Capital Raising Guide
Looking for startup capital?
Raising capital is rarely a straightforward process; it requires patience, planning and plenty of conversations with the right people. We have a large volume of startup ideas coming to us every day and, whilst we make an effort to respond to everything, we won’t be able to get back to everyone. But don’t be discouraged!
Below are a few tips on how to best prepare yourself to secure an initial funding conversation.
Understanding types of Funding
Friends and family
Some angels are happy to take the first leap of faith. But if you have an unproven idea and no track-record, most angels will want to see some level of validation first. Friends and family are generally a great place to start to get some early customers and investment. The number one reason for startup failure is product/market fit (or lack thereof). Many angels will want to see this risk mitigated with; early users/customers, revenue and/or good quality market research (also relevant if the company is based on a core IP/science and takes development before commercialisation). As a founder, your capital is time, and the best way to use that resource is to try and get product/market fit as soon as possible. Typically friends and family rounds are $20k-$300k.
Once you have secured early customers and there are signs that the market is real and the business is scalable, angel funding can help you get to the next level by scaling users and customers or funding the development of the technology needed before commercialisation. We specialise funding businesses at this stage through our various funds (Tuhua, First Cut, Eden, etc) and IceAngels, New Zealand’s most active angel network. Typically seed rounds are $200-$500k whereas Angel rounds are later and might be between $1m-$2m.
Series A funding
After your business has a track record, Series A funding is the next option available to fund the optimisation of your product and user base, and look to scale in to new markets. Seed-stage startups often have a great idea that generates a solid base of enthusiastic users, but don’t have a plan on how to monetize their product. In this round, it’s important to have a plan for developing a business model that will generate long-term profit. Typically, Series A rounds raise approximately 2 million to 15 million. Icehouse funds may invest at these later stage investment rounds within our existing portfolio companies. Funding rounds past Series A are the speciality of larger venture capital groups.
What potential investors might ask
Defined Market/Market Size
- Is it a real problem?
- How much will people be prepared to pay to solve this problem?
- Is the world moving that way? What is the proof?
- Is there already a market leader?
- Is the market growing or dying?
- What is the real benefit to the customer of this solution?
- Is the market big enough for it to be a $100mil+ value? What is the justification for this?
- PnL Y1, Y2, Y3? How is this justified?
- Have they thought clearly about the details of the problem they are solving?
- Have they thought clearly about the vision of the future?
- Will they have grit?
- Is the founder truly passionate about what they are doing?
- Do they have the team necessary to execute?
- Do they have a track record in the market they are in?
- Are they trustworthy?
- What are the monthly sales?
- How many customers are paying / have been spoken to?
- What is the monthly growth?
- What is their user monthly retention?
- How far developed is their tech?
- When will they go to market?
- How does the product work?
- What are the next steps in how the product will work?
- How will they protect their business model in the future?
- Who are the competitors currently?
- Who are the competitors likely to be?
- Is there any protectable IP?
- What are the barriers to entry?
What The Icehouse is looking to invest in
- Founders that have experience in the market they are entering
- Globally scalable ideas (big markets)
- Changing markets or new markets
- New ways of doing business
- If you are a technical company you need a technical cofounder – outsourcing it is not ideal
- Product in market - good traction
We don’t like:
- Unvalidated app ideas (without market research and or traction)
- NZ versions of international ideas i.e “the Uber of NZ”
- Unpolished pitch decks: make it clear and presentable (download template)
How The Icehouse can help you raise capital
Every month we host an IceAngels investment evening where we will have 3-4 companies make a 6-minute pitch to 50-100 investors.
Since 2003 more than 300 investors have been involved through our nine funds, and $65m invested across over 110 companies. Each of our funds have monthly partner meetings where companies present for 30 minutes.
Annual Showcase & Demo-Day
The Icehouse runs two of the largest annual investment events in New Zealand. At each event, 10 – 12 companies are given the opportunity to present a 6-minute pitch to a room of 500+ investors.
Once a year Flux Accelerator will invest between $20,000 – $100,000 into 6 – 8 startups, and works closely with them over a 6-month period as they scale their companies.