Convincing investors to say ‘yes’ in this current climate
Given that we might have officially entered a recession by the time you read this article, and with other global economies also on the brink of recession, when I think about the issues that women in tech are facing, raising funds in this climate seems high up on the agenda.
In this article I’ll discuss some of the factors at play, along with some practical suggestions in relation to fundraising.
So, how bad is it?
Things were looking rosy earlier this year. The British Business Bank’s annual Small Business Equity Tracker shows that in Q1 2022, £7.6bn of equity investment reached smaller businesses. That’s almost double the sum invested in the same quarter in 2021.
However, you may have seen the posts on social media and in the press talking about the increasing difficulties for startups trying to raise funds from Angels and VCs. There are also announcements from founders circulating which confirm the closure of their startups because they can’t raise the additional funds to keep them running.
The Consumer Confidence Barometer hit a record low in June, and then went three points further south in August, and when consumer confidence is low, experienced investors retreat, reduce financial risk, and stick with stable, tried and tested investments.
A recent UK Business Angels Association (UKBAA) report entitled The Climate for Angel Investing: Analysis of Angels Survey, stated that 30% of Angel investors will invest less and 4% will not invest at all over the next 12 months, citing the cost-of-living crisis and a looming recession as the drivers affecting their decision making.
Not to paint a complete picture of doom and gloom, the results from the survey show that on the flip side, almost half (46%) of respondents interviewed said it would be business as usual for them, intending to keep investments “at a similar level.”
How about businesses led by women? What specific data is available?
Since the Alison Rose Review of Female Entrepreneurship was first published in March 2019, there has been progress year on year. The Rose Review Progress Report published this year states that the aspiration is for 30% of all investment in private companies to go to female founders and co-founders by 2030.
Last year a record number of women started businesses – more than 140,000, and there are now 134 institutions with investing power close to £1 trillion that have signed up to the Investing in Women Code, a commitment made by VCs, Angels, and financial services firms to improve female founder’s access to finance and resources.
You can find a list of organisations that signed up to the Investing in Women Code on the gov.uk website.
So how do you convince investors to say ‘yes’ in this kind of climate?
As a judge at startup and pitch competitions on a local and national level I’ve witnessed the precise moment where founders ‘lose’ their audience on many occasions. Here are my thoughts about this.
Kick the hell out of the tyres on your business model!
Concentrate on dotting your i’s and crossing your t’s in order to avoid anything that will cause alarm bells to ring for investors.
Investors able to hold their nerve will be out looking for great opportunities whilst others retreat, but they may still be more likely to err on the side of caution and bow out if they have doubts.
Criticise and scrutinise your business documents from every angle for weak points from basic typos to looking for issues, gaps, and inconsistencies. It’s better for things to unravel a little now, so that you can put them back together with a stronger foundation.
As a former Business Analyst, I quite enjoy a good business model! One such model that you may find useful is S.T.E.E.P.L.E, a tool to help you analyse the external factors that can affect your startup.
This will help you strengthen your plans all-around. Let's take a look:
Example – What are the current trends in terms of the way people live, work and interact, what is valued, and what do people aspire to? How has COVID changed behaviour and in which facets of life are these changes likely to be permanent?
Example – Have there been changes to software, tech, digital tools or platforms that may affect your business positively or negatively? Apple’s App Tracking Transparency feature reduces targeting and identification capabilities for advertisers. The estimated cost to businesses runs into the billions. Do you know what technological changes are on the horizon? Subscribe to news outlets that will keep you informed.
Example – the points discussed in this article!
Example – considering sustainability and how to move towards Net Zero as a business.
Example – Brexit, changes to tax relief schemes for entrepreneurs which could affect investor behaviour, such as those which threaten the Enterprise Investment Scheme (EIS).
Example – compliance with business legislation, or industry regulations, data privacy laws, and legal changes relating to Brexit.
Example – How can you avoid doing harm as a business? What is the right balance between pursuing profit, and caring for customers, employees, and the wider world?
Prepare an epic go-to-market strategy
How are you going to attract your first customers, and do you have a credible strategy to do this? It’s important that your plans are aggressive, but also realistic, otherwise this can be interpreted as misplaced overoptimism; another thing that sharp investors will pick up on right away.
How will a recession affect your plans?
It’s a good idea to demonstrate that you’ve factored in the effect of the recession on your projections. Alternatively, explain how you’ve amended your plans to mitigate the risks and issues that you’ve identified using S.T.E.E.P.L.E.
Any response from you along the lines of there being no changes anticipated in response to such a question is probably the wrong answer.
Do you need to rethink your customer acquisition strategy? Your market segment(s)? The pricing and packaging of your services? This is not necessarily to reduce prices, but to create more perceived value for money in order to better justify any expenditure in customers’ minds.
Stay out of robo-pitch mode!
It’s the concern raised by an investor that is casually brushed off during a pitch, or a shaky answer to a question with no expansion or follow up, which creates doubts in people’s minds. The ‘we’re confident in our decisions and there’s no problem here’ defence wears thin with investors. Remember – if it’s an issue for them, it’s an issue for you!
Read the room and try to resist the urge to plough ahead if you’re receiving lots of questions or being challenged. Ask your audience to expand upon their concerns where time permits, show that you’re considering their points, and do your best to offer a clear and comprehensive response. Once the moment passes, you may not be able to regain lost ground, minds are quickly made up, the decision becomes fixed, and the opportunity is lost. Showing grit at a stressful moment will provide an insight into your personality and your ability to take feedback on board. This can tell an investor a lot about you and how you operate and can create a favourable impression. You may also receive invaluable advice at this point, and even if this particular investor passes, their feedback might help you get to ‘yes’ next time.
So, do you really need this money?
In the last four years I have spent time interviewing founders – mostly bootstrapped founders, some earning $40,000+ Monthly Recurring Revenue. They are not turning over millions, but they are profitable, they own 100% of their businesses, they have learned how to do more with less, and the prospect of taking on investment in the future to further accelerate their growth is still an option.
How can you scale down the costs of running your startup, and start a smaller, leaner operation whilst you wait out the recession? a few things you might consider include:
• Seeking a technical co-founder
• Creating a code-free app that doesn’t require a technical cofounder!
• However you build it, creating a simple MVP that is ready to launch in 3-6 months
• Finding other co-founders with vital skills such as sales, marketing, operations, or relevant subject matter or industry expertise who believe in your idea and will work for free, and possibly contribute towards costs
• Focusing on building traffic, or an audience organically rather than using paid models
• Shopping around for free software to run your business. I wrote a book about this called 'Entrepreneurial Espresso', and train founders on how to build their operations on a shoestring budget. It’s amazing what can be achieved!
Attend relevant business training and consider joining an incubator or accelerator programme such as the Eagle Labs Funding Readiness Programme, designed to help founders navigate the funding landscape Funding or not, I hope you are able to keep your business dream alive.
This article originally appeared in the Sept/Oct issue of Startups Magazine. Click here to subscribe.