Hi there,
And welcome to the first (of many more) newsletter from Mereo.
So what’s Mereo all about, you ask?
Mereo is a community of founders building real businesses - founders who focus on revenue growth and profitability more than on raising a financing round. Through our monthly event, we gather 10 founders to share their experiences on how they funded their business and what lessons they have learnt from self-funding (a.k.a. bootstrapping) or raising venture capital. The goal of these educated discussions is to help (aspiring and current) founders reflect and decide on the best financing alternatives for their company.
5 things we learnt from the first Mereo event.
On February 22nd, we hold our first Mereo event with 10 founders from the Wayra Resident Program. Below are the 5 most important learning points which emerged from the discussion:
Provide consulting services to fund operations
Developing a tech product takes time and money. A great way to pay for product development is to sell consulting services related to your product. For instance, entrepreneurs with a specific backgrounds can leverage their expertises and thought leader positions to provide targeted advisory services to potential customers. That way, you can start educating the customers and introduce your tech solution. The main goal of providing consulting services is to finance (read breakeven) the whole organisation, i.e. pay the consulting and the tech teams.
Limitations of consulting services
On the other hand, consulting is time consuming: you need to prospect clients, win proposals, coordinate projects and the invoices are not paid right away. And don’t forget: as an entrepreneur, you goal is bring your product to the market and to move faster than your competition. Each hour put into consulting is an hour less for product development. Thus, if you decide to fund your company with consulting services, do not lose the focus of building the real business: the tech product.
Pay for features
In our first Mereo event, two entrepreneurs found an original way to fund their product development: provide a basic version of their product for free and ask the customer to pay for additional features. That way, each developer hour is funded by the customer and they can focus on building the product. Clever guys, I tell you.
Find an investor that matches your expectations
Two others founder are building a high-capex business and it was clear for them that, after a first proof-of-concept, they would need capital to expand the company. However, while venture capital is a good fit for scalable tech companies, their business does not fit the philosophy of “low invested capital, $B+ return” and that’s why they had to find a different type of investor. Matching the expectations between founders and investors is critical to the long-term success of any company and entrepreneurs should consider investors with different investment cycles and exit requirements than traditional tech investors, such as family offices, high-net worth individuals, strategic corporates and holding companies.
On raising a pre-product financing round
Raising capital is in some case necessary. When you have products with strong IP and markets with fierce competition, funding becomes essential to the success of the company. But how do you raise money when you are pre-product? Some useful advices from one Mereo participant: 1) terms matter as much as the valuation (e.g. tag-along, drag-along), 2) use the VC’s emotions and fears (of-missing-out) while negotiating, 3) be careful of strategic investors which value your company based exclusively on the revenue from their own purchasing order (if they leave, you go back to 0), and 4) don’t forget the golden rule: founders should keep control of the company after the 4th financing round.
Thanks to all the participants for sharing their experiences with us.
Join the next Mereo event
You like what read up to now? Then join our next Mereo event, where we will gather 10 founders to discuss their funding strategies.
Where? Wayra Deutschland, Kaufingerstr. 15, 80331 Munich.
When? Friday, March 29th at 9am.
How to join? Shot me an email at mereo.community@gmail and briefly explain why you would like to join. Only 10 seats available.
Another cool thing
The Royal Jungle is having a penthouse rave for 1000 selected startup rebels. This time, the event is taking on April 11th at a Munich Downtown penthouse. Get your (free) ticket here.
Before you leave
Questions and feedback are always welcome at mereo.community@gmail.com.
Thanks for reading, and please tell a few friends about Mereo if you feel like it.
Best,
Michel