I must confess to a bout of envy as I wallowed in the dark early morning waters of the Forty Foot this week. What exactly was there in the 2022 Budget for me? Media headlines touting “something for nearly everyone in the audience” were about to add to my sense of missing out when I spotted another headline – Global Startups Raise $158 billion in Q3, All-Time Record. Can you imagine being a founder of a startup right now, failing to get a single dollar of that $158 billion wall of money and still looking for funds? Slightly dispiriting, but most definitely not a cue to give up.
On the contrary, having been involved over the years with thousands of investor relations presentations, secondary share offers, IPOs, bond issues and start-up funding rounds the critical constant is to keep telling your story. However, in this fast and furious funding environment your story needs some weaponry to fight for the attention of investors. Here are five tips which are very relevant to current trends in the funding world:
Writing: You may know that Stripe is possibly the most valuable private company in the world. But… did you also know it has earned a reputation as the best writing company on the planet? For a company which focuses on numbers, Stripe has built a phenomenal writing culture. The company doesn’t really do slide decks but shares ideas with carefully crafted memos. I look at funding pitches every week and it is striking how often the core value proposition is presented in different and potentially confusing ways across various investment documents and slide decks. It may sound tedious but it is really worth spending serious time writing and re-writing the narrative around the core problem your company is solving and why your customer will use your solution. This attention to writing should extend to emails dealing with investor queries. The clearer your writing, the clearer your message will be. After all, investors need to be confident a founder can communicate and lead internally and externally.
Social Media: If writing is not your natural strength there is no better way to build proficiency than by writing more frequently. Social media is for many companies a critical business development tool. I can’t help noticing that the more successful funding rounds tend to be accompanied by a promoter’s/founder’s deliberate use of social media on a frequent basis to communicate the company’s core message. More specifically, the messaging will be consistent across all platforms – LinkedIn, Twitter, Facebook, Instagram etc – and require very few words. A thoughtfully worded introductory paragraph with relevant images, graphics, data or video can be hugely effective and build confidence in your own writing and communication skills. Also, investors are fully aware that a business using social media effectively is likely to scale more quickly than those that don’t.
Data/Measurement: We have deliberately avoided the use of financial ‘jargon’ in this piece but you may have heard of KPIs – Key Performance Indicators. Let’s just call it measurement. In any competitive environment the road to improvement and success needs regular monitoring and review. It is no accident that we referenced data and graphics in the previous tip. However, in too many investment pitches there are very few references to the key metrics which management will use to monitor the progress of the business. Investors are more likely to engage if there is a visual presentation of metrics which matter to management and potential shareholders.
Valuation: Of course, valuations in certain pockets of the startup world are raising eyebrows. We have previously written about various valuation methodologies and we don’t plan to debate or sanity check any current markers. However, it is worth thinking about time for a moment. The world, particularly technology, is accelerating rapidly. Businesses are scaling to $100 million revenue levels in super-quick time. As an illustration, Slack which was recently acquired by Salesforce.com went from $1 million to $100 million of revenues in less than 3 years. So, let’s assume the future is going to develop a lot faster for your business and its revenue forecasts. However, they are just projections and for the purposes of valuation this speed is a double-edged sword. The risk which investors are acutely aware of is that your business could be replaced by a much faster growing competitor (or competitors) which might not even exist today. Do not under-estimate the time spent building databases, pilot products, winning partnership/distribution deals etc. Also, consider the funds needed to get to this point, and even inflate to current market rates. This investment of time and money has a value and could be a barrier to swift entry from competitors. Therefore, it is important to provide a good narrative and quantification of what was required to build the business to this stage. Call it the “replacement value” of the “assets” of the business. This can be a helpful metric in valuation discussions with investors and is worth re-iterating given investment pitches these days can be overly weighted to “guesstimates” of future revenues.
Alignment of Interests: We have already placed an emphasis on the consistency of message across all communications but there is one other area where I have noticed some slippage recently. Lots of investment pitches these days default to the “journey” story. That’s fine but investors need to feel that all stakeholders are on approximately the same journey of uncertainty and risk. What can jar with investors is a promoter team earning a “return” much earlier than the providers of investment capital. Be careful to strike the right tone with starting salary levels. It has been noticeable in recent months to see some business plans with very ambitious promoter salary plans. A more effective message is to tie salary uplifts to future progress made in the forecasts of the business plan. Then all stakeholders feel their interests are aligned… to the business plan and growth.
The tip list above is not an exhaustive one but is predicated on one particular aspect of the current investing environment; the sheer pace of activity. We have recently written about one venture capital fund, Tiger Global, which is closing 1.5 investment deals…. per day. Yep, that’s more than a deal a day. It would seem that investor attention spans are shrinking rapidly. A promoter’s or founder’s critical task is to save an investor time when communicating either at a pitch meeting or on email. Writing matters. Make it count and don’t give up. Better still, get some help.
Written by Gary McCarthy: Gary has worked in financial markets in Dublin and London for the past 25 years. During that time he was a stockbroker with a number of leading firms and successfully managed the flotation of Irish companies on the London and Irish Stock Exchanges. His expertise also extends into the areas of research and data analytics. Gary is a principal at SilverBack Connects which is a recruitment business focused on the financial technology sector. Silverback provides direct in-house assistance on the distribution and marketing/packaging of innovative data analytics and market platforms to its institutional network in the UK, Ireland, Japan, Hong Kong and the US.