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Mastering Early-Stage Funding: Strategies for Startup Success – James Church

Podcasts

Mastering Early-Stage Funding: Strategies for Startup Success – James Church

By , June 16, 2023
james

 

James Church is a dedicated strategist and the creative mind behind Robot Mascot, an investment readiness agency passionate about helping early-stage businesses raise their first or second round of funding. As an experienced professional working with innovative startups, James has co-authored the bestselling book, Investable Entrepreneur, which takes readers through the methodologies used by Robot Mascot to effectively assist businesses on their fundraising journey. With his unique insights and proven strategies, James has plenty to offer to any early-stage startup founder looking to attract funding.

James has won the Business Advisor of the Year award at the Growing Business Awards and has been featured in Entrepreneur Magazine and Forbes. He’s run mentoring sessions at Tech Hub, Google Campus and Runway East, and delivered mastermind sessions for accelerators run by the Chartered Institute of Marketing, Design Museum, Dent Global and the University of the East Anglia.

He converses with Darryl Bates-Brownsword on the Exit Insights podcast about building investor relationships and securing funding for startups. Church explains why it’s essential to show a willingness to take risks and back oneself to secure funding, the importance of creating a strategic plan and finding the right investors, and how communication is key to fundraising. He advises founders to approach funding as a sales and marketing campaign and seek out strategic advisors alongside investors who can offer more than just cash. Church also recommends visiting the PitchReady website to take a quiz, receive a twelve-page report, download his book on fundraising, and join a strategy session. This podcast episode is an excellent resource for early-stage startup founders seeking innovative funding strategies and practical tips for securing investment.

  • Discover innovative funding strategies for early-stage startups.
  • Uncover the significance of cultivating investor relationships.
  • Delve into risk-taking’s role in obtaining investment.
  • Examine methods for balancing investor interests and founder equity.
  • Learn the art of approaching fundraising like a sales and marketing campaign.

Watch episode here:

Welcome to the podcast that’s dedicating to helping business owners prepare for exit so you can maximize value and exit on your terms. This is the exit insights podcast presented by succession plus I’m Darryl Bates-Brownsword, and today I’m talking to James Church from Robot Mascot. Hey, thanks for joining me, James. And look, why don’t you give us a little bit about Robot Mascot? It’s an interesting name, but I’m sure it’s got a powerful reason for being.

Yeah, brilliant. Well, thanks for having me here. Really thrilled to be here. So, yeah, Robot Mascot is an investment readiness agency. We basically help early stage businesses to raise their first or second round of funding, usually.

So Robot Mascot, you mentioned the name, it’s something that we get asked about quite a bit, as you can imagine. So brief explanation on that one. The robot part is very much because we as a business, when we were founded, really wanted to work with future thinkers, innovators, people doing new things in existing or new sectors. So we wanted to work with those types of people. And robot was the sort of symbol of the future, really.

But when you think about robots and there’s a lot of discussion with AI at the moment as well, like, robots are taking over the world and Sci-Fi, they’re the enemy often, not the supporter. And we as a business, very much the supporter. The friend and allies to founders sort of navigating this world of fundraising. So we needed to soften that somewhat and we needed to express that we were the supporter and we were the guide. So the word mascot came about as kind of the mascot being kind of your biggest fan.

So those two words came together to form Robot Mascot. But, yeah, that that’s kind of where the where the name came from in terms of myself. I’ve written a book called Investable Entrepreneur, which is a bestseller, and that documents the methodologies we use at Robot Mascot to achieve the types of results we do for our clients when it comes to their fundraising. So, yeah, that’s me. All right, let’s dig into that, shall we?

I’m glad I asked about Robot Mascot, because it’s one of those names that you go, there’s got to be a reason behind it. And now that you’ve explained it, it really pulls it together nicely and yeah, I’ll remember that.

