Savannah de Savary is founder of IndustryHub, an online Who’s Who of a building’s various players and one of the latest Pi Labs cohorts. Here, in the third instalment of her report on life as a proptech entreprenuer, she shares her experiences of the journey to becoming fully funded
The summer has been busy for IndustryHub. Despite the potent mix of Brexit and the traditional lull of the British summer, for the past seven weeks we have been in fundraising mode.
A big challenge has been deciphering the right path, with so many conflicting opinions regarding how much capital you should raise. Some advisers suggested funding was drying up for tech start-ups and we should raise as much as we could to tide us over, rather than enough for the typical runway of 12 to 18 months. Other start-up veterans were adamant that you should initially set out to raise less than you ideally need, as you don’t want to fall short of your target. Such an outcome could prove detrimental to investor confidence and thus to closing your round.
Another strategy was put forward by a well-regarded early-stage venture capital firm. It proposed that we raise a much smaller round, which would provide just six to eight months’ runway. At this point, we could then raise a follow-on round at a significantly higher valuation, leaving our founding team’s equity far less diluted. There is no denying that this strategy held appeal. When you have dedicated yourself entirely to a venture, you want to hang on to as much of the eventual upside that may materialise as you can.
The logic behind this is not just greed (although I would be fibbing if I said this didn’t add to the appeal). A start-up will likely go through multiple funding rounds, and we have learnt that many savvy later-stage investors will be put off if the founders are not still financially incentivised to lead the company.
However, I realised that retaining “enough” equity is very different from “as much equity as possible” and, in our case, following this strategy would be motivated by a desire for the latter.
No doubt it is important to keep a founder financially incentivised. However, few entrepreneurs get out of bed in the morning (so few hours after they have collapsed into it) just for the money. We do it because we are lucky enough to be intimately involved in creating something that we think can make an impact and change the status quo.
I know start-up founders who decided to go down the path of raising enough capital for just a short period of time, became oversubscribed and made the decision not to raise more. Their companies did not need it at that stage, as milestones that would enable them to raise at a higher valuation were close on the horizon. Having seen their subsequent success, there is no doubt it was the smart decision.
But for IndustryHub, this wasn’t clearly the case. To start the full-time job of fundraising again in six months’ time would detract focus from the work we need to do if we are to achieve our long-term vision in the next 18 months. In order to raise at a significantly higher valuation so soon, we would need to shift our attention from this groundwork onto metrics that yield the most impressive results in such a short time but are ultimately superficial.
To do such a round would be to prioritise the founding team over the company itself. As a seasoned entrepreneur pointed out, it is better to be a smaller shareholder of an enormously successful company than a large shareholder of a company that didn’t have the resources to reach its full potential.
Due to the market instability that followed the Brexit vote, we decided to raise a reasonably modest round but remained steadfast that it must be able to stretch over 12 to 16 months. I am relieved to report that after four weeks we emerged in the fortunate position of having a round that was well oversubscribed in soft commitments.
We have therefore decided to raise a larger amount. It is less than the soft commitments could hypothetically enable us to raise, but the amount we hopefully need to give the business its best shot at this stage.
We settled on the amount as it enables our user base to grow significantly faster than our initial budget supported while keeping our operating costs on a shoestring budget. Having financial concerns keeps you on your toes, making sure that you come up with creative solutions.
I have heard many a horror story of start-ups which, without a tight budget, did not immediately realise they were ploughing money into inefficient channels, as the abundance of funds masked the problems.
We are now engaged in discussions with a select few successful property developers. We have not necessarily gone for the “highest valuation” money, but instead investors which bring far more than just capital to the table: they understand the problem we are trying to solve, having experienced it themselves. Furthermore, their expertise can be leveraged to help learn about running a growing business, with all its challenges.
Fundraising itself is never without its challenges. Fundraising during the instability triggered by the Brexit vote could have proved devastating, I certainly feared it might. But as the London mayor keeps stressing, “London is open”. Great partnerships can still be made in this city and we are optimistic that we are forging one right now.
Interact with de Savary on Twitter @industryhub or visit www.industryhub.com
