As a founder you’ll be learning always, not curricular learning, but you’ll be learning like Hercules and labours as a founder.
One of the questions I get asked a lot is to do with Sustainability as I run an EV start up, a brand built upon five core pillars, which I’m sure I’ll share. Building a brand on values and having each stakeholder communicate these is vital for any business in the now.
Set your business a transparent pledge, demonstrating your purpose.
I’ve come across these FREE Sustainability courses from the United Nations. As you may get asked about your sustainability pledge, ESG mandate and governance towards a sustainable business.
Hopefully these help.
At my company ONE MOTO we set a very transparent pledge and worked with www.future-plus.co.uk who help set the framework, actionable objectives and monitor progress.
My advice: Don’t give them a figure. Here are the questions you should be prepared to answer, and a few you should ask.
One of the hardest things about the fundraising process for entrepreneurs is that you’re trying to raise money from people who have “asymmetric information.” VC firms see thousands of deals and have a refined sense of how the market is valuing deals because they get price signals across all of these deals. As an entrepreneur, it can feel as intimidating as going to buy a car where the dealer knows the price of every make and model of a car and you’re guessing at how much to pay.
I thought I’d write a post about how to talk about valuation at a startup and give you some sense of what might be on the mind of the person considering funding you. Of course, unlike cars, there is no direct comparison across each startup, so these are just some general guidelines to try and even the information field.
Back in 2020, I met with my first VC, I was very naive and didn’t have the vocabulary needed to hold my own in the room, yet the experience of several of these meetings led me to carve a narrative to present ONE MOTO in the best frame, it led to iterations of the business, which evolve into sharing the vision of what we will become, showing them just a little wasn’t enough.
What was the post money on your last round (and how much capital have you raised)?
It’s not uncommon for a VC to ask you how much capital you’ve raised and what the post-money valuation was on your last round. I know some founders feel uncomfortable with this, as though they might somehow be sharing something so confidential it ultimately hurts them. These are straightforward questions, however; the answers will have no bearing on your ultimate success and if you want to know the truth, most VCs have access to databases like Pitchbook hosting all of this information anyway.
So why does a VC ask you?
In the first place, they’re looking for “fit” with their firm. If you’re talking with a typical seed/A/B round firm, they often have ownership targets in the company in which they invest. Since they have limited capital and limited time availability, they often try to make concentrated investments across companies in which they have the highest conviction. If a firm typically invests $5 million in its first check and its target is to own 20 percent or more, that means that most if its deals are in the $15-20 million pre-money range. If you’re raising at $40 million pre then you might be out of their strike zone.
Ask yourself “what do I really need to prove success” against what is a rounded up figure that makes me feel comfortable. What you really need is very different to the target market price. Do you need to sell equity at all, or can you raise against a Convertible/SAFE Note?
Many VCs will have a distribution curve where they’ll do a small number of early-stage deals (say $1.5-3 million invested at a $6-10m pre-money), a larger number of “down the fairway” deals ($4-5 million at a $15-25 million pre) and a few later-stage deals (say $8-10 million at a $30-40 million pre). Of course, there are smaller funds that are more price-sensitive and want to invest earlier, and later-stage funds with more capital to deploy and write larger checks a higher prices, so understanding that VC’s “norm” is important.
A second thing a VC may be trying to determine is whether your last-round valuation was significantly over-priced. Of course, valuation is in the eye of the beholder, but if that VC thinks your last round valuation was way too high then he or she is more likely to politely pass rather than try and talk down your valuation now. VCs hate “down rounds” and many don’t even like “flat rounds.” There are some simple reasons. For starters, VCs don’t like to upset your previous-round VCs because they’ll likely have to work with them in other deals. They also don’t want to become a shareholder in a company where every other shareholder starts by being annoyed with them.
But there is also another very rational reason. If a VC prices a flat or down round, it means that management teams are often taking too much dilution. Every VC knows that talented founders or executives who don’t own enough of the company or perceive they will have enough upside will eventually start thinking about their next company and are less likely to stick around. So a VC doesn’t want to price a deal in which the founder feels aggrieved from day one, but takes your money anyway because he or she doesn’t have a choice.
Build yourself into the deal, show your commitment, a modest salary and even consider a Convertible Note against your salary reduction. Yes, it’s a liability on the books. yet you’re valuing your worth.