James. So, investing in early stage businesses, how do we know if a business is going to require investment or if it’s going to be one of those businesses that’s more suitable to bootlegging and just funding its own growth? Yeah, I think primarily the distinction is if you need substantial capital in some kind of asset, valuable asset in the business, that’s going to be worth money at the time it exits, essentially. So this asset would usually be some kind of IP or technology initially. It’s probably less likely for you to get funding for just spend on hiring staff or marketing spend.

It might be that debt funding is more suitable to that. But of course there’s a balance there. So a lot of early stage startups, you’ll find the first round of investment is very capex intensive. It’s IP, it’s building systems, processes or products. The second round of investment, it tends to have 50 50 in terms of team to help you scale and IP development.

And then as you go into the third 4th round of investment, there tends to be a bigger swing to needing capital to scale the business through sales and marketing activity. I think the main thing is that these businesses that are raising investment aren’t generating revenues. There are a long way off generating revenues and they have to build the IP and the sales and marketing function, and they make profit at scale, but they don’t make profit with a handful of customers. And therefore they’re not able to attract or secure debt finance because they’ve got no way of paying back the monthly payments because they’re not generating any revenues. If you’re a business and you’re looking to scale and you already generate some revenues and you’re able to pay back a loan, it might be that loans are a better way to finance and scale your business.

But if you’re in a position where there’s an initial big upfront expenditure required to achieve profitability in 1218 months, maybe 36 months, then perhaps equity investment would be a better route for you. Okay, so I guess historically that was in the goods economy, shall we say, going back quite a few years now, that would have been investment in premises and plant and equipment, manufacturing equipment to get things up and running. Whereas nowadays, listening to the way you’re describing it, it’s more to those, hey, look, I’ve got an idea, I’ve got an algorithm, a bit of high tech proposition here. I need to prove the concept. I’m pretty sure this idea will work.

I’ve done some research, I’ve identified a market. The research suggests the market would want to acquire this or it’s a derivation of an existing solution, a subcategory, but it’s often tech startups now and we don’t need a whole lot of premises and machines other than computing power. That’s it. But the difference being, as well as kind of a tech startup, the whole idea of leveraging technology to make your customers lives easier, more efficient, tends to be that you end up charging a subscription model to access to that technology, which is quite a low fee. So there’s no big upfront fees to quickly you sign up a client.

They might be worth thousands, but they might only be worth 1020 50 pounds a month on your platform. But it’s the long term value of that, the lifetime value of that client that’s important. So obviously your first few thousand clients aren’t necessarily going to pay back or be able to fund the development of the technology that you’re selling them to. So these types of businesses that we’ve seen emerge over the last kind of couple of decades all require kind of a different way of financing. That not because they need big machinery, big equipment.

They need a couple of developers. But even those couple of developers, developers, you can’t pay their wages to build this technology on ten pound a month contracts. It’s not until you hit a certain scale that you become profitable. So what are investors looking for? Because I guess historically and the accounting systems reflect this with balance sheet valuations as well, what we’re leaning towards is building of intangible assets.

And so what do investors look for for, I guess, a level of insurance to assess their risks in this type. Of it changes as you go through the stages, but at very earlier stage, it’s primarily the team. I’m investing in a team here that can adapt, change, respond to the market, and end up building something. Do. I believe that that team can adapt with what they learn to build something that ultimately is going to be something that the market wants, that the market needs, that is going to be we’re going to find a way to generate revenues in a way that will make us profitable.

Knowing full well that the original idea that is pitched to them may well be very different by the time they scale and exit the business. So they’re investing in that. We’re kind of taking a risk on the team and the individuals in that team to be able to make something happen off of the back of this concept and this vision that they have. And as you go through different rounds of investment and get later along your journey, it tends to be less about the team and more about the performance. And have you found Product market Fit?

Have you got a product into the market right now? And is it something people are have you got evidence that it’s something people want and people are using it? And that you’re achieving making progress in terms of having customers want to pay for the solution you’ve developed? So it kind of moves over time as to what they’re looking for. But primarily it’s about creating something of value, this IP, this technology, or this system or process, this brand that’s going to be valuable come the end of the day.

