This is a summary and video recording of the Spark Festival Masterclass hosted by LegalVision on Tuesday 17 October 2017. Read below for tips from our CEO, Lachlan McKnight and Practice Leader, Anurag Verma.

First Stages: Structure for Success

How Do I Structure My Business With Growth In Mind?

  • Ask, how do you want to protect your business structure? Consider a holding company, incorporation, operating company, discretionary trusts, sole traders and partnerships etc.
  • Important to have the current structure in place from the start to ensure that no unnecessary roadblocks are met when it comes time to growth and fundraising. For example, if you traded as a sole trader in your first year and made significant profit, a large portion of this would be taxed. If you outsourced design and development without ensuring that you had the IP assigned to the right entity, you would need to go back and get all those assignments in place around the time that you want to raise funds, which is unnecessary and creates stress.
  • Structure in terms of success – plan for success. Don’t avoid putting these structures in place ‘just incase it doesn’t work out’. Plan so it does work out!

How Can I Go From Prototype to Product?

  • There are both legal and commercial aspects to this question.
  • From a commercial perspective, what is your minimum viable product (MVP) which will help you get market validation and help target your strategy. The key here is having a minimum product. It saves you cash and time and allows you to test as soon as possible.
  • The ecosystem is considering whether you can test before even getting to a MVP stage but testing your riskiest assumptions first. This is known as the ‘Riskiest Assumption Test’ (RAT) and can help you get validation and test whether the assumptions on which you have based your idea have solid grounding.
  • In the context of a web or mobile platform, the prototype should take the form of wireframes, or designed / prototyped screens which allow you to test your ideas, either in the form of a MVP or RAT.
  • Are you selling a B2B product or B2C product? This will affect how you transition your prototype to your final product.
  • Speak to your target market. Test, test, test!
  • Build and ship as quickly as possible to gather knowledge and validate what you’ve gathered so you have time to pivot. The longer it takes, the harder to pivot!
  • Also remember the importance of protecting your intellectual property.
  • Basic design should be protected – confidentiality agreements, contractors agreements, and assignment deeds.
  • Product is what people are paying for – don’t make the mistake of planning and testing. Try and make a sale! The best test is whether customers will buy it!

Where Can I Go To Upskill and Continue Learning On My Startup Journey?

  • You can go down the accelerator route – it can be a difficult experience and you should be prepared for this.
  • You can look into co-working spaces e.g. Fishburners. This is excellent for networking and resources.
  • There are also a significant number of online resources that can help you learn the basics, particularly if have a non-technical or non-design background and your product relies on that. For example, the Sydney Startups Facebook page is a great and growing community which allows you to learn and ask questions. There are great articles on Medium and other blogs where entrepreneurs share their journey, success and challenges.
  • But one of the best ways to upskill is by making more sales and ‘learning on the job’. If you are successful, you’ll need to hire more people. And then you have to learn how to manage those people and a company – you’re upskilling while making money! You’re responding to real situations.
  • Reaching out to people through meet-ups and co working spaces is one of the best ways to learn from experiences and ask questions.
  • Also talk to other entrepreneurs (Not just customers).

How Do We Grow Our Team Into The Highest Performing Team Possible?

  • The best businesses have a great culture.
  • What motivates the people who are working with you? Believe in what the company is doing. Ensure they’re learning and growing their skill sets. When you grow, you can look into an engagement tool like CultureAmp.
  • Ensure you’re hiring the right kind of people for your business.
  • Have some incentives; continuous involvement is always required. Look into offering equity to incentivise your people to stay with you.
  • Ensure that culture is central to the startup so the team feels value working at your startup.

How Do I Avoid Mistakes Unnecessarily In The Early Stages?

  • You are going to make mistakes. You don’t want to avoid this. You do want to avoid mistakes that will affect you in the medium-long term.
  • Vesting is a massive issue to consider for shareholders. VCs will insist on all founders vesting at time of investment.
  • Don’t give away too much of the equity to investors or give too much away to corporate advisors. Don’t ask for money too early so you know what you’ll be offering to investors, and so they know you’ve thrown a lot of your own resources before you’ve asked for theirs.
  • Don’t overestimate the value of your startup. Or underestimate. You may need to raise, you may not – need to carefully consider the value of your startup.
  • Don’t rely on feedback from your parents – actually seek advisors and customers and VCs for proper feedback.
  • Put in the right structure from day one. Plan for success.