It is this muscle memory that makes the VC want to pass on the next down or flat round. In a market where there is always another great deal to evaluate, why sign up to one where you know there are going to be bruised egos from the get-go?
The “how much have you raised?” question is usually a VC trying to determine whether you’ve been capital efficient with the funds you’ve raised to date. If you’ve raised large amounts of money and can’t show much progress, obviously you’ve got a tougher time to explain the past than if you’ve been frugal and over-achieved.
My advice to founders on the questions of “how much did you raise in the last round?” and “what was the post-money valuation of your last round?” is to start with just the data. If you don’t perceive that you have any potential “issues” (raised too much, price too high) then this should be a non-event. If you are aware you may have some issues or if you are constantly getting feedback that you may have issues, then it’s a smart strategy for you to develop a set of talking points to get in front of the issue when asked.
What expectations do you have about valuation?
It is not uncommon for a VC to ask about your price expectations in this fundraising process. It’s a legitimate question, as the VC is in “price discovery” mode and wants a sense whether you’re in his or her valuation range.
It’s a tough dance, but I would suggest the following:
In most cases, don’t name an actual price.
Your job is to “anchor” by giving the VC a general range without saying it. Call this “price signaling.”
Turn the tables on the VC by politely saying, “Given you must have a sense of our general valuation, how do you feel the market is pricing rounds like ours these days? After all – we only raise once every 1-2 years!”
Why shouldn’t most founders just name a price? For starters, it’s the job of the “buyer” to name a price, and you don’t want to name your valuation if it ends up being lower than the VC would have paid or a price so high that the VC simply pulls out of the process.
So then, why anchor? If you don’t give signals to a VC of what your general expectations are, it’s hard for them to know whether you have realistic expectations relative to their perceived value of you, and you want to keep them in the process rather than just having them pull out based on what they think you might want on valuation.
What to Say When a VC Asks About Your Company’s Valuation
Any great negotiation starts by anchoring the other party’s expectations and then testing their response.
How you talk about valuation will of course depend on how well your business is performing and how much demand you have from other investors. If I leave out the immediate “up and to the right” companies and talk about most others who have made good progress since the last funding but the next round isn’t a home run, you might consider something like if asked about your expectations:
We closed our last round at a $7 million post-money valuation and we had raised $1.5 million.
We closed it 20 months ago and we feel like we’ve made great progress.
We’re hoping to raise $5-7 million in this round.
We know roughly how VCs price rounds and we think we’ll likely be within the normal range of expectations.
But obviously we’re going to let the market tell us what the right valuation is. We only raise every 2 years so the market will have a better feel for it than we will.
We’re optimising for the best long-term fit for a VC and who we think will help us create the most value. We’re not optimising for the highest price. But obviously we want a fair price.
How do you generally think about valuation for a company at our stage? (This is seeking feedback/testing your response)
Here you’ve set a bunch of signals without naming your price. What a VC heard was:
The price has to be higher than $7 million, which was the last round. It was 20 months ago and the founder clearly told me they have made great process (code words for higher price expected)
They are raising $5-7 million and knows the range of valuations for this amount. If I assume 20-25 percent dilution that implies a price of between $20-28 million pre-money valuation ($25-$35m post-money). Maybe they want slightly higher but certainly won’t want lower.
They have told me they are not trying to shop this to the highest price. I’m not so naive as to completely believe that – every entrepreneur will go for the highest reasonable price with a VC they like so I at least need to put my best foot forward. But if I’m in the ballpark of fair, she won’t game me and push for the highest price as the only part of her decision.
Are your existing investors participating in this round?
This is a delicate dance as well. Each new investor knows that the people who have the most asymmetric information on your performance are the previous round’s investors. They not only know all of your data and how you’re doing relative to competition, but they also have a good view on how well your management team is performing together and whether you’re a good leader.
On the one hand, a new potential investor will want to know that your existing investors are willing to continue to invest heavily in this round and at the same price that they are paying. On the other hand, they want to invest enough of the round to hit their ownership targets and may not want existing investors to take their full pro rata investments.
