According to Marc Andreessen, the only thing that matters to startups is product/market fit. To put it simply, do you have a product that a significant number of people want? If you are savvy or lucky enough to get to validate your product and are building something that people will buy then you have achieved an important milestone, but your startup journey has really just begun.
When entrepreneurs achieve product-market fit but can no longer fuel further growth through bootstrapping or their own personal funding, then they must look for outside investment. This is when some of the less glamorous but still fundamental things like organisational structure, business plans, insurance and your accounts become critical.
No matter how great the product or innovation you are working on is, investors will not back you if you have not done some of these basics.
It is critically important that before you get in front of these investors that you have many of these things in place or else you might have blown your one and only chance because you couldn’t answer some of the basic questions around the fundamentals of your business.
Here’s 10 things you need to consider or have in place when going for investment:
- Articles of association – “These are written rules about running the company agreed by the shareholders, directors and the company secretary.” Your articles should be in the right order before you look to raise any investment.
- Key suppliers and customer contracts – Having key suppliers and customer contracts in place demonstrates you are running your business properly and increases the appetite of investors.
- Shareholder structure – Similarly it is important that there is absolute clarity on who owns what stake of your business. Even if your product is great, investors might not write you the cheque unless this structure is clear.
- Founders agreement – Many things can go wrong in the market. What’s worse is when things go wrong between founders. Investors and lawyers have long been seeing these issues and do not want to deal with such cases. These issues may range from a founder no longer being interested in being active part of the business all the way to major financial disputes. Having this agreement in place makes your business more investable. Read more the Quick Guide to Founders Agreements written by Jonathan Snade, Partner at Thomas Eggar, part of Irwin Mitchell.
- Share options scheme – Your company size is small now and the first few people you employ are unlikely to be just regular employees. They need to have a vested interest in growing your business so setting up a share options scheme beforehand is important. Learn more with our What You Need To Know about Share Options Schemes article by Michael Arnott of MBM Commercial.
- Business insurance – Insuring your business could prevent you from critical moments when things do not quite turn out as expected or planned.
- HR capability or service provider – If you are not sure whether you have the right people in place to scale your business or how to contract with them, then you need to consult with experts in human resources. Having the right people will help you grow your business faster.
- Accountants’ competency – Your historical and forecast financials need to be in great shape and so it is important to make sure your accountants are competent and focused.
- SEIS or EIS eligibility – These schemes are tax incentives for investors to put money into early stage companies like yours. The Seed Enterprise Investment Scheme (SEIS) “complements the Enterprise Investment Scheme (EIS) which offers tax reliefs to investors in higher-risk small companies”. For example if an investor were to put up to £150,000 in SEIS shares in your business, the income tax relief would be 50% of the initial capital invested and there are significant capital gains tax benefits too..
- Business plan or the pitch deck – Here is where you communicate the value and potential of your business and what the investors get back in return for the money put into your company.
The good news is all of the above are fairly straightforward – if you get started on them in good time. If your business is at this point where you are seeking or preparing to seek investment then we have even better news as Quantiply is a one stop shop for becoming investment ready, connecting you with people that can help you get all these things in place before actually connecting you directly to investors who invest in businesses like yours.