A slice of the pie


20 August 2016 – by Savannah de Savary

The summer has been busy for IndustryHub. Despite the potent mix of Brexit and the traditional lull of the British summer, for the past seven weeks we have been in fundraising mode.


A big challenge has been deciphering the right path, with so many conflicting opinions regarding how much capital you should raise. Some advisers suggested funding was drying up for tech start-ups and we should raise as much as we could to tide us over, rather than enough for the typical runway of 12 to 18 months. Other start-up veterans were adamant that you should initially set out to raise less than you ideally need, as you don’t want to fall short of your target. Such an outcome could prove detrimental to investor confidence and thus to closing your round.

Another strategy was put forward by a well-regarded early-stage venture capital firm. It proposed that we raise a much smaller round, which would provide just six to eight months’ runway. At this point, we could then raise a follow-on round at a significantly higher valuation, leaving our founding team’s equity far less diluted. There is no denying that this strategy held appeal. When you have dedicated yourself entirely to a venture, you want to hang on to as much of the eventual upside that may materialise as you can.

The logic behind this is not just greed (although I would be fibbing if I said this didn’t add to the appeal). A start-up will likely go through multiple funding rounds, and we have learnt that many savvy later-stage investors will be put off if the founders are not still financially incentivised to lead the company.

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However, I realised that retaining “enough” equity is very different from “as much equity as possible” and, in our case, following this strategy would be motivated by a desire for the latter.

No doubt it is important to keep a founder financially incentivised. However, few entrepreneurs get out of bed in the morning (so few hours after they have collapsed into it) just for the money. We do it because we are lucky enough to be intimately involved in creating something that we think can make an impact and change the status quo.

I know start-up founders who decided to go down the path of raising enough capital for just a short period of time, became oversubscribed and made the decision not to raise more. Their companies did not need it at that stage, as milestones that would enable them to raise at a higher valuation were close on the horizon. Having seen their subsequent success, there is no doubt it was the smart decision.

Savannah de Savary is founder of IndustryHub, one of the latest Pi Labs cohorts. Click here to read more of her article.

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