How To Find Investors

Views from a Start-Up

Finding investors is important for three reasons: Growth, Exposure and Leverage. Growth relates to all things financial support, cash flow, and going to market quickly. You get exposure from network distribution and strategy partnerships, and leverage comes from tapping into your investors’ network for advice and strategic direction.

We were joined by Tan Huynh and Andy Budiman, co-founders of Detexian, and Gary Brown, managing partner of HnB Accountants, to chat about the importance of investors for start-ups and how to attract the right investors for your business.

The Detexian Journey

The idea

The idea for Detexian was born in 2018 from Tan’s desire to found a start-up specialising in cyber security for the mid-market. Average businesses are often on a limited budget and cyber security is an afterthought, so one of the key objectives for Detexian is to enable these businesses with the capabilities to safeguard their data and their people.

Unfortunately, for the first part of the journey, they were targeting the wrong product. It was a server protection product for companies, and servers are being phased out in favour of software. So, they pivoted. They scrapped the whole idea, after raising money to fund it, and started from scratch.

Start-ups are about being able to pivot, being willing to pivot at the right time and the right place

Tan Huynh – Co-founder and CEO at Detexian

Over the last three years, Detexian has spent an enormous amount of time getting validation from investors, people in the security industry and, most importantly, their clients. They have done extensive user testing, gotten lots of feedback and adopted many intuitive processes to get to where they are now.

The Mistakes

When you start on any new business venture, you are bound to make some mistakes along the way. It’s how you learn, grow and adapt.

Detexian made the classic mistake of taking on too many people at the beginning and trying to push their product out to market as quickly as possible. They soon learnt that having lots of people on board doesn’t necessarily make things happen faster.

Not just trying to pile on people and resources thinking that you’re going to get there faster, because sometimes an idea just takes a while to cultivate. It takes time to mature.

Andy Budiman – Co-founder and CPO at Detexian
Validation

Early validation from investors is so important for start-ups. In the start-up industry, your first investors are often early adopters of your product or idea.

In Detexian’s case, early validation was sometimes the only thing getting them through. Their idea was born in 2018, however, cyber security management wasn’t even a market category until October 2020.

They spent almost three years as one of only 5 companies in the world trying to break into this market, the only one in Australia and the only one in the world focusing on the mid-market. The data points from customers told them that it is something that is needed, but nobody was sure exactly how to tackle the problem.

Having conviction and early investors that fully believe in and back your idea is so important to keeping start-ups going and boosting them up through the tough times of doubt and uncertainty.

If you want to truly be the first in the market, be prepared in the long haul to validate that.

Andy Budiman – Co-founder and CPO at Detexian

Raising Capital

As a start-up, you never stop raising capital. Doing this at the beginning of your start-up journey gives you the opportunity to then recycle that capital through incentives and continue to build and expand on your original concept.

The idea is not to go to market too early, you need to collect a few points along the way and get investors excited about what you’re offering.

Since the beginning, Andy and Tan have been talking to a number of investors and they will keep doing so until they’re ready to go out into the market again. Detexian is currently in an ideation sort of period where they can get capital and accelerate growth.

As a start-up, you need to know where you are. For us it’s about accelerating growth, so it’s very much about who we are going to be attracting as growth investors.

Tan Huynh – Co-founder and CEO of Detexian

Types of Investors

Just like there is a range of different types of start-ups, there is a range of investors. Not every start-up is going to be a unicorn or scalable in Silicon Valley terms. Sometimes it’s better to build a business and be acquired, and other times you can build a very good revenue-generated business and then drive it.

The investor options available include angels, high-worth individuals, different types of venture capitalists, and start-ups can bootstrap as well.

It all depends on what you set out the achieve. If it’s a grandiose vision then it’s more likely to attract VC capitalists versus others.

Tan Huynh – Co-founder and CEO at Detexian

Bootstrapping and Being Scrappy

When you’re starting a business, you have to build from the ground up. There are basic building blocks and steps that have to be followed and it takes a lot of hard work and grafting to get a start-up to the point of going to market.

In this age of start-ups and Silicon Valley success stories, many start-up founders forget that sometimes you have to be working three jobs to make ends meet while you get your idea off the ground. You need to be scrappy and manually get things done.