Before raising capital, you need to have a conversation with your existing investors to get a sense on what they’re thinking, or at a minimum you’d better have an intuitive feel for it. Assuming that most of your existing investors are supportive but want a new outside lead, I recommend answering this something like this:
Our existing investors of course want to participate in this round. They will likely want to do their pro rata investments – some might even want slightly more.
I know that new firms have ownership targets. I feel confident I can meet these. If it becomes sensitive between a new investor’s needs and previous investor’s – I’m obviously not going to tell my investors they can’t participate, but I feel confident I can work with them to keep the sizes of their cheques reasonable.
What a VC hears when you say this:
My existing investors are supportive. I will eventually call them anyway to confirm but I can continue my investment assuming they are supportive.
In the future if we raise a larger round, this entrepreneur won’t try to screw me by forcing me not to take my pro rata rights because they weren’t throwing existing investors under the bus with me.
This entrepreneur is sophisticated enough to know that fundraising is a dance in which I need to meet the needs of both new investors and of previous investors. They will work with me so I can get close to my ownership targets.
When should you name a valuation expectation?
There are some types of rounds where just naming price might be a better option.
Strategics (i.e. industry investors versus VCs). For some reason, many strategic investors don’t like to lead rounds and they don’t like to name a price. This isn’t true of all strategics, but it is true for many of them – particularly those who don’t have a long history in VC – having a price helps them to evaluate the deal better. Often they’re much better at a “yes or no” decision than naming a price. If you name your valuation, you sometimes have to give them a rationale on how similar companies are valued so they can justify their internal case. Knowing that other institutional investors (including your insiders) are paying the same price as them in this round helps.
Many investors. When you are raising for 8-10 new sources versus 1-2, sometimes it’s easier just to name price. One reason you might be raising from so many sources is that you haven’t found it easy to find a strong lead investor (for, say, $20 million) but many sources are willing to write you smaller cheques (of, say, $2-3 million each). Many investors can also be the opposite situation, where you’re so successful that everybody wants to invest. In either case, having a price target can help you get momentum.
Having a pool of investors has tremendous value; thee higher the investment, the more control they expect, the more you dilute which has its negatives (you don’t know each other yet). Also, a larger pool (which can take longer) also means they are bringing their wisdom to the table, strategic advice, resources and capital… that’s what you’re struggling with right?
Turning the tables
A final point. If done in the right way, each VC meeting can be a great opportunity for you to get feedback on how investors are seeing market valuations in the time that you’re raising (valuations change based on the overall funding economy), and also a chance to hear about how the VCs think about your valuation and/or let you know whether or not you have any perceived problems.
You might politely ask questions like:
Does your firm have a target ownership range?
Do you typically like to lead and do you ever follow?
Are there firms you like to co-invest with?
Does our fundraising size sound reasonable to you?
Are there any valuation concerns you might have that we can address now?
Your goal in forming questions is to get signalling back from the VC and of course engaging with your investors. Remember that fundraising is a two-way process and you have every right to ask questions that help orient you, just as a good VC will ask questions of you. I have another blog entry of questions to ask investors.
Venture capital is crucial in shaping the future of our people, planet and society.
However, venture capital has been a laggard in considering environmental, social and governance aspects when making investments.
The tide is now turning as venture capital firms begin to push for adoption of ESG. Here’s how to stay ahead as a startup founder.
If you’re a startup founder who has raised venture capital (VC) funding or is looking to do so, you know that global VC funding hit record highs in 2021 – here are the top five trends to watch out for this year.
What’s interesting is that early-stage funding grew at 104% year-over-year in 2021 to peak at USD 49 billion. VC firms are therefore a critical force in shaping the future of people, planet, and society as they continue to invest in the leading companies and disruptive technologies of the future.
Despite this influence, Deliveroo’s disastrous IPO last year and a report by Amnesty International highlighting the failure of VC firms over human rights due diligence demonstrate that venture capital has been a laggard when it comes to incorporating Environmental, Social and Governance (ESG) considerations in investment processes.
An incessant pursuit of generating outsized returns by focusing on investing, building and, scaling startups that generate rapid growth at all costs, the lack of pressure on VC firms to focus on ESG, and a lack of diversity are likely reasons for the slow ESG uptake.
