Standing out from the crowd: what’s in a name?

Yesterday, whilst drinking a well earned hot chocolate at Shoreditch Grind, I was debating the importance of naming a startup.

One of my old colleagues, Scott Voigt once told me about the bike-shed example, which I now know to be Parkinson’s law of triviality. It basically says that organisations spend a disproportionate amount of time on trivial issues (like figuring out the colour of the shed) because they are easier to grasp than more complex items (like the design of a nuclear power station).

Naming your company is an example of this.

There are however a few things to get right and a few to avoid.

First up?—?you need to be able to get the .com domain. Several people have told me that getting a .io or a .tv etc are all options because they have nicer names available but if you can get the .com it gives the startup a head start?—?it makes the startup feel bigger to the visitor. This is slightly less important if you are a B2B company but still preferable.

Next, it needs to be spelled phonetically?—?i.e. spelled the way it sounds. We seem to be drifting back to the period of Flickr and where we have weirdly spelled company names and this is the easiest way to lose word of mouth traffic. It does not help you.

Clearly you need to make sure the name you choose doesn’t clash with the audience you are targeting. But..

Don’t get too hung up on the name itself?—?if you have a nice backstory as to how you came up with the name then great, if you don’t then don’t waste time inventing one.

Don’t worry about the name being something directly related to what you are creating. Too many founders and advisors get caught out with this one. What is important here, is a name that is memorable, catchy even. Something that has recall value. That way when someone mentions it to someone else, it is easily remembered when they get in front of a keyboard or phone to look it up.

There is nothing worse than a dull name?—?but building on a name around something that fits with the above will eventually lead you to a great name that has brand recognition.

Yo mama, can you spare a dime?

This is the second in the series of posts on early stage investments for technology startups. You can read the first one here.

In the last post I told you to avoid raising money wherever possible. Of course, it isn’t always possible and nor is it always the right approach.

There are a multitude of funding options available today, including friends and family, angels (high net worth individuals), angel networks, crowdfunding websites and of course venture capitalists.

Raising money from friends and family is usually a necessary first step so this post focuses on that. Future posts will look at the other options.

Friends and family are usually the earliest investors in startups, investing typically between $25,000 and $250,000 (Carney, 2013).

Raising money from friends and family is both easier and yet more difficult to do. You are absolutely certain your idea is going to succeed, even though you are probably aware that 90% of startups fail. Clearly, you are in the 10% otherwise why are you doing it!

So why is it both easier and yet more difficult?

  1. You can raise money on just an idea ?
    With the closer relationship (and hopefully understanding of your capability!), it is easier to raise money right at the very beginning of your journey than almost any other (with the possible exception of crowdfunding?—?more on that in another post).
  2. Lower expectations?
    Friends and family can have lower expectations of a “quick” return than other investors due to your prior relationship. This means that companies funded this way are often able to take the slow and steady approach to growth rather than the accelerated approach required by angels and venture capitalists. Whichever route, fast or slow, you decide to take, it is a good idea to be upfront about this with all your investors!
  3. Tax Breaks!
    In the UK, the first £150,000 can be raised under the Seed Enterprise Investment scheme (SEIS). This allows your earliest investors to:
    1. Receive income tax relief of 45% on investments.
    2. After a three year investment period, you can get 50% capital gains tax (CGT) relief on gains, as long as you reinvest the gain in another SEIS investment in the same year.
    3. Of course, most startups do fail?—?and you are risking your friend’s and family’s money. To soften the blow, the government allows them to offset the loss at their highest income tax rate multiplied by the amount invested minus the income tax relief already obtained.
  4. You are the tortoise not the hare.
    Regardless of whether you are building a fast growth startup or a slow and steady one, the majority of investors at this stage do not sell their shares for at least 5 years. So be sure to be clear with your friends and family as to the situation and definitely don’t take money from someone who cannot afford to do so.
  5. Beware the relationship.
    This is not your money. It is coming from someone you likely know very well and will see often. There is a thing about relationships, they are not static and unchanging and are usually filled with sugar and spice 😉 Be sure to weigh up the risks!
  6. Indicators and strength.
    Raising from friends and family, whilst not 100% necessary to achieve funding from angels or venture capitalists, do act as an indicator to external investors that others believe in your idea but more importantly can delay your need to go to these external investors. Assuming you are a growing successfully, the later you approach these investors the stronger your position is.

Finally, today, with the advent of crowdfunding platforms like Seedrs and Syndicate Room, it is often easier to combine your friends and family investors with a crowdfunding platform. More in the next post.

I’ve created a startup. Now where’s the money? It’s no trip to Sainsburys.

I’ve spent 20 years working in startups now. A few were my own, others not so much and I managed to get an exit or two along the way. In that time though the options available to entrepreneurs for funding have changed significantly, especially at the very earliest stage of a startup.

This time last year, I was sitting down to write a thesis for the Executive MBA at Cass Business School and thinking about how little consolidated information was available for entrepreneurs. Most had heard of venture capital and crowdfunding (usually Kickstarter) but of course these are not the only options. Even worse, rarely are these the best options.

So I spent six months talking to UK based entrepreneurs and investors across the spectrum to understand how each group saw things and concluded on what the best approach is for funding. Whether that is bootstrapping, friends and family, angels, accelerators, crowdfunding or diving straight into venture capital.

There is too much to cover off in one post so I am going to write a series of them looking at each in turn, the things to think about for each and then a final concluding post.

I have also embarked on another startup of my own (Masterscroll) and used the findings to help decide the approach we should take. There is nothing like being involved to highlight quirks though. So where possible I’ll include tidbits from that experience as well.

To start with, these are the 3 things that everyone should think about when raising money.

Some things apply no matter who you are.

  1. Not raising money is always the best option. If you can figure out a way to do it. Fund it using your customer acquisitions, use your own money to get to cashflow positive. If you are successful doing this and there is a fast growth opportunity available to you, investors will be banging on your door. Not the other way around (and that doesn’t work anyway).
  2. Giving away too much equity early is a bad thing. Not just because it reduces the exit for yourself, it can also have a negative effect on later rounds of funding. Venture capitalists look at how much equity will be left for the founders after their investment and if they feel it is not high enough then they will not invest as a disengaged founder is not great for a business 😉
  3. Raising money takes time. It takes you away from building the company. The rise of crowdfunding platforms makes raising money much more efficient than pitching to investors on a one by one basis, but you still need to invest time up front if you want to succeed.

So you shouldn’t raise money. Well life is no box of chocolates. Sometimes you need external funding to take a market quickly so that the market share itself can act as a barrier to entry. Gianvito Lanzolla, Professor of Strategy at Cass recently suggested that in each market there is typically only one major player and then a long tail of also rans. Not taking funding could mean you end up in that long tail. Maybe. Understanding what will stop other competitors from entering the market is key here. There are also still some markets that have large upfront or scaling costs such as hardware startups.

Choosing which funding approach to take once you have decided to take external funding depends very much on each startup’s situation. The upcoming posts will focus on each of the potential areas and then suggest a few of the more common approaches.