Yvette McGaffin, cofounder and CEO of Reform RX — a pilates brand complete with its own reformer machine, fitness platform and studios — knew her products weren’t favourable with software-focused tech VCs. She needed to consider a broader scope of financing options for her company in the early days.
Luckily, her customer base of celebrities and high-net-worth-individuals were interested in her product not only as a service but as an investment opportunity. And it wasn’t the only upside: “Alternative financing options also gave me the flexibility and freedom to build something authentic, without the immediate pressure of rapid scaling or outside influence,” she says.
In our Startup Life newsletter, Yvette shared her top tips on raising from high-net-worth individuals, and not VCs.
Plan carefully how much you want to raise
Map out your financial milestones based on your actual costs — product development, marketing, growth. How much will you need to get the company to the next step? Then, figure out how much of your company you are happy to give away. Factor in the strategic value that certain investors bring beyond just capital. We raised just enough to build, but not so much that we diluted our ownership early on. We wanted to avoid a shift of control towards investors or the potential to be influenced away from our original mission.
Look within your networks
High-net-worth individuals are always looking for opportunities to invest in different asset classes and exciting opportunities. Build relationships early:
- Let your network know what you’re doing. Share your story, post updates, talk to your users, ask for support. You want your story to be front of mind.
- Get involved with your industry. Go to industry events, read industry content, provide comment on trends in your industry, for example.
- Share your progress. Send newsletters, post on LinkedIn and, importantly, talk to your customers. Be honest about where you are at and what the dream is.
Find investors who align with your vision — not just your financial needs
People who’ve seen the journey unfold can be key. For example, I used to train Bernie Caulfield — an Emmy-award-winning producer of Game of Thrones — three times a week at 5:30am before her filming schedule started. When she invested, it wasn’t just about capital — it was about sharing a belief in the product as she was also a happy customer. Show, don’t tell. If they can see the magic of what you’re doing, it’s easier to get them on board.
You also want investors who are keen to invest in a company’s long-term success, not just short-term gains. They need to understand the bigger picture of the startup asset class — it’s not quick and easy money and there’s risk involved.
Find smart money. You want people on your cap table — especially in the early days — who want to actually help build the company not just chuck money at the problem. Austin Owens, an award-winning designer, saw the synergy between design and function and believed he could support that function. Having angels who are essentially operating partners can play a massive role in shaping the direction of the company.
Look for the people who always provide feedback or ask questions about your product. Whose advice and insight is useful? Who would you like to have conversations with more often? Investing can often be the skin in the game they need to be involved in the company in a more official capacity. Sometimes, these conversations happen organically. Other times, you will need to bring it up. It can be as simple as asking, “Would you be interested in having a chat about helping us build our company to take it to the next stage?”
Treat your angels like serious investors
Although angel money allows you to retain control over your company without the pressure of hyper-growth, private investors still want returns. They’re trusting you with their personal funds so be accountable as you would be with a VC:
- Provide investor updates. Investor updates tell your investors what's going on with your company and how their money is being spent. They include things like highlights and lowlights as well as updates on key performance indicators (KPIs). You can find out more here.
- Be honest with where you’re at. Increase trust with your investors and strengthen the relationship. You may need to raise from them or their connections in the future. You want to keep the relationship strong.
- Ask for help — you don’t know who can help you when. Be very clear with your ask: What is it? How long will it take? Can you give them any other information to make it easier? For example, if you need an introduction, consider writing the email they can forward on. If you want feedback on something, provide the links and the location to drop the feedback into, like a Google Doc. If you want them to attend your next strategy meeting, set expectations of times and offer up a set of potential dates.
You don’t have to remain loyal to angels
After your initial round of angel funding, you can explore different avenues for the next phase of your business growth. As you grow, it’s important to consider whether it’s the right time to bring in institutional investors or forming new strategic partnerships with people who can add value beyond funding.
On the subject of... Raising alternative capital
- Family offices. What can this alternative to VC offer founders?
- Private equity. Private equity interest in European fintechs is on the up amid the push for profitability.
- Angel Investing 101. Plus, here’s 250+ female angel investors in Europe.
- How to crowdfund.
- The alternative fundraising directory. One for the UK startups.
- Latvia's startup financing gets creative.
