Raising £265,000 - the complete picture
Why that number, on what terms, how we did it and what it means for us.
Last week I wrote a post about growing Sanctus profitably for the last 2 years and how we’ve done it.
Nothing I wrote was untrue, yet I failed to mention something quite important.
In the last month we closed an investment round of £265,000 from existing shareholders and new investors.
That means, when I said “we’re on track to do £1m+ in revenue this year” — we are, but we will also operate in this financial year at a loss.
For a company that has championed profitability and sustainable growth since its inception, I felt a pang of guilt publishing that last post without being completely transparent.
In this post, I want to write up an exposé of our experience raising investment. You’re about to get the complete truth on what our experience was like raising this money. Imagine those press headlines that say: “Company X raises Y” — this will be the complete opposite of what one of those posts are usually like.
- Why raise investment?
- Why £265k?
- On what terms?
- What was the process like?
- What does this mean for Sanctus?
Why raise investment?
In October last year we hit ~£1m in annualised recurring revenue, this means that given the month we’d had, if we kept having months like that for 12 months then we’d do £1m in revenue.
Whilst we’d not particularly emphasised this milestone internally (at all actually) when we hit it, it felt pretty significant to me. I looked around at what we’d created, the impact we were having and thought to myself that we could continue to do this on a much larger scale to have a much greater impact. In a sentence, I thought: “let’s scale”.
On reflection, a lot of this came out of restlessness and impatience from my inner world, it wasn’t necessarily what the business actually needed, but I’ll come onto that in another post one day.
At the same time, we started to notice that the amount of revenue we were generating and the amount of cash going in and out of our account every month felt out of kilter with our bank balance.
We’d only ever raised £95,000 in investment, yet now we were doing that kind of revenue in a single month. It felt a little rocky.
Looking around at our team and some of our internal processes, we knew we wanted to make some investments, like in our own tech for example. Yet being frugal and cautious was stopping us from thinking big, we were thinking small. We had a survivors mindset and I wanted us all to be thinking bigger — money gives you a sense of security and freedom so given all of the above, raising some investment felt like the right thing to do.
We didn’t actually set out to raise that much.
At the time of raising, it was George and I managing our finances and both us attempting to make sense of a forecast and financial model every month. We’d historically done a very good job of financial planning and been pretty much bang on plan for 24 months. Yet when it came to modelling out a 12-month plan that saw us double in size and hit over £1m in revenue, we were out of our depth. On reflection, we should have brought an FD in before raising so we’d have known exactly what the business needed.
We were taking an educated guess based on our own financial model and “some extra.” Initially, we said; “Let’s raise £500,000!” It felt like a big enough number to feel worth our time, make some important hires and have us covered in case anything went wrong. That was the rationale at that point, it was a bit of an educated guess, that could have been a little more nuanced.
When I was meeting existing investors and potential new ones, we of course got asked what we needed £500,000 for and the truth is because of where we were faltering slightly on the forecasting, our answer wasn’t as solid as our response to everything else. Loosely we knew, but it wasn’t perfect and every time I said “500” I said it with trepidation and it was met with a slightly raised eyebrow.
Then during the process of speaking to people, we slowly realised that we really didn’t need that much. Obviously, it’d be nice to have, but we really didn’t need that much. And, we kept getting lots of our Partners paying us up front for the year, so our cash in the bank was growing organically.
Actually, at one point we questioned whether we should just call the whole thing off because we were getting so many upfront payments. Or, whether we could just raise an even smaller amount (£100k) from our existing investors.
Eventually, we had £265,000 committed from investors who we really liked and who really liked us enough to not be hung up on the total amount we raised. That was it, we got to a figure we were happy with and a figure that investors were happy to be a part of. Our round was complete.
On what terms?
I’m not going to publicise valuation because I’m not sure how necessary it is — other than just another vanity metric. However, George and I had an amount of the business that we were comfortable selling at this point.
I use that term on purpose, Raising investment is selling equity, you are literally selling shares in your business to someone. We weren’t hung up on the valuation, we were more bothered about the ownership percentage that we’d be left with.
For example (these are completely fake numbers):
- We’d rather raise 1m from the right investors for 10%
- Than 10m from the wrong investors for 10%.
It was the dilution that we were set on, not the valuation. Valuation at this stage is pretty arbitrary and meaningless in my opinion, ownership felt much more important to us.
We essentially had a list of ‘non-negotiables’, including:
- Amount of dilution.
- No board seats — we weren’t prepared at this stage to welcome someone else to the board.
- No funds. We weren’t prepared at this stage to have an investor who had objectives that aren’t entirely their own. For example, angel investors report to themselves and nobody else (maybe their other half). Funds report to their investors and have their own agenda and we didn’t want that this time around. We didn’t want any silent voices in the room.
- No investors who wanted insane growth in a short space of time or who are obsessed with an “exit plan.”
- Investors who trust George and I and want to empower us, not tell us what to do.
- Resonance and passion for what we’re working on. Whilst I never said it outright I do think this was still a non-negotiable for me, I’m not sure I could have stomached a great investor who loved our business, but wasn’t bothered at all about mental health.
