How to raise money
Welcome to Season 2 of School of Splice.
In this season, we're focusing on some of the issues that founders in the program have faced. We're learning from Annelis Putri, an entrepreneur and consultant who's putting together Indonesia Business Post, a media company that connects businesses around the world with investment opportunities in Indonesia. She talks with her coach Ross Settles about how to go about raising her first money.
Notes
Y Combinator's tips on how to build a seed round pitch deck
Lion Publishers has ideas to help you improve on your fundraising
Understanding Series A, B, C
Or listen wherever you get your podcasts
The transcript
ALAN: Welcome to the School of Splice. I’m Alan,
RISHAD: And I’m Rishad.
ALAN: And In this series - we want to help you build a viable media business… and one of the best ways to do that is by learning from others.
RISHAD: Over the past few months, several entrepreneurs have been working with mentors as part of the School of Splice to help develop their startups. And in this season, we’re going to dive into some of the key issues that these founders have faced on their journey to building a successful company.
ALAN: When you’re looking to start a new business - sometimes the best ideas come from your own personal experiences. You see a problem, and create a solution… and that was the case for today’s founder.
(SOS Annelis 1) 1:44: I’m still a consultant between French and Indonesia. So I live between France and Indonesia actually. So I helped actually the French companies who want to invest or to develop their business, their partnership in Indonesia since thousand 2017.
ALAN: This is Annelis Putri - an entrepreneur and consultant who is building a media intelligence company that connects businesses around the world with opportunities in Indonesia.
(SOS Annelis 1) 2:54: my idea is, um, because I, because I accompanied them to Indonesia, um, and I found that they like. Lots of information actually about Indonesia.
So they know there's huge potential in emission market for their business, but they lack information actually.
RISHAD: The problem Annelis noticed was that foreign companies didn’t know that much about the Indonesian market, other than what they could read in English-language newspapers. So in late 2019 - Annelis set out to create a solution.
(SOS Annelis 1) 4:12: So, um, so that's why this idea come from to create Indonesia Business Post. So Indonesia business was, is, um, a really targeted for, uh, my audience, which is foreign companies and foreign investor who wants to develop their business in Indonesia and, uh, um, provide them with data, information and services. They, they actually, uh, really needed.
ALAN: When Annelis joined the School of Splice program she had already made some progress,i. Including getting a prototype built and tested - but the challenge Annelis wanted to solve was getting the Indonesia Business Post launched ahead of the G20 conference in late 2022.
(SOS Annelis 1) 09:29: I already legalize all the, uh, the company and I already have, uh, someone on board, uh, that invest in me. So. Uh, I have this, um, Amy and responsibility to launch the media.
Um, and since, as well, in Indonesia in 2022 will be the president of G 20 conference. So, uh, yeah, so all our potential clients is there. So we really liked to get launched as soon as possible. I mean, in January, for example, 2022.
RISHAD: When you start a new business - it’s easy to get lost in all the ambition of what you’re trying to create. But often being focused is the best thing you can do. Most startups fail - so you need to give yourself the best opportunity to succeed. A new media company, with a small team, doesn’t have the luxury of covering every topic.
ALAN: That’s right. If you spread yourself too thin in the early days, you will find it difficult to see success. And this is where we want to bring in Ross Settles - who was mentoring Annelis through the School of Splice. Ross teaches media entrepreneurship and innovation at University of Hong KongHong Kong University, and is also an advisor and investor in media startups. Ross had some key questions for Annelis that are important to think about before you launch.
(SOS Ross 1) 09:29:So one question is when you did the research before, did you, did you see any, like if you had to say, I'm going to start with luxury good makers first, or I'm going to start giving you a background in renewable energy that the first we call it, the Keystone.
I think about it as you're going to build an art, but to build an arc, you have to put the, you have to put the first stone in place. So what would be the first industry you want to be successful with? Or so that's what we would call a up and down a vertical strategy where you start with one and then you build out or you could do something that's horizontal.
So like labor regulations or government regulations. And. I'm not sure that anybody's doing that in Indonesia. There is a project in Jakarta called , who come online, but it's all in, but it's all in again. It's all in Bahasa. So it's for Indonesian businesses working in Indonesia, not for foreign, do not really performed business.
So any thought, have you given in your research or in your own thinking or your own, uh, experience, any. there a way to start with a one or a handful of industries to start, especially given this launch event, the or is there something you would, that you think will makes more sense horizontally? Uh, but having some focus, it makes the prototype easier to build, but it also makes it more useful for much easier to find groups of people
(SOS Annelis 1) Okay. So, um, actually, um, actually our rubber rubric, we have several Roderick and it's like you say, it's more horizontal view. So, uh, we have this. We have this section for legal, for regulation. We have also another section for, um, market intelligence data. And we have also not a section for profile, like all, um, like, uh, business leaders, government, the profile of business government leaders in Indonesia.
