Nic Haralambous has raised money for three different businesses: Motribe, NicSocks.com and StudentWise.
In his book, Do.Fail.Learn.Repeat: The Truth Behind Building Businesses, Nic unpacks his journey and the lessons he has learnt while securing investors.
These are the three things every entrepreneur should know – anad do – before attempting to raise funding.
1. Build and leverage a network
What many start-ups and entrepreneurs don’t always realise is that most angel and venture capital investors will only invest in opportunities that come through their network. They don’t respond to emails or blind pitches. VC investors in South Africa tend to offer the same advice: start building the right relationships long before you need to look for funding. This gives you the opportunity to show potential investors what your business does, what your goals are and how you are meeting your business objectives. In other words, you’re offering proof long before you make a pitch.
There are many ways to get an introduction to investors if you aren’t looking for capital. Attend events and webinars. Introduce yourself. Most importantly, build and nurture a network.
“Be careful when you’re building a network,” advises Nic. “Facebook and LinkedIn connections are false networks. They may make you feel good, but they don’t have any material effect on your life. Real networks are groomed over many years. They are made up of people you trust, people who trust you and people who you believe you can call on when you need help, advice or, in my case, funding.”
Nic’s network played a key role in helping him to find the investors he needed for NicSocks.com. Never underestimate the value of your network.
This is Nic’s advice for building and nurturing a network:
- Be patient. Building the right network takes time. “Nurturing my network has probably been my single biggest accomplishment over the past 15 years of building businesses,” he says.
- Treat people well. “With absolute certainty, I can say that you will need to call on this network as you progress in your life, so don’t abuse people, don’t use people, be genuine and offer up value as much as you ask for it,” says Nic.
- Let your network know what you’re doing. The first investor in NicSocks.com was a friend who knew Nic as an entrepreneur and trusted that he would do everything he could to turn his initial investment into more money. The second investor was the result of a meeting organised by a key individual in Nic’s network as well. This makes track records important. It doesn’t mean you can never fail – it just means you need to show you’re willing and able to push through the challenges.
2. Understand your business from the inside out
Whether you are having a catch up with an investor who has been keeping track of your business or you’ve secured the opportunity to pitch for funding, the most important thing is to be prepared. Investors will immediately be able to spot if you know your business. You need to demonstrate that you know the pressure points in your business, you know your numbers (off the top of your head, without slides and spreadsheets to assist you), and that you’re paying attention to your industry, competitors and your own business.
Here are Nic’s six quick-fire tips for preparing for an investor meeting:
- Know your subject matter. It’s imperative to know what your business is about and to understand the intricacies of what you do and how you do it.
- Understand the competitive landscape. Don’t go into a meeting with a potential investor thinking you’re the only company in the world doing what you do. This is very rarely true, and great investors will know it.
- Be honest. You will not have all the answers and investors don’t expect you to. They expect you to be willing to admit you don’t know and to learn as fast as you can.
- Know what you need. Do you need funding? A network? Deal flow? A mentor? Pick something. If it is funding that you need then it’s probably a good idea to know how much you are looking to raise and what you plan to do with that money. ‘Salaries’ is not a good reason to raise money. ‘Growth’ might be, but even this is too broad and vague. Where are you spending the money to grow? How much growth do you need? Is the growth sustainable or backed by the investment? It’s complex so don’t oversimplify this part.
- Do not expect it to go well. The chances of walking away from a first meeting with a handshake deal is probably less than 5%. The anecdotal rule of thumb is that you need to have 500 meetings to close a single deal.
- You have to be able to adapt. In Nic’s case, the intended use of the money he raised was for ecommerce growth, product expansion, marketing and hiring of a team. However, it is rare for money to be used exactly as you plan. The nature of a business is that it’s tumultuous and ever-changing, and NicSocks ended up investing in physical retail stores to complement the online brand.
3. Make sure funding is for you
What are the things that you love about your business? For Nic, this is one of the most critical questions that any entrepreneur should ask before they attempt to raise any funding.
The next question is this: do you think that raising funding is going to enhance the things you love, or detract from them?
“Raising funding changes everything,” says Nic. “You think it doesn’t. You hope you’re different. You believe your investors are not like everyone else’s investors.”
Unfortunately, this is rarely true. Angel investors are often friends or colleagues who want to support entrepreneurs, but once VC investors or private equity investors come on board, it’s important for a business to grow and deliver a return on that investment.
“Do you want a slow burn business or a fast growth business? You cannot be both,” says Nic. “You can’t take on investment and then decide that you want to take 20 years to give your investors a return on their money. It just doesn’t work like that.”
This means it’s important to carefully consider why you’re raising money:
- It’s strategic. Raising money is a strategic move to help you reach your next goal or grow your business or achieve the next milestone.
- It’s focused on the end game. Raising money is not an end goal. It is a means to an end – a way to achieve your goals.
It’s also important to understand what will happen to your business if you do manage to secure investors, because your company will change. “Your business becomes very focused on administration and operations,” says Nic. “You focus on returns and managing a board and your investor relationships.
“At NicSocks.com we instituted a board of directors, formalised our accounting practices, had monthly report back sessions and things became very serious very quickly.”
Practice these lessons on a daily basis
Ultimately, whether or not you choose to look for investors, these are three areas that entrepreneurs should continuously focus on: build a network, understand your business from the inside out, and know what you love about your company and what you do. Together, you will have the tools to focus on growth and adding real value to your customers, even if you choose to grow organically without raising capital.