If 2018 is the year you want to take your business to the next level, you might be considering bringing investors on board. For startups, the world of investors can be a scary but necessary for growth and success.
[Related: Let’s Talk… Founder/investor fit, Let’s Talk… Raising Capital (part 1) and Let’s Talk… Raising Capital (part 2)]
Camplify was born from an initial involvement with NRMA’s Jumpstart program by Slingshot and angel investors. Positioning ourselves as the ‘Airbnb for caravans, RV’s and camper trailers’, Camplify launched in 2015 and the product has since seen different investors help shape the success of the model. With Camplify now valued at over $20 million, our rental fleet of vans is the largest in Australia and continues to grow.
When considering an investor, it is vital startups think about the following before biting the bullet:
- Make sure you fully understand your market. Investors want startups that have insights into the market they are looking to build a product in. This understanding of the market, and the problem is critical for being able to build and improve your product offering. This understand builds confidence with investors and shows your knowledge of why your product will eventually succeed.
- Ask whether you completely understand your customers. The understanding of your customers needs, and wants is critical. It shows you have a product that people want, and their is a true need in the market. Most importantly understanding these customers inside and out will enable you in the future to get more and scale your business. In our business when a new customer comes along, we generally know every question they ask, in what order, what is important to them, and their motivations for joining us. This customer understanding helps you build better products, customer engagement, and fans or returning customers of your product or service.
- Have a plan for the future. What is your endgame? At some point investors need a return. You need to paint them a picture of how that will happen. Growth is not enough, and thereofre you need to demonstrate the potential for capital gains for your investor, while still being clear this is a speculative venture.
- How much do you really need from investors? Taking investment means you are selling chunks of the company. You can only sell it once. That means your valuation needs to make sense and build along with investment over time. Do not take too much too early, and have a plan for when and why you will take the next round of investment. Hit your targets and push your valuation higher.
- People invest in people. It’s the oldest line in the investor book for a reason, because it is true. Unless you have a passion, a vision, and an ability to build a team to help you, your success will be limited. Investors know this and look for leaders who can execute in an effective manner. You do not have to be able to do everything, but you need to be able to build a team who can overtime. Most successful startups have a founder with strong tech background, and a founder with an ability to sell or market.
We have all heard of business deal breakers, and when bringing investors onboard there can be some red flags when analysing whether they are the best fit for your product or service.
Steer clear of those who want too much involvement outside of their expert area. While investors are great, you need investors who will understand you need to do what is required and that you know your product. They must be willing to let go when needed. Updates are important, but over the top involvement and hand holding will only result in poor outcomes, and frustration. The best course of action is to give your investors who want involvement jobs that add value to your company that will help with the end result. This will keep them involved, but ensure the involvement is positive and delivering results for you both.
Be aware that some people may have their own motivations. Why do they want to invest? Do they have another plan? Sometimes an investor can want to invest as they see something in the business or your team that can deliver them a result. You need to agree on the goals, action points, and deliverables for that investment and deliver against that plan. Make sure you have that agreement that meets your objectives
Some may want board seats without any value. Lots of investors will want to be on your board. As a rule I say no. Board members should add significant strategic value to your business. This will not always be the case with an investor. Sometimes you will get a two for one, investment and significant value from a board member. Be careful with who you give that control of your company to.
There is also a little you should consider when aiming to sell your product to investors. How are you going to make the sell? This is why your pitch is important. You need to know what you are going to do and how to execute it. Know everything inside and out, have confidence in your responses, and be able to inspire that confidence to your audience. Create a sense of excitement in the company. That’s what gets people keen to invest.
Think about also creating a wish list. Who would you want to invest in your company that can help you grow it? Maybe they have industry knowledge, and connections? Maybe they have some skill that is going to add to your growth, Maybe they are a future acquisition position? Whichever it is, create a list of who you want to invest and why, and approach them to pitch them your idea.
Some other things that startups consider when bringing on investors are:
- People or corporations who can add value to grow your business, and push you to the next valuation. You want every step of your journey to be growing your valuation. This can be from results, strategic position, or sometimes who has invested in you. Whatever it is those investors need to help you achieve valuation growth targets. You should ask yourself what can this investor give me beyond money? Once you identify these write them into you agreement with that investor for them to deliver on them. This makes it clear and there is agreement from both parties.
- It’s a marriage. You have to like and trust your investors, you are going to be working with them for sometime. You are in this together, so make sure you have the investors you are happy to go on this journey with.
About the author
Justin Hales is the Founder and CEO of the Airbnb for caravans, RVs and camper trailers, Camplify. He is an established entrepreneur, mentor and a share economy expert from Newcastle, NSW.
