So you think a VC is going to write you a cheque?

Getting your first round or two of funding is difficult. Especially in the U.K. where the ecosystem of individual investors (aka angle investors) and venture capital firms (VCs) is a fraction vs. Silicon Vally/US.

As a first time founder in the U.K., here are a few of my experiences and opinions.

Don’t count on a VC funding your first round

Getting funded by VCs comes down to how many data points you can show to prove you have traction (defined as quantitative evidence of market demand).

A common way to show “traction” is having your target demographic using your product and you’ve likely found a unique channel to grow your market share in this niche demographic pretty quickly e.g. Facebook had 60% of Harvard students signed up within the first few weeks of launch — the first signs of traction. If you’ve not built your product yet, you could show a proxy to traction by:

  • getting potential users to join a waitlist
  • getting potential users to put a small deposit down (or somehow pay) to use the product when it’s ready
  • letters of interest from businesses if you’re a B2B startup
  • launch a demo/lite version of your product and see if users are engaging with it

Don’t be fooled in thinking you’ve need have the everyday person on the street using your product from day 1. Realistically, identify your early adopter group and show that you are acquiring users quickly within that group is the first step. This might sound counter intuitive (don’t you want to show everyone is using your product), but I’ve learnt a lot of things are in start-up world are counter intuitive — read more from Paul Graham about counter intuitive startup thinking .

But what about that guy who raised £750k with a VC with just a slide deck?

I feel you. You’ll come across a story like this on TechCrunch now and again. You’ll soon see a pattern — which forms an exception to what I’ve written above. The exception is usually successful repeat founders, early employees (with operator style experiences) at successful startups or founders with incredible domain expertise. VCs are more likely to take a gamble in these founders in the early/concept phases than first time founders with maybe little track record.

I’m loving angels instead…

In the absence of traction, your early stage startup will likely be funded by angel investors (aka rich individuals). This is what I’ve learnt about angels:

  • Two types of angels: ones that write £10k-£50k cheques, and ones that are £100k-£250k. Don’t be afraid to find out their general ticket size, find out which other start-ups they’ve invested in to know if they’re the real deal or they just put £100 into a crowd funding platform now and again.
  • There is no structured way to meet these angels if you’re new to the startup ecosystem. You’ll waste a lot of time kissing frogs, lots of cold emails and coffees, BUT end ALL angel meetings with “if you know someone who’d be interested I’d appreciate the introduction”.
  • Start with people in your network, however small that may be, and keep getting referrals.
  • Consider pitching at angel investment events (Top 17 Angel Networks in UK) or get accepted onto a startup accelerator and leverage their network (my take on accelerators).
  • Set angel investors a deadline for when you need to know by. It might sound risky, but it will cut through to the serious investors and eventually save you time (and maybe heart break when it comes to signing term sheets).
  • Have a term sheet prepared for these meetings so you look organised. It will also set a good structure for the conversation and give you early feedback if you’ve got your valuation or fundraise amount a little off.

Start a quarterly VC newsletter

Ok so you have a little angel money to get going, but just because your start-up isn’t in VC funding territory does not mean you shouldn’t meet them for a coffee. Start harvesting your relationship today. Track down an associate/VP’s email and be open by saying you’re not looking for VC funding just yet, but you’d like to learn more about the VC for when you’re ready, want to find what they look for when investing and you’d still like talk about what you’re working on.

Then, every 3–6 months, drop all your VC contacts a generic email with the progress you’re making and the milestones you’re achieving. When the time comes to raising a round with VCs you’ll be thankful you’ve been cultivating these relationships and you’ll hopefully convey you’re a founder who’s delivers.

Traction is king

All in all, there is no rule book for these things. At the end of the day, as a first time founder, if you believe you can show some data points which validates that you have a whiff of traction with your startup, then there’s no reason why you can’t be going to VCs to raise funding.

You may have read somewhere that VCs look for the three Ts — Team, Traction and Technology. In reality it’s more like Traction, Traction and Traction. Focus on building a great product that people love…the money will come.

I’m Nish, an ex-founder based in London. I’m documenting all the mistakes and lesson that come from being a first time startup founder 🚀

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