In the dynamic world of startups, securing investments can be a critical milestone for founders looking to scale their businesses. But let's face it: the fundraising road can be bumpy. In this article, we're diving into the key topics that investors want to see. Whether you're a seasoned startup pro or just dipping your toes into the entrepreneurial waters, these insights could be the secret to securing that investment and taking your startup to the next level.
This article is part of a series where we're diving into the world of fundraising from the Wellstreet perspective. Previously, we shared this piece, covering when to consider raising money, how much, and which of the different types of funding available you should seek.
EXECUTION EATS STRATEGY FOR BREAKFAST - AND THAT’S WHAT INVESTORS WANT TO SEE
Founders often find themselves walking a tightrope between showcasing their business's potential and demonstrating concrete evidence of progress. However, in the current market situation, investors increasingly demand substance over speculation (and let’s face it, that’s better than facing absurd valuations over crazy hopes).
In other words, it's no longer enough to simply memorise embellished speeches about why your business is poised for greatness; founders must roll up their sleeves and show investors the tangible fruits of their labour. Let’s explore crucial tips for founders to effectively communicate with investors, focusing on showcasing actual results rather than just the theory of a promising business idea.
- Traction: Showcase your actual performance metrics, including turnover, growth, retention rate, churn rate, lifetime value, etc. Concrete numbers provide clarity on your progress and potential. Make sure you include traction metrics that are important in your industry.
- USP(s): Highlight how your offering distinguishes itself in the market. Articulate what sets you apart and what value you provide to customers that competitors do not.
- Commercial Roll-Out: Present a detailed plan outlining your steps for the upcoming years (or at least for the time your fundraising will cover), including expected outcomes and risk mitigation strategies. Clearly define when your company expects to start generating revenue and reach breakeven.
- Operational Excellence: Emphasize your team's strength, financial projections, data room setup, and commitment to ESG principles. Demonstrate diversity within your team and thoughtfulness in your approach to leadership and governance.
- Market Understanding: Demonstrate a deep understanding of your market landscape, competitors, and industry dynamics. As investors, we appreciate entrepreneurs who show expertise in their respective industries and can effectively navigate market challenges. If you, as a founder, lack this knowledge, be sure to team up with someone with a good market understanding to complement you.
- Use of Funds: Clearly articulate how you will allocate the investment funds and outline specific milestones you aim to achieve with the capital infusion. Building investor confidence requires transparency and a well-defined roadmap for progress.
- Financing Going Forward: Will this be your last round? Or do you plan on raising more in the future? Provide insights into your future financing strategy, including potential future rounds and the path to achieving breakeven. Be clear about how you plan to secure and utilise additional funding for continued growth.
- Exit Strategy: A typical VC has a fund horizon of 5-10 years, which implies that the investor needs to exit their investment in your company within this timeframe. Because of this, investors are increasingly interested in discussing this aspect of exits sooner rather than later. You should incorporate a well-thought-out exit plan into your pitch, considering potential avenues such as IPO or acquisition by competitors. Addressing the exit strategy in the early stages demonstrates foresight and aligns with investor expectations.
- Exit Strategy Extra: Remember the correlation between your intended exit strategy and valuation. Different exit scenarios can impact valuation and risk-reward considerations. Promptly acknowledging these factors can enhance investor confidence in your overall strategy.
Once you've crafted a compelling pitch deck with all of the above and assembled a data room to substantiate it, it’s finally time to fly. Fundraise time. If you want tips for this next step, from identifying and engaging potential investors to building valuable investor interactions, read the following article in the series: The Time Has Come: Fundraising Best Practices.
