Three weeks ago I wrote my first post about starting up: a summary of my last year – leaving the Guardian, learning to code, and deciding to do a bizniz. I left you at the bit when I was about to go chasing rich people around London. Here’s what’s happened since:
“Smart money” vs “Dumb money”
When hunting cash, you need to know what kind you’re looking for.
In essence, “smart money” are investors with form: angels or funds with a history of investing in startups, or with experience in the industry you’re aiming to join. The “smart” bit is the added value you get with the cash – advice, contacts, experience. And mostly … a fair old dollop of PR. If a “smart” investor backs you, it’s a story – your startup is given an immediate credibility injection, and its first press release.
“Dumb money” is everybody else. This could be a friend’s rich uncle, a floozy fund looking for anything worth a pop, or a City prospector wanting to get in on some of this Silicon Roundabout thing. A big part of their draw: the SEIS scheme, giving investors a 50% tax break on investments up to £100,000 in early-stage businesses, and exclusion from capital gains on any profits made. I don’t like this smart/dumb distinction. As far as I’m concerned, if someone has a few hundred thousand to risk on a chunk of a startup, it’s very unlikely they are dumb. But anyway …
I started with a list of seven “smart money” investors. Here’s how I found them, and made contact:
1. Read lots of TechCrunch Europe and Tech City News pieces about recent angel/fund movements and investors, and have a proper rifle through AngelList. There’s plenty of investors out there, but they aren’t particularly visible. For obvious reasons: They expect to be sought out, and startups need them more than they need startups.
2. Get their email addresses. In order:
• Work out of you’ve got a mutual contact, and ask for an intro, preferably bigging you up. If you don’t have any, look through the people they follow on Twitter for anyone you know, and go via them.
• Look for their personal blogs, there’s often an email address on them.
• Look through their Twitter history for anyone else who’s asked them for their email address and got a public reply
• Ask them outright on Twitter… “mind if I drop you an email?”
3. The email. Only one of the emails I sent hasn’t been responded to – the only one in which I didn’t mention The Guardian in the email title. This is one of the few advantages I have as a first-time founder – I’m not just a random dickhead starting a business, I’m a random dickhead who used to (still sometimes does) work for the Guardian starting a business. I kept the emails short – a brief explanation of who I am, a brief summary of the business … wanna go for coffee?
Of these first seven: one never replied; one passed immediately because she isn’t currently investing; one I’m meeting later in the month; and four I’ve met.
Two of them I probably shouldn’t have. I’m not sure if this is a bad thing or not. If I’d done my homework properly, I’d have realised that these two funds have never invested in anything without proper traction (i.e. a company that exists, and has plenty to show for itself), and usually invest well above the kind of cash bracket I’m looking for.
This isn’t to say they were disasters. The first was in an office in Mayfair. I did my pitch – a five-minute “deck” talking through exactly what I’m building, with lots of figures and market research, then we talked. I didn’t fuck it up, and my business lasted half an hour with a serial investor without falling apart. But the punch was was in the first few minutes – he explained how his fund worked, and I realised there was no way they would invest in me. I was too early, and too low.
The second was in a coffee shop in Shoreditch (Ozone – it’s the de riguer Silicon Roundabout meeting spot, I’ve learned). She was furiously smart. She didn’t order coffee, she just wanted me to get on with it. She stopped me before the end of my pitch and asked me straight up what I wanted. Crap cut. I explained: cash to pay a lead developer / technical co-founder as well as offering them equity, so I can focus on marketing post-launch. She tore into my logic – why would you pay a co-founder who is getting equity? Then she tore into my idea – how was I going to get traction? Why would I succeed where others had failed? How big is the market? I think I did OK. Not brilliant, but OK. Then I showed her what I’d built, and her good cop emerged. She was impressed, and started emailing a few people about me. But, again – ultimately, I’m too early, and too low.
In a film, these scenes would end with the investor saying “well, we’ve never invested in anything at this stage, but I’m in a good mood and you seem nice, hell, have half a mil, it’s in my bathtub, go get it.” This is not how investors get rich.
The third was with an angel who has invested in a dozen companies in the last 18 months, a couple of them pre-launch. In my head, he was the one. I’d read everything I could find about him, and had found a video in the nooks of YouTube where he explained that he always knew if he was going to invest in someone within five minutes of meeting them.
We went for a pint in Clerkenwell, and before I’d even started he explained that he was “going fishing” for the next half a year – he wasn’t looking to invest in anything. Bollocks. I’d somehow failed his five-minute test without saying anything. This briefly derailed me. He liked me, and my idea, and was impressed with what I’d built. Then he asked “what’s stopping anyone else just copying it?” I gave a terrible answer, essentially saying “nothing”. I now have 23 better answers I could have given. Next time someone asks me that, I’m gonna answer their face off. Anyway, watch set for six months.
The fourth was with another fund, at the right money level, again with a few examples of pre-launch investment. We met on the top-floor of a shared workplace in Clerkenwell, and, as far as I could tell, it went very well. But this, of course, means nothing. I’ve followed up with a few emails, and I’m waiting.
But then …
Back to the code
Then I realised that I don’t need the money as much as I thought I did. Not yet, anyway. I’d worked myself into a money-hunting frenzy, convincing myself that I couldn’t possibly launch without smart money and a Ruby ninja behind me. I’m confident I can get both, but this process could take months. I’m impatient. I’ll keep up the hunt, but in the meantime ….
I’ve spent the last week diving back in to the code. I’m gonna get this thing to the cliff myself, because it’s just so… damn…. close. I’ve set myself a deadline of June 3rd to have written all the code I want to write. Then I’m gonna spend a bit of money on two code reviews. I’ve lined up two very good devs,
both of whom I’m gonna kidnap and lock in a cave until they sack off their jobs and join me. A Ruby dude is going to pile through my back end (no sniggering), while a front-end dev is going to pillage my CSS, design and UX. Any small tweaks, they’ll do …. anything major will go into a List Of Possibility, which I’ll whittle down to absolute vitals. I’ll either do these myself, or see if I can nag them into the consultancy deal.
After that, I’m gonna get 10 friends to use it and tell me all the reasons they don’t like it (hopefully not too many), followed by some final tweaks. Then I’m gonna launch the fucker.
I don’t know if any of this is the right way to do it, but it feels more productive. And, more importantly, it’s quicker.
In the event that my startup bombs, at least it will have been swift, I’ll have spent under £5k on it, and I’ll have learned a shit load of code – arming me for the next one. If it doesn’t, my business is a hell of a lot more attractive to investors.