You’ve raised that vital investment – what happens next?
As part of our blog series on raising social investment, Matt Mead examines what social entrepreneurs need to think about after they've got that all important investment deal.
6 Basic Foundations of Business Success
If you stop and look at recent news around raising investment, you’ll be struck by the number of positive stories about new impact focused funds like ours coming into the market and investing millions of pounds in entrepreneurs with innovations that can make real change happen.
But if you dig deeper and talk to entrepreneurs about raising capital the majority will tell you that it took longer and was more harrowing than they expected. Months of presentations, meetings, knock backs, negotiation, then finally a ‘yes’, followed by a legal completion process which always feels harder than it should.
But what happens after the investment has been raised? Are there any lessons about how you make that capital really deliver on impact and value?
Every organisation is different, every entrepreneur is different but after 20 years of investing, first in the venture capital field and now in impact investing, there are a few common observations that I can make.
- Building your product - spend wisely on product development and engage with your target customers as early as you can. Lean Startup guru, Eric Ries, highlights the importance of the minimum viable product. Essentially don’t waste money building a product or service that users don’t want – test, get feedback, iterate until you have something that delights users and then look to scale
- Don’t hire in a hurry - a large proportion of invested capital is used to hire and build up a team. Hopefully you will have identified your next hires already and know them well but getting the right team takes time and getting it wrong can be costly. So hire with caution and from networks you trust
- Think carefully about marketing - don’t waste too much capital building demand if the product isn’t ready. Really think through the marketing mix to make sure that when you are set to go you can reach your market cost effectively
- Capture data - on business metrics, service user age and impact. Monitoring and responding to trends as well as ensuring you record what investors, customers and your own team need to run the organisation is really important
- Be honest and open with your shareholders. They have backed you, your team and your idea – share challenges and successes with them – the worst thing you can do is surprise them with bad news. The sooner an issue is shared, the sooner you can work together to make changes
Finally track the money carefully, be on top of every pound, who owes you money, what your commitments are and plan with rigor. It may seem obvious but I have seen many early stage organisations with small but growing revenues, suddenly finding that the cash is flowing out pretty quickly. If you can’t do the accounting and planning then find, and use, someone who can.
This list isn’t exhaustive and with every new investment I still learn lessons. But remember the time it took to raise money, that investment capital is precious and you really only want to raise it again when you have delivered impact, grown value and have investors calling you!
This blog was originally published on Pioneers Post
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Matt Mead helped to develop and now runs Nesta Impact Investments, alongside Joe Ludlow. This fund is targeting innovative ventures that address major social needs in the UK, such as an ageing population and the education of young people. Matt joined Nesta from 3i where he was a partner in its venture capital business. He is currently on the venture committee of the BVCA and on the Board of the British Business Angels Association.