Finance For Startups
Finance for startups is one of those things that
many simply do not want to get involved in;
because it’ s boring and it conjures up images of
accountants, (sorry accountants!) excel
spreadsheets, financial ratios and fancy financial
jargon that nobody understands.
This is enough to give some people any number of
People would rather talk about technology, sales
and products because they’re sexy and easy to
But as a startup founder, finance must be a priority
on the list of things you will have to understand or
you won’t be able to pay your rent and other bills.
With finance, you can accelerate your startup. But If
you”re not a lottery winner the chances are that you
don’t have the finance to grow your business in the
next 12-18 months.
Nowadays however, it has never been easier to
connect with people who do.
“Lack of money is the
root of all evil.” – Mark
1. Which funding path do you aspire to take
with your company?
2. Which funding options will you explore and
pursue in the next 6 to 12 months?
3. Who do you need an introduction to and who
can introduce you?
4. Who in your team will lead on fundraising?
Key Questions about money needed for your startup
Everyone gets Funded ...Right?
Reading TechCrunch you would get the
impression that every single startup raises
hundreds of millions of dollars. It makes for
great reading. In reality however, this is simply
not true. In general terms, investors will look at
one or two startups out of every 100 business
plans they see. They reject the other 98-99%
Startup valuations are going through the roof.
Everyone wants to invest in startups these days
instead of more traditional investments like oil
or gold. There are hundreds of investors with
deep, bulging pockets all trying to find the next
big thing. We are truly in a startup bubble.
This could be down to FOMA
Fear Of Missing Out. Nobody wants to miss out
on the next Facebook, Snapchat or Twitter so
they will invest just in case it becomes a big hit.
“You are an entrepreneur not a business person.” –
Ajaz Ahmed (@Ajaz_Ahmed)
“You are an entrepreneur not a business person.” – Ajaz Ahmed (@Ajaz_Ahmed)
I recently attended a talk by Ajaz Ahmed, the founder of Freeserve, once the
UK”s largest internet company,
His eureka moment came when he bought a computer in PC World and nobody
there could tell him how to get on the Internet. After much persuasion, Dixons
launched Freeserve in 1998; it became the UK’s largest ISP in 3 months.
It floated 9 months later with a market cap of £1.5bn and entered the FTSE 100
soon after reaching a market cap of 9bn. Freeserve was sold by Dixons to
France Telecom for £1.6bn in 2001. He left soon after (They wanted him to
He believes the main difference between a businessperson
and an entrepreneur is that the entrepreneur possesses the
power of observation and empathy. The ability to put
yourself in the customer”s shoes is priceless.
A business person like a Venture Capitalist will look at the
cold hard facts, the balance sheet and the cash flow
forecasts, not the vision of your company.
I will do x, y and z once I get my funding!
Obviously, if someone dangles a check for a cool $150,000
in front of you, you would clearly be mad to say no – right?
Many people believe that this will solve all their problems.
Someone else believes that you are going to be the next
Google or Facebook, even without a business model or any
revenue to speak of – the dream scenario!
As a general rule you should only need funding if you need
to buy an asset that makes money, it’s not really for
salaries unless they are going to make you money.
Good investment – 3D printer,
Bad investment – SEO consultant.
According to Seth Godin, one the premier
entrepreneurs and marketers of our times,
these are the questions you need to ask before
you seek funding. -->
Questions to ask before you need funding
Questions for funding
1. Do you need money for this startup?
2. Does more money increase the chances that you will reach positive cash
flow and profitability?
3. What assets will the money go to pay for?
4. How long before the money invested starts turning into a financial return?
5. Do you hope to sell the company?
7. For how much?
8. What is the gross margin for selling?
9. How long will it take you to reach scale?
Given all this, why would an investor choose
your offering ahead of all the others that are
Do you actually need funding?
For some startups it can hinder development. Having been
part of a tech accelerator, I can tell you that the focus at the
end of the day is to raise money. Half the program is about
So it can take away the focus from your product offerings,
product/market fit and customer service. Remember, many
startups are pre-revenue, and so have no traction and are
not even sure if people want their product in the first place!
Founders can have day jobs too!
Another way to finance a startup is to get a job. According
to Paul Graham – co-founder of Y Combinator:
“The best sort of job is a consulting project in which you
can build whatever software you wanted to sell as a
startup. Then you can gradually transform yourself from a
consulting company into a product company, and have
your clients pay your development expenses.”
– source http://www.paulgraham.com/startupfunding.html
A conversation needs to happen before you start up
your startup, about where the finance is going to
come from; because raising funding is one of the
main hurdles a startup founder will face.
Your startup does not have to generate millions of
pounds or dollars to be successful. However,
getting your finances in a mess is the quickest and
the easiest way to screw your life up. Too much
debt and not much in return is a recipe for disaster.
and lets connect @neilp666
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