Night Owls: Fundraising Fundamentals Explained 🦉

Welcome to Night Owls. This is a new series where I'm going to be going through the fundamentals of fundraising. It's pretty obvious that the content I generally post is quite advanced in terms of fundraising, and I appreciate there's a large portion of the audience that need to learn and understand

the fundamentals. So this is what I'm going to be doing. I'm going to start from the very beginning, and I'm going to take you through a little slice, and I'm going to be posting them on a night time, so you've got no other distractions, you can just sit and watch.

So here's the first one, and let's start at the very beginning, which is understanding where you are in the fundraising.

So what you can see in front of you here is something called the Startup Growth Lifecycle, and it's designed to map out the average journey of the average business.

As you can see, as you mature, which is the red line, you pass through various stages of fundraising. So let's start at the very beginning.

As you can see, this is before there's any revenue, before there's any time, the co-founders or the founders of the business may have to chip in.

Once we start generating revenue or not or spending any money, we can flip into what we call the Valley of Death.

The Valley of Death is where most businesses die. 10 out of 11 businesses die here and 78% fail to raise their second round.

And what it basically means is you're burning more money than you're making, so you've not broke even yet. And you're very new.

You're doing your markets. You won't have product market fit and you won't have that maturity we expect from a larger company.

As you can imagine, there's only a certain amount of investors or funds that'll fund this stage in your journey. And they're generally crowdfunding.

Although rare accelerators, angels, friends, family and fools. And that's what we call seed capital. As you progress and move through, as you can see, you go through the first, second, third fundraising round.

We call this series AB. And they're generally dominated by VCs and corporate VCs and family offices, private equity, perhaps. And then you move through to IPO, but I don't care about any of that stuff.

I really focus on this first early stage and how to get out the valley of death alive. Pre-seed, seed stage, pre-series A, venture, series A, B, C.

There's lots of words and labels we put on stuff and ultimately in fundraising, I want to put you in a ball.

So I can benchmark you against other businesses and to do this we give you names. What we'll focus on generally is pre-seed and seed stage in these videos, but we'll cover the rest so you understand it.

Pre-seed business is generally concept only or prototype. It's generally limited revenue traction, limited data on customer demands and pre-regularly approval.

So that's generally for fintechs who need banking licenses or medtech you need. You know, CCG approvals or you know, government processes.

As we move through the venture stage, this is more for established businesses who've got a business model that works. They've got technology and IP.

It's generally dominant. And they're focused on scaling your business, breaking even or profit and establishing market dominance. Yes, so let's break through them now.

Our own brand relationship or some start up friends or what that that counts, you know, it's all about your initial network, your core group.

And this can be people from your old jobs, it can be people that you've met over time. It doesn't have to be your grannies what I'm trying to say.

Fools on the end there, we put fools for those passion investors, those who follow with their hearts, their tourists as the VCs will call them.

And generally, they make random investments, they The OLD follow a thesis at all. The next you'll see is Angels, the median's 50k according to the British Angels Association, although we generally see tickets ranging from 10k to 15k.

These are going to be XC level executives. Maybe ex-entrepreneurs, although they're slightly trickier to deal with and generally come with a fund or a family office.

And, you know, just passion investors in the space. Anyone who's in and over 100k really and worked in a job for three years.

That's what the FCA states. MicroSeedStageVC is my favourite fuel ventures, SFC Capital, Hatch, these type of businesses are looking for SES funding.

Generally, they've got quite firm, firms, they may use vesting periods which we'll cover another day, and they're generally taking 20-30% equity.

Valuation really matters with those, so keep that in mind. It's going to be a finance process and a deal-making process.

Accelerators and incubators are very, very difficult as well, just because often they're new, and there's not much track record behind them.

There are some big ones, established ones like Y-Combinator for example, but generally, we see lots popping up, offering big cash prizes, big equity, big promises, so I was like, I always please ask people to be cautious with accelerators and incubators, you can really get in bed with the wrong person

. And we've seen some quite tragic cases of this, it's, it's something to be wary of. And finally, equity crowdfunding, it's a mix of everything above, it's really easy to sort of understand, it's basically just a retail.

Investment platform. So that gives a bit of an overview of sort of the startup scene, who's investing, what they're investing in, and sort of where your business is.

And next time, we'll jump into some more detail. I'll catch you then.