Raising investment (my experience)
I’ve raised investment eight times. Whilst starting two businesses and shutting one down. I’ve been in the land of startups for nine years and I know well that there’s nothing people in the startup industry love more than talking about investment. I’m not here though to write another how-to blog post or announce a Series D follow on round led by a tier 1 VC with non-participating preferential shares. I’m here to tell my tale of raising investment for two very different businesses. One, my first, that raised VC and we then shut down. Two, Sanctus, that has raised only from individuals. I’ve developed a balanced view on investment that I’d like to share, not on what’s right or on what’s wrong, simply my experience of raising investment of different types for different businesses.
When I first entered the startup world with my first business, fresh faced out of university, I was obsessed with raising money. I saw raising investment as the ultimate sign of success. In the accelerator program environment I was in, this was the popular and dominant narrative.
Being a young, first time founder, receiving investment in our idea and in us, was a big deal. I remember being 20 and seeing £15,000 in our company bank account for the first time. I was absolutely delighted, the money was great because it meant that we could eat and pay rent, yet it also felt good that somebody believed in us.
I fantasised over investment and it become a game where I lost sight of what was real and what was reality. Our business was fundamentally quite hollow, with little traction and without a clear problem to solve. Yet we played the game when it came to raising investment and saw investment as the answer, rather than the glaring challenges we faced in our startup. In the end we shut that business down and returned as much capital to investors as we could. We returned around 40% of the investment we raised after selling off the assets for a nominal amount. We’d raised £635,000 in three rounds from a regional venture fund managing EU money and some angel investors I never met who were mainly interested in the SEIS tax incentives.
That experience wounded me and I came out of my first business with mental health issues and a real bitterness towards the startup ecosystem. I’d fallen out of love with startups and I’d been burned. It all felt quite plastic. I knew business was about solving problems, bringing people together and creating long lasting meaningful change. Yet I felt like the startup ecosystem was at the height of it’s frothiness and people were joining in for all the wrong reasons. I felt like people were simply seeing startups as an asset class, not entities for positive change and disruption. Building a business is about much more than wealth creation to me.
I was angry with startups, investment and all the buzzwords. Everything started to feel fake, as if it was sugarcoated and those episodes of that sitcom Silicon Valley were becoming true. The realness, the sense of camaraderie and excitement of feeling like I was doing something special and important was lost behind the fuzz of techcrunch articles and startup meet ups at google campus where everyone was someone, building nothing. I was bitter.
I started writing about mental health and sharing my own story and this time I naturally fell into another business. Sanctus felt like much more than a business, and still does, it was a mission and a movement first, business second. Building an effective business to support that, just felt obvious. I founded Sanctus almost five years ago and I said I’d never ever raise investment again. I was completely anti investors and anti venture capital. I went around saying things like; “We’ll never ever raise VC” or “We’ll never sell out”. Instead we raised angel investment which we barely touched in our early years and we built a solid business that turned a profit when we needed it to. There were times when I was quite arrogant and probably quite rude. I would smile when I got an inbound email from a VC firm asking to meet, before archiving it without a response. Or I would gladly take the call and tell them we’re not raising with a smug smile on my face. I wanted to prove to myself that I could build a “real” business and I wanted to prove to “them” that it could be done, whoever “they” are.
The result has been ironic and a little hypocritical. Firstly we’ve now raised £930,000 in angel investment over three rounds for Sanctus, which is more than my first business. Secondly, my narrative in the early years was “we’ll never raise VC” which is just as rigid as “we have to raise VC” The content and end result is different, yet the rigidity of mindset remains I just went from obsessing over venture capital in one business, to obsessing over break-even in the next. The benefit of this approach is that my first business hardly made a penny, didn’t have an established brand, product or team. Sanctus has all of that and we could grow steadily as a profitable business easily if we wanted to.
