For some CEOs, raising capital can be the most important and time-consuming part of their job. It’s a complex area to navigate even for the most experienced CEOs, and especially so for those who are new to the game.
Vantari VR’s co-CEO Dr Nishanth Krishnananthan knows all too well the complexities involved when it comes to capital raising. At 33 he found himself alongside business partner and co-CEO Dr Vijay Paul navigating the unknown territory as part of their seed raise for Vantari VR.
Coming from a medical background, it was a case of ‘learn as you go’ and whilst Dr Nishanth Krishnananthan would like to say it was all smooth sailing, that definitely wasn’t the case.
In early 2019, when Vantari VR were working with their lead investor to secure financial assistance as part of the federal government grant, they in advertendly ran into some trouble.
By that stage they had secured funding from an investor to submit as a matched contribution to a government grant, but at the final hour they found out that the investor didn’t actually have the funds and their follow on investors were unhappy with the delays. This meant they had to scramble to find another investor or risk losing the grant.
By some miracle (and the power of networking) they found another investor and secured the grant in the end. Needless to say, they learnt the hard way of what can go wrong when it comes to raising funds. Here’s what Dr Nishanth Krishnananthan wish he knew back then.
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Start early
If capital raising is something that you are thinking about doing for your business in the future, start early. The process can sometimes take an entire year so don’t fall into the trap of starting when you’re ready to receive the funds. Begin building out your networks, have coffee meetings and gain connections long before you’re ready to really commence.
Tip: Never stop capital raising.
Keep your options open
At the risk of sounding like a cliché, don’t put all your eggs in one basket. We certainly learnt this the hard way during our first capital raise and it left us scrambling at the final hour. Put the feelers out, keep the conversations open and have a backup plan if you need it. Don’t be afraid to widen the net – go beyond Australian investors and source connections overseas, especially if you’re in a niche market. Different investor groups exist for different rounds. If you are early stage like us, concentrate on angel investors or user investors. Reach out to Venture Capitalists and Private Equity firms just so you can be on their radar for future rounds but also to see what you need to do to be on their portfolio.
Rejection is normal
You will likely get more investors saying no before you get a yes. Resilience is key as the process can be all consuming and marred with setbacks, often taking time away from your core business. Be aware that you can have hundreds of conversations before someone actually signs on the dotted line. Then just when you think everything is good to go, the carpet can be pulled out from underneath you, leaving you to start the process all over again. Don’t lose hope. Ensure you get the right feedback and learn why they didn’t want to work with you. Whatever happens, remember that there might be hope in future rounds (they may even introduce you to others more suited to your business).
Always be ready
Providing investment ready material can be incredibly time consuming so once you’ve built out what you need, continue working on it and have it ready. Create a robust pitch deck and business plan, develop strong branding, be clear on strategy, know your numbers and have all the documents ready to go at a moment’s notice. With every conversation, keep improving your core documents. Eventually, you will have everything you need and you can control the narrative better.
Do your due diligence
Sometimes the start-up world can feel like survival mode and most would agree that they’d jump at the idea of taking someone’s money. But before you get blinded by the dollar signs, do your due diligence first. Personal recommendations for investors are always great, but don’t just go on hearsay. Dig deep, do your own research on the investor and listen to what other investors say about them. Also having a great lead investor can be crucial – find one who is willing to do the hard work and the due diligence on behalf of you and other investors.
Put yourself in the shoes of the investor
Stop thinking like a business owner and start seeing things from an investor’s perspective. Consider what would make them sign on the dotted line and why they would put their trust in you. As you can imagine, investors likely receive hundreds, if not thousands, of business plans each year, so you need to make sure yours stands out. You need to know your numbers, know your potential and display your strategic value. Know the things that your investors are looking for and tailor the information, so they get what they need first time. Don’t forget to research what kind of companies they have invested in and make sure you get first-hand information from other founders about their experience of working with that investor.
Watch the clock
Timing is everything during capital raising, and it goes both ways. Find information about where investors are in their journey, how much deployable capital they have, and whether now is the right time for them. It’s also great to meet as many investors as possible, but that can be time consuming for you and your business. Narrow it down to whether your startup fits their area of interest. Many have their own biases or guidelines to what they prefer to invest in. Vantari is in the healthcare domain combined with an emerging technology in Virtual Reality. It sounds great on first reading, but both of those areas have inherent risks and not everyone has the appetite to invest into these domains. Find investors who understand your space and who can potentially open channels for you (if you want ‘smart money’) while always keeping in mind their timeline!
Don’t make promises you can’t keep
Investors will always remember what you say, so don’t make promises you can’t keep. Sure, you want to make sure your business is seen in the most positive light, but don’t ever stretch the truth or overpromise. These circles can be small and that little white lie you told years ago can become the thing that comes back around at the most inopportune time. Be realistic and set the right expectations from day one. Investors will keep you accountable.
Raise more than you need
Always raise more than you need and have more investors in your pocket than not. People argue that it dilutes your equity component but before you know it, investors can drop out. Increase your potential funnel and you can always cut back. There is also the classic surprise post raise, where unexpected costs arise and your cash burn will inevitably be higher than expected, often at the mercy of staff, legal and accounting or software protection in our case. Having a buffer helps and ensure you have a runway for at-least 12-18 months. Last thing you want to do is try to raise capital 6 months after completing your round. Don’t’ forget, there are also an array of options outside direct equity investments – SAFE notes, convertible debt, business loans to name a few. Find what works for your company. What suits you may not suit others. We took the approach of attaining a federal grant to support our journey.
Look after your core
Raising capital, no matter what round or size, means you need to be doing it constantly. For us it helped being co-founders so we could split responsibilities, but make sure you don’t neglect your business. This risk is that you can often raise capital for a year or longer and then realise your core business is suffering and you’ve have had no growth to show your investors. Do it in parallel. If your business is going well, then investors will come.
Talk about failure
In startup land we are quick to celebrate successes, but failure needs to be admired the same way. We can learn a lot more from mistakes and the way people rebounded than we can from achievements. In an ecosystem that promotes collaboration, it is critical we look after each other by talking about the negative experiences and saving other founders or businesses from making the same mistakes. We are transparent about our journey so far and hopefully we continue to help others on their own.
