How I raised my first 170k

And no… I don’t have a rich family.

Being a very early-stage founder, you meet a ton of other early-stage founders too.

“How far along are you?” is always the question that seems to be asked, and what people really mean is “have you raised money?” When the answer is yes, even when it’s not much, people want to know how!

Therefore I’ll share my story here so it can hopefully help other founders raise their first money…

Background

So far I’ve raised a total of £170k for my start-up, Pally. We’re still pre-revenue, pre-launch. When I raised I was not much more than a person with an idea.

I won’t go on for ages about what Pally is, but in case you want the additional context… Pally is an app to help people find new friends in their area. Having moved to around five cities in as many years, I was always on the hunt for new friends and discovered first-hand how inept and inefficient all the current methods of meeting people were.

Yes there are apps like Meetup and other community-centric apps, and Bumble has a ‘BFF’ feature, but really, meeting people this way still takes a ton of effort to sort through the noise and meet people who are genuinely compatible.

You know it’s a problem when the most popular tool to look for friends in a new place is actually Tinder… Anyway, I digress.

This is the problem I’m solving with Pally, where we use social psychology to match the most compatible people together and help them get to know each other. Think of it as an ultra-personalized ‘Meetup’ group, but one where technology plays the ‘leader/organizer’ role, rather than a person.

Right, on to the story…

Before you try to raise

I know, I know, I’ll get to the raising soon, but I think this is important to say…

Pretty much regardless of who you are, you’re going to need to prove the concept before anyone gives you any money. But seriously, more than anything you need to be proving to yourself that this is a worthwhile use of your time (and money).

There are lots of YouTube videos that talk about how to prove your concept, so I won’t talk about all the ways you can do that here.

For us, we did three things:

1. Speak to as many people as possible about the problem, NOT your solution

These people are generally people from your existing network: friends, colleagues, family, online/IRL communities. Understand if they face the problem, if it’s a valuable problem to solve, and how they solve it now.

Speak to 100+ people for consumer, 20+ legit buyers for B2B.

Watch this video: https://www.youtube.com/watch?v=MT4Ig2uqjTc

2. Test your solution

Once you’ve got a good idea of what the problem is, and you’ve got a potential solution, you need to test it. You should speak to the same people again, but I also think it’s really important to test this on a cold market.

To do this, you can use the ‘shop window’ approach, with a landing page and a sign-up (more than just an email — make it look like they’re actually signing up for the real product).

Spend £500–£1000 on online ads to drive traffic, measure conversions, and compare these to industry averages. Speak to every sign-up. Just call them. People don’t mind helping when you’re polite.

3. Take the sign-ups and deliver the product

Now, you might be saying “Harry, how can I deliver the product when I don’t have a product to deliver?” This is the fun bit. Do whatever you can offline and manually — I guarantee for 95% of businesses there’s a way you can deliver the core use case manually before building anything.

For me, this was an excel spreadsheet and WhatsApp group chats. For someone else, it might be giving the Illusion of automation whilst really you do manual work in the background, for another it may be using some combination of no-code tools. Ultimately, most technology simply automates, it doesn’t do something that is fundamentally impossible without technology.

BONUS: get them to pay for it. If you can deliver the product/service manually and get them to pay for it, this is a very strong sign that you’re on to a winner. Then use this money to build the technology to automate the manual part. You might not need to even raise money, leaving you with 100% ownership of a successful business.

Raising

Now to the good bit…

Having proved to myself that this was an idea worth perusing, the next step is to work out how to fund it. I mentioned above using revenue, IMO this is ALWAYS the best way.

If you’ve decided you need to raise equity financing, I strongly believe you need to put your personal assets on the line first. Why should someone else believe in you if you don’t? For me, I had £30k. I put £15k into the business and kept £15k for 12 months of personal runway. This is my entire net worth. I’m all in.

To build the first version of the product, I calculated I needed £100k (spoiler — I was wrong). I had £15k, so I needed £85k from others.

Everyone knows about the ‘friends and family’ round — I truly didn’t believe I would be able to raise anything close to what I needed from friends and family. But I knew I had to try…

I surprised myself with the amount I was able to raise, in fact using the below process I never actually ‘finished’ the pitch deck. It was always a work in progress with some areas missing. Ultimately, these people were investing in me and my idea, and they knew me already so the pitch deck was somewhat secondary.

The following are the exact steps I went through.

1. The list

The first step is to list anyone and everyone that you know and/or have worked with. I mean everyone. Think about:

• Family members
• Family-friends (yes, even if it’s been five years since you saw them)
• Friends (think about all the different groups/stages of life)
• Colleagues (think through each company you’ve worked at — managers, colleagues, direct reports, executives)
• Anyone else in your network who you have a relationship with

Then, go ‘one step removed’. Who have you heard of, but not met? Think investors, advisors, suppliers, customers…

2. Catch-up

Send a message to everyone on your list asking for a catch-up (or just ring them — my preferred choice). Hopefully given your earlier relationships with these people it shouldn’t be that hard to organize. As for those ‘one step removed’, hold on these until later.

Have a genuine catch-up — I mean it! Find out how they are, ask about their family, catch up on old times, ask them what they’re working on at the moment…

If they ask you what you’re working on, bring them up to speed on what you’ve been doing since you last spoke, and that “you’re now actually working on this business idea…” Wait for them to ask what it is, if possible.

Talk to them about the problem you found, and your proposed solution, and ask what they think. Do not sell. You’re looking for their genuine feedback; ask questions like the ones mentioned earlier.

Note down their feedback and advice, thank them, and let them know you’ll keep them updated!

