Scotland’s tech startup scene is buzzing, but getting early-stage equity funding can feel like a major uphill battle. However, it’s worth pursuing - and with the right know-how you can set yourself up for success.
Equity investment can be a fantastic boost for your startup. It requires less of the reporting than grant funding, less of the admin of crowdfunding, and less of the pressure of bootstrapping and debt funding. If you're looking for an injection of cash to help you test an assumption, hit the next traction point in your journey and accelerate your startup's growth, this could be the option for you. Equity investment comes with all sorts of added value beyond simply raising capital - connections with investors can provide you with access to contacts and industry expertise, as well as boosting your reputation as a business. (Want to learn more? Read our Startup Basics Module: Funding a Startup).
That said, founders face a lot of challenges when it comes to equity funding, and it’s easy to make some mistakes that can come back to haunt you later!
One of the biggest issues is raising too little capital. Many founders underestimate how much money they need, which can leave them strapped for cash just when they’re ready to grow. The solution? Plan ahead and raise more than you think you need. Factor in a buffer for unexpected costs, and don’t be afraid to be ambitious when you’re fundraising. Remember that you’re not just looking to cover your month to month cash needs, but using this to invest in growth-focused activity. For more tips on how much to raise, this blog from Focused For Business is full of helpful advice
Another common pitfall is agreeing to bad terms. It’s tempting to take whatever’s offered in those early days, but bad deals—like giving away too much equity or locking yourself into restrictive terms—can hurt your startup’s future. Take your time, get good legal advice, and make sure you understand the implications of every clause in your term sheet before signing anything.
A lot of startups also make the mistake of ignoring important metrics. It’s easy to get caught up in the excitement of building your product, but investors need to see key numbers to help paint the picture of your startup’s potential. Get on top of your data early, track your metrics, understand the growth path for these, and make sure you can tell a clear story with your numbers when talking to investors. CodeBase’s Ian Martin shares his top tips for creating your investor data vault in this blog post, and this blog from Focused For Business explains the key marketing metrics that investors are interested in.
To help mitigate some of these challenges, Techscaler is running a Funding Accelerator programme, in partnership with Focused For Business who support founders raising their first or second equity funding round. Starting this week, ten founders will complete three high-intensity sprints covering everything from valuation and financial planning, to pitching and building a data room for investors, right through to negotiating and closing the deal.
Hear from Richie Wan, founder of Seeker, a participant on the Techscaler Funding Accelerator as to why he’s looking forward to the programme:
"As a first-time founder I've always known I needed support to help navigate the numerous investment hurdles such as term sheets, cap tables and exit valuations. Before we could do that then our startup had to be ready so we spent time working on our value proposition, go-to market and building traction. All of this culminated in our recent rebrand and the Techscaler Funding Accelerator has come at the right time. We are delighted to be one of the participants where our goal is to raise £500,000 which will help us build on our early milestones."
The Techscaler Funding Accelerator is a benefit of Techscaler membership and free to participate in for members. By joining Techscaler, you get Scottish Government-funded support to build your startup based in Scotland. Whether you’re in the early stages of considering a career in startups, or developing, building and scaling your idea, Techscaler membership offers access to world-class education, a peer-led community, and flexible workspaces. Find out more and join Techscaler here.
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