Notes from Deakin Uni’s Funding For Startup session

It’s easier to raise money at the idea/concept stage than once you’re in the market. 

It’s easier to sell people when the product is full of potential.

It’s much harder when you’re in the market and dealing with real problems.

Skin in the game

In Australia and other smaller markets the investors will want to see the founders take a much smaller salary and retain equity in the company so that they’ll work harder.

(Beyond covering living expenses)

In product risk and market risk what is the riskiest?

Market risk. We can build pretty much anything now. The real question is “should we?”

Use lean startup methods to reduce some of this risk.

Convertible debt

Take money. Then it will be converted into equity at a later stage.

How do you value your company early on? 

How much do you believe that it’s going to be worth? You are selling a promise. But it’s hard to calculate at the moment.

A convertible note means you take a loan from me today, and later on, we convert that into shares at a discounted price. I get a better price because I invested earlier and took on more risk.

Types of investors

Angel investors

Socially minded investors – invest in specific categories where they have a specific interest

VCs – managing other people’s money. They’re usually working on behalf of LPs.

LPs – limited partners. Wealthy individuals who invest in different funds. Some of the money they will invest in venture. They invest in a venture fund that has a proven track record.

VCs will see hundred of pitches each month. They’ll invest in a few a year. But they write bigger cheques. Don’t approach VCs with an early stage idea or prototype.

Bootstrapping – pay for it yourself. This means you’ll retain more equity within your own company.

Different types of investment

Angels – very early stage startup (idea stage)

Super Angels – wealth individuals who can afford to invest more

Government and other org grants – nobody gets any equity. “Pretty damn good deal”.

Startup competitions. “Free money … but you’ll need to deliver a business pitch … don’t do too many of these because it takes away focus from the business.”

Crowd funding – ask your future customers to pay for your product upfront. This is a good way to validate your product with the market.

One company in an investor’s portfolio will do really well but a lot won’t.