Finance · 21 June 2016

What steps should startup founders take before a first-time investment?

investment
Startup founders should ensure to take the right steps before a seeking first-time investment
Going through the process of raising investment for the first time can be an anxious period for any small business owner. Here, Crowdcube CEO Darren Westlake tells startup founders what to consider.?

First-time investment for a small business can take many different forms, from pre-seed loans through providers like Start Up Loans and Smarta, to founder capitalisation and then seed equity through platforms like Crowdcube, encompassing angel investors, VCs, friends and family, customers and the wider crowd.

Prior to even considering fundraising, there are some basic steps that any founder should undertake.

Firstly, know your market and the competition. You should know what market you’re entering inside and out, who the competition is, what their weaknesses are, how much of this market share is realistically achievable in the short-term, and why you believe your proposition is different.

Secondly, making assumptions about how prospective customers will react to your product has killed many startups. it’s key that you only build rudimentary MVPs (minimum viable products) and test them as quickly and as many times as possible with iterative improvements, so you can see how early adopters react and then learn from them.

By building in these steps at an early stage, you will save a lot of time and capital that would otherwise be wasted. Eric Ries? book The Lean Startup? is well worth a read on this subject.

Thirdly, before rushing into raising finance you need to ensure that the business you’ve started is showing early signs of product-market fit. Ask whether the market is large enough, and whether customers in that market are satisfied with the product. And will they use it?

This can only be achieved with customer traction, alongside iterative testing. From an investor’s point of view, product-market fit is a key consideration when looking at the investment opportunity. Investors want to know whether a market will provide multiple returns?

Once you’re comfortable with your business proposition and you’re ready to raise your first round of equity investment, then look at something like the Crowdcube Sprint Programme as your next step. This is a fast-track fundraising method for seed rounds on Crowdcube.

Then, to ensure you have the very best chance of success in front of potential investors, consider the following carefully:

Assemble a winning team Ensure the team you have in place is capable, passionate and thick-skinned. If possible, mitigate weaknesses in your team by using advisers and mentors. An investable team, ideally with exit experience, is one of the most common factors in successful Crowdcube fundraises.


 
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ABOUT THE EXPERT

Darren Westlake is the co-founder and CEO of Crowdcube, an online platform that enables startup, early and growth-stage businesses, from a range of sectors, to raise finance with the added benefit of being backed by the crowd.

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