The Startup Founder’s Guide to Startup Funding

Vertical Menu Here

This is an H2 heading

This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.

LEFT COLUMN CONTENT

Normal breakout box styling.

This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.

How this guide can help you

This guide is especially for earlier stage startups. You’ve most likely already put your own money in  and maybe you’ve also done a friends and family round, but now you’re planning how to scale up and fund your next stage of growth.

Which is really what startup funding is all about – stages. This guide covers the full startup funding life cycle from seed to exit, detailing the different funding sources available. Here’s a chapter breakdown:

  1.  The startup funding life cycle
  2.  Funding sources
  3. Real life stories – funding experiences from startups
  4. How to prepare for fundraising

Hang on a minute, why listen to us?

Because we’re not typical accountants. Sure, our directors have big accounting firm experience but they’ve also worked in venture capital firms and at the coal face inside startups (which we love – that’s why we’re dedicated to them). We get startups, and we believe it’s our job to help you understand and access your best funding options.

This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.This is paragraph text.

Chapter 1

The startup funding life cycle

Understanding the journey

Hang on a minute, why listen to us?

Because we’re not typical accountants. Sure, our directors have big accounting firm experience but they’ve also worked in venture capital firms and at the coal face inside startups (which we love – that’s why we’re dedicated to them). We get startups, and we believe it’s our job to help you understand and access your best funding options.

You need funding to survive, so where can you get it? The answer to that often depends on what stage your startup is at. Let’s look at a typical funding life cycle for a startup company.

Chapter 4

Are you ready for this?

How to prepare for fundraising

VALIDATION

  • What pain do you solve?
  • Do you have an effective solution that customers are willing to pay for?
  • Have you talked to potential customers?

MARKET

  • What is the market size and scope?
  • Why is now the right time for your startup to succeed?
  • Who are your competitors (There is always competition, even if it’s ‘do nothing’ where users won’t change behaviour)
  • Why are you better/different?
  • What is your competitive advantage?

TRACTION 

  • What have you built?
  • What have you sold?
  • What proof do you have that someone wants your product/service?

STRUCUTRE

  • Is your startups structure simple and easy for investors to buy into?
  • Have you protected your intellectual property?
  • Have you talked to a startup lawyer? (we can connect you)

PLAN

  • Do you have a one page business plan? (e.g. Business Model Canvas)
  • Do you have an operational plan, detailing what you’re going to do, when and how?

TEAM

  • What makes your team the right one to deliver on the plan?

This needs to be texts but I wasn’t sure how to put it in.

Click edit button to change this text. Lorem ipsum dolor sit amet consectetur adipiscing elit dolor. Click edit button to change this text. Lorem ipsum dolor sit amet consectetur adipiscing elit dolor

“Diligence is the mother of good luck.”
Benjamin Franklin

This needs colour style.

Now that you’ve asked yourself the hard questions, how do you actually prepare for capital raising?

Very thoroughly. You might even want to put activewear on to make it through this list but it’s worth it because without proper prep, you’ll be wasting everyone’s time.

Keep it real 

Above all, investors want to see real figures and real customers. Use real numbers wherever possible throughout your pitch and grant applications. And if you don’t yet have customers, talk to potential ones before you pitch. Don’t be so afraid of sharing your idea that you never get it off the proverbial napkin.

Company structure 

Complicated structures and messy founder relationships turn equity investors off, big time. Keep it simple – we usually recommend a company plus a trust to hold shares in it because it gives you more options at exit time. And yes, there is sense in planning for exit – you just want to make sure it doesn’t prevent you raising funds.

Protect ip 

It makes sense to put confidentiality provisions in your employer and contractor agreements. However, most investors won’t sign a non-disclosure agreement (NDA). While most startups are building software products that are not generally otherwise protectable, medtech or biotech startups should talk to specialist IP lawyers about patents where appropriate.

The right plan 

Sure you’ll probably use the Business Model Canvas or its cousin, the Lean Canvas, for your initial startup business plan. But sooner or later the rubber hits the road and you need a specific operational plan. Not a 50-page business plan that no one will ever read. It should be 10 pages tops, written in plain language and setting out where you are right now as well as what you need to do, when and how, including numbers. This is what you send to investors if they want more info. You’ll also be able to cut and paste a lot of this info for grant applications.

Be direct 

You’ve watched Shark Tank, you know how quick to judge angel investors are. Venture capitalists (VCs) are the same, but worse. And grant assessors aren’t ones to wade through reams of writing either. So while it might seem obvious: be flexible, efficient and to the point in all your communications.

Prepare your pitch 

You never know when one of your networking efforts might pay off and you get a chance to speak to a potential investor, so make sure you have your elevator pitch down pat. That’s your spiel about what your business does, covering the two or three unique things about it, all within one minute. You’ll also need a standalone 1-2 page version ready to send, and a pitch deck ready to run through face to face. If you’re pitching to VCs, also check out what Square Peg Capital, Fred Wilson, Rocketspace and David Rose have to say.

Team 

You’ll cover this in your pitch deck, just make sure you’re clear on why you’re kick ass enough to make this opportunity real. Make sure you also know what your team doesn’t currently have because investors can often help out with that.

Finance 

You need to be able to clearly articulate how (and why) customers are going to pay you. What are the unit economics of your offering – how are you charging and what are your corresponding costs, including your cost of customer acquisition.

You’ll need a financial model that backs up your operational plan and clearly shows how much money you’re looking to raise and what you’ll do with it. And you need to show you’re on top of your day-to-day finances and are meeting your tax and legal obligations. Pull out those spreadsheets.

Know your answers 

Be ready to give concise answers when asked about your team, the technology, the market, your competitors and your financials. Be aware that investors often ask questions they know the answers to so they can test your knowledge and your ability to answer correctly and concisely. And make sure you do have the answers because saying “I’ll get back to you” will likely lose you the opportunity. 

Know your numbers 

Even if numbers aren’t your thing, you need to be all over them. You need to know how much you’re looking for and be able to explain why you want that much (in other words, how it will be used).

And, the $64 million question … you need to know your startup’s valuation. Equity investors will ask: “What valuation are you looking for?” Early stage startup valuation is ultimately a negotiation and not something traditional business valuers or accountants are experienced in. But it is possible to prepare well for this question with the right advice from a startup savvy accountant so that you’re not laughed out of the room …

Practice 

You know you need to. In front of the mirror is best. Seriously. Despite any nerves, you have to appear knowledgeable, articulate and passionate.

Get help

If you get a chance to pitch to angel or VC investors, you’ll only get one shot. Make sure you have some startup savvy legal and accounting advisors around you ready to help with your valuation and the term sheet, which will lay out the basis of the deal.

This guide was put together by …

Remco Marcelis
Managing parter, Standard Ledger

Remco is not your typical accountant, which is why he founded Standard Ledger. His career combines multinational experience in firms like Accenture and PricewaterhouseCoopers, with experience at the coalface as CFO for his own startups and as virtual CFO to others. He has been doing the latter for 10 years, following four years in venture capital. During that time, he has helped raise and invest more than $40 million. Remco also teaches entrepreneurial finance topics at General Assembly and for Swinburne and Adelaide universities.