Tuesday 23 October 2018

Startup diary: Angels won't fear to back you but keeping them in loop is vital

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Stock image

Richard Rodger

When you finally do get business angels to invest in your startup, one of the first pieces of advice you get is to send them regular update emails. There's nothing worse than investing in a company, not hearing anything for a year, and then getting a frantic phone call looking for more money.

'Angels' are typically former startup founders who were successful, in the sense of selling their company for millions. That is why they are brave enough to invest in early-stage technology startups. We are far too early stage to look for investors, and I am also lucky enough to be able to fund this period of the company's life myself.

That said, practice makes perfect, and I'd like you regular readers to consider yourselves a moral, if not, alas, pecuniary, investors in my company. If you've been following this diary then you've already invested some of your time in my story and I'm grateful for that.

Starting from this month, I will give you monthly updates towards the end of each month, very much as if you were an angel investor. Since these update emails are somewhat common practice these days, there is an expected form and content.

Mark Suster (bothsidesofthetable.com), one of those venture capitalists with a 'must-read' blog, captures the essence of what is needed: "lines, not dots".

What he means is: it's no good telling how you are doing today, I need you to put that into context by telling me how things have changed.

If you've read my earlier articles in this series, then you'll know I've been guilty of giving you the 'dots', not the 'lines'. It's all lines from now on. There are no secrets in this series, even by omission!

First, people are busy and time-poor. Remind them about the basics:

The company is a professional network for conference speakers and organisers that takes the pain out of speaking at, and organising, conferences (Let's see how many of these elevator pitches I can come up with - a new one every month!).

Second, you need a section on the numbers. Investors may only ever look at these just to confirm things are on track. People sometimes call the numbers KPIs as in Key Performance Indicators but they're just numbers, so let's just call them that.

We publish a newsletter for conference speakers. This was our first 'product'. It may not cost actual money, but people still need to spend time and effort to subscribe and read it. Thus it is a good proxy for the usefulness of our service.

Our subscriber numbers have grown monthly as follows: 2, 79, 144, 192, 431, 668, and currently stand at 793. We plan to start using e-books and podcasts to drive these numbers. Our end-of-year goal is 40,000 subscribers. Yes, four zeros. No, not crazy.

Although we have a little website up for the newsletter, metsitaba.com, that will all change shortly when we rebrand (new name coming soon!) and launch the main site. So no website visitors or user numbers yet, but expect them from March onwards.

Third, you need to know about the team. The limited company was formed in September, and by the end of October had six employees. Only two were full-time, and the others were all part-time. That's a good thing-as a company we believe in part-time remote work as a big part of not only solving the diversity problem in tech, but also finding great people who hate cubicle farms. It's all win. We're now at 10 with a gender ratio of 50pc, which is awesome for a tech startup.

Fourth, as your Granny would say, do ye have any aul' bit o' news? You need to update your investors on key events in the last month. Well, we made a decision to drop almost all features and focus on event search as our Minimum Viable Product, and push for a March 13 launch. I'm glad to report that our weekly demo on Monday showed the live system running on Google's Cloud Platform with all the technical pieces talking to each other properly. It looks awful, but there's time to fix that.

Fifth, talk about your troubles. What are the risks up ahead? What is going badly? This is not something to hide from your investors. That's a really bad idea. Not because they will be disappointed or angry. Quite the contrary. You tell your investors about problems because they can probably help. They've been through the entrepreneur mill, they know the score, and they've seen it all before. And sometimes you do need a kick up the arse to get out there and fix a problem, and they can provide that too.

Our main challenge at the moment is that while I've run a development process with a partially remote team before, I've never run one with a fully remote team. That means we've been a bit slower to pick up the software development pace than I had planned. This is in the process of self-correcting as the team gels, but the time to allow for this was not anticipated.

A secondary challenge is that I have not defined a clear roadmap for the product feature set. We've done a load of customer interviews, but we still have to coalesce the information into an execution plan.

This means the team does not have enough understanding to make decisions fully independently. That too is bad. Fixing the roadmap issue is important, but right now it's hard to see how I'll find the time. You can't put out all the fires in a startup, even if you know what to do.

Sixth, talk about how much money is left. Before your business is profitable, you as founder only do two things with money: you are either trying to raise more off investors (funding round) or spending it (execution).

That means you have something called 'runway'. Runway is how many months you have left before the bank balance goes below zero and it's all over.

Most startups, in most circumstances, have to worry about runway. The rate at which you spend money (your burn) will determine how long or short your runway is. Investors really want to know this number, so it goes all by itself in its own special section, along with a few other financial bits and pieces.

When should you raise more money? When you have six months of runway left? Twelve? No. The best time to raise money is right after you close a funding round. Each round is bigger and takes longer, so you should start right away.

Don't feel the urgency? Then head over to startupdeathclock.com and watch the time slip away. Yes, I built that website (many moons ago). No, it won't win any prizes, but you get the idea.

Our runway is two years.

Seventh, ask for help. Good investors don't just give you money, they give you connections and advice. They know how to solve problems. But you have to ask, directly. Pester power is just as effective when you're starting a company as it was when you wanted ice cream at age five.

You're off the hook on this one, gentle reader, since I don't really have any call on your connections or advice. But, I do have an ask - if you want me to cover specific topics about my startup in this column, you can let me know on Twitter: @rjrodger.

Richard Rodger is the founder of Metsitaba. He is a former co-founder of Nearform, a technology consultancy firm based in Waterford.

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