Partner Article

How to secure investment

It’s Entrepreneurship Week on Bdaily. Ed Molyneux, CEO and co-founder of FreeAgent, gave his advice on securing investment.

My experience of securing investment is solely within the technology sector, but I think the experience I’ve had with FreeAgent is fairly common for many tech start-ups.

After building our business - “bootstrapping” it - for the first two years, my co-founders and I reached the point where we had real paying customers who loved what we had built. Those two milestones are important, because software is now cheap to build and launch and the days when you could raise money with just an idea and a smile are long gone.

We also started to make the connection between improvements in the product & marketing side of the business and the resulting improvements in customer acquisition rates and costs. We were starting to show we could acquire customers for less that the revenue they contributed, a good indication that you have a scalable business.

When it comes to actually securing investment, you hear stories about entrepreneurs going cap in hand to the banks or other major lenders, armed with 43-page business plans that detail every step of their company’s future. But my own experience of raising money is that it’s not about long, detailed documents - it’s about telling a convincing story with passion.

Many tech start-ups are started by people who don’t necessarily have much experience of building companies, so their track record can appear insubstantial. But it’s actually these technical founders that are often the ones who go on to build very successful businesses. Angel investors understand this and they are likely to invest as much in the entrepreneur and the team as they are in the actual product.

Of course, actually finding an angel investor and convincing them of the strength of your plans isn’t an easy process - although there are great online communities like AngelList (http://angel.co) nowadays that do make the finding part easier. At FreeAgent, we were able to attract the attention of Robin Klein - one of Europe’s most influential tech investors - and the fact that he saw our potential and was one of the first investors to come on-board was a real validation for our business model.

Since then we’ve grown to more than 30,000 customers and 50 employees, and have secured more than £4m in external investment from both the UK and the US. And I’ve come to realise in that time that you don’t have to bombard investors with lots of information about your business to attract their attention. In fact, you really shouldn’t need more than a 10-slide presentation to get their interest - because if they don’t ‘get-it’ in 10-slides, they’re never going to.

Remember, as well, to put yourself into the investor’s shoes. Primarily, let’s face it, they’re looking for a significant financial return, which means they need to believe that (1) you’re going after a large enough market and (2) you have a good chance, with your passion, resilience and product, of winning that market.

It’s a numbers game - you’re looking for someone who shares your vision enough to want to fund it, and your idea may only resonate with a handful of individuals. After all, if it was simple and obvious, it probably would have been done before. You may have to kiss a lot of frogs before you find a prince/princess, so be prepared for the long haul.

This was posted in Bdaily's Members' News section by Ed Molyneux .