And it tends to be four or five kind of intangible assets come together to create this kind of valuable company. But it’s all about the future of what its future value. If it were to find Product Market fit, if it was to achieve the types of scale we believe it could achieve, that’s what they’re valuing it on at the earlier stages. It’s not the assets on the balance sheet. Okay, so I guess these first stage investors who are investing in the concept, the big idea, I guess there’s a spread of investors all taking a smaller risk because it is a higher risk.

Whereas investors down the track, once the product’s proven that they’re now just investing in the rollout and build up of. The product, that’s it. You tend to find that the typical angel round. So like angel investors, high net worth individuals coming in at an earlier stage will have anything from five to eight on average, like investors making up that round, I would say on average. Whereas when you get to the later stage investment, maybe a Series A, and you’re looking to scale up something that’s already generating maybe a million or more in revenues, you’ve probably got one or two investors, you’ve got an established fund that’s leading with half of the round.

And then maybe you’ve got two other follow on funds that are much more professional in their approach. And you’ve maybe got two or three funds coming together to fund that versus the sort of eight or so angels. And remember that that early stage you might be raising two hundred and fifty K, three hundred K across eight individuals versus at that later stage you might be raising 10 million across three individual funds. So yeah, you’re right to spread that risk you end up having more early stage investors than later stage. You’re then more confident to put quite a bit of capital into this business because it’s somewhat proven by that point.

Got some traction. Okay so we’ve got, let’s call it a tech entrepreneur, someone who’s got some coding skills and they’ve identified this opportunity. Their backgrounds are in technology and coding and they’ve started the work. Where do they go to find these angel investors? We’re looking at eight or so people to invest 250, half a mil to help them prove the concept.

But it’s not a background that they’ve got their experience. So where the heck do they go to even start looking? Yeah, tough one isn’t it? Because very few founders have this kind of ready made network of high net worth individuals ready to kind of pump a load of cash into their idea. So first and foremost you need to make sure you’re fully prepared for the scrutiny you’re about to encounter when approaching these investors.

Essentially they don’t know you at all. You’re essentially a cold call. Imagine receiving a phone call today from someone that you’ve never heard of asking you to invest fifty K, one hundred K into an idea that they had. You’re going to put the phone down immediately going that’s one of those scam calls, right? So you’ve got to remember that that’s the relationship here with any investor you’re going to reach out to.

So you need to be fully prepared with a really solid pitch and kind of business case around that vision. So you need to pitch the vision, get them excited by the idea. Show that you’ve got some considerable thought and thinking behind how you see this business going, how you’re going to spend their money, what it’s going to achieve, what the ultimate goal is for this business, and document your thinking. Behind that. With a solid set of financial projections, a really solid business plan and strategy for not just the next twelve to 18 months, but the next five years.

As you kind of scale this business towards a point at which you could exit it. So you got to have all that stuff in place first and be kind of investor ready as we would call it, and make sure you’ve got those arguments set up. So when it comes to the hundreds of founders that are pitching to these investors, you cut through as the one with the highest chance of success, the one that’s really thought about the business case and how we’re going to spend that money to leverage this capital and turn it into something much more valuable at a later point in time. So once you’re feeling confident that you’ve got that business case together and are able to convince an investor to even take a look at you, let alone invest in you, you then can start that outreach. And there’s a few different tactics here that I see work.

There’s a lot that I see that don’t work, but the ones that work are kind of introductions to investors. So the first thing you need to do is create a target list of potential investors. And there’s online tools like CrunchBase that are great for kind of identifying investors in your niche that have invested at your stage of development in a round size similar to yours in your sector and industry. And you can start to get a list of two 3400 or more investors that match criteria that would be interested in what you have to offer because they’ve proven it in the past, because they’ve invested in something similar. Then need to take that target list and do your research on those investors.