What Can We Learn From Other Startups That Have Raised Capital?

  • Unfamiliarity with the process. The idea may not make any sense – the startups haven’t understood documentation or the difference between issuing shares and vesting shares. Seemingly small errors can have a huge financial impact.
  • Being advised incorrectly can slow down the process and create a headache later while you’re trying to focus on growth.
  • Consider the scenario where you might have ten investors lined up – and three pull out the day before closing. This is relevant to not knowing the etiquette for investing and not knowing the rules. Make sure you know everything about your investors.
  • Ensure you have all necessary consent before seeking investment!
  • Seek out an experienced advisor/investor to avoid minor issues. They bring experience, knowledge and validation to your idea.
  • If you want to seek a kickoff investment round, network to find someone who can fund your idea, or seek out a network of angel investors, like Sydney angels (local investors). Look into groups like Capital Pitch and Investible.
  • Get someone to introduce you – cold contacting doesn’t usually work.
  • Consider a program like StartMate (Blackbird program).
  • Capital raising is a people exercise! You don’t know where your next opportunity will come from. Seeking investment is a courting exercise – don’t come when you need their money, put yourself out there and reach goals whilst they can see you achieving them.

Where Does Our Competitive Advantage Lie In A Saturated Market?

  • Ensure you draw out the point you’re doing differently to others (e.g. Listen to the Tim Ferriss podcast on Branding).
  • Look at orthogonal industries for inspiration.

Raising Capital: Financial Challenges

How Do We Avoid Unnecessary Expenses?

  • Your expenses should focus on product. Don’t pay yourself too early in the piece. Negotiate to cut expenses.
  • But you have to be careful. You’ll get to a size when you can’t afford to be cheap or you’ll miss out on valuable resources.
  • Have a good developer early on. IT expenses that can be internal will be an investment to your startup.
  • Remember the power of online resources! Read online.
  • Hack through it yourself – learn new skills, read more, understand more. Being an entrepreneur requires you to go beyond your base knowledge to understand a multitude of different skillsets. You will not be a master of them all, but you should start becoming a jack of all trades.

What Are Some Strategies For Financial Management?

  • The only thing you need to remember – don’t run out of cash. That’s all you need to focus on.
  • Check accounts every day and watch your finances like a hawk.

When Do We Start Raising Capital?

  • You need to have an idea of costs and lifetime value.
  • You should have numbers to prove your value.
  • It’s individual: (1) ensure you raise before you’re too close to the end and (2) raise when you have something to sing about.
  • Ensure you’re in a position that encourages your investors NOT to miss out on investing. I.e. would be a loss for them if they didn’t invest.

How Do We Best Position Ourselves To Investors?

  • Ensure you’re suited to it. The companies are the ones that contribute to the economy – not small startups. Not everyone is made to create a successful startup.
  • Perfect your slide deck! Ensure it’s short, sweet, concise. Get it done professionally if you can – these are dollars well spent. Look up templates for pitch decks.
  • Ensure your legal structure is properly set up so investors know what structure they are investing in. They’ll ask – are you a sole trader, a partnership, running a company?
  • Don’t let the investors draft the term sheet – have it drafted. Have a basic financial model. This is very valuable.
  • Who owns the IP – the main asset of your business? Who is your team and are they invested to stay in your business? You need to know your numbers.
  • Ensure you answer why it’s better to invest now than later.

Legal

How Can I Ensure I Have All The Correct Legal Documentation In Place For My Startup?

  • Know exactly which documents are needed when.
  • Ask! It’s not your job to know what you need at the beginning.

How Do We Ensure Protection Of Our IP?

  • Everything anyone creates on your behalf should go onto you in a contract to protect your IP.
  • Remember what makes the idea valuable is execution – NOT the idea itself.
  • NDAs won’t be useful. It is execution that will be useful!

Miscellaneous

What Tools Can We Use To Help Us Find Customers And Get Our Business Up And Running?

  • Google Adwords. But this is generally dependent of the kind of business you’re running. You can work out which words generate leads and then customers.
  • Social media may work differently for a different business model, so make sure the platforms you use are suitable to the customers you’re serving.
  • B2C – vs B2B – means different tools.
  • Most practically, you need to get out there and talk to your customers.

LegalVision’s Startup Manual is essential reading material for any startup founder looking to launch and grow a successful startup. Download the free 60-page manual featuring 10 case studies from Australia’s leading VCs and startups.

Lachlan McKnight
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