A few weeks ago I wrote a brief post about Teraco’s successful first round funding. The last 18 months have been a very interesting learning experience. I figured I’d share some general thoughts and experiences about the process of raising a large amount of money for a new business idea.
So, there I was, sitting in a restaurant one evening, in a private suite, with a group of about ten exceptional gentlemen, investment bankers, fund managers, experienced entrepreneurs and businessmen. You could say it was a celebration dinner. Smiles all around. Interesting conversations. Board meeting completed. Paperwork signed and sealed. The food is excellent. I select a good red wine off an impressive list.. and I’m thinking..
So this is what it’s like running with the big dogs.. people up there in the rarefied air.
Note to self: Let’s do this again.
Up to now, all the ventures I’ve been a founder of have been mostly organically grown and have not needed major initial capital investments. Amobia needed some starting capital to build its first network infrastructure and Blio for it’s PBX production, but somehow we’ve always managed to fund the staring phases by selling services.
Seeing a business raise a healthy initial investment, attract a solid team of people and find the kind of momentum Teraco has just makes you want to do it all again. Once you tasted it you want more, like that scene with the little girl asking for more in Interview with a Vampire.
A few ideas..
Choose your business ideas wisely
Something you realise down the line, one of those perfect hindsight items. Don’t just jump in and swim. Some ideas just don’t have the potential to make a big impact even though you are very passionate about them. If you think you have the most awesome idea.. write it down and read it again in a week. If you still think it’s awesome start figuring out if it can make serious money.
Take a longer term view. Business ideas can have a 1-2 year incubation cycle, just simmering and waiting for the right environment. Ask yourself if you are willing to put 3-5 years of your life into an idea before you start. Have the discipline to know when not to start a new project.
Get a good lawyer
You’ll need somebody to help you decode long boring legal agreements, draft deal sheets, edit and check legal documents, subscription agreements, shareholder agreements etc. Somebody you trust.
Write a good business plan
Keep notes. Keep refining your business plan. Work at answering the questions your investors will have. It’s not something your write over a weekend. It can take months. Don’t waste too much time with the big name consulting firms. They can give you advice, but they can’t write a business plan for you. Good business plans get written by the founders of the business.
You need a good financial model
Keep it as simple as possible. Something that can be audited without too much pain, not something that explores the final frontiers of spreadsheet limitations.
Get yourself a trust fund to keep your assets and shares in
Work on your elevator pitch
Have cash to risk. Place your bets
To be serious about this game, I figure you need about R1m of cash around, which you are willing to risk in getting a new venture ready for its first major funding. Make sure you are willing to invest your own money in your idea. You must be sold on the idea.
Go big or go home
I think it’s easier to raise R50m than R1m. Big ideas grab attention. Big ideas have less competition. Nobody is very interested in a really cool idea that produces a business worth less than a house.
Investment bankers are a rare breed
Interesting people. Quick to grasp ideas. Quick to move on to other ideas. Good at spotting value, very good at quantifying value. If you have a good idea, a good plan and the numbers make sense I doubt that you’ll need to do that much convincing. They’ll quickly let you know if they believe your story. There are a number of very good investors and fund managers around once you start looking.
Reputation is very valuable. The investment community is well connected. People have to want to work with you again in future.
Learn to negotiate
Talking turkey is an art. Know when to stick to your guns. Take your time when the big moves get made. It’s ok to think it through and give your answers in a future meeting. People quickly learn your ways of negotiation. I think it’s constructive to be consistent. Logic, reasoning skills and being able to express your ideas are essential. Making sense is the best offense in any negotiation. Be creative in finding solutions or new angles to explore.
The slow lane
Don’t waste your time with people who don’t have money or don’t get the idea. I remember a few meetings with people where they kept batting the idea and I kept thinking.. “dude, I’m brining you the most awesome idea on a plate, just wake up and let your ego take a nap”.
You need to constantly be looking around for good ideas. Sometimes it’s a simple idea that crossed your path a long time ago that is the most powerful.