Last summer, we completed a £1m oversubscribed funding round, which was the culmination of a gruelling but exhilarating fundraising journey. In this candid summary, we share our experiences from securing our first £50k seed investment through to meeting some of Europe's top VCs, planning and presenting decks pitches, and the eventual closure of a £1m self-managed round from 34 new investors.
The business, Idea Drop, is the third startup Charlie de Rusett and I have co-founded together. We’re a London-based technology company that helps organisations everywhere capture, curate and implement the best ideas from their people.
We previously founded Vine, a regional UK publishing group which was acquired by Local World, a division of Trinity Mirror, in December 2013. We also co-founded Yellowball, a full service creative consultancy, of which a majority stake was acquired in February 2015.
As we grew Yellowball, we realised that we’d benefit from a tool to help us digitalise the process of capturing ideas from our team. We researched the market for this in detail, looking for an off-the-shelf solution that we could deploy quickly. What we found was clunky, out-of-date software, primarily based in the US with complex pricing structures and targeted at large Fortune 500 companies.
Unimpressed, we decided to use our own internal team of engineers at Yellowball to build a quick web-based idea collection prototype. We rolled it out internally and within a couple of weeks had gathered over 50 ideas from our 20 or so staff. What struck us was not the volume of ideas, but the fact that there was an interesting cross-cultivation of ideas across different teams and, most excitingly, that there were at least two ideas that we were able to immediately implement that had a tangible impact on our profitability.
It was at that moment we realised that the problem of capturing, curating and implementing ideas was one that transcended organisational size, sector and location. We knew the competition was weak, the market was growing and we could do something better.
A few weeks later, we pitched the idea to an angel software investor within our network and - after a round of pitches that included intense interrogation of our vision, plan and proposition - managed to secure £50,000 seed funding and the business was founded in March 2014. Our previous businesses had been entirely bootstrapped, so we were both new to the word of fundraising.
Our fundraising journey was exhausting, exhilarating and relentless.
Some months later, armed with a refined early prototype of our product, we were introduced to another angel investor, Andy Honess, who had a proven track record of backing great global software businesses and helping take them to exit – Andy was one of the founding UK team of Qlik, which ultimately floated on the NASDAQ stock exchange in 2010 for $750m.
We used our early funding to develop the product and engage in extensive market insight and discovery – we spent weeks and months meeting hundreds of companies and people ranging from senior executives at global banks, law firms, public sector organisations, engineering companies and SMEs. We sought to truly understand their problems – how they were capturing ideas currently, what was broken and how we could fix it.
Over the next year, we secured further funding from new investors, totalling our amount raised to over £200,000, all of which was invested in the product development, design and engineering. Following our simple strategy of ‘building something people want’ began to pay off, and we onboarded and closed our first ever clients – including Lear Corporation, number 154 on the Fortune 500 with 140,000 staff globally, and Kent Police, one of the largest and well-regarded police forces in the UK.
The level of revenue needed for the next step
This early client traction served as validation and confirmation that global demand existed for Idea Drop, across multiple industries and locations. But we knew that bringing our technology to new customers and markets wouldn’t be possible without increased investment in our global marketing and sales activity. At this point, in early 2016, we sought to close a further, and more significant, round of funding.
We began to explore a range of funding routes, including leveraging our existing investors to set up face-to-face meetings with some of Europe’s largest VCs (partners and associates at VCs rarely respond to unsolicited pitches, so it is always advisable to seek a direct introduction wherever you can).
We found these meetings to be valuable and insightful, although ultimately it became clear that we were a little too early in terms of annual recurring revenue and other KPIs that VCs look for (in the region of £100,000 per month revenue as a starting point for a Series A round). However, the meetings enabled us to ignite relationships with some of the key figures in the tech VC industry, which will undoubtedly be helpful later in our funding journey.
After also reviewing the potential of angel investment clubs and crowdfunding platforms such as Crowdcube and Seedrs, we decided to run our own self-managed fundraising round, utilising contacts within our direct and extended network.
The physical toll of a fundraising round
Our fundraising journey in the summer of 2016 was exhausting, exhilarating and relentless – undoubtedly one of the most challenging spells in our business journey to date; gruelling and thrilling in equal measure. We set out to raise £800,000.
After taking over 50 meetings, hosting a two-hour investor presentation in London (live streamed to international prospective investors) and receiving countless promises of investment that never materialised, a final list of committed investors began to emerge in late August.
One element of the fundraising process that we underestimated was the negotiation of specific legal terms and conditions of investment. Whilst we had an existing shareholder agreement and Articles of Association in place, it soon became clear that these would need to be replaced by something far more bespoke.
There were several weeks of highly complex and tense negotiation of specific terms, such as pre-emption rights, dilution of shares for a staff options pool, good and bad leaver definitions, founders’ service contracts, drag along rights and special shareholder consent clauses. This is where the expertise and knowledge of a specialist corporate lawyer really helps – in fact, we probably wouldn’t have closed the round so quickly without Jack Shephard, one of the corporate partners at CMS UK.
Finally, on 5 September, Charlie and I spent the day watching signatures be digitally signed and £1m cash be transferred into our business account, from a total of 34 investors – individual amounts ranged from £2,000 to £200,000. We had oversubscribed our funding round by £200k, real money had hit our account and everything was legally signed. It felt like we should be celebrating but really our journey – and the hard work – had just begun.