Venture capital can play a key role in shaping the future
However, several developments over the past 18 months show that the tide is turning:
The launch of VentureESG, an initiative to push the VC industry on ESG supported by 250+ VC funds and Limited Partners (LPs),
PRI’s launch of a VC collaboration to improve industry wide practices,
Increasing expectations on ESG integration are now extending to startups and SME businesses. However, there is a gap in the supporting ecosystem of ESG benchmarks relevant to the size of these companies. At Prosus, we set sustainability performance standards at the group level and then work with the companies to identify areas relevant to their business model and operating context.
How venture capital can embrace ESG
So, what can you do as an early-stage startup founder to stay ahead of the curve?
The short answer is – start small and build your company’s ESG capacity as it grows. Setting the foundations of your future is vital, so I’d it now – I can help you with this by guiding you through the 39 ESG policies I offer in the tool kit section of this website.
1. Analyse: In the early-stage, as you focus on getting the product-market fit right, you will likely go through multiple iterations both for your product as well as the business model. While speed is key during this process, take product-market fit a step forward— analyse the second and third order impacts of your product and any changes in your strategy that may open a whole new world of ESG risks and opportunities.
At this stage, it is also important to analyse if the product or service your startup is providing will have a net positive impact on the world. For instance, the value that many tech startups add comes at a great cost to workers’ rights.
2. Identify: While at the outset your company may not seem very risky from an ESG perspective, any unidentified ESG issue will likely scale as quickly as your startup. Therefore, it is imperative to identify material ESG issues that can affect your business not only today but also during the scale up phase.
Studying the ESG risks impacting the sector your startup falls in is a good first step. When raising funds, identifying VC firms that can help grow your business while building your ESG capacity is another important step that can have a great payoff in the long term.
3. Prioritise: As the founder, your goal must be to lay a strong foundation for building robust ESG processes. Just as you ruthlessly prioritise all potential features and solutions during product development, you must prioritise high value, low complexity ESG issues in your sector as well.
No VC firm will penalise your company for not having figured out everything when it comes to ESG. However, the market, i.e., your customers may penalise you as the startup matures and the reputational risk increases. For instance, over 50% of Gen Z and millennial consumers would boycott a company for not being eco-conscious.
4. Measure: What you measure depends on the business stage you’re in. It could be retention rate when you are trying to find product-market fit or monthly active users, as you scale up.
Applying the same line of thinking to ESG data, it is important to determine the one to three metrics that matter for the business stage your startup is in. For instance, tech startups could begin by focusing on data privacy and diversity metrics. It is important to note that the chosen metrics should also be something in which the next set of investors can find meaning as well.
5. Communicate: Bring your customers into your sustainability conversation and be transparent about ESG being a work in progress as you grow. Your transparency and relationship with your customers will be your first line of defence if there’s an unintended sustainability issue.
Don’t forget about your investors though! Add your ESG value creation story in your investor focused documents. If you can share some specific data linked stories, even better.
Remember: retrofitting a company’s culture to solve for ESG issues is much harder compared to embedding it in the company’s DNA from the beginning. Further, given the VC industry’s increasing focus on ESG, startup founders looking to raise funds must be able to anticipate ESG issues now and as the company scales up in the future!
Over the past few years influencer marketing has gathered more air time, and now more than ever – while brands catch onto the fact that it’s no longer companies who tell consumers what to buy, but peers who influence each other – or influencers who set the tone for the masses. We need to address not all influencers are created equal, yet they can certainly support your marketing, as long as they are managed and treated as a service provider.
What is Influencer Marketing? There are two kinds of influencer marketing: 1. The classic example, which is essentially earning the praise of a VIP providing you an endorsement and being seen to like your product.
2. Then there’s influencer marketing by volume: getting a number of lower-level influencers to post about your product around the same time, which puts you out in the atmosphere in a way that says, “This product is popular among the kind of people who are similar to me.”
Classic influencer marketing is harder to obtain without ‘big dollar spend’ or friends in high places, so a lot of brands have been opting for the latter type, and using social media and video to achieve strong results. It helps that video has a place on not just video-sharing platforms but of course Travall, Instagram, Snapchat, Facebook, Twitter, and on and on.
At my previous agency we completed a campaign for Jamie’s Italian in Jumeirah Beach Hotel – Dubai. Taking three influencers, having them take part in a cook off, with the public voting and seeding the content. Simple, cost-effective with high social impact.