There are a lot of benefits of building a business to profit with angel investment, or without investment at all that I’ll share shortly. It’s not all flat whites and MacBook Pros though. There have been plenty of times when I’ve been frustrated that we can’t grow quicker. Or we can’t invest into product in the way we’d want to. Or we can’t afford a certain salary. I’ve built two businesses now, one that was never a business that raised venture and one that is a business that hasn’t raised venture. What I know to be true for certain is that the grass is always greener. When I connect with other founders and we share stories. I hear envy when I’ve talked about not having a board or having complete control or a certain number of shares. Yet when I hear that they’ve just hired someone on a six figure salary because they can, I envy that too.
What institutional investment can do is motivate you to institutionalise the business in a really good way, which gives the founders and the management team accountability and some healthy pressure. George and I had no board for 4 years which meant all the pressure to grow our impact had to be self-motivated and we had little to no help in supporting us to think bigger and get us out of the day to day, until we sought it actively from our investor base.
Growing a business in a way that you might call “bootstrapping” has massive benefits that we have experienced first hand. You focus a lot and you don’t try and solve all your problems with money or expensive hires, you solve them yourselves. That’s a really good thing. You also have to get really good at saying no, which is also a really good thing to do. It means that the people that work for you are all there for the mission, because the pay is ok but could be better. Growing a business on a small budget in the early years I see as a massive benefit. You have creative control over the direction of the business and as founders there is optionality on the way that you can grow.
When growing a business on a small budget though, it is possible to start thinking small. We got into the habit of only thinking about how to get to the next stage of profitability. Which for 99% of businesses is good form. Yet if you are aiming to disrupt a market or create a category, then it is limited thinking. Naturally over time, I started thinking less big. Which isn’t a good thing. Rather than thinking about how can we impact ten million people, I was thinking about how we can impact the next one thousand.
The mentality it takes to get a business off the ground and create something that people love is very different to the mentality it takes to take that thing that people love and share it with more people. Getting to product market fit, I think requires ruthless focus and attention to detail. Getting to product market fit is best when it requires constraints, so that you only do the minimal amount necessary to create something that works. Yet things begin to change. For me, those beliefs that guided me when we were 0k in revenue, weren’t working as well when we were at £1m. Things are different, the business is different.
There’s no right way to fund a business and I find that the desire in startups is to find answers and to look for a process or a formulae that can be followed to build the next unicorn. What is becoming clearer to me, which seems incredibly obvious now is that investment is just another strategic choice for you and the business. The problem is for many founders and myself included is that investment has been something to pin self-worth onto. I attached so much of my value to the business, therefore I attached so much value to investment. With a level of detachment from the business, it’s easier to see that investment is just another decision to make. How much, what type, who from and on what terms are all business decisions, that will have an impact on you personally too if you are the founder.
The problem in the startup ecosystem is that investment has been loaded with so much more. It’s become about status, identity and self-worth somehow. I’ve felt it myself. We raise a round, we price the shares and then I add it up and I say “I am worth X” That’s not good for mental health, it’s certainly not great for mine.
In the last year I’ve done a lot of inner work on my relationship to my business and how attached I have been to it over the years. As I have created healthy separation from Sanctus I don’t have such loaded opinions on investment or investors. For some businesses investment is clearly an absolute must have, for many others it’s not needed. There’s no judgement on that and there shouldn’t be a badge attached to businesses that raises investment or not. It’s literally just another business decision. One where the stakes are high because it can be life or death for a business and because of all the other unfortunate add-ons I mentioned above.
I hope we can mature to the point where we can have more rounded discussions on investment and fundraising in the startup world. Where there is less right and wrong and simply more curiosity towards the path people decide to take. I hope too that conversations around investment and fundraising can be a little less charged with emotion, that we can take the heat out of it a bit. There’s a desperation and a fear I often sense in the narrative that is deeply unhealthy and dissatisfying. For me the link has been between me and the business, on my identity and how intrinsically linked that has been to my work. When that link is weakened or stripped away, then all business decisions start to feel so much lighter, investment being one of them.
I appreciate this has been a bit of a ramble on all things startups and investment, I’d love to hear more experiences from both founders and investors. Please connect and comment, I’d love to have a discussion here. In particular if you're an investor that is empathetic towards founder mental health or interested in the mental health space in general, I'd love to chat.