And who can you get an introduction to through your existing network? Who can you manufacture an introduction to? So who else is in their portfolio? Who else have they invested in in the past? And can I go and befriend those founders via LinkedIn, get to know them a little bit and then ask for an introduction?

Any way you can hustle yourself towards an introduction to those investors I would recommend is your first portal. That’s the kind of golden ticket that’s the best way to get in front of an investor. Failing that, the second best approach in my experience is personalized and thoughtful outreach via kind of email. Usually could be done via LinkedIn, but contacting these investors at scale. We have to do hundreds of these emails, but kind of saying, the reason I’m approaching you is because you’ve recently invested in company X, Y and Z and we’re doing something really exciting in a similar space.

Here’s a top level overview, a couple of bullet points attached is a sort of five slide intro document. If this is something that seems up your street, something you’d be interested in, perhaps we should arrange a time to have a chat. When the time is right and you’re just kind of opening the conversation, you’re not going in all guns blazing, we’re raising 500K for our amazing idea and we’d hope you’d, you know, do you want to invest? It’s like that’s the cold call, right? That’s the who are these guys?

Why should I trust them? You’re building a relationship. You’re going, I’ve reached out to you because of your track record. I think you’ll be interested in what we’re doing. Is it worth a chat?

And then you start taking the relationship from there. And they’re really the two biggest ways of doing this and getting in front of investors. That has to be done at scale, otherwise you’re not going to get the number of investors you need at the end of the process to actually invest in the round. Yeah. I think what you’ve highlighted there is something really to bring home is that you really need to talk to a number, like hundreds.

You’ve got to send out and contact hundreds of people before you’ll narrow it down to end up with eight or so people who will invest a few thousand pounds into your venture. That’s a high risk for them. Yeah. I use a 30 ten to one rule. So for every 30 investors you reach out to, you’d expect ten of them to view your pitch.

Of those ten, some will get back to you and kind of two will end up actually going through that due diligence process and come out the other side saying, yeah, I’d like to invest in this business. And then of those two, one will end up actually signing the deal and depositing the cash in the bank so you can work back from 30 cent to one to figure out if I need eight investors in my first round. This is how many I need to reach out to as an absolute minimum to stand any chance of getting the deal over the line. And so it’s just like any other sales ratio odds, really. If you’re going out cold, you got to do your homework, you got to do preparation, you got to understand their risks and understand what’s attractive to them.

Yeah. In my book, I talk a lot about this is nothing more than a very targeted sales and marketing process. The sooner a founder can get an understanding of the fact that they’re selling something of value, I e their shares, their equity in the business, in exchange for something of equal and greater value, I e the investors cash. And it’s just like any other transaction. Like when you go and buy a new TV or go and buy a house, you only want to pay what you believe it to be worth.

Otherwise you’re not going to make the purchase. So you need to manufacture that scenario. And if you can get yourself into a position and treat the outreach as a sales and marketing campaign and you know how many investors you need, and you’ve got a rough idea of therefore what the outreach level is, required to get them through that funnel of kind of initial pitch. Second and third meetings, due diligence, legals, ultimately closing the round and getting the deal, knowing that someone’s going to there’s going to be lows that drop out at every stage of that process and you work backwards and can do that outreach at scale. You’re going to succeed.

But it’s only really the ones that do. A lot of founders, it frustrates me, will get themselves their pitch together. They’ll get all of these things together, and then they’ll just sit in their office behind their computer and just hope someone will come and invest. They’ll send it out to three or four people and they won’t take it any further than that. And it’s the equivalent of building an ecommerce website.

It could be the highest converting ecommerce website on the planet. Like incredible metrics. If you don’t drive any traffic to that website, it’s not going to make any sales. And you need to think like that. And for some reason, founders just forget about that as a concept when it comes to selling equity in their business.

They do it day in, day out for selling their product. They don’t apply those same principles for selling their equity. Well, it’s interesting that you raise that because I think it’s possibly similar for many founders of any businesses. Whether they’re looking for investment or not, they often start a business because they’re good at their product. They’re good at the technical side of things, of building something.

