We can learn a lot from startups. Nimble and without long established hierarchies that can strangle innovation, startups move quickly to take advantage of new opportunities.
In this six-part series, Report on Small Business talks with Canadian startup founders and leaders to learn how they think about their businesses. The lessons are of interest to established small businesses, large companies, non-profits and government departments, as well as other startups. In this article, the founders talk about their approach to raising money.
Jeff Booth, president and CEO of BuildDirect, an online seller of home renovation materials
If you’re passionate and believe in your business, then be aggressive and leave no stone unturned. However, it’s very important to ask yourself this question: “Would you be comfortable raising the money from your family and friends?” If the answer is no, then you shouldn’t ask it from anyone else. With this attitude, you can’t fail – you will always do right by the people who have helped you achieve your vision.
Kirk Simpson, CEO and co-founder of accounting and invoicing software Wave
We’ve raised about $36-million in capital, which was essential for Wave’s business model. A huge part of this process is storytelling. You’re constantly fine tuning your story, and getting better at telling it. Your audience is smart, so to gain their trust you need to give them transparency and honesty. You need to create a personal connection. And you need to prove you’re competent and credible. The human dynamic is so important for people to trust you with millions of dollars. Also, you need to have a good idea and prove that you can be one of the winners in your sector.
Mallorie Brodie, co-founder of Bridgit, a platform for organizing construction projects
At every stage of financing, we set what milestones need to be hit in order to further prove our business model and growth strategy. It has been incredibly important to stay focused on what those milestones are, and focus resources in the right direction. It has been important to remain very critical of all of our business activities so we don’t fall in love with one direction that isn’t getting us the growth we need. Our entire team knows the importance of staying flexible so we can continue to hit targets.
At this stage, people are the most expensive resource. For that reason, we ensure proper processes are in place before bringing on a new team member, which also helps keep costs in check. Sometimes it seems like a bigger team would help us move faster, but it can actually be a big drain.
Michael Litt, co-founder and CEO of video and marketing platform Vidyard
Following our initial seed round, we’ve had two rounds of VC funding: a $6-million Series A in 2013 and an $18-million Series B in January. We’ve raised money to sustain growth at a nearly unprecedented rate – growth that is defined by our market and customers, and is a leading indicator of the size of this opportunity. Raising money is not a factor of success, it’s merely a strategy we’ve employed to build the business as quickly as possible. The best time to raise money is: A) When you don’t need it; and B) When investors are interested in your business. Triggering A & B mean that you need to be sensitive to the businesses economics and always have a contingency plan for if and when growth money is unavailable. Keeping costs in check is as simple as ensuring your cost centres (G&A, S&M & R&D) are kept within reasonable ratios of business standard – data that a great investor will be able to provide.
Denzil D’Sa, founding partner of cross-platform messaging platform PPLCONNECT
As startup founders, we are pretty much always raising money. Even when we do not have an immediate need, raising funds takes time as does building the right relationships. We always try to stay 2 steps ahead by starting to build relationships for future rounds. There are many funding options for entrepreneurs, from government grants and funds to competitions, angel investors and VCs. As a founder it is your duty to understand them all as well as the advantages and disadvantages of each. Many try to outsource this function, but the best person suited to raise capital for an early stage startup is the founder.
For any funds raised, it is critical to allocate the funds per priority and forecast your runway. Every 2 weeks, we then adjust actual with our forecast to ensure we are on track. We are also held accountable by our funding programs and investors.
Mikael Cho, founder of creative talent site Crew
Raising money is a full-time job. If you decide to do it, you’ll likely need three to six months of full-time effort. The first step is to make sure your business is ready. A good rule of thumb is if you make an investor presentation and you wouldn’t invest in your own business, then you’re not ready.
Before you raise money, you should make sure you have one thing that is different from the other hundred companies the investors you’re going to speak with have seen that week. The thing that makes you different could be your pitch, your idea, your sales, your marketing, your team. Sales are always good to have. Depending on the investor, the younger your business is, the less important sales may be. If you’re just starting and you only have a product, with zero sales, you could raise money but you’ll still need something remarkably different . Maybe it’s your team’s experience or the differentiation of your product. But you need something that sticks out.
Rachel Pautler co-founder and CEO of Suncayr, a marker with ink that changes colour when you need to reapply sunscreen
We’ve delayed raising funds until we’re sure that a significant amount of funds will have the greatest impact on our company. So far, we’ve been successful with pitch competitions and grants, which have taken us from an idea to Health Canada approval. We’ve also had amazing support from the University of Waterloo, providing us with facilities and prototype materials. We’re looking to raise a seed round soon, as we need a larger sum of money in order to get through stricter health regulatory approvals, as well as set up our first round of manufacturing. We manage costs using the mindset that every purchase we make will use the rest of the money that we have in the bank. If the purchase doesn’t bring enough value to justify using the last of our money, we don’t do it.
The Think like a Startup series runs on Tuesdays and Thursdays in October on Report on Small Business.