It doesn’t matter how long you’ve been in business, one of the biggest issues that any entrepreneur will have to deal with, at some stage, is where the serious money will come from to scale things up. As some tech start-ups have found, it’s not always easy finding investors who get what you’re doing with a hardware innovation and are willing to put their hard-earned cash behind it.
Arnold Du Toit, our very own Investor-in-Residence, is an entrepreneur with first-hand experience of creating technology-led products, from creation to conception, whilst also finding the right investment for the different stages in his business. He’s learned, the hard way, how to navigate the funding circus and attract the right investors and, as we heard at the last Demo Day, he’s happy to share.
These days, he’s an investor himself, so now he can really appreciate the process from both sides. We asked him for some of his insights on what entrepreneurs, budding or otherwise, should be thinking about when looking for business investors.
ADuT: The easy answer would be ‘get your product to market’, but it needs to be at the right time with the right impact. I launched my product way too early, and too many times, which was great for the experience, learning and development, but it was stressful. My advice to start ups is to take time to prove the concept, and do the testing and development, in a space where it won’t be detrimental if things don’t go to plan. When approaching investors, showing a working prototype can be just as valuable as showing a fully finished product – especially if you can show you’ve also thought about the figures and the logistics.
Every start-up wants investment, but it can be very difficult for them to understand at what stage their business might need it, and at what level. Just having a better understanding of that might mean less time, money and nervous energy, wasted in pursuit of funding at the wrong time. That’s something that we work on as part of the CRL Accelerator and BOOST programmes.
ADuT: I’d recommend choosing your funding platform wisely. It should be easier for a start-up to reach more potential investors, with an interest in their product, if their core audience is on the same platform as they are.
For example, you’re more likely to find a tech-savvy audience on Kickstarter, if you’re a technology-based start-up, because that’s where they hang out. However, if you’re selling a new fertiliser concept, you might have to work harder, and invest more money into marketing and promotion, as your target audience might not naturally frequent online funding platforms.
ADuT: Your marketing budget should be determined by what you’re trying to raise money for and how much you anticipate it will cost to reach the right audience to get your investment. For example, you shouldn’t need as much money to reach potential investors if they’re already in the same crowdfunding space as you.
Online and offline marketing will need to be considered, but you may not need both. If you’re a wearable fitness tracker, for example, your audience is predominantly online, but for education services say, or something targeted at a less tech-savvy audience, you’ll need to look at offline options as well, and that may need a bigger budget. Whatever platforms and channels you decide on, you’ll need to adjust your marketing budget accordingly to make sure you get the right balance when spending to attract investment.
ADuT: From an investor’s perspective, it’s as difficult for investors to find like-minded start-ups that match their interests and values. It helps if both have the same ambitions and mindset. The selection process can take a long time but it’s worth it to ensure the right fit. At the end of the day, investors need to see a return (they are, after all, trying to grow too), but they also want to ensure that their input is at the right level for the growth phase of the start-ups.