“Companies no longer tell consumers what to buy, but peers who influence each other. But it has to be done effectively”.
Content is in many forms, but everything in life starts with a drawing.
Think about your own database of business contacts how many year’s has it taken to obtain these? I have around 2.1 million in my databases – yet the Influencers we use have a combined total of 54 million. Not all are the ‘heavy-hitters’, engaging micro-influencers with specialties are valuable. I’m happy to help with your creative ideas.
Why it Works Indeed,why does influencer marketing work so well? A fascinating study by McKinsey found “marketing-induced consumer-to-consumer word of mouth generates more than twice the sales of paid advertising,” meaning we trust each other or our role models quite a bit more than we trust companies. Maybe it also has something to do with the “global-village” sense you get when you and your network are sharing a video or meme – it’s just a nice way to connect, and gives us a nice communal association with a particular brand or product.
Influencer marketing is also “native advertising,” meaning it happens seamlessly within the customer’s experience rather than interrupting their experience to push a product at them. (As written about in one of my previous blogs regarding my NOW philosophy).
Having a personality advocate a product either directly or by being seen to be using it puts your brand into the story, and we assimilate that kind of information much more readily than when it’s a free-floating advertisement. As a result, this kind of digitally-enabled word-of-mouth marketing can produce 37% greater customer retention and twice the sales of paid advertising.
This is what your customers need to think once they’ve found you.
Who to Target Okay so it works; but who are the influencers you should be targeting? This depends entirely on who your target audience follows, cares about, and listens to. Who are the trendsetters and thought leaders among your target segments? Pay attention to who your target audience is and sharing the most, then hand-pick the right ones to present to you. Also consider which platforms your target audience is most active on, and who the leaders are on those particular platforms, because social sharing is the engine of influencer marketing.
“marketing-induced consumer-to-consumer word of mouth generates more than twice the sales of paid advertising”
How to Get Started Once you decide whom to target, how do you actually get those VIPs on board and sharing your video, and, how do you reach a volume of shares that’s going to convince your target audience that you’re part of the zeitgeist?
“Don’t just look for the ‘celebs”, budgets don’t allow for that right. Consider your business marketing budgets and see if a series of micro-influencers have a network, offer a barter of your product/service.
Don’t get sold on audience, but have them prove their engagement metrics and have them tied to success KPIs. I’ll help you on the right path. Get in touch.
A lot of people occasionally think about whether it is a good idea to start their own business. Often the main questions are whether they have what it takes to make their idea a success and is their business idea a good one or not.
The good news is that if this question has crossed your mind, then you have taken your first steps to running your own business and becoming an entrepreneur.
Entrepreneurship isn’t for everyone and the thought of starting a small business and becoming a business owner isn’t something everyone considers. So, if you are already thinking about the possibilities then you are already on the right path to building a successful business.
How to Start a Business
Of course, just dreaming about starting your own company isn’t enough, there are a few other things that need to happen for you to realise your dreams. Firstly, you need a good idea for a business and the means to launch it. Plenty of people launch a startup but not everyone makes a success of it. You might wonder what it is that separates the successful businesses from the ones that fail. Often the key is following a proven business plan, coupled with hard work and enough money to keep your new business afloat.
If you’re wondering if you have what it takes to start your own business, then you should think about the following points to see if you have the necessary means to take things to the next level.
It’s hard work. For many business owners they must dedicate a lot of time and energy to setting up and running a business. This level of activity is hard to maintain if you’re not passionate about what you’re doing. Some business owners must sacrifice weekends and vacations to ensure their business remains successful, so if you can’t see yourself committing to this level of effort, then this might be a reason to not start your own business. Once a business is up and running many business owners can take it a bit easier, but it can still be a lot of work with long hours.
You Need a Solid Business Plan. For many people, when it comes to launching your own business, they think more about the potential profit and riches in the future than the reality of the day-to-day operations. Not only is running a business hard work, but it is also competitive and there are other people out there, often doing a similar thing to what you are doing who also want to make a success of their business.
To give your business the best chance of success you need to write a business plan, which maps out how you are going to run your business, and what resources you will need, and how you are going to make money. You should explore who your customer base is going to be and find out who your business competitors are. To get the most out of the business plan you should be honest with yourself when you come to write it and not always look at the best-case scenario. Ask yourself what challengers you are going to face, and how will you cope if things do not go to plan.
