Selling an idea: start-ups and raising capital

Amazon, Uber, Netflix: in an age where start-up culture has gained celebrity status, some 64 per cent of Britain’s workforce wants to set up their own business.

Many start-up ideas are funded on bootstrapping alone, with the founders using their own cash to source materials and acquire customers. To take it beyond an idea, says Fergus Dyer-Smith, investment is key.

“When it comes to selling to investors, the idea is often the least important part,” says Mr Dyer-Smith, founder of video production agency Wooshii. “Ideas are just one of multiple factors. Investors will want to look at traction – do you have customers already? They’ll also want to look at the size of the market you’re approaching.”

Outside investment is about more than money alone. It gives founders the chance to take an idea to market quicker, raising capital after proving its potential.

Wooshii was the second investment project for Mr Dyer-Smith, and both taught him key lessons for running start-ups.

Networks are key for saving time

“One thing I’ve noticed with first-timers is that they spend hours trying to do everything. As you get older, you become more efficient at knowing what you need to do for the biggest outcome.”

One such timesaver for Wooshii was networking. Having worked with angel investors on his first project, the second time around Mr Dyer-Smith worked with a professional ‘introducer’.

“I paid him to tell investors about my idea – he essentially warmed everyone up. It cost a large sum, but saved me about six months in operating time.”

Other key contacts are accountants and legal experts. “By working with these professionals, not only are you saving time in cleaning up the business for investment, you’re also showing investors that you’re serious,” he says.

Be warned: investors can smell a fraud

Securing the investment is not the be-all and end-all, warns Mr Dyer-Smith. “It’s boring, but I like to apply DD – due diligence. The hard work doesn’t stop once you’ve got your investment. You need to go through the key financials and legalities before you can let your guard down.”

As seasoned experts, investors are wary of chancers. Many start-ups may fall into the trap of trying to recreate another business’ success rather than following their own path. “It’s about getting comfortable with your own journey. Real entrepreneurs often suffer from imposter syndrome.”

With up to 90 per cent of start-ups failing, it’s easy to see why investment can be risky business. This is why it’s key to get the essential blend of customer traction, market demand and background work to secure investment.

Is investment the right option for you?

Before going head-first into crowdfunding or networking, start-ups need to decide if investment is right for them. There are two key factors to consider: scalability and risk.

“You need to ask yourself, is investment right for me, and is it right for the company?” says Mr Dyer-Smith. “There needs to be an opportunity for you to scale. If you’re a local hairdresser, for example, you’re unlikely to have the growth potential that will attract investors.”

Relinquishing control

Invariably, start-ups are also very sentimental. Founders may have spent years nurturing an idea, only to have their creative control handed over to an investor. They must be emotionally prepared to handle that, he warns.

“You need to look at the personal side of things. Are you comfortable with this separate entity? You’ve been given the keys to run the business, but they can be taken away just as easily. When you work with an investor, your risk element goes up. There’s a strong chance of failure.”

Often this risk is why investment is so appealing to first-timers, whose lack of experience manifests as courage. “Their naivety is what makes them great in a way. They’re not tainted by past failures. They have the passion to be creative.” The secret, then, is to prepare as much as possible before approaching investors.

Look for triggers

One uncontrollable element is timing, says the Wooshii founder, who benefited from starting his company as video marketing took off. “Some of it is luck, but you can also look at current trends and exploit the opportunities available. What you’re looking for is triggers – ways to raise the capital.

“The key is to prove that your idea is something worth funding. That’s why investors favour individuals over ideas alone. You need to prove that you’re trustworthy and more than just an idea. People invest in actions.”