Employment Hero scores $4.5 million: Four crucial lessons from this series A

Following an over-subscribed funding round of $3 million in June this year, Employment Hero has taken on further investment bringing its series A up to $4.5 million.

The additional investment of $1.5 million comes from new investor AirTree Ventures and existing backers AMP Ventures and OneVentures, which led the transaction.

The two-year-old Sydney startup, which provides an all-in-one software solution for employees and HR, is on track to topping 100,000 active users in 2017.

“We continue to add around 10,000 employees per quarter to the platform,” says Employment Hero founder and CEO Ben Thompson.

He tells StartupSmart the investment will be used to accelerate product development and global expansion.

“It’s predominantly for building our development velocity and development team,” Thompson says.

“The product needs to support a wide range of features including a benefits marketplace for employees. The vision is to permanently improve the way employment is managed.”

Here are four important lessons raised in this funding round.

1. Be well prepared before seeing an investor

With the Employment Hero deal being Thompson’s first venture into major capital raising, the biggest lesson he picked up is all about being clear on outcomes.

“With the benefit of hindsight, it’s important to know what you want and what you will settle for,” he says.

“Go into that experience with the end in mind and clear goals.”

A clear understanding of what you’re willing to give up and what you need can give you a stronger base to negotiate from.

Thompson notes that having a deep and operational understanding of the business, its financial model and market opportunity is also critical.

“Be incredibly clear in terms of the problem that you’re solving and the opportunity that it creates and you have to be very clear on your numbers,” he says.

This includes “the total market opportunity, domestically [and] internationally, and your track record of success [showing] a clear line of sight that you can get to what you say you can get to.”

2. Be ready for tough questions

During this raise, Thompson says the toughest question from an investor was directed at the fact that he has many self-started ventures operating at the same time.

“I’ve been a serial entrepreneur and have a number of other businesses I’m involved in,” he says.

“It was making sure I have the time and attention to focus on Employment Hero.”

Thompson responded to the investor by reaffirming where his total focus is now and moving forward.

“I said: I put in place a team for the other businesses that I’m involved with so I knew they would be run [well] and 100% of my time could be focused on Employment Hero,” he says.

3. Research the investor market before diving in

Before knocking on investor doors, Thompson says he carefully researched Australian funding opportunities and investors.

“I approached the people I thought were the best in Australia,” he says.

To determine which investors are a good fit for your startup, Thompson says it’s crucial to consider this.

“Make sure they have experience in your industry, make sure you get on with them and believe you can get on with them for a very long time,” he says.

An investor-founder relationship will fluctuate between good and very intense periods, says Thompson, so it’s important to bring on people who you do get a long with and can work with in the chaos of a startup.

“It’s not a date, it’s a marriage,” he says.

4. Ask yourself: Do I really need investment?

Before raising a series A, Thompson says Employment Hero was completely bootstrapped, but he decided to bring on investors to create a network and support system around the startup to help it prosper.

“I realised the opportunity in front of us required more fuel and more connections and probably more experience, to be honest, than I could deliver on my own,” he says.

“That’s what I’ve found has really come in spades since raising. You now have a team of people, the actual investors themselves [and] you have a very extensive network to help distribute the product.”

But working with investors is not the right or best option for all startups, so it’s important to give it careful consideration.

Someone else who’s all too familiar with this territory is Brett Adam, Zendesk’s managing director and VP of engineering for Australia and New Zealand, and he says it’s simply not true that all startups need investment to grow.

“If you can bootstrap it, if you can figure out a way to generate revenue, [then] you don’t need to take investors,” Adam tells StartupSmart.

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