We also have unlicensed about, uh, several sectors. So this industry. Actually that will kind of tricky because in this rubric, I have to start with what you say. Um, like narrow it down to like one or two sectors. And, um, well, um, I, I. I have my choices of sectors, which is infrastructure and renewable energy because lots of, uh, foreign companies, um, and, uh, oh, well would love to invest in, in these, uh, two sectors.
RISHAD: Annelis had a clear vision and focus for what the the Indonesia Business Post should be but the problem faced was a lack of resources to hire the staff needed to make it successful. And for this reason Annelis wanted to start raising money.
ALAN: Many startup founders will inevitably decide to raise money - and there’s a bunch of key questions you need to ask yourself before you do. Because your goal as a founder is to build a successful business, not to raise capital.
RISHAD: There have been plenty of large media companies raise millions, even hundreds of millions, only to see their businesses struggle under the pressure that comes with investments. Think of Buzzfeed, Huffington Post, and even Vox. Raising money won’t solve the core problems you have with your business, but it can allow you to do more. So you need to ask yourself whether you actually need to raise money. Is it the right time for your company? And if you do want to raise money - how will you use that money to grow?
ALAN: Media companies often struggle to raise money from venture firms because they don’t scale in the same way as technology businesses. Investors are often looking for big exits, and rapid growth, which may not be the right strategy for your company.
ALAN: The other consideration to make is that the earlier you raise money - the more equity you’ll have to give away. So before you decide to take an investment look for funding grants or accelerator programs in your local market - these can allow you to get your idea off the ground with minimal risk to you. Here’s Ross Settles again.
ROSS SETTLES (Startup Fundraising Audio): Raising your first money. Two big problems I see a lot of. One is always assuming you have to get an investment, so you have to sell a piece of your company. There are lots of ways to raise money that don't involve equity. Two is raising either too much or too little. So have a plan for how much you're going to use, what you're going to achieve with it. And then stick to that number. Some people will try to give you more. Some people will tell you that you need less, have a sense of what you want to do, and then fundraise for that.
RISHAD: Another point to consider is whether you have people giving you advice on how to run the company. An advisory board can be one of the best ways to get feedback on the plans you have for your business - and can signal to investors that you have the support needed to make the most of their investment.
ROSS SETTLES (Startup Fundraising Audio): Most important thing for a new media startup who's getting ready to fundraise is be sure you've formed a board of directors or board of advisors. You'll need people who can help you navigate the law, the taxes and the finance implications of your funding.
ALAN: The other consideration is how you will pitch investors. You'll need a solid pitch deck that outlines what your business will do with the money you’re seeking. You need to state the problem that exists and how your company will solve it.
RISHAD: You also need to show off your traction - tell investors what you’ve already done, and show them your plans for the future. Make sure to include metrics and numbers that show your progress.
ALAN: There’s a great resource from Y Combinator - the most successful startup accelerator in the world, on how to build a great pitch deck. We’ll include that in the show notes for this episode. (https://www.ycombinator.com/library/2u-how-to-build-your-seed-round-pitch-deck)
ALAN: But at its core a pitch deck needs around 10 slides. You don’t want to overwhelm potential investors. If they like your pitch - then you’ll have the opportunity to provide all the additional details as part of due diligence.
RISHAD: Once you get a meeting with an investor - they’ll probably ask you how much you’re planning to raise and at what valuation. Are you raising $100,000 - or $1 Million. And once you take on the investment - what will your company be valued at. This question directly relates to how much equity you give away. The goal is to give away as little equity as possible in the early days, because you want to keep equity to give away at later stages of the business.
ALAN: So how do you actually decide how much equity to give away, and how do you determine what your business is worth?
ROSS SETTLES (Startup Fundraising Audio): A common question I get is when a startup media founder is looking to raise funds by selling equity is how much equity to sell, um, and, uh, how to think about it. And I wish I could tell you that there is a magic formula and you just plug in what you've done and you plug in what your audience size is, and a magically out drops the valuation of your company.
Um, but in fact, there's no magic formula. It's a lot of art and a little bit of calculus and a little bit of research and a lot of negotiation. Um, uh, you need to think of a couple of things. How much money do you actually need to raise? What money have you raised in the past? So do you have an existing market valuation for the company. How much money do you want to raise? What do you plan to achieve with the money you've raised? And then lastly, how much of your company shares, how much ownership do you want to retain either for yourself as a founder or often to retain in some sort of equity pool for employees that you may want to give 1% or 2% of the shares to a senior editor or a senior business executive, or it could be even more than 2%.
There's no perfect formula for this. Um, and it's one of the reasons that having good advisors, good board members, especially at the startup stage is really important so that you know how to, to calibrate how much money you're raising, how much you want to say your company is worth. And how often you want to raise money.