And sales is a totally different skill set. And whether you’re selling your product or through human interaction or whether you’re selling equity in your business, it’s still human interaction. You need to inspire them. You need to instill confidence that you’re capable and you know what you’re doing. And that if they invest in you or if they buy a product from you, it’s a low risk because you give them confidence that you’re going to.

Deliver what you promise, that’s it lower risk than any other founder. They might be talking to you’re a lower risk and a better bet. And yeah, treating it like that. Sales and marketing company understanding that the investor ultimately doesn’t care about you and your idea. They care about getting a return on their investment.

So the less you talk about your idea, the more you talk about how you’re strategically going to deliver a return, the more you’re going to win over hearts and minds with investors. Okay, so we’re talking about early stage businesses. We hear a lot, and I’m sure you see a lot of people who come to you and they’ve just got an idea and they go hey, look, here’s my idea for starting up a business. Some of them are hoping that people will invest in this idea. When we say early stage, how much work do these angel investors expect you have done already?

How much progress do they expect you to have made? Before I’ll go, yeah, that’s viable. I’ll put my money in that because I’m having conversations with people all the time, is that you haven’t spent any money on it, you haven’t taken any risk. It’s just an idea and you think someone’s going to come and invest in you. We need a reality check.

Yeah. They need to see that you’ve put some risk, some effort, some time into moving the dial forward, taking it away from an idea to something that feels more viable. The truth is it depends on which sector you’re in and who you’re speaking to. If you’re building an app for a consumer app, then it might be very different to if you’re building a piece of medical technology because there’s a whole different kind of life cycle to how those businesses are kind of built and developed. But in general terms, you’ve got the bootstrapping phase, which would be kind of doing whatever you can.

A little bit of friends and family money, a little bit of your own investment, or just your time while you’re kind of moonlighting on the side. You’ve got another job, and you’re trying to kind of establish this concept and you need to get to a point. Imagine if you’re in a point where you feel you’ve proven this concept enough that you would feel comfortable quitting your job and all the securities that come with it to focus on this full time because you’re confident it’ll succeed, because you’ve validated the problem, you’ve validated the solution you proposed to that problem. So enough people have this problem that it’s worthwhile solving. The solution you’ve come up with is something the market really sees as beneficial and exciting and interesting.

That the pricing the people are willing to pay for this and then how much they’re willing to pay and what kind of revenue model might suit them. Is it a monthly subscription? Is it a one off cost? How do you charge for this? And what’s the right kind of price point if you can feel confident in those three things?

And fourth thing might be that the market size is big enough to sustain that kind of level of revenue for the solution that you’ve identified. If you can prove to yourself that those four things are in place and that you feel comfortable enough to quit your job to go and do this full time, then you’re probably in a position to then go try and convince an investor that it’s worth that first kind of precede. We call it round of investment. That first initial kind of two, three, four can be up to 500, 700K for some sectors to get more proof, more traction, maybe a proof of concept built, maybe some early BC users kind of testing the solution. So if you’re in that position, you can go out and raise funding.

I think if you had an idea in the pub last night with a mate, you probably need to do a bit more work before you can go and ask someone for their money. Yeah, I like that. As a test, if you’ve taken it to the point where you’re confident in effectively backing yourself and leaving your job believing that much, then there’s a fair chance that someone else will also believe in you because you’re putting your money where you mount. You’re asking the investors to believe in you and have faith in you. And if you don’t have that in yourself, how could you possibly sell that confidently to an investor?

It’s just not going to happen. Okay? We’ve got the business to the stage where we believe in it, we’re backing it, we’re going to exit, walk away from our current job and we see this as our future. We need to approach hundreds of people to get that 32 one was it. Ratio.

