Raising investment is a roller coaster of rejection, flattery, false dawns and red herrings. If you are successful, the result is the daunting prospect of elite investors backing you to execute your vision. As first-time entrepreneurs, the early success we have had at Secret Spa has come from a mixture of accident, luck and great advisors, rather than founder genius. There is no one size fits all approach when raising investment is completely dependent on your type of business, network and location. However, there are some principles and pitfalls that you can consider for your business:

1.    Think of raising investment as a last resort

Remember it is better to own a little of something rather than all of nothing. The decision of when to raise investment needs to balance these two concerns, and depends on your appetite for risk. At Secret Spa, we stayed self-funded with the help of bank loans for as long as we possibly could. External investment dilutes your ownership and weakens your control. The longer you hold out, the more you can prove your business model is viable, which will lead to a higher valuation that protects your equity. When we raised our first round of investment we had already launched a successful technology platform with over a thousand customers and we were growing at 20% per month. We also only had a months’ worth of cash left! But despite running on empty our strong track record and operating experience meant that when we accepted investment, we had a convincing argument for what was needed to take the business to the next level.

2.    Get your pitch-deck and growth model right

Our investment case consisted of a pitch deck supported by growth projections. I am not a fan of conventional 3 – 5 year business plan and I am always wary of any investors who want to see one. Startups should be rapidly learning and constantly adapting based on feedback, not rigidly adhering to an overly detailed and abstract plan. On the other hand, a few slides will not cut it and you need to explain how you are going to use an investor’s money. There is tremendous value in articulating your vision, progress to date, and an 18-month roadmap in a 15 – 20 slide pitch deck. A growth model in Excel will also help you to understand your key assumptions and sense check the viability of scaling your business.

3.    Define what success looks like after Investment

An aspect of our original pitch that we put a lot of work into was clearly defining what success looks like after investment. When you start increasing spending and hopefully rapidly growing, it is hard to know what is working and what is a waste of resources. Revenue growth and profitability are critical but will not be enough detail on their own. In your pitch you need to establish the core metrics that you can actually measure. They will act as the vital signs of the business. Depending on your business, metrics might include lifetime value, acquisition costs and daily retention. The right core metrics can shine a light on what you are doing right. If the plan is not to be profitable for a few years, progress against these metrics is how you will convince investors that you are spending their money wisely and that they should re-invest when you next fundraise.

4.    Be patient and get the fundamentals right

Finalising your investment case will take longer than expected and you will be desperate to start pitching to potential investors. However, first spend some money with your accountant and lawyer. You need to be crystal clear on the finer details around your valuation, term sheets and eligibility for potential SEIS / EIS tax schemes. We learnt this the hard way when we needed to revise our shareholders agreement in the middle of a fundraise. The delays we had ironing out the small print definitely meant at least one investor lost interest. When investors express interest you want to be able to move quickly therefore spend the money with some professionals ahead of time.

5.    Be prepared for rejection

If you are planning your first fundraise, be prepared for rejection particularly at the beginning. Potential investors will be most attracted by the social proof of other investors having already committed. Focus on signing up your first investors and then make them part of the team. Most of our first round was raised from our first investors getting behind us and helping us raise the rest of the money from their personal networks. Also constraints bring creativity therefore I would recommend setting a deadline for when the round closes. As a founder, the pressure will give you the drive to make bold moves. For investors, it creates a fear of missing out and by the time round closes you will be turning people away.

6.    Be selective with Investors

Finally, aim to be selective with your investors. Not all money is smart money. You want investors who share your passion and bring strategic value. They need to understand that startups are a rollercoaster but are still excited to join for the ride!