Founder and CEO, Elementaree food delivery service
The Russian economy is enduring times when attracting investment for a startup often proves to be a Sisyphean task.
The venture capital sector is particularly arduous. In 2015 the amount of financing plunged by 20-30% compared with a lousy 2014 while the world markets grew 30-60%.
But even in hard times money can become accessible. Last year I raised $300,000 in private capital for my project Elementaree, a healthy food delivery service whose principal investors include Sun Capital managing partner Alexey Menn and Bright Capital managing partner Boris Ryabov. In addition I also received a Bortnik Fund grant.
I’ll let you in on a couple of trade tricks from inside the industry.
Oddly enough, the first bit of cash I made was acquired with next to no effort. When I was offered to sell shares in the company (in 2013 an American investment fund purchased 10% for $200,000 – Editor’s note) I wasn’t sure of being involved on a full-time basis. However, renewed faith in the project encouraged me and boosted entrepreneurial spirit but a rapid start wasn’t without its snags.
By the second round of fundraising, I was still a newbie without a clear understanding of the qualities befitting of a potential investor. I also didn’t see the whole money-raising enterprise as an integral part of the job, but rather something inevitable, though undesirable. I can only imagine how absurdly other people perceive the situation. Rather than listen to the questions and remarks of potential partners, I hurriedly tried to sell the idea and seek handouts without letting anyone past the company threshold.
After a further failed attempt, I had to admit that something wasn’t going right. My money seeking endeavors had ceased completely and instead I focused exclusively on operations. We subsequently broke even and got on track with activities that were crying out for capital and swift growth. I worked out a plan of how to expand without any investment and eventually changed my investment pitch – I was now looking for experience and business know-how more than money.
One time, while having a chat with someone on how to grow a business, I received a rather fortuitous investment offer that went something along the lines of “This is fantastic! Perhaps, you’d care for some extra cash?”… When you hear those kinds of offers, you know you’re doing something right.
Recently I’ve realized that an essential quality when fundraising is to be able to look at where the company is heading in ten years time, because people prefer to invest in the future. I laid the first foundations of fundraising but later discovered that you need to start with spotting like-minded souls. In a perfect world, the investor becomes your buddy and mentor. A business owner should clearly define their philosophy and understand which potential investor shares your basic values. Accordingly, you should talk about unrelated matters and discuss various approaches to see how he or she connects with other people. If you’ve got a hunch that something is amiss, you’d be better off nipping it in the bud and parting ways – it will be better for business in the long run.
In autumn I had an unpleasant experience related to this. The investor, with whom I signed a term sheet and within a week was expecting to receive money, suddenly backed off. It was a huge blow. Naively, I was under the impression that when all conditions are ironed out and agreed, you can consider the matter settled – but clearly I miscalculated. Life is full of surprises. In such instances you just have to carry on with your business as if you already have funding. And when you do succeed, ask for more than the estimate suggests.
Unfortunately, I always strive for perfection by scrimping and saving and that limits the use of resources. It leads to growth constraint and has an adverse overall effect. A good rule of thumb is that money raised in one of the rounds should suffice to cover the business needs for at least a year.
The moral of my personal story is an obvious one: keep on learning, grow with your team, take heed of investors’ advice and aim to please your clients. Money will follow!