For better or worse, if there is one thing the startup world at large values most highly as a marker of success, it’s how much funding a company has raised. Given the dearth of venture capital in Australia until relatively recently, the local startup scene hasn’t quite reached Silicon Valley-levels of hype, but with over $2 billion in VC money now available, more startups will be looking to take their slice of the pie.
But according to Rebekah Campbell, founder of Hey You, there’s more to capital raising than simply raising money from any investor.
Campbell began developing her business chops at a young age, selling flowers outside her house at seven years old. She then moved on to other ventures, including collecting lost golf balls and selling them back to a shop and running a pet-sitting group.
Her first, let’s say traditional, business came out of a concert she ran in university to raise awareness of youth suicide, a huge problem in her home town. Through the event she met Neil Finn, whose manager in Sydney offered her a job.
“I worked in his management company for around a year and discovered I wasn’t good at working for someone else. I guess I was too ambitious and had too many opinions,” she said.
Out of this experience, Campbell launched music management company Scorpio Music at 23. Though she worked with the creme of the local crop in terms of artists, signing the likes of Matt Corby and Lisa Mitchell, after eight years Campbell felt ready for a new challenge, and started on the road to developing tech platform Posse.
Though Posse, a recommendation app for customers and a social customer relationship management platform for retailers, officially launched in 2010, a time when investors eager to splash cash on startups were few and far between, Campbell was able to raise funding at the beginning of her journey as a tech entrepreneur.
“I couldn’t write code, so I thought I’d need money to hire engineers. My experience working in music gave me really great sales skills. Looking back I’d say my sales skills were actually too good…I raised $1.5 million off a PowerPoint deck, which in hindsight was a big mistake,” she said.
Hiring a team, Campbell started building. The first version of the platform didn’t work as she had hoped, but with investors to report to and a team to feed, Campbell wasn’t able to stop and rethink from scratch, so pivoted to a new idea spun off the first one.
Having gone through this experience, Campbell’s advice to those looking to raise is simple: “Try to avoid raising capital for as long as possible. Be as certain as possible that both your value proposition and growth proposition are going to work,” she said.
Campbell identified a new value and growth proposition for Posse in Beat the Q, an app founded by Adam Theobald which allowed customers to order ahead at the cafe.
The aim, Campbell said, was to create a “super-app” that leveraged the best features of both businesses – Hey You.
The merging process was an interesting one, with the teams deciding it would be a waste of resources to build an entirely new app on top of the existing apps; in turn, they chose to build onto Beat the Q and switch off Posse.
“We chose building onto Beat the Q because we didn’t want to lose transacting customers. Even though there were less customers, they were much more engaged and were transacting every day. We decided we should do whatever we could not to disrupt them,” Campbell explained.
Three years on, Campbell said many ideas within the original roadmap for Hey You still haven’t made it into development.
“There’s always so much to do just to improve on a simple user flow,” she said.
“We also thought we could apply the scalable merchant sign-up process we had developed for Posse to a payments application. In hindsight this was crazy. There is so much more involved in onboarding a store to accept paid orders than just to interact with customers on a social platform.
With all this work, founders must consider whether a lengthy capital raising process is truly worth their time.
“It’s fairly easy to get in front of investors and to get people excited. It’s much harder to close a deal. I see so many entrepreneurs who are ‘just about to close’ their round,” Campbell said.
“Days turn into weeks which turn into months waiting for investors to complete due diligence, get sign off from the investment committee, see the entrepreneurs go through whatever hoops they’ve set for them to jump through. Lots of investors – not the good ones – won’t like to say no, so they’ll say ‘maybe’ or ‘probably’ and keep talking. This kills companies who have limited time and energy.”
Entrepreneurs must create momentum in order to close, Campbell said.
“No one will say ‘yes’ today if they think they can say ‘yes’ next week! Not understanding the art of the close is the biggest mistake I see people make,” she said.
Another thing founders must be wary of is that of the terms they agree to – just like the good investors won’t keep you hanging, the right investors will offer founder-friendly terms.
“Agreeing to terms which seem harmless at the time but will kill you later is also a big problem,” Campbell explained.
Having raised capital back at what one could call the inception of the modern startup scene, from investors both big and small, Campbell has had a front seat seat to the evolution of the Australian venture capital landscape.
“My first couple of rounds were from groups of angel investors, then later on we raised from larger investors including Reinventure and Exto Partners. The relationship between large investors and a business is very different. They are likely to want much more involvement in the management of the company,” she said.
“Angel investors are also much more sophisticated than they were five years ago; most work in syndicates and are better equipped to support the company long term.”
To help founders navigate the capital raising waters, Campbell will be running a workshop through Zambesi, Raise capital on your terms, on October 28-29.
In the hands-on workshop, Campbell will work with participants to help them develop a plan to identify and approach investors appropriate for their business and the stage it’s at, and an understanding of how to value their business, build a cap table and financial model in line with market expectations.
Participants will also gain understanding of the terms their target investors are likely to ask for and why, and in turn a comprehension of the long term implications of each provision, preparing them to negotiate with confidence.