Of approaching investors to share our pitch. Now it probably even needs to be more than that, and I think you already alluded to that because the first time I send my pitch out, it’s going to be perhaps not as refined or as sharp as it needs to be and you’ll improve that along the way. So eventually I’ll sharpen my skills and also my conversation of inspiring and I’ll get better at my conversations of bringing investors on board, so I need to do that over a period of time. I then got my business to my point where I’ve got some people interested. Now they’re going to want to protect their risk.

What are they asking for from you when it comes to if they’re going to invest in their business? Yes. When I say you, I mean the business owner. They’re obviously going to want certain assurances and those can come in various different ways. Later stage investors tend to start dabbling in things called preferential shares, which you should really be careful about as a founder before agreeing to such terms.

Their money may be valuable, but a preferential share could mean you walk away with nothing on the event that you exit, because you’re guaranteeing them a certain return in the event of an exit. And if there’s not enough money to pay them back their guaranteed return and pay you out, then all the money goes to them first before it comes to you. So you need to be careful of those sorts of deals. That’s less likely an earlier stage, it tends to be done more on. There’ll be legal things like your shareholders agreement and that kind of thing.

There might be certain checks and balances in the shareholders agreement that says certain things for certain things to happen. There’s certain trigger events or if you plan on spending more than X on any one supplier that needs to get approval from the initial boards, there could all be these sort of checks and balances in to help angel investors kind of manage the risk as much as they can. Because I’ve seen the other side of this, right? I’ve seen the bad side of this, which is one of the first deals I ever worked on was a young chap, not long out of uni. I think he actually quit university to start this product.

So he’s quite young, he’s quite naive. We had this incredible concept and he’d validated it really well. He’d done all those things that we just talked about and he managed to convince a load of investors not to give him 300K, which is his initial ask, but 900K was what he ended up getting offered to him by these various investors. So you give this 18 year old lad nearly a million quid and there was no checks and balances, nothing, and he just had a million quid land in his account the next day. Before you know it, he’s on inverted commerce business trips around the world with his girlfriend building the business, and no product got built.

He had a lovely flat in London, no product ever materialized, nothing seemed to happen. Lots of lovely business class flights to the states and various places with his co founder and his partners on business, but nothing really materialized from it. And I was having investors contact me asking, do you know what’s happened with this founder? Like, we haven’t heard from them in ages. And I only knew these things because I happened to follow him on Facebook or something, with friends on Facebook, and I could see what he was doing with their money.

They had no idea. So that’s the negative side, that’s what could happen. They’ve got no control a lot of the time, so there’s a lot of trust and a lot of faith going into that founder, and that’s why it’s such a long process. That’s why they do a number of meetings and they really delve into the business case and they really understand what you want to do with your money and your passions and why you do what you do. And more experienced investors will start to put some checks and balances in things like shareholders agreements to protect themselves on an eventual potential downside.

So, yeah, that’s why it may seem tough, but from an investor’s perspective, you can perhaps see why they would put these checks and balances in place as. They should do, because they’re putting a lot of money down. Yeah, okay, so let’s talk about we’ve talked about a lot of the things that we need to do to get our business to the stage, especially a tech type business, early stage business, to be attractive for investors to want to invest into. What are some of the common mistakes you see. James so I think not communicating everything that they plan to do in the right way, that’s probably by far the biggest issue for me.

Whenever I speak to investors, when I was interviewing investors ahead of my writing my book, that’s what it pretty much boiled down to. They weren’t saying yes to founders because they really just didn’t understand the vision, the value proposition, what the strategy was. Beyond that, how are they actually going to make that vision a reality? What’s the short term plan? What’s the long term strategic plan to deliver that return on investment?

Do you understand even what the merger and acquisition, the sort of M and A, the exit market looks like in your sector? Do you even know who’s currently exiting and for what valuations? And do you even know what you need to build to make this a viable and exitable business? Or are you just focused on the short term? I need to get my proof of concept built.

