Ten years ago, I started a business with three friends from college. Recently we raised a whopping $50 million in investment money. A milestone we never imagined possible. Yet, since then it’s begun to feel pretty normal. Because we keep pushing our boundaries, creating new and bigger goals.
Back in our student days, we made a sport of getting our hands on the best summaries of textbooks and lectures. Which was actually quite a lot of work because it had to be good content. At a certain point my roommate and I realised: we could turn this into a project and let others share in all this knowledge. With the help of two other friends we created a website and so… StudeerSnel.nl was born! Today the site has grown into a platform where students can find all sorts of study materials – summaries, notes, practice materials, you name it! And we have an foreign version for international students – StuDocu.com.
It turned out to be a very interesting concept, with the platform attracting more and more students wanting to use our study materials. So, it wasn’t long before we took the logical step of professionalising. We decided on a business model which offered 80 percent of all documents for free and the other 20 percent under a Premium label. To gain access to the Premium documents students pay a subscription fee or upload their own study documents. This model proved to work well. However, the time between engaging a university and making a healthy turnover is about two years. We decided to try and attract investors: with investment capital we could keep growing without having to wait for income to allocate resources for that growth. With fresh investment, we planned to increase our reach, develop the platform’s technology further, and strengthen our team. We thought we’d tell you how we did it, maybe it will work for you too!
Tip 1: Cold emailing
Networking has never really been my thing but it’s something I’ve learnt to do as it’s a very effective way to get attention from VCs and angel investors. Based on the conversations you have, you can get a feeling for which parties or individuals are a good match for your business. We gave it a little twist – by using cold emailing – writing a good pitch and mailing it. Once you have proven your product/market fit, even if it’s in just a small part of your overall market e.g. in one city or one country, you have a strong story to tell investors. Then, a few emails are all it takes to get their attention and get the conversation going.
Everything depends on good preparation. Before you even start talking to potential investors, it’s important to have your numbers straight and your data in order. This simply saves a lot of time and explanation.
Tip 2: Talk to several people and don’t do it alone
Next are the introductory meetings. Look around and talk to several investors. Take your time, there’s no need to jump to a decision straight after that first meeting. Most importantly: give yourself a choice by talking to more than one party.
Personally, I also found it really important not to make the decision alone. I’m glad to say I have a team around me that I trust, together we could discuss all our options. Even if you are the only founder my advice would still be to gather the right people around you. Hearing different opinions will help you make much better decisions. Getting funding takes a lot of time and energy. You’re working on it while the regular business continues and that must not suffer from a lack of attention. So, you work double shifts. Despite the fact that we have a strong team, we even engaged a corporate finance advisor for this last major investment round. They brought a huge amount of experience with them and really helped us when it came to making crucial decisions. This is an advisable step if you are looking to raise 10 million or more.
Step 3: Negotiate, sprint through your DD and let the adventure begin!
Investors will never make their best offer at once, so be prepared for negotiations. These actually start subconsciously at the first meeting, so do try and be aware of them. Hopefully there are several investors interested, so you can see in a term sheet what the different options are. That info can also improve your case when negotiating with another party (or parties).
Once your term sheet is complete, try to push the Due Diligence through as soon as you can. Once the terms are in place, you want to get started swiftly, so deliver all requested info as soon as possible, otherwise the DD can slow you down if you don’t stay focused on it.
Once it’s all round, take the chance for a proper celebration with the team, and then get down to the hard work!
Be ambitious, but realistic and create FOMO
Whether you’re in early stage or later stage investment, in both stages your pitch to investors is vital. It can be difficult at an early stage to show proof that your business model really works, but speak from your vision and passion. Be ambitious, but realistic! With later stage investment you can show that there is a lot of demand for your business model and hopefully it’s already profitable. In this case you will want to show the added value of an investment and what you are going to do with it. With StuDocu.com for example, we want to grow further by expanding internationally, invest in talent that can help us do so, and expand the functionalities of our platform.
In both early and later investments, always show where the investor can add value. Most importantly: give the investor the feeling that they are missing out if they do not get in now. After all, there is a lot of money available but there are also a lot of companies which it can go to. So, create FOMO with the investor!