Matthew L. Scullin is the CEO and founder of Alphabet Energy, Inc., a leading venture-backed thermoelectrics technology company. Scullin has raised more than $30 million for the company, beginning with angel investors in a convertible note through three additional priced venture rounds, including one from Calgary-based Encana, Alphabet’s first customer. Below, Scullin offers his advice to those looking to get their businesses up and running.
Make a market
Get as many investors—especially customers who can make investments—interested in financing your company in order to make a market for your shares and drive the price of your company up. Demand is always good, and it indicates to investors that you’ll be able to raise more money in the future.
Show that you’re superstars
Demonstrate your personal abilities and those of your team. First and foremost, investors are investing in you—the founder and leader. You will drive their investment to a successful exit, and they want to know that you have the drive, intelligence, commitment, and understanding of the long arc of the funding needs (and eventual exit) of the company.
Show them a map
Have a solid business plan in a big market. A business plan doesn’t need to be airtight, but it has to demonstrate a fundamental knowledge of product-market fit with a huge market opportunity that has room for competitors and can allow rapid revenue growth.
Size up competitors’ valuations
Research financing deals done by comparable companies to understand what the right valuation to expect is, and aim to maximize your valuation within the reasonable bounds the market has already set.
Show them traction
The best way to get investors on board is to show that customers are willing to pay for your product at high margin. An investment is only good if it can generate cash and therefore high multiples of value on revenue, and early indicators of the business model and customers’ willingness to pay is the best de-risking that an investor can see.
Raise money when you don’t need it
You’ll always have the most leverage and ability to command the highest valuations when you have plenty of runway in the bank. A high burn rate and short runway will put your back against the wall and allow investors to get away with giving you a bad deal.
Build a real budget
Give investors as much detail as possible on how you are going to use their money to build value in the company and de-risk it to an inflection point that will allow you to raise even more money.
Show flexibility and humility
Demonstrate to your investors that you are able to learn. The market and your product will change as the company finds its way, and you must be able to adapt to the changing world around you and lead your team through thick and thin.