So they didn’t understand kind of these things. The founders weren’t explaining their plans around these areas well enough, and because of that, they weren’t investing. So by far the biggest mistake is relying on your idea, right? No investor is investing in your idea. And the founders that believe it’s the power of their idea that’s going to ultimately raise them, the investment are the founders that ultimately fail at raising investment.

It’s the ones that go beyond an idea and have that strategic plan and can build the investors trust that you as an individual, you as a founding team, know what is needed, know what it takes to build this from an idea to a viable business. And beyond that’s, the founders that ultimately get the fund. So they’re not keeping their investors up to date, they’re not thinking beyond the cash coming into the business and what the exit plan is and how everyone’s going to get their return. That’s it. What about if they’re getting investment from angel investors?

Can business owners expect any other input from these angel investors? Are they like the Dragons who want to get involved and use their contacts and what have you? How do they get involved? Really depends, right? It depends on the investor.

And I always recommend to founders that they do their own due diligence on the investors that they’re bringing into their company, right. And ask to be introduced to some members of their portfolio and founders and see whether or not they’re a good investor, because they might say they’re a nightmare, they micromanage everything, they’re on the phone every week, we can’t get on with anything because they’re always buying in. On the other hand, they might say they’re really useful because they like to open doors, they’re really supportive. We meet once a month, they give some really good strategic input, and they’re really happy for us to go off and do what we know is best for the company. But they’ll guide and support us in any areas and they’ll open doors where they can.

Some founders don’t even want that. Some founders want a very passive investor that’s happy to just give the money and let them go on with it. So it really depends on what you want as a founder and to do your own due diligence on the investor and find out whether or not they’re the right fit for you. But my advice is always try and and find strategic advisors plus investors. A strategic advisor that comes with some money is kind of smart money, we call it not just cash and advice and support.

That’s the ideal for an early business. So we got a part of when we’re assessing fit, it’s as much as us assessing the investors as it is the investors assessing us, the business owners. And we’ve got to assess them based not only their desire and ability to bring cash into our business, but what else do they provide or what else do they want to bring to the business and is that a match for us? So we got to assess the commercial. As well as the visions aligned.

Does the investor truly believe in what you’re building or do they see this kind of taking a different shape? Because they’re going to be sort of peddling their narrative of going, oh, you could do this or you could move into over here and do they have an ulterior motive or do as much interviewing of them as they’re doing interviewing of you to make sure that they share that vision and they’re not going to be a hindrance, basically to your success. Yeah, really good point. So, James, that leads us nicely, I guess, to we’ve bought an investor into the business, we’ve got our pitch right, we’ve gone out and done a research on all of our investors. We found a few and we’ve shortlisted them and they’ve shortlisted us and it’s all worked out perfectly and they’ve invested the money.

We’ve gone and developed our product to a certain point and we’ve used the money. What happens next? How does that help support an exit and when should we be exiting our business? And we all know that entrepreneurs are fantastic for taking a business so far and then they become the problem, the bottleneck. How much clarity do we want around that?

And what happens next? Yeah, it’s an interest. A lot of founders I speak to don’t like the idea of exiting their business. And the reality is, by the time they’re five years into this and done two or three rounds of investment and they’ve got thousands of customers, hundreds of staff to manage, suddenly they don’t want to be a CEO, they’re like building things, they don’t want to be a CEO of a giant organization. That’s not what they did this for.

So actually, the reality is, when you get to that point, you probably do want to be looking for an exit and you’ll be thankful to look for an exit. So, typically speaking, we’d see for high growth startups that we’re talking about today that seeking investment, you’d be looking, on average, to do three rounds of investment before you then exit the business. But even if you don’t, I feel that having a value, having raised investment at some point between now and when you decide to exit your business, whether you’re looking as a high growth tech startup or whether you’re a consultancy. If you can get some angel funding in to go and build something and push the business forward, that validates your value in the market. Someone external to the business has said, this is what we value the business to be at.