3. Follow up

About a week later, you should send a follow-up message commenting on whatever you talked about and thanking them for their help. Mention what you’ve actioned from their feedback, and what you’ve found since.

In this email, attach your work-in-progress pitch deck, and ask them for their feedback on this.

Note: your deck really should be a work-in-progress. Leave placeholders, blank slides, comments, whatever. Just ensure a couple of slides are done or the key points included. Ask them what they think an investor would want to see, what they like/don’t like, etc…

4. Soft commitments

Now you’ve had a ton of feedback on your problem, solution, and pitch deck, and you’ve proven the concept, it’s time to get soft commitments.

These people have collaborated with you on your idea, and the pitch deck — they’ve bought into the problem you’re solving. Now it’s time to get them to put some money on the table.

In the prior conversations with your list, some may have already said that they’d be interested in investing. Your job here is to qualify, and quantify across your whole list.

Send out your now almost-final pitch deck again, mentioning what you’ve got left to do and ask if this addresses their previous feedback. If they’ve already alluded that they would be interested in investing, ask them how much they would consider investing.

If they haven’t yet mentioned this, simply ask at the end of the email, “I was wondering, would this be something you’re interested in investing in yourself? Your feedback has been so helpful and I’d love you to continue to be a part of the business!” If they say yes, follow up by thanking them and asking them the kind of amount they would be comfortable with.

You might end up having calls with many of these potential investors to talk through things and answer their questions. You’ll likely get a few ‘maybes’, the aim is to find out what they would need to see to make them comfortable investing.

You must have no shame. You are not looking for charity, you are offering them an opportunity to get in on the ground floor of what you believe will be a billion-pound business. You should also have put your money where your mouth is, and will hopefully be investing more than they are on an individual basis.

Add all of this to your list of investors, keep track of where everyone is at in the journey, and how much they’ve mentioned investing.

5. Ask for introductions

Remember that one step removed list earlier? Now is the time to reach out to those and ask them for feedback. To do this, work out who in your list can intro you, or simply reach out directly explaining how you know them… ie: I know you through [x], where I worked as [y]…

Also ask all the people you’ve already spoken to for one introduction to someone else who might be interested in investing.

You’re going through the exact same process, but you’re doing it with a better thought-out idea and (hopefully) a good amount of soft commitments already. With these people you might be able to combine the above steps all into one call, but work out what makes sense case-by-case.

6. Term sheet

It’s time to get signatures on the page!

At this stage, it’s more common for the founder to provide the term sheet to the investors. This is a document that sets out the key terms of the investment, who’s investing and how much. I used SeedLegals for mine, and did a ‘full’ raise (rather than their bootstrap round, which actually would have been more suitable for this stage as you don’t need a shareholders agreement).

The signature is a strong commitment (but technically not a legal one) to invest. Once everyone’s signed the term sheet, you can close the round with the full shareholders agreement, and get people to transfer their funds. (If you use the SeedLegals bootstrap round you pretty much skip this straight to transferring funds.)

7. Celebrate!

You’ve just closed your first funding round! Celebrate! Panic! This is it now… Time to make your idea a reality.

Personally, after the excitement subsided I actually felt more scared, overwhelmed, and incompetent than I ever had in my career. All the pressure hit me like a ton of bricks and it took a good month to get out of my own way.

I say this so that if you feel the same, know you’re not alone! People believe in you! That’s a great thing. Remind yourself why.

I’ll admit, probably one of the biggest things that got me through this period was writing in my notebook at the end of every day “I can do this. I can do this. I can do this.” Even when I didn’t feel like it. After a little while, I believed in myself again. Corny, but it worked.

My mistakes

Now the good bit is out of the way I’ll tell you about some potential mistakes I made…

Amount raised

Simply put — I didn’t raise enough. I believed that I needed enough money to build, launch, and market the MVP. That product would generate enough traction to raise more money and continue to develop the app… WRONG.

You need the budget to continue iterating the product after launch. Even as an MVP. Maybe you’ll be the 0.01% who gets it the right first time. Unfortunately, you almost certainly won’t. You’ll need to change things. Development will take longer than planned. The cliché is that it will take twice as long and cost twice as much — this has worked out exactly right for us, budget for it.

Thankfully, when we realized this we were able to go back to our investors and they were willing to increase their investment into Pally. We raised an additional £70k, which meant we now have enough to reach the milestones needed for the next raise.

Valuation

I believe that I went in somewhat naively and valued the business too low. We raised at a £1m pre-money valuation. I think this should have been £1.5–£2m. I hadn’t understood the market for this stage well enough, and at £2m I would have had half the amount of dilution and be well placed for the later rounds.

Having said this I want to be clear that I don’t regret this as ultimately it means my friends and family who invested get a better deal. This is more important to me than keeping a bit more equity, so long as I can maintain control of the business (and there are other methods for that beyond simple equity).

In hindsight, I should’ve kicked the can down the road and used a SAFE/advance subscription agreement with a discount on a future priced round.

Investment amounts

When looking to raise you’ll need to determine a minimum investment. For us, we did £1,000. In later rounds this wouldn’t make sense, but we wanted as many of our friends and family to be able to participate as possible.

I’d probably have increased this to £2,000 in hindsight. I think most investors would’ve met this.

Also, back yourself to ask for more. People should always be comfortable with what they invest, but I feel I left some money on the table. Be careful to toe the line though — these are your friends and family.

Thank you for reading this, I hope it’s been helpful. I’d be happy to answer any questions or support 1:1, please reach out on LinkedIn: www.linkedin.com/in/hhubble