Customer Funded Startups (when you are over 50)
Raising finance is hard, Raising finance when you are over 50 is harder.
Personal resilience is essential when raising funding.
I have heard investors ask whether founders will be still with us for long and seen letters plainly stating that founders (in good health) are just plain too old to warrant investment in a good business idea. That’s what they say behind their doors. To your face the signs are more nuanced.
My name is Mark Elliott and I’m over 50.
Generally, if you are looking for investment, the odds are low, and that’s not necessarily a bad thing if your business would not be a success, but we have to examine the figures of who gets funded (and who does not).
In 2020 only 2.3% of US Venture Capital went to female-led teams, which fell from 7% in 2018 (according to Crunchbase figures). Gender mixed teams received roughly 9% of funding. In the UK in 2020, only 0.25% of equity funding went to black-led businesses, as reported in the Extend Ventures report, and only one of the 38 Series A rounds in the previous ten years was led by a woman.
If the money is not within your network already, then you are further unlucky; according to CrunchBase, “a warm intro pitch has a 26% chance of getting to an investment committee and an almost 5% chance of getting funded. Cold intro pitches have a 1.2% chance of getting to a committee and 0.4% chance of getting funded.” So if you know money, then you are more likely to receive money.
And whilst the Harvard Business Review found that the average age of a successful (top 10% by sales value) tech founder was 42 and the average of the top 0.1% was 45. It is still nigh on impossible to raise capital when your over 50, when people such as Paul Graham, Y-Combinator’s co-founder, say, “the cutoff in investors’ heads is 32, after 32 they are sceptical.”
But if you are over 50 and raising capital for the first time, then it is not impossible, success stories like Anne Boden of Starling Bank at the age of 54 prove that age is not an insurmountable barrier.
It may be challenging to raise funds, but there are things that you can do to maximise your chances of success
Prove everything that you say.
Desirability, Feasibility, Viability. You will know that raising investment means showing that you have proof of all these. You can benefit from having numbers that you have created from your own actions, not research. Third-party evidence is not enough at this age.
To do this, build Just Enough
Create your minimum viable product (MVP) to solve crucial customers or customer groups’ critical problems. This MVP may need to have been faked or jigged; it may not be the backend process that you plan on achieving, it may not be as you wish the service to be, but it needs to work for the customer.
And it needs to work well for the customer, the oft-quoted metric of being 10x better than the competition to warrant investment doesn’t go away. Your customers should perceive you to be 10x better than existing. Aim for that, build the experience for that, and get your customers to say that about you.
While you are prototyping or building your MVP, capture your customer’s attention, be part of the information stream that they pay attention to. Be able to prove that people pay attention to you and that you will be able to scale using this method when the time comes.
Prove your complete monetisation cycle
It does not necessarily mean in one straight flow, but every section of it, perhaps from different customers, for different reasons, but this illustrates that you can deliver the complete value chain that customers pay money for.
Have more than one customer pay you, have customers pay you more than once, maybe a subscription or multiple products. Using this revenue to create a marginally profitable company using the customers and resources that you have now. Show this in your financial planning and models.
You may expect additional network benefits coming from the interaction between higher numbers of customers; if so show examples of this even if you have to engineer the opportunity between customers. Nova Money successfully pitched when they had just 20 sign-ups for their services.
You may expect financial savings from more significant numbers of customers, so ensure that you can target your initial customer segment with your highest value offering.
And I don’t believe your statement that your product “can’t be sold before you build it”. If customers want it, they will commit in some way. Find those customers and get that commitment. As ever with your lean company, estimate and document, experiment, and evaluate.
Create a company that doesn’t NEED the money to exist, but to GROW
If what I’ve said so far leads you to think that some business ideas and models can never be customer-funded, then I would ask you to look again at why you believe that and look to solve it in some way. Read The Unfair Advantage, and find the way to succeed, especially if you don’t have the starting capital or experience for prototyping.
So some complete business model types, such as advertiser revenue models might require you to build your MVP for your audience and grow that audience in the best possible way so that they can be used for advertisements. This might be done using someone else’s technical infrastructure and migrating your audience.
Some technology requires an enormous initial investment, such as biotech, so find an academic partner to share the risk or obtain grant-based finance.
Find a way to create your own evidence.
Even when you do the right things, you will need to make sure you select your funders correctly
Your ambition and the ambition of the people and organisations giving you access to money need to overlap. Your target market size needs to match your funders’ aspirations. VCs for example will need to see a pathway to a $100m aspiration, for example, they will also look for $1m in revenues and a minimum size of a cheque to write. Angels will require less, their aspiration maybe for a new world or creating wealth from their old world. They may be more interested in the interaction with you and the company.
Whoever they are, funders will want to see Team, Traction, Timing, TAM, and Terms.
You will need to get it all correct: traction (actual sales), timing (why now, why you?), TAM (total accessible market, your market aspiration), and Terms (your company trajectory and finance), because they see something unusual in the Team.
And that’s You.
You are older than the founder of mythology. You are probably older than your potential funders. Be clear and open about your motivation to create the company and your part in the team. Why is the timing perfect, right now. Not just for the company, but for YOU and ensure this is acknowledged and understood
When researching and prospecting for your ideal funders, make sure that you find someone who sees YOU. Then when you pitch your audience includes someone who understands your market or customer issue, who will respect your experience
So what is the strategy to get funded when you’re over 50?
So you can get a straight, white, tall guy to front your company where you are the Grey Hair, The Bald One, The Wise One.
But better than this is to build a company that doesn’t need these people, doesn’t need this money. Build your funder finding with a consistent and managed approach to finding funding, just as you would any customer pipeline or prospecting. Contact and speak to numerous potential funders, with a consistent message that can be carried for you to where you need the message to be.
So I’m suggesting that you do more of the right things than anyone else has to, so that when you do meet that perfect funder, the one that fundamentally understands why the company exists and see’s you. That you can have a more interesting conversation about how to build forward, rather than what you haven’t done, or who you are not.
Engaging a coach to create that pathway is an investment in your company. I would always recommend it.
Extracts of a speech I gave recently at the World Finance Council’s Startup Funding Summit 2021, March 16th.