DesignMyNight.com was 12 months old, business was definitely on an upward curve, we had a tiny office on Oxford Street and one member of staff.
Andrew, my co-founder, and I were 12 months without income and the coffers were starting to look bare. It was 'serious discussion time', as to whether we thank each other for the ride but call it a day and recoil back to our safe corporate jobs.
4 days later, came that faithful dinner party, where one of the guests' fathers happened to be a Professor of a very prominent business school in London. We got given the contact and decided to dive straight in; reaching out for any advice or help from the Professor.
Here followed 4 months of regular contact, mentoring meetings and wonderful advice.
[Tip 1 - If you have a contact, do not be shy to ask for help. You'll find that a lot of people in the entrepreneurial world will always be willing to help. A well-connected mentor can open doors, but first, be "open to learn"]
As we continued to grow, our Professor advised us to put together a formal business plan; 5 year projections, cash flow and industry opportunities. While I look back now at that original plan, and cringe, the exercise itself was very useful. It forced Andrew and I to seriously analyse all aspects of the business; good and bad...is there even really an opportunity? Our Professor also made it clear that advertising is not a viable or attractive revenue stream for a website anymore.
[Tip 2- The earlier you plan, the better. Be honest with yourself; some interest from the public and your friends and family saying how great your business is, isn't a viable proposition. Don't start something not worth finishing].
Having seen the business plan, the Professor actually fancied a slice of the pie himself and rather than introduce us to their Business School's Investor Group, he hand-picked 5 other angel investors that he felt would be perfect to grow DesignMyNight.
[Tip 3 - Speak to prominent business schools and universities as many do have investor groups attached to them that allow a certain number of startups to pitch to them each year]
Herein followed 5 separate meetings, in various hotel bars, around London, where we pitched the business idea and the growth potential to each investor. These aren't as dramatic as Dragon's Den and are more an in-depth discussion about the figures and industry. If you are able to show that you really are an expert in the field this will instantly instill confidence. Don't forget, investors might be great business brains but they won't necessarily know the industry you are operating in.
[Tip 4 - As well as an unwavering grasp of the figures, investors will want to see realistic but exciting growth plans, an attractive EBITDA and a clear exit strategy]
After all 5 meetings, we were left hanging for another 2 weeks. Money was so tight at this time that Andrew and I had actually made the decision that without investment we would struggle to carry on.
And then the phone rang. It was good news. All six investors had agreed that we would be a good investment opportunity. Then came the valuation. This is also very different to Dragon's Den in as much as, investors will look at the 5 year plan, Exit, EBITDA etc.. and create a valuation from that, rather than value the company 'today'...otherwise our value would have been £0! Luckily the discussions were open and amicable and we all agreed a price quickly.
[Tip 5 - When discussing price, have a clear target of how much of the company you are prepared to give up in its lifetime, as it is more than likely that a 2nd round of funding will be needed: If you are successful, more money would put the rocket boosters on or, if you don't hit target, more money will be needed to save the company.]
Contracts were drawn up by one of the Investor's lawyers. In most cases this process shouldn't be too complex as a lot of it is boilerplate. We hired an independent lawyer who specializes in startups to operate on our behalf. In our mind there was no need to spend £10'000s on a city laywer.
Here we now stand, 2 years later, a second round of funding complete with the same group of investors, 25 staff and a cliché-cool open-plan warehouse office in Old Street.
[Tip 6 - Nothing ever goes to plan. Investors will know that. Be passionate, be knowledgeable, be prepared and you may well just find that business angel]
Oh and we got the second round of funding because we were doing well...luckily!
Nick Telson is co-founder of DesignMyNight.com