You should carry out some market research and check the pricing for your product or service. You need to establish whether you can make your type of business competitive in the marketplace. For example, in some retail environments you will need a lot of stock to launch and often the market already has big companies operating in it which can be more competitive on price. when you are starting from the ground up, the kind of business you are going to run is important. Understanding the competition, the pricing and your customers is a must. If you are coming up against a large corporate, then you are going to need some deep pockets to finance your operation.
One of the key reasons to write a business plan is to ensure that your business is viable. If it won’t work on paper, then you cannot expect it to work in the real world. There are many unknowns in the business world, but you can at least make a good effort at establishing what the major pros and cons are.
Many an entrepreneur has had second thoughts after they have put together a business plan. Sometimes what seems like a good idea on the surface, isn’t viable in practice. In the case of writing a successful business plan it is better to listen to your head than your heart.
Passion, Insight and Enthusiasm
We touched on this earlier, but running your own business is a lot of hard work, so you really do need to be passionate about what you are doing. If you lack enthusiasm, it is always going to be a struggle to put in the time and effort to make a success of whatever it is you are trying to achieve.
Sometimes people turn their hobbies into a successful business after running it as a side hustle for a while. Often these side businesses start off quite slowly but build momentum as potential customers are found. It can be difficult to balance a day job with a side job and eventually most entrepreneurs will need to commit full-time to the new business.
Because of the entrepreneur’s passion for the industry, they tend to have more insight and knowledge about what they are doing, and this breeds success in certain situations. Without this passion it is always an uphill struggle, so if you are not completely passionate about your idea, think hard whether you want to dedicate time and energy to it.
Cashflow & Finance
One of the most difficult things when it comes to starting a brand-new business is finding the money to finance it. Some lucky individuals can rely on their own savings to launch, but for others, they are not so fortunate.
In some cases, friends and family provide financial support or it is common for family members to work together within a family business.
When you write your business plan if you find that your business finances are lacking, and do not have the financial resources yourself to fall back on, what can you do?
The good news is that if you have a great idea and your business plan looks solid there are plenty of investors out there who are looking to fund new businesses and projects. Obviously, banks, investors and venture capitalists won’t just hand over money to anyone, you are going to need to have a very good business idea and demonstrate that it will work, either by showing them a business that is already launched and making money or through a comprehensive business plan.
If you have an idea for a business but do not have the money to launch it, you don’t have to necessarily give up on your dreams. You can still accomplish them by looking for outside investment, so this is something to consider if your cashflow and finances are an issue.
“Keep your business entry simple and scale up on success milestones.”
Reasons to Work for Yourself
There are some great reasons to become an entrepreneur and become a small business owner. You will be your own boss and hopefully, the business model that you have chosen will be of interest to you and match your passions.
You can work whatever hours you want, and you can be a bit more flexible in terms of what hours you put in. Remember, although you are in control of your own days and hours, most entrepreneurs end up working long hours, especially in the beginning, and if you like the routine and job security of the 9-5 then working for yourself might not be for you. However, if you want to be in charge of your own destiny and follow a passion to remove yourself from the rat race, then working for yourself might be the solution.
One of the perks of starting your own business is that all the profit you make will belong to you, your investors, and the business. You can make more money than if you work for someone else. Often one of the main attractions for starting your own business is to make money and have a healthy bank account! Successful entrepreneurs can become wealthy through starting a business and making it work, but the sad reality is, that some businesses fail. So, if you are just chasing the money, then you might want to ensure that your business plan is a good one before you invest your hard-earned money into the project. Many entrepreneurs see a few barren years before their profits grow.
You can learn a new skill set. If you like to learn new things, then working for yourself might be something that will interest you. Often in the early days a business owner will need to work across a lot of different areas of business, from logistics, buying product, marketing, and sales. One day you might be working on an email marketing campaign or sending our social media posts to market your business, the next day, updating an ecommerce system with the latest products. If you like varied work, then entrepreneurship might be for you. However, if you’re not interested in getting the know how to operate across multiple business areas, again have a long think as to what line of work and business will suit your skill set and motivation.
