Saturday, November 17, 2012

How to do fund-raising for your start-up - What I learnt about getting money ($$$) to start a business

This entry is written by DBIT Year 2 student, Jeremy Eng who is one of the 10 lucky guys to be chosen for our London trip in Sep this year.

Together with three fellow DBIT Year 2 guys from DBIT, Jeremy is now busy firming up a business idea to launch a new start-up!
What business idea?  It's hush-hush for now, but if you want to find out more, connect with Jeremy at his Facebook profile to talk to him! :)

Eng Zhao Wei, Vixson Yap and myself were very honoured to be invited by Ms Dora Chua to attend a talk titled – "Insight Into Starting Up" on 7th November 2012. This is a talk by Mr Gan Choon Beng invited by Technology Transfer and Enterprise Centre of Singapore Polytechnic.

Photo of Mr Gan Choon Beng

Mr Gan Choon Beng is a Senior Director of Infinitus Law Corporation and Head of its Corporate, Commercial and Technology Department. He has been in legal practice for over 30 years and specializes in advising early-stage and start-up technology companies, including start-ups from ETPL, NUS and NTU.

Each participant of this talk received a green folder as above.
This folder is very useful!  It consists of a set of hardcopy PPT slides and tips about raising funds
Here is a closeup view of the logo of Infinitus Law Corporation

The side of the folder includes a description of the company.
Besides dealing with clients who need legal documents relating to start-ups,
Infinitus also deals with real estate, IP and litigation

The topic Mr Gan talked about, Insight into Starting up, includes interesting information such as how what we need to do when we are ready to raise investments,  what strategies we can use in fund raising, how to interpret an investment term sheet and what are the important things to pay attention to in corporate governance for start-ups.

Mr Gan started by sharing 7 steps to raising capital for start-ups
1. Prepare a Business Plan
2. Protect your Intellectual Property
3. Keep Proper Records
4. Building your Management Team
5. Get Good Advisors
6. Eliminate Impediments
7. Make the Right Match

The first important step is to prepare a good and solid business plan as Mr Gan emphasized that the business plan is the tool to raise funds from investors. It is also a road map for your company that is to mean that the company has to go back to look at the business plan to revise and review it to run the company well.

The executive summary of the business plan is one of the most important to raise capitals from investors. Mr Gan said that investors would not sit down to read the inch thick business plan. I agree with him totally. Therefore, he defined a good executive summary of the business plan would be just 1-2 pages summarized, clearly stating the business and value proposition to capture the attention of investors.

The second step would be protecting your Intellectual property (IP), for e.g. trade marks, logos, patents, trade secrets, etc.

I have learnt that protecting your IP is very important as it would prevent the public to copy, prevent disputes over IP ownership during partnerships, etc. It is costs that should not be saved. Mr Gan also mentioned something I didn’t know about patents that it would reveal your products specifications to the public. However, it would mean that you have protection over the country you patent it and it would cost a large sum to patent it across the world.
The third step would be keeping proper records of your financial, statutory, IP and business contracts. This is something that most start-ups don’t do. However, if problem such as partnerships relations breakdown, there will not be any problem. Thus, it is very important to set some budgets to document.

The fourth step is to build your own management team. I agree with Mr Gan that building your own management team is tied to your own business plan as it is your team that will determine the success of the business plan.

The fifth step is also to get a good team of advisors such as business advisors, accountants and lawyers. Lawyers would ensure that start-ups without much experience are aware of the legal implications and not unknowingly flout laws or be at a disadvantage when they sign legal documents with their partners.

The sixth step is to eliminate all impediments. Investors and yourself would definitely not want your company to have any disputes relating to IP, engage in illegal activities law suits, etc.

The seventh step is to make the right match. This seventh step is to find suitable investors that are interested in the field of business you are in. This is very important as only investors that have similar interests and goals as you would invest in your business and would most likely understand your business plan and be satisfied easier.

Thus, a good winning company would have return of investment (ROI) of at least 20-50 times of the original investment amount. This may seem very difficult but most investors would only invest if the company can promise ROI of 20 times and above.

After listening to the 7 steps to do before raising funds for start-ups, I thought that it was rather difficult. It was not as simple as I thought to write a good business plan. There are 6 other important steps to raise capital. Therefore, I learned that starting up a business is already very difficult, let alone raising capital from investors. Tip for all, if you are not all out and determined to start-up a business, don’t try. Because I’m sure that you will die at the tedious planning stages!

After that, Mr Gan carried on to talk about strategies in fund raising.

The two principles for this are to know your investors and understanding your funding needs.

The first principle is to identify your investors and identifying the investors that have common interests and goals.

The second principle would be to identify the difficulty of raising one large investment, raising capital in phases and build value through accomplished milestones.

Mr Gan also said that preparing an exit route for the business plan is also important. Most business owners fail to do any exit planning until its too late, and often they will be ill-prepared and have to accept a lower price with usually a complicated and stressful exit.

Photo of some recent notable exits (1)

Photo of some recent notable exits (2)

In conclusion, I learnt that there are a few ways to raise fund for a start-ups, not necessarily only pitching to investors but there’re also various ways to get grants from government or approaching friends and family etc.
So when pitching for one’s business idea/plan, besides preparing only a business plan which most of us are familiar with, there are steps like protecting IP and building a good management team.

One of the steps which I personally think that it’s important is getting a good management team.   It is hard to get someone who is as passionate or committed as me. Without such attributes, it’ll be hard for either one party to sustain the business.

1 comment:

Kenneth Tan said...

Totally agreed with u on the conclusion, someone as passionate~ :)