales data that people are actually showing that they use it [the product], engage, stay, and have customer love. That's probably the big differentiator.
The funds gathered during pre-seed should be used to build your minimum viable product (MVP). This helps you get your first paying customers and validates demand (this excludes hardware and deep tech). So how do you get started in raising capital during this stage? Atkins lists down six categories that hope to guide founders during this stage:
The same framework can be used during the seed stage but scaled up and revised. Atkins continues to advise, "You want to be as strong on each of these six things as you possibly can when you raise your pre-seed because then you can get a better value."
To continue helping founders build their startups, Atkins has made a capital-raising toolkit available online. You can access the toolkit here!
Cozying up at The Giant Warm Intro
After bootstrapping for four years, Agboola needed help ASAP. After participating at The Giant Warm Intro, she began looking for an investor, targeting angels, and venture capitalists. She stalked investors on LinkedIn and engaged in one on one talks with them, understanding their focus and interests. After getting in touch with them, she eventually found success! She says,
My hit rate went really, really high. The first half of my raise was going uphill, but the second half was like absolutely pushing the boulder down and it became…significantly easier than the first half of what I was doing. I probably ended up emailing about 20 people and almost everyone got back to me even if it was to say no just because it was quite personal.
Agboola also got involved in investor programs and leveraged her existing networks. Making use of these resources allowed her to continue meeting different investors and pitching to them, eventually perfecting her pitch and finding the people she wanted on board.
Another thing that helped Agboola during her raise was making an FAQ list that she constantly updated and shared with investors. This showed both an understanding of the product and a high level of attention to detail that investors appreciated. She adds, "A lot of them came in with the view that if you're thinking this seriously and you're so organized with your raise, I'm going to make that stab that you're probably this organized with your business as well."
What to look for in a founder?
A partnership goes two ways, and for investors such as Mack, they go through their own lengths to find the business they want to invest in. As an investor and CEO of Aussie Angels, an angel investment network that democratizes angel investing in Australia and New Zealand, she looks at two things in an investment opportunity: the founder/s and market size. She explains,
We look at the founders' backgrounds, their experiences, their skills, how they work together, how long have they known each other, are they a good fit for this market. Are they chasing something that they're super passionate about? Are they doing this work? There's a number of factors that I look at on the founder's side, some of which are more art than science and hard to articulate. And the other one is market size–I look for a really big market. Does it have to be global? No, it doesn't have to be global, but I am looking for a large market opportunity most often that ends up being global.
However, she is also quick to note that not all investors are the same. Some look for more, some look for less, while others look for something completely different. It’s all a matter of knowing what each party wants to get what they both need.
I think a nice trick to have up your sleeve when you're raising is understanding what drives the investor who you're pitching to. [As a venture capital fund], people invest their money on us and we promise to make really good returns for them. It’s understanding what we look at, what the limitations around that might be, and understanding that the ‘no’ is not personal.
The race to raise
"Time kills all deals," says Mack. She explains investors can be irrational and emotional people. Using that bit of knowledge with the concept of striking whilst the iron is hot produces FOMO (fear of missing out) and urgency. "If they're ready to write money, let them give you money. Don't make them wait because the longer they wait and the longer time you give them, the longer time they have to get to it."
She also adds that it helps to leverage on the ego investors have, "We've all got egos and we all think the world of ourselves, and I'll be honest about it, I like to be told that I'm valuable. Investors are still human."
Capelin echoes something similar,
Maintain some sense of the deal momentum. The worst thing that a founder can do is actually let the air out of the tires and just drag the process along. I'm always trying to keep founders’ interests at heart, but I've even been in processes where the founders really let themselves down because the weeks drag on and suddenly I'm not excited anymore.
For Atkins, a top tip is to invest in building relationships, particularly with lead investors. He says, "For me, the biggest weakness I see with people capital raising is they don't know enough investors, they haven't spent enough time investing in their relationships, and they just aren't aware how important the lead investor is. The first person that says you're going to have 50 or 100 grand, they're putting a huge amount of trust in you, they're staking their reputation on you."
Agboola doubles down with the same sentiment, "Putting in that time to qualify potential investors is one of the most important things–really figuring out what it is about them that makes them the right investor for you… Will they actually add value? Will they understand your vision? Putting in all that energy to do that will save you a lot of time because it'll just make your meetings more effective."
Atkins’ last tip is to always ask, "You have to actually ask them [investors], will you give me money? Are you investing right now? Do you want me to pitch to you? You must ask these questions and it's really hard because sometimes you don't want the answer and you're so scared about being told ‘no’… If you've never done that before…ask those questions and start qualifying your investors."
Agboola also advises to not take things personally and give yourself some TLC. She says,
Try and detach yourself from the outcome of the raise. I think making some space throughout the raise process to make sure you're taking care of yourself and your mental health is really important because it is an extremely difficult thing to do. Creating that space, trying not to bank everything in your life on the raise, and making sure you've got good people around you.
Capelin’s parting tips lean more towards raising, "Is there any other way I could achieve this outcome or achieve this growth without just pulling money into the bank? What are the cheaper, faster, leaner ways to test my assumptions here? Because borrowing money to test assumptions is not a good idea. Test and draw on other resources. You can get things for free if you have to!"
She also says to look for strategic investors that can add value beyond the money that they’re providing, "The value of a pre-seed round of some very strategic and well connected super connector angel/investor types can be an incredible thing for your business and it may be the last round you ever need to raise. If you can think about that small capital injection upfront as being the amplification of what you're trying to do and you're drawing on other strengths of theirs besides the capital, the capital is their incentive to help your business succeed. So that's the best kind of money I think you can take."
There’s no cookie cutter way of raising capital and finding an investor. Understanding yourself and your company and figuring out your needs are powerful tools that will not only get you noticed by investors, but will eventually help your company thrive!