6 steps to getting your investor on side when financing your scaleup
Securing investment for your scaleup is a major step, signalling new growth and potential for your business. While the prospect of taking the exhilarating step of financing your scaleup is exciting, the challenge of winning over investors remains critical. In the current climate, it can be difficult to compete with other startups and businesses for investor trust.
In this article, we explain the ways you can get your investor firmly on your side during the financing journey. Whether you’re a tech disruptor, a rising star in the creative sector or in a new and emerging industry, these six strategic steps will equip you with the insights and tools needed to gain your investor's trust and keep them on your side in order to propel your scaleup to new heights.
Present a solid financial plan
It’s no surprise that one of the most important elements to getting your investor on your side is to present your investor with a solid financial plan. Providing detailed financial projections is crucial to let your investor visualise the financial health of your business and the expected return on their investment. Detailed financial projections also demonstrate your commitment to transparency, creating trust with your investor. You can further develop this creation of trust and transparency by explaining in detail how you plan to use the invested funds, emphasising not only profitability and ROI but also potential exit strategies. Presenting well-thought-out exit strategies, such as acquisition or going public, clarifies how investors will receive their investment gains. Exit strategies also reduce uncertainty for investors, making them more likely to invest in your business.
Airbnb Founder and CEO Brian Chesky admitted he had a “somewhat failed” pitch after investor Paul Graham wasn’t convinced on the business idea. But when he told him that he and his co-founders made $30,000 from selling cereal boxes based on the presidential candidates at the time, Barack Obama and John McCain, Paul Graham told the founders if they can make “$40 for $4 boxes of cereal” then they can convince people to rent out their homes, and he made his investment.
Making a clear and consistent growth strategy plan
Having a clear growth strategy plan is also key to getting your investor on your side. Your growth strategy plan should outline your short-term and long-term goals, and highlight how investment will drive these goals forward. Presenting a well-defined roadmap which shows how you plan to scale up your business will also raise the levels of confidence that your investor will have in you. It’s also equally important to explore potential risks with your investor and inform them of your mitigation plan for those risks.
Don’t be afraid to show off your traction and milestones
While you should always be clear about your financial scalability and risk potential, don’t be afraid to show off what is so great about your startup, and show off the milestones you’ve already reached as an example. Provide all the evidence you can to show off your achievements, whether it be through customer testimonials, case studies or actual data. If you want your investor to have confidence in your company, you have to show off your own confidence in it. So, while being realistic about potential risks, show off what makes your company so great.
It paid off for Stewart Butterfield with his company Slack, which now has a market cap value of $26.51 billion. Investors were sold on Slack’s ability to turn free users into paid ones. Stewart showed investors that Slack had more than 73,000 paying users—an increase of more than 386% in just six months—and more than $1 million in monthly recurring revenue in 2014.
Build a strong team
Not many startups succeed with just one person in the company, and that’s why it’s essential to show investors that you have a strong team behind you and your business. Introduce your key team members to your investor, and showcase how their expertise make your company special. Include how your team members will be able to execute your growth strategy by using their different strengths and skills. Highlighting team members with strong histories of relevant experience in your relevant industry also goes a long way in keeping your investor on your side.
One of Spotify’s key investors, PJ Parson, said he invested as he was influenced by founders Martin Lorentzon and Daniel Ek’s choice to surround themselves with “the smartest people”. He was impressed when they “didn’t waste any time and recruited top talent right left and centre” following his investment.
Ensure open and honest communication
Many successful investor and company relations are based on good communication. Being honest with your investor about challenges you’ve faced and future ones you anticipate will help keep your investor on your side. All the talk doesn’t have to be negative either, keep your investor in the loop by discussing achievements, industry trends and any new company updates.
Tobi Lütke, the billionaire CEO of the e-commerce platform Shopify, admitted that being honest helped his relationship with the venture capitalists who invested in his company. He said: “I told them straight off the bat, saying, 'I'm not going to pretend to know things I don't know and I really hope you're going to help me in this journey.’”
Provide a compelling pitch
You may have heard many stories of investments being won over by compelling pitches, but how do you give one yourself? Well, it’s important to make your pitch deck as clear and concise as possible, without getting lost in the details and data. It’s equally important to research your investor as much as possible and tailor your pitch to suit your investor's interests and preferences. If you’re truly passionate and confident about your company, that will be clear in your delivery, but make sure you practice and refine your pitch for success.
It’s very true that finding the right investor for your company is often a difficult and long drawn-out process. However, these six steps should lead you in the best direction to achieve investment for your company. Approach investors with everything you’ve prepared and show off your confidence in your startup to get the investment your company deserves.