And that really helps you, I think, in those exit negotiations in terms of showing and documenting your progress on valuation. So if we take the kind of tech startup, kind of classic example, three rounds of investment, you’re raising more money each time, at a higher valuation each time, selling in the region of 15% equity each time. So those three rounds of investment end up at about 45% equity sold. So you’re in just over half of the company, but that company is 510, 30 times more valuable than it was when you started. So you’ve got 50% more of a bigger pie.

And those rounds of investment have really started to justify your valuation when it comes to exit, because there’s been multiple third parties agree that this is a sensible valuation for the asset you’ve built, which is, of course, your business. So, yeah, super important. In terms of when to look for exit. Again, it varies with different businesses. In terms of pitching to investors, I would say always look to be in an exitable position within five years.

So your five year forecast will show you to be in an exitable position. Now, you can decide whether you exit then or continue on the growth curve, raise more funding and go even bigger, but you should be in a position where you could take some kind of exit and get some kind of return for you and your investors within five years of taking any individual round of investments. So that’s a general rule of thumb. Okay, so, James, look, we’ve scratched the surface of this topic and there’s so much more we could cover if we’ve caught the attention of listeners of the podcast and they’re exploring this. What can they do?

Clearly, you’ve got some knowledge and experience here. What can they do to tap into your knowledge and learn more? Yeah, the very best thing they could do is visit a website, pitchready co UK, and from there you’ll get a quiz testing you on your investment readiness and giving you a score and a twelve page tailored report on your current investment readiness, with tips on what you need to do to make yourself more investor ready. And from there, you’ll get kind of a number of different kind of options. You can download, order a copy of my book.

Anyone in the UK can get a copy of my book in the post, completely free. Outside of the UK, you can get an audio book and a PDF option. You’ll also get invited to a 90 minutes strategy session that I run regularly on, kind of fundraising strategy, and we delve into this subject over a whole 90 minutes session and we have a Q and A at the end and that kind of thing. So just going to pitch ready, co UK will open up a whole bundle of goodies that will help you along that journey of kind of figuring out, is investment right for you? And if you are thinking of an investment, what you need to do to give yourself the best chance of actually securing the capital you’re looking for.

So that’ll help them decide yay or nay, by the sounds of it. And there’s a problem solved. Is it for me? Is it right for me? And if I am going to do it, where are my gaps and what do I need to do to get myself investor ready?

Brilliant. All right. Hey, James. That’s fantastic. One last question for you, if I may.

Look, I asked this of everyone who appears on the Exit Insights podcast. What’s the one message, the key message that you want listeners to take away from our conversation today? Nail your communication with investors. Get really good at nailing the communication and treating this like selling any other product in your business. You’re just selling shares in your business.

That’s your product and you need to communicate that value to the investors. Brilliant. Hey, thanks for sharing your insights with us to James. Really appreciate you joining us. Thanks for having me.

It’s been a pleasure of.

If you would like to learn more about how to start preparing your business, then you can get more information here: It All Begins with Insights.

Website: robotmascot.co.uk

LinkedIn: https://www.linkedin.com/in/jameschurch/

Twitter: @jameschurch88

Instagram: @jameschurch88

 

 

Darryl Bates-Brownsword

Darryl Bates-Brownsword

CEO | Succession Plus UK

Darryl is a dynamic, driven Business Mentor and Coach with over 20 years of experience and passion for creating successful outcomes for founder-led businesses. He is a great connector, team builder, problem solver, and inspirer – showing the way through complexity to simplicity.

He has built 2 international multi-million turnover businesses; one now operating in 16 countries. His quick and analytical approach cuts through to the core issues quickly and identifying the context. He challenges the status quo and gets consistent, repeatable and reliable business results.

Originating in Australia, Darryl’s first career was as an Engineer in the Power Industry. Building businesses bought him to the UK in 2003 where he quickly developed a reputation for combining systems thinking with great creativity to get results in challenging situations.

A keen competitive cyclist, he also has a B Eng (Mech) Engineering and an MBA.