For a start-up to get off the ground it needs funding. There are generally two ways to do it, either save up and bootstrap it or getting money from investors. Unless you have a nicely paying job, won the lottery, or have rich relatives, you probably will have to do the latter. What are effective ways to raise funds? We got some advice from a successful entrepreneur.
Peter Szymanski is an entrepreneur and attorney born in Warsaw but is currently based in Silicon Valley. He has fourteen years of experience as an entrepreneur, CEO, attorney, and angel investor. Peter was also a board member of a fund for social entrepreneurship in San Francisco. He has raised more than $35M as a startup executive, and advised on more than 500 financings, helping entrepreneurs raise more than one billion dollars for their startups during his career. He has worked with two Polish startups, Intelclinic and Fido:labs, helping them grow their business. Currently, he is the brain behind Silicon Valley Counsel. It is an encyclopedia organized by topics targeted towards entrepreneurs of all levels. It contains shareable advice in under 140 characters. This advice is based on full length articles written by some of the most well known entrepreneurial minds of our time like Marc Andreessen, Peter Thiel and our own Piotr Wilam. These articles are correctly referenced and linked.
This past month Peter did a tour of Poland making a stop at Bitspiration in Warsaw and a Hive 53 Swarm in Krakow. The following is based on his presentation at Bitspriation.
Poland is in the midst of one of the most prosperous periods of its thousand plus years of history. In the last few years Poland has remained the fastest growing economy in the EU. Between 2014 and 2020 8.61 Billion Euros will have been invested in Polish research and development plus innovation. There are over five hundred start-ups listed on AngelList. And more and more start-ups like UxPin, Estimote, and Brainly have secured over a million dollars in their seed rounds. Internet and smart device penetration in Poland is set to jump in the next decade. It may be surprising to learn that population wise, Poland is in the top 10 worldwide for smartphones usage (22M people) and top 15 for internet use (25M people). Therefore, the time to launch a technology start-up in Poland is now.
However, you need funding. What to do?
Step 1: You need a Pitch Deck
A pitch deck contains about 15 pages of material. The topics that should be covered include purpose, problem, solution, application and team. An average investor spends less than four minutes on each pitch deck. You should explain why your start-up exists then talk about the rational behind the product then end with some information on the team. Raising your fund in a round will take more time than you will expect so be patient.
Step 2: Finding the right Investor
So you got an awesome pitch deck prepared, what now? You will need to get to know some investors. Googling investors in your area or country or top investors in Silicon Valley is a nice idea. And you might think about sending them an email with your pitch deck. However, since they get hundreds and in the Valley, thousands of pitches, your email will probably not be read at all. The best way to get an investor to notice you is through warm introductions. If you are lucky enough to be friends with Peter or a well known start-up founder like Marcin Treder of UxPin, then they may be happy to make some introductions for you, but likely only if they already know you. If not, you should attend some free and paid start-up events and network. The quality of networking is a bit better at paid events.
When you do meet a well known entrepreneur, don’t just ask for an introduction right away. You need to develop a relationship with him or her first. Allow them some time and more meetings to get to know your start-up and you as a person. Remember, when an entrepreneur introduces you to an investor, they are putting their brand on the line. Don’t be too business oriented, the best results come from informal talks about something that interest them. Once they know you better, they might introduce you to an investor that is better suited to your situation.
Once you are introduced to an investor there are 10 things that you need to know:
- You should exhibit an extensive knowledge of your market and be ready to back every hypothesis you make with statistics and trends. And you should have a proven track record of executions. They don’t all have to be successful. The investor needs to know if you can actually do the thing you set out to.
- You should have a road map to rapid growth and explain how you intend to keep the customers that you have acquired. A good business is one that is able to hold on to existing customers.
- You need to be able to explain how you intend to scale your business so you have the capability to grow from the local to the global.
- When you have returning customers, your revenue stream is more predictable and when you are able to scale, growth comes naturally.
- You should be able to control your distribution and keep your price competitive. With that you are able to do quality control to retain your customers and keep them happy.
- Founders with a longer track record is a more secure investment. If that is not your case, it’s better if you can do more with lower number of hires. It keeps the level of complexity low.
- In the beginning of the process you should show that you can understand what your customers need, be able to give it to them, and collect money from them upon delivery.
- You should be able to distill your pitch down to an elevator pitch which should last between 60 to 100 seconds with the focus on frequency, density, and pain. In other words how often does the problem occur, how many people have it, and what’s the problem with current alternatives.
- You should decide whether you are building cheaper typewriters or improving typewriters to word processors. Investors are more interested in the latter.
- You should be aware of whether your start-up exist because you have a passion (consumer) for something or you want to solve a problem (enterprise).
Peter goes on to advise you that the way you can judge an investor isn’t how he treats his star investment, but how he deals with his average or worst investment. That is how you can judge his leadership skills.
Most importantly, investors are people not ATMs. If a start-up is able to maintain a good relationship with them, the ROI for both parties will likely be more than just wonderful profit.
Peter adds that there are top-notch investors like Innovation Nest in Poland that are very active in the Poland startup ecosystem, and with global ties and excellent reputations. Building relationships with such funds is a great way to meet other investors as well.
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This is a repost of an article that originally appeared in Polish on web.gov.pl with permission.