Carlos Lee, director general of EPIC, give tips on how to secure funding, based on a chat with Frank Levinson, co-founder of Finisar.
I recently had the chance to speak to Frank Levinson, co-founder of Finisar, about investment and entrepreneurship in photonics. We recorded a 30-minute video, in which he gives some valuable advice on how to make a successful funding bid and what to look for in a good investor. Below are some of the key messages that strike me most.
Engage with potential customers from the start
While financers recognise that innovation can come from small companies, be aware that you’re selling a business and not just an idea. What defines a business is its customers. Avoid the modern trap of putting up a website thinking the world will come and find you. Go out and engage actively with potential customers. Talk to them about your product and listen to their ideas on how you can improve it.
Demonstrate your market potential
Once you’ve finished the product, sell it to some early customers at a good gross margin of at least 100 per cent. Then sell it again to the same customers at larger volumes. The best entrepreneurs are those that engage customers early and get revenue flowing in.
For high-tech startups, venture capitalists look for consistent growth of around 50 per cent p.a. over several years. So make sure you can demonstrate how you will be able to get your product to scale to satisfy the demand for higher volumes. Inability to scale is the main reason for project failure.
Perfect your presentation
Don’t just focus on technology. Present a good, comprehensive business plan on how you are going to grow your business. Photonics is a people business, so you will also need to demonstrate that your project team can perform under stress and work together as a team.
When you start negotiating with an investor don’t be overly concerned with how much of your company you are going to lose. Think of the end result as a partnership with a percentage share that’s fair and equally motivating for both parties.
Identify a good investor
A good investor will look to form a strong and successful partnership and is someone who will give you more than just money.
They must have experience in your sector and be able to introduce you to the right people, fight for you technologically and help you hire the right people.
Friends and family are not normally good venture capitalists. They don’t know how to evaluate a funding proposal properly and they don’t have the corporate contacts that you will need to grow your business.
To find investors, search on the web. There are also angel investor groups, business accelerators and business incubators. They’ll have stories about good and bad investors.
EPIC’s membership includes large multinationals that have a technology scouting and venture arm (Bosch, Huawei, Hamamatsu, LG, Schott Sony, Trumpf, Zeiss and many more) as well as a €72 milllion venture fund from JOLT Capital. EPIC manages an investor group, and is a supporter of the European Photonics Venture Forum.