I had a great week. I met 7 startups I hadn’t seen before and caught up with four more. I heard from some great entrepreneurs. I saw some excellent ideas. I enjoyed real fun conversations. I also visited a new co-working space in Glasgow which was fantastic. You can see a picture of the Govan Workspace above. Congrats to Mike Hayes (@_MDHayes) and the team for setting it up. Most startups I meet are looking for funding or aiming for the next stage of growth. Every founder I saw had some kind of plan or pitch to share.
The details of the plan vary with the maturity of the business. There is no fixed rule but investors expectations also change as your business grows. I have set out below my quick reckoner for the key points at each stage. Before that, I thought you might enjoy the product from one of the businesses I met this week.
This link will take you to a living infographic from Stipso (@stipso). Stipso is an Edinburgh based company. They are aiming to transform the way data gathering works for marketing. They do this with a new kind of infographics. User engagement jumps when Stipso goes live in the real world. My thanks to Brian Corcoran and Steven Drost for letting me share one with you. The infographic does not show in some browsers (may fault) so click the button underneath of the screen below is blank. Enjoy.
The 7 Ages
"And one man in his time plays many parts,
Napkin - First scribble your idea on the back of a napkin. The only person you need to convince is yourself. If I meet you at this stage, I will try to show you the risk and dangers of becoming an entrepreneur. Building a start up is hard so it is not for everyone.
Accelerator - If you like your idea the next step is to start building something. You may choose to apply to an accelerator or a similar startup support programme. The biggest criteria for entry is the quality of the team. the only other thing that matters being different. Your idea or your company need to stand out from the crowd.
Development - An accelerator (or just a few months hard work) will get you an early product. Maybe your first customers. Continuing development is likely to need funds. Now its time for seed funding, maybe through angel investors. You might be asked for quite a lot of detail at this stage. I am only looking for three things: a great team; some evidence of market traction; and a clear description of the business model.
Follow on - Seed funding arrives after intense scrutiny by investors. Often accompanied by much stress for entrepreneurs. The investment basis is an over optimistic business plan. Soon you need follow on money. The main source will be the original seed investors. No-one wants you to fail at this stage. I need to see the same things with one extra. Some evidence of execution. Mistakes and over optimistic assumptions are fine. But I want to know you have used the money in a focused way. You have made real progress and you have learned from the things you have done.
Growth - You establish product/ market fit. Then you build a repeatable, predictable growth engine. You are ready for growth. It is time for Series A (and B and so on). VCs and strategic investors get involved. Your numbers come under much closer scrutiny. Detailed market analysis and revenue forecasts supported by full financial projections are the order of the day. Team and traction are still essential. I also want to know precisely how you will spend the money and the results you expect to produce. Most of the cash should be on sales and marketing through proven channels.
Scale - Deliver results from VC investment and you will be ready for an exit. This either an IPO or a sale to a strategic investor. In turn, a sale could be to a trade player or an investment fund. Information requirements are set by Regulations and industry practice. This is also the first point where valuation counts for me. I now have enough information. I can determine whether the price will yield an acceptable return on investment.
Its not all plain sailing
Fund raising is an unpredictable process and issues can arise for lots of reasons. It is worth highlighting three common sources of tension:
Corporate Planning - Even if your company is the next Microsoft or Google you will not escape. I admit that if you turn out to be Bill Gates or Larry Page you will be reviewing the plans. Not writing them. For normal mortals the corporate world means quarterly and annual planning cycles. As an investor I have no interest in this aspect of the rat race. As an advisor, I would say remember it is still a pitch. The corporate planning cycle is a way of allocating shareholder resources. Deciding which investments in people, assets, product or markets offer the best return.
Which of the 7 Ages is your business? Let me know if you need any help or ideas.
Kenny Fraser is the Director of Sunstone Communication and a personal investor in startups.