2017 / 6 April

The rues in the raise

Every start up founder wants to attract investment. Investment signifies a lot of things. Yes, money is great and for most new businesses it’s a critical factor, but what investment signifies for a lot of people is belief. That there are people out there who believe in your idea and your future so much that they are willing to take the journey with you. That they will ride the bumps and hopefully all reap the rewards.

The process of raising funds is not fun. It is tiring, it is finicky and it makes you challenge every assumption you’ve made to date. In some regards, it’s definitely educational and interesting and helpful for your business, in others it leaves you confused about why people see your world so differently from how you see it. It throws new information and pulls you in multiple directions. It is time consuming and distracting from the things every start up founder wants to be doing, but no one can teach you how important the process is until you’re deep in it. More often than not, values won’t align, conversations won’t come to fruition or objectives are different. But once in a while, there is an alignment and an agreement.

For a founding team, that moment of investment is a big reality check. It’s confronting because suddenly sweat equity and effort has a dollar amount associated with it. If founders haven’t had conversations up front about expectations and outputs, then when effort becomes quantifiable, it’s likely you’ll have to have a number of challenging conversations to understand where everyone sits in the context of business growth. It produces a number of decisions, some you may rue in the future because there are people and personalities in play, but nothing is hypothetical any more. Everything becomes real.

I find a lot of these conversations frustrating because it is a constant reminder that there is so much I don’t know and so much I don’t anticipate. It is expressed as frustration because I push myself to be ahead of the game and leading us in the right direction but it’s not always the case. Within our team, I can channel those frustrations towards productive outcomes because there is a more defined set of parameters. I can own the fact that I don’t know everything and thankfully our team is amazing at working towards solutions. But when you move outside of your bubble, things change.

For someone like me, it’s the nitty-gritty of the raise that is most frustrating. Without a finance background, wrapping your head around terms and implications and follow on rounds and exclusions is all very interesting in theory, but when you’re dealing with your own company and future, the implications are massive. It’s hard to keep one eye on the future when you have gone cross eyed poring over line items and allocating every cent. In many ways, it can be a crippling experience, and trying to make decisions you will not rue in the future is a game few enjoy.

For this reason, I have leant on advisors as often as possible. Someone to sense check assumptions and cap tables and explain to me what things mean. Thankfully, I am now in a place where I have great advisors, a legal team and an accountant who can not only draw up the important information but explain to me what it means and why. As someone who loves to learn and needs to be talked through reasons why things happen, but is also mandated to make the best decisions for our company, that time to explain things and get into the detail is worth more than any retainer.

I speak highly of the people I work with, particularly my advisors who have given up their hard earned time to help me. But as we get into the nitty-gritty, what I’ve learned is that my choice of past business advisors has not always been sound. As the adage goes, the devil is in the detail and all the things I was relying on previous advisors to explain to me and to guide me through how decisions were made was not only lacking, but was often flat out wrong.

What I’ve learned is that those I once relied on for advice were actually guiding me in ways that benefited their own cause and furthered their own situation. They spent time on our business to improve their name, not to put us in the best position to succeed. There is a reason why they are no longer our advisors, but it’s in those details that the scope of misdirection has been uncovered. For that reason, the due diligence has been enlightening, not to undo poor decisions, but to highlight how lucky we are to be in this position and what I can thankfully ‘know better next time’ without the ramifications.

I have spoken frequently about my view of investors, particularly in Australia, and why approaching them as a partnership makes so much more sense. So while the time an investment takes, the questions they pose, the amount of things I learn I know nothing about is all inherently frustrating, the principles behind the process are so important to get right and something I value.

I can now understand that the important thing is not getting investors to sign the line, but to get the right investors. And how important it is for advisors not to tell you what they think, but to take the time to explain what it all means, so you can make those decisions in the future.

An advisor should empower you to succeed and if they do not, they are the wrong person for your business. They are in it for some personal reason that will end up backfiring in the future.

A major investor should take the time to discuss options, implications and variations with you. They should understand that (particularly during a first raise) you will not know what everything means and be able to answer your questions. If they do not, they are not the right investor. They see you as a easy win, or a way to cash out quickly. The raise will be momentarily great, but it will become a decision you rue.

One thing that keeps being reinforced is how important your team is and how critical it is for them to understand every option and decision. If you are tasked with leading fundraising, much as you rely on advisors to explain the what and why, so too will your team look to you for the same. Your team is a sense check and will provide perspective where you cannot. In a start up, the team is everything, so if you can survive a fundraising round and everyone has been heard and everyone is happy, it is something to revel in.

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