Get savvy with your funding to fuel your startup

Investment and funding are critical when you’re starting out in business, and most of the time, we never seem to have enough. 

Often it feels that the answer to our prayers lies in a bag of hard cash, but ask anyone who has made it a bit further along the startup journey and they’ll tell you: it’s not as simple as that. 

The tricky topic of fundraising and investment was the subject of our latest London’s Brightest Businesses panel discussion at the Workspace Eventspace in Salisbury House, London on Thursday November 21. 

On the panel were the founders of two of London’s most promising startups, Workspace customers Varaidzo Tendai Moyo, CEO and co-founder of Ruka Hair  and Zak Walters, co-founder of Vinca Wine. Each have been through multiple funding rounds for their businesses. They were joined by Vanesa Pazos, partner at venture capital firm NoBa Capital and Jonathan Trimble, co-founder and CEO of creative ventures company And Rising. Emillie Bellet, founder and CEO of Vestpod, the digital platform and community that empowers women financially through education, hosted the discussion. 

It’s not just about the money

In the business it’s known as ‘smart money’, when an angel investor provides more than just capital. Expertise and connections can be worth their weight in gold to a startup. “Our first investor was just money and that was great, but our second investor is now bringing this massive European wine distributor network with him,” explains Zak Walters of Vinca. 

Connections are one thing, and Vanessa Pazos explains that the investors in her syndicate want to invest “their time, their connections,” along with capital. 

For Jonathan Trimble, it’s about providing the expertise young businesses need, rather than the money. “We said: ‘why don’t we give services to you in exchange for equity and we’ll come on the journey with you?” 

This worked well for Varaidzo Tendai Moyo when she received her Estee Lauder grant: “We were trying to crack Tik Tok and Estee Lauder were combining the cash but also the expertise. It was perfect for us.”

Craft a great pitch

Knowing who to pitch your business to, and how, is crucial. This means leveraging your individuality so you stand out from the crowd.  “It’s not so much telling us what you are building, it’s telling us why, how you are solving a problem,” explains Vanessa. “You need a concise and not over-complicated pitch.”

“It’s almost like, ‘who is my ideal end-game partner for this?’,” adds Jonathan. “And you want to get to a point where you’re courting multiple possible partners and asking them ‘what can you bring to my cool innovation?’”

For Varaidzo, a good pitch considers the background of those you are trying to reach: 

“It was challenging speaking to tech investors because they’re predominately white men who didn’t buy hair extensions and it was ‘how do you tell the story to people who might not be in the consumer demographic but show them why it’s something they should care about?’”

You also need to have your financials nailed down, adds Zak: “The lay of the land of investors has changed recently and a lot of investors are not up for taking as many punts as they once were. They want to know how they’re going to get their money back.” 

Do you even need the cash? 

The biggest question any founder should ask themselves is whether they actually need additional funding. It will inevitably come at the expense of equity and as our founders discovered, dire straits can fuel invention. 

“We have probably done our best work when money has been an issue and that hussle mentality has come to life,” adds Zak. “We actually do our best work when we’re skint. You get really creative.”

Circumstances forced Varaidzo to look outside the box. “Last year our lead investor disappeared and we essentially went down to zero and had to build the business back from that. But we did some of our best work. That instance was probably one of the hardest periods of my life but what I learnt as a founder was priceless.”

Sustainability

Such a buzz word a couple of years back, the issue of sustainability has become less of a selling point these days. This can put startups in an awkward position when trying to go green. 

“Sustainability is the by-product of how we built the business rather than the focal point,” says Varaidzo. “A consumer today just wants a product that works.”

Jonathan points out that the consumer can often distort the picture on the subject of sustainability: “You get a massive bum steer from consumer research because they will always say it is the number one driver, and it isn’t. In fact, if you lead on sustainability, the perception is the quality of the product is going to be worse.”

The fundraising environment

It’s all well and good going out looking for investors, but is anyone actually doing any funding? With mixed signals on the economy, how likely are you to find an investor?

The environment has changed quite a bit for Varaidzo. “It felt like in 2020-21 VCs were investing a lot more on hype and we had two rounds that were oversubscribed. I feel now people are moving back to fundamentals.”

Jonathan advises founders to look around: “Be very selective in your fundraising because in some ways the boot is on the other foot.” 

“Do your due diligence,” adds Vanessa. “Find out who they are, because there are lots of investors of all types. Understand what they are contributing.”

One tip to take away

Vanessa: “Whatever stage you’re at, have investors around you who you can bounce ideas off.”

Zak: “When you are considering investors, take legal counsel. Our first investor wanted anti-dilution rights. We found out it is basically a growth killer. Take legal counsel, it is worth the money.”

Varaidzo: “Ask yourself if you actually need external funding.”

Jonathan: “Find something in your category that we didn’t know was happening, because we see a lot of the same ideas.”