How to bring on investors?

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The Constitution template that I used for my company has 20+ different kinds of shareholders identified – from ordinary to founder to nearly the entire alphabet. While I had a few companies in the past, I’ve never brought on investors to help fund the businesses before. So, this is all new to me when the capital required for my new business exceeds my savings.

It’s incredibly common to hear start-ups talking about bringing on investors whether in person or in books and interviews. We also talked about this at business school too, but I naively thought shares were issued in order of the time of when you received in investment i.e. A to Z. This doesn’t appear right.

Why is it that no one really gives you the step by step of how to bring on an investor for your business?

For instance, which of the 20 different shares do I try to “sell” first? Some have voting rights, some have dividend rights and some have both. Also, if I use convertible notes (loans that eventually change to shares), what kind of shares would they normally convert to, and what about employee share options? Which ones should they get?

If anyone knows of a good book, please let me know. Otherwise, I’ll share on this blog as I gather more info. I still have so much more to learn.

I say molds, you say moulds

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I spoke to the manufacturers today about my Request for Quotes. I think we’re all on the same page now. Essentially, they believe they can give me unit product costs estimates, but will struggle with giving me the moulds’ prices until they have redone the design work. That’s because the moulds (or tooling) are outsourced to other companies.

What I have also learned is that there are many things to consider when designing the moulds. For instance, I can combine parts or create multiple pieces of the same part in the same mould. The bigger the mould, the more it costs. However, I can save money in the unit cost. Of course, if we get it wrong I might also have a lot of excess parts the customer doesn’t need.

I’ve also learned that it may be possible for the manufacturer to amortise the tooling cost into the products with them essentially acting as a bank. That could be really useful depending on how much money I can raise from investors. I’ll be surprised if they’ll do this though without a large order – something I can’t agree to do until the products are proven.

I’ll write a longer article next week about what I might have done differently in the design phase.

Milestone: Request for Quotes sent to Manufacturers

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I sent the design and tender documents to the three manufacturers today. Since I didn’t have any industry experience, that was actually a huge milestone for me and the business. I should be celebrating.

Instead, my monkey brain wants to think about the potential worst case scenarios: the manufacturers not wanting to work with me or the quotes coming in way too high to have a business case.

In a weird way, I welcomed the distraction of having to figure out widgets and custom theme issues with one of my new websites today. IT help desks are starting to become my best friends!

Food analogies for the design phase

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Provided more feedback for design of Product #2. He completely understood my question about “toasters and bread” versus “hotdogs and buns.” He even answered me using the same terminology!

Spent another 1.5 hours with Microsoft help desk trying to fix email issues. Ugh! Not fixed yet. I think we’ve already spend about five hours just trying to get my new business email to work.

First view of Product #2

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Saw first CAD design of Product #2. Looks amazing when compared to my horrible hand drawings. Provided feedback to my designer for some changes. Because I don’t know what the technical terms are for the various parts, I questioned the use of “toaster and bread” connection pieces versus the “hotdog and bun” connectors we had discussed earlier. I’m sure he’s laughing at me!

Also, provided design changes feedback for my extra product logos. They look great.

Finally some design help from a friend

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Spent the morning with my mechanically-minded friend. He was using words like “grate channel coupling” and “hinge buttress.” My head still hurts after two or so hours of this. No wonder Manufacturer #1 was having trouble understanding my requirements after I sent them my Word document.

I’m desperate for design help

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This product development stage is taking forever, and I’m the one to blame because I don’t know what I’m doing. I need local help, or it’s going to cost even more time and money!

I just begged a friend to help me draw out my product ideas. It’s clear that the manufacturers need pictures, not words. He agreed to meet tomorrow.

I must not be communicating well

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Confirmed phone call with Manufacturer #2 when the owner returns to Australia at the end of the month. Also spoke to Manufacturer #1 about Product #1 – they said that the design cost alone could be $10k because it’s so complex. I told him that I would send him some info about one of my more simpler products instead.

I really didn’t think it was that hard. I must not be communicating it very well. I need to figure out a better way to do this or end up spending unnecessary money and time.

Market research for products

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Met with a friend who gave me some new product ideas to research. Chatted with another friend on the phone about Product #1 – he had some ideas for how to design it better and also told me about some external variables that I wasn’t aware of at all that could impact the product. I admit that it’s complicated.

Learning via Google searches

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Product/market research continues. I feel like the majority of my time is spent on Google these days. It feels wasteful, but I don’t know a faster way to learn about this industry and potential business opportunities.