Financing for Scaling
Access to financing is frequently cited as one of the biggest challenges to scaling up. Here are some things to take into account when acquiring new investment:
- Befriend VCs: Build meaningful connections with the VCs and try to gain access to their networks even if they don’t actually fund you.
- Take on partners who share your culture: Signing with people who are enthusiastic and passionate about the sector can mean that when you’re next looking to raise funding, they might give you access to their networks, thus increasing your chances of reaching your targets.
- Be mindful of cultural differences: US investors tend to have a stronger appetite to let things go earlier but at the same time, are more willing to provide quicker and more substancial funding in earlier stages. On the contrary, European investors tend to be more patient and make the effort to make the business work but finance smaller amounts.
- Don’t focus solely on quarters: Make sure that you and your investors are not solely focusing on quarters. Instead, look at the growth of the business in 18 to 24 months. Your path to get there won’t be perfect but try to set expectations and manage them.
- Be smart with your money: Only ever spend money that you have in your pocket. Be proactive and understand the run rate and the time when you run out of cash. When raising money, know exactly what you need.
- Make strategic VCs your last resort: Strategic VCs are not as entrepreneur-friendly and might limit your exit options. The rule of thumb is to take strategic VCs as a last resort, and only involve them as late as possible in the process in order to keep your options open. If you do choose to go with SVCs, make sure they invest an appropriately large amount and that the premium on their capital is significant enough.
- Consider corporate VCs: If you would like to go down the corporate VC route, talk to someone who made it work and see how they did it. In addition, you should try to understand why a CVC wants to invest in your company before accepting their investment. Find out what they’re missing in their corporate puzzle and see if they have gaps in their technology.