Capital raising: how to build a bridge through the valley of death

Kate Jones

Welcome to the valley of death – that precarious time when entrepreneurs must raise capital for their fledgling business model. During this difficult period, operating costs are increasing, but revenue is low and businesses can fall victim to cashflow problems.

Many promising start-ups don’t survive this notorious stage, while others manage to find investment to fuel growth and keep bankruptcy at bay.

The three founders of online art marketplace, Bluethumb, bootstrapped their business for three years, but knew they needed a cash injection to take the company to the next level.

With a family and a mortgage to pay, co-founder Ed Hartley says there was a lot on the line for him and fellow founders - brother George Hartley and Philip Slusarski.

“Essentially last year we tried to live as lean as possible,” he says.

“I sold my car and rode to work because you just have to make do on a lot less income.”

In 2015 the trio began discussions with venture capitalists and won the Creative3 pitching competition. But it was a simple message on LinkedIn from George to AussieCommerce Group co-founder, Jeremy Same, that eventually earned Bluethumb a $500,000 investment. Same and co-founder Adam Schwab were impressed with Bluethumb’s business model and how successful it had been without outside investment.

To secure investment, Schwab says start-ups need to show early success and proof of concept.

“We loved Ed and the team and what they have built with no outside capital,” Schwab says.

“We thought the marketplace they have created adds enormous value to both artists and customers, and is a genuinely positive disruption to a highly opaque sector.”

To secure investment, Schwab says start-ups need to show early success and proof of concept.

“Investors want to see significant growth and want to make sure the team is able to execute on their vision,” he says.

Tech entrepreneur Sam Chandler, founder of digital document company Nitro, says he enjoyed the challenge of raising capital.

“We needed funds to accelerate our vision to help businesses work smarter with their documents and bring it to life for our customers of all sizes,” he explains.

“For a company that was primarily bootstrapped, doing a capital raising of significant size was tremendously exciting.”

Chandler toyed with the idea of floating on the ASX, but instead decided to approach venture capital firms. Nitro raised $6.6 million from Australia’s Starfish Ventures in 2012 and in 2014 received $15 million from Silicon Valley’s Battery Ventures.

Derived from his own experience, Chandler advises start-ups to ensure they approach the right firm for funding and to be patient as it can be a long process.

Kate Jones

Kate Jones writes for the business and money sections of The Age and Sydney Morning Herald. She also writes for The New Daily, TAC, RMIT and is a news writing tutor at Monash University.

Image: Conor McCabe, Flickr Creative Commons License