- No “funky terms” was also another term, we didn’t want any investors coming in on different legal terms than our existing investors — we wanted it all to be equal and fair for everyone.
That was pretty much it, so armed with an ever-changing amount that we thought we needed and terms that we knew we wouldn’t budge on, I started meeting investors.
What was the process like?
We decided to raise the money and begin the process on October 3rd 2018 after a chat with one of our existing investors. We officially closed the round on 15th February 2019. That’s 4.5 months.
It’s worth noting that I wasn’t raising investment full time, I was probably spending 20%-30% of my week on it and I approached it like a project that I was managing alongside my typical day-to-day. I think this is quite atypical for most startup founders, but I did this on purpose because we are running a profitable business, so that comes first and because we are making money we weren’t dependent on investment, we wouldn’t have died without it.
I also wanted to protect the business from the process, so whilst we talked about it internally, we didn’t talk about it loads. My official stance to the team was: “I’m going to be meeting investors and raising some investment for us, if I need your help I will ask you, if there’s something worth sharing, I will tell you, other than that — nothing changes.” On reflection, I’m still unsure whether this was the best approach, it’s tough to know how much to share, but I think it was the right thing, it meant we weren’t distracted or hung up on the process.
In total, we have 12 existing investors, some who are more engaged than others. I met with 5 of them face to face and communicated with everyone else over e-mail to update them on our plans and get a sense of whether they’d like to support us. From our existing investors,4 of them invested again and we raised £95k.
I made contact with a total of 33 potential prospective investors. None of those were cold contacts, everyone was either referred, I’d met previously, they contacted us or we’d worked with them in some capacity.
Of the 33 potential investors that I was in contact with, I met or had calls with 18 people. The rest either didn’t respond or we established over e-mail that it wouldn’t be right for us to continue chatting. Other times, if I got a feel that we wouldn’t be the right fit, I’d explain over e-mail what we were looking for and that was usually enough to establish that we didn’t need to meet.
Out of the 18 meetings we had with potential new investors, we had:
- 5 people who directly said “No”
- 3 people who either weren’t interested in investing in the first place, or weren’t the right fit based on what we were after.
- 1 person who we said no to.
- 6 people who just didn’t respond.
- 3 people who wanted to invest
Investment brings up a whole load of emotions and feelings. “Do they like me?” “Am I good enough for them?” At least that’s where my head was at anyway.
It’s a deeply personal process I think, you’re sharing something that you have created and directly asking for people to judge it and how much they might value it. You’re selling a share in something you have created from scratch.
I really don’t think investment is something to be taken lightly and it’s a highly emotive process.
With the people I did meet, I gave them everything and didn’t hold back, everyone got the same raw, passionate form of me — I can’t talk about Sanctus in any other way. I’d be lying if I said I wasn’t either disappointed when people said no or hurt when people didn’t even take the time to respond.
Knowing I’d given so much of my time and energy to them and for them to not even respond, I find hard to stomach still, but I realise for some people on the other side of the table, they just aren’t as “in it” as I am.
I also was of course always disappointed when people said no too. Yet I must admit it has a completely different flavour when you’re not desperate. Even when people said no, I wasn’t concerned for the company’s welfare, I was just a bit gutted that they didn’t see the same vision that we saw. Actually, most of the people who said no to us, based their decision around valuation and that felt absolutely fine, we were able to have quite an adult conversation that consisted of us establishing the rationale as to why we weren’t going to continue our conversations any further. Other people that said no, didn’t really give any rationale, they just said no.
It was a reminder to me that we’re not the only company in the world, even though I might think that we are. Like I said above, the people that said no I was actually delighted for the certainty, it’s when people didn’t respond that felt more gutting.
For those that decided to invest, all 3 of them offered to invest after one meeting. We got some referrals from others they’d invested in and we had another couple of phone calls here and there, but it was a refreshingly positive process on both sides.
We didn’t create a pitch deck. We simply had a folder with all relevant documents in it — cap table, 2019 forecasts, 2018 KPIs, one-pager and brand book. I’d send that to people either before or after meeting them.
We also took the time to ask our new investors as many questions as they’d asked us. How they like to invest, why they invest, what they’re looking for, what relationship they like to have with founders etc. This felt really important for us and certainly helped us establish trust with people that, when you think about it, we’d only spoken to a few times!
What does this mean for Sanctus?
In plain terms, it means we can do what we want to this year. Which is double our business, grow a second cohort of Sanctus Coaches and invest in the ops, systems and structure that allow us to do what we do best. It also gives us some financial stability to do all of that without having to anxiously check the bank account every month.
It doesn’t change anything else, we’ve welcomed some great new investors who will get their new Sanctus T’s soon. We’re still on the same mission and we’re still committed to growth, but to healthy, sustainable growth that allows us to have long term impact on the world.
I’d also like to think that we’re continuing to prove that there is another way to grow a business. A way that isn’t growth at all costs, that isn’t fail hard, fail fast.
There’s a path where we grow quickly, but sustainably. Where we create something new, unique and disruptive, but don’t sacrifice our health or our integrity along the way.
There is another way and it is our way.