It is interesting to observe what is happening in the financial markets these days, in light of the social and political instability across the world. In particular, public investors continue to share a love for B2B Software (see BVP Emerging Cloud Index below). This behaviour is no different from venture capitalists who invest in private B2B Software startups.
While venture investors and lenders continue to prioritize support for portfolio companies, many are still open for business to invest in new startups. Those with fresh capital and a new fund raised in the past year or two are more likely to closely evaluate new investment opportunities, taking advantage of a more ‘normalized’ venture market.
In recent months, I’ve published a few articles which include insights on how to think about financing a fast-growing B2B software startup:
As businesses shift from surviving to adapting and thriving, the key tips I’d like to share for a successful fundraise in 2020 and beyond are:
- Know Your Customer
- Demonstrate Value
- Create Urgency
- Listen to the Market
Know Your Customer
The process to fundraising has a lot of parallels to selling a software solution to a corporate or enterprise business. It begins first with understanding the Ideal Customer Profile and Buyer Personas. This means identifying potential investors who are relevant based on (i) the market the startup operates in (i.e. geographic, industry, customer base) as well as (ii) the maturity of the business (e.g. seed, Series A, Series B), and how it aligns with the overall strategy and investment theses of prospective funds.
Each investment fund has a different business model, strategy, and team. It is therefore important to clearly identify who are the influencers, champions and economic buyers, often reflected by title (e.g. Associate vs. General Partner) and length of time with the fund. In addition, founders should seek to understand the decision-making framework and process for each fund’s new investment activity.
Startups who monopolize mindshare in a weekly fund partnership meeting are more likely to receive genuine investor interest in their business. The best way to do this is to make the jobs of prospective investors as efficient and easy as possible.
Present your business in the best possible light. Clearly articulate the vision, product, strategy, team, and momentum in a manner that appeals to all stakeholders involved in the investment decision process. This includes having a compelling storyline that is supported by evidence of success and continued ability to execute.
Investors spend a lot of time mapping out market trends and shifts in the value chain, which is validated through speaking with emerging startups, legacy companies, paying customers, established partners, and experienced operators. Founders can help influencers and champions get buy-in inside a fund by demonstrating the breadth and depth of their market expertise through simple, visual communication that minimizes time spent on back-and-forth emails and calls.
Time is the most scarce resource for startups and investors alike. A fund typically tracks 2000–6000 startups in its CRM system (e.g. Affinity) and may only invest in 1–2 business per quarter. A typical venture investor looks at 30–40 investment leads per month and of those, closely evaluates only 5–10 opportunities.
Why is now the right time to invest in your business? Given the high uncertainty of startups, how has the business ‘de-risked’ the unpredictable variables for growth and execution? What forces have created a strong market pull? How is the business set to benefit from the market opportunity?
Listen to the Market
I am a big believer in the forces of supply and demand within a particular market. Market dynamics can though be influenced by sentiment and perception.
If the reception during the first 1–2 weeks of a fundraise is lukewarm or cold, it is best to solicit candid feedback and postpone the process until the business is ready.
As part of SaaStock Remote, I will be discussing with growth investors and operators Amy Wu (Partner at Lightspeed), Martin Angert (Partner at Susquehanna), and Scott Gellman (CFO & COO of Kurtosys) on how to best manage relationships with potential investors and your Board during times of uncertainty.
Join us for the panel taking place at 10:20PM BST / 11:20PM CET this Thursday, June 11th.
I’m generally not a fan of conferences, however the content and networking at SaaStock is very high. Very excited for tomorrow and Thursday, and I do hope you will join!
I have 3 free conference tickets —don’t hesitate to reach out if you’re interested in grabbing them.