RISHAD: Raising money can take a lot of time and energy for a founder. So make sure you raise enough. To figure out how much you need - Write out all the costs your business will have to meet your strategy. How much will it cost you to hire the staff? What do you need to cover the equipment you’ll use, or the costs of your website? What will you spend on advertising and marketing? What do you need for any onboarding costs for employees? And how much runway do you need? Make sure the costs match with the ambition of the business you’re trying to build. If you don’t raise enough - you might find yourself running out of capital before you can hit your goals.
ALAN: I just want to highlight an exchange between Annelis and Ross as they try to work out how much money Annelis needed to raise. Going into School of Splice - Annelis really wanted to hire an editor for the Indonesia Business Post - this would add credibility and provide a full-time resource to work on content for the website.
(SOS Annelis 2 39:53): we, we already plan actually before, before school of splice to raise the minimum a hundred thousand. So I can really have like, you know, proper editorial itchy. It's inevitable. If I can raise above that, it can be wonderful as well.
(SOS Ross 2): Put down on a piece of paper is, you know, the editor in chief salary. What is that? You know, what is it, put it down on a piece of paper, then one or two of the interns that you turn them into regular full-time employees. What is that salary? However, many you think it is, you probably want somebody who is a digital production person, somebody who's taking the stories and putting them online, pushing them out to Facebook or whatever social media using,
(SOS Annelis 2): Yeah. It’s SEO
(SOS Ross 2): not SEO, social media, whatever. And then you probably want at the prices that you're talking about, you probably want a sales person,
(SOS Ross 2): that's right. Somebody that's working to constantly. So you've talked to Michelle, you've done the background. So you want to be able to take that. Of doing the background work, understanding their business in Indonesia, understanding what kinds of data do you think would be important to them and then going and visiting them almost with a little, let me tell you what I think your needs are and help me understand what, what we can do for you.
You need that. That's a part, that's another person, but I'd make a list of who those people are. And then I would kind of put out a calendar from month zero to month 12, when would they be hired? Right. So what's their monthly salary went with, and then tell me what the year looks like, how much money is a year's worth of salaries.
That's probably what you're raising. My bet is, is more than under a thousand dollars,
RISHAD: Once you start writing everything down, you’ll start noticing the true costs of scaling a business. Don’t just pull a number out of the air - be methodical and calculate what you actually need.
ALAN: Every startup is different. Just because you create a great pitch deck, and you have formulated a good ask - doesn’t mean you’ll get an investor right away. Some of the biggest companies were knocked back by dozens of investors before someone decided to put in money. Raising money is a numbers game - and the more conversations you have the greater the chance of a successful pitch. But make sure you learn from every conversation and adapt your pitch and your deck accordingly.
RISHAD: We don’t want this to sound like a walk in the park. Raising money takes a lot of time, and it can be hard work as a media entrepreneur. So If you’re finding it difficult to raise money don’t be afraid to think outside the box. You don’t always have to give away equity - so maybe there’s another solution that would work for your company. Maybe you would be better off trying crowdfunding, or a royalty model. Here’s Ross again.
ROSS SETTLES (Startup Fundraising Audio): One place to look for models is Hollywood, right? Most movies these days require millions, if not tens of millions or even hundreds of millions of dollars to produce, but Marvel comics doesn't sell shares on launching a movie. But what they will often do is sell what's called a royalty, right? So this allows a funder to put money and against future revenues to a certain point at which then the royalties end. It's called royalty based financing or revenue based financing -- it's very common in the game business. It's very common in the movie business. Not very common in the media.
ALAN: While we all want to believe we’re creating the next Google, Facebook, or Amazon - the truth is we’re probably not going to reach that level. And that’s OK. It’s perfectly fine to have a small, but profitable, media company. There’s no exact science for how to raise money. And as Ross says - you need to talk about this process with your advisory team or your board, so that you can get advice specifically for your company from people who have been there before.
ROSS SETTLES: Lots of different inputs are always good to have a lot of good people to talk to about it. And it also varies a little bit by the region, uh, where there's a lot of interactivity. It's easy to raise a lot of funds frequently. So maybe every six months you fundraise in a market where there's not a lot of venture activity.
You may only get the chance to raise funds once every 18 months or 24 months. So you have to raise bigger amounts, which means you have to give away more shares of your company. Um, anyway, so a little bit of magic, a little bit of art, a lot of discussion and a lot of negotiation.
ALAN: Thanks for listening to the School of Splice. This episode was hosted by me - [Alan Soon, and Rishad Patel]. Production by the team at Lawson Media.
If you want to learn more about raising money - we’ve put some useful resources in the episode show notes.
You can find all our other episodes at our website schoolofsplice.com.
We’ll speak to you again soon.