Sometimes you have an idea that the industry or the world is not ready for yet, so you’ve got to bootstrap yourself.

There’s a lot of start-ups that bootstrap for five years, that’s how they have to do it

Andy Budiman – Co-founder and CPO at Detexian

When you bring in an investor, you’re effectively selling a piece of the business. For example, if your business is valued at $3 million and you bring in $300,000 worth of new capital, you would effectively be selling 20-30% of the business.

If you bootstrap for as long as possible, when you finally do bring in that investor you’re giving away less of your business.

Being mindful of lasting for as long as possible, because that way you get the highest valuation that you’re going to get and then you’ll leverage off that

Gary Brown – Managing Partner at HnB Accountants

Investment Options in Small and Medium Businesses

There is a lot of conjecture at the moment about how much money you should put into a small business in the current environment.

Depending on what industry you’re in, it may require different amounts of capital. Depending on how fast you can get revenue would depend on how much capital you need as well.

Gary Brown – Managing Partner at HnB Accountants

Some industries can hit the ground running with revenue, whereas other industries need months, if not years, before seeing revenue.

In the current climate, the best advice would be to have a bit of a cash buffer because we don’t know what the government’s going to do with regards to restrictions and you want to be safe with those investment and capital decisions.

Small Business and Covid

The investment market is well and truly hot at the moment. As we’re coming out of restrictions in Australia, people are pretty keen to get back into business.

In Melbourne CBD, 1 in 5 shops are now shut, but, real estate agents are saying that they’re getting masses of enquiries about people wanting to move into those shops before there’s even foot traffic back there.

With people not being able to travel, they’ve built up a record amount of cash and they’ve got to do something with it. Some will go into business, some will do investments, some will stick to the ASX or invest in property. Whatever it is, there’s definitely hoards of cash out there for the right type of investment.

You always know if it’s the right type of investment. If it’s a good idea then getting the money is easy. If it’s a bad idea then nobody wants to put money into that because it’s highly likely that it won’t work

Gary Brown – Managing Partner at HnB Accountants

When friends and family say that it’s a good idea, that’s not necessarily true because they’re obviously biased. When people want to put money into the idea, money means trust, and they know that the idea is a goldmine.

The Importance of Investors

When you’re looking at raising capital, the idea is important, but so are the people and board or committee members that the business owner is surrounded by. Those experts are going to tell an investor if a business is going to be successful or not.

If I am the smartest person in the room, then I’m in the wrong room. I like to surround myself with experts in areas that I’m not an expert in.

Gary Brown – Managing Partner at HnB Accountants

By surrounding yourself with experts in fields that you aren’t an expert in, you’re giving yourself the best chance. Find your marketing expert, your lawyer who’s going to help you through all the challenging legal documentation, your financial advisor, your strategic person, your business mentor.

Have all of these different area’s covered, because without them you can’t learn and take advice off of these people that know what they’re talking about. There are so many people out there who have already done what you want to do and they can help you dodge that minefield.

The insights and feedback that you get from people who have done this before are priceless. They can simply take one look at it and give you advice and guidance that is coming from experience.

Very often, you may get some advisors that are well-versed in the theory but don’t have experience. You need to be mindful of that because in the world of start-ups you can’t beat the experience.

There’s a difference between bringing in money that has experience behind it and just dumb money. Whenever you’re looking at investors, you need to look at what else they’re bringing to the table. Are they bringing experience in the right field? A contact list or a network? Or are they just bringing in money without any other benefits?

Gary Brown – Managing Partner at HnB Accountants

One of the most important things that experience gets you is being able to tell your story, your narrative. Very often, founders of start-ups tend to fixate on what the idea is, but how people perceive it is what’s important.

Being able to sell your idea to potential investors is what is going to get people excited about what you have to offer. Equally as important is being able to tweak your story here and there to make it more appealing to your customers. There’s no one story fits all.

Moving Forward

This conversation only scratched the surface of investment and opportunities for small and medium start-ups. There is so much more to cover.

We hope to welcome back Tan, Andy and Gary very soon to give us more insights and helpful tips on starting a business and finding investors.

Watch this space.

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