Sifted Summit 2022: A masterclass in investor relations
The competition to secure funding from angel investors and VCs continues to get tougher against the backdrop of economic uncertainty. At this year’s Sifted Summit, several speakers shared insight on how start-ups can secure that game-changing investment.
Passion is paramount
Investors all seemed to agree that successfully conveying passion for the startup, its mission, and clearly communicating how the company solves a problem is essential to attracting VC interest. Failure to communicate this story can sink an investment, even if the startup idea is strong.
Janneke Niessen, Founding partner at CapitalT, explained that a lack of passion indicates founders won’t push through hardships and endure with their venture. Grit, passion, and perseverance are key values that investors measure and record through surveys and interviews. Professionalism, market fit, and timing matter, but communicating examples of perseverance where others may have given up – including how the business has overcome challenges, conflict, or even boredom – can mean the difference between a yes and a no.
Diversity drives decisions
Team dynamics and diversity play a huge part in a VC’s decision, a perspective that is supported by data – diverse companies earn 2.5 times higher cash flow per employee and inclusive teams are 35% more productive by over 35%. Startup founders who only hire people who look, work, and think like themselves are significantly more likely to face investor rejection.
During Niessen’s session, an audience member who was part of an all-male startup team formed from a developer course mentioned that they didn’t have any women on the team because there were no women in the class. Niessen pointed out that it’s easier than ever to look outside of your immediate network to avoid a mirror-tocracy. With technology and resources like LinkedIn and MeetUp making it easy to find networking events and meet potential co-founders and top talent, every founder has access to the tools necessary to find a team that doesn’t have investors running for the homogenous hills.
Can’t we all just get along?
Although combining diversity and passion can lead to conflict, this tension is a feature, not a bug. When founders present an image to VCs of a team that always agrees, it’s actually a clue that there is a lack of diversity in skills and knowledge. It’s better to be up front about current or past conflicts, and then demonstrate the ability to use discord to spark quality discussion, review what went right and wrong, and move past it.
Niessen advises co-founders to frankly discuss their direction, passions, and intent at the earliest possible stage, as if these aren’t well aligned or realised, it’ll lead to unexpected issues in a few years. All too often, people start a company together assuming they are on the same page, then realise that’s not the case when it’s too late.
She also shared a hack for tackling the team silos. Nielsen’s company sends coders on storytelling and marketing training courses, and marketing/sales teams on coding training days. After learning more about how each unit of the company operates, she found there was less miscommunication, improved understanding, and teams were less likely to over-promise or under-evaluate other teams’ responsibility and output.
The numbers game
In a competitive market, it’s vital that founders learn how to present their companies to VCs, and according to the Funding Challenge panel, valuations are being lowered by around 10-20%, with substantially fewer deals completed. Jonathan Hollis, Managing partner at Mountside Ventures, said that he can receive as many as 200 VC applications in just two days.
Not only is the fight for funding increasingly competitive, but runway times are expanding, with 24 months the new normal. (Sorry folks, those 6-9 month timelines no longer cut it.) To navigate this, founders may want to break the raising strategy into chunks, and put a stronger focus into the ‘why now?’ section of the investor deck, specifying exactly what funds are needed for what component, and why it’s relevant to that stage in the company’s growth and market offering.
Carien Nantois-Beyer, early stage VC investor at Inkef Capital, advised startups to demonstrate “3 Gs” to attract investor interest: globally distinct, globally relevant, and globally ambitious.
Pippa Lamb, partner at Sweet Capital cites demonstrating traction as one of the most crucial, make-or-break elements of a pitch deck – but how can this be shown without revenue numbers? Lamb advised that data indicating sign-ups, users, or strong engagement is how startups indicate traction without charging for a paid product. Additionally, showing a waitlist, pipeline, and/or survey communicates future traction. Even when there’s not revenue yet, proving there’s enough of a consensus to show that people agree there’s a problem to solve is very interesting to potential investors.
It’s okay to be overwhelmed sometimes
With so many factors to consider when trying to achieve funding, and with greater scrutiny on the merits of a startup and tighter funding criteria, it can seem a daunting prospect to take the plunge into securing investment for a startup. And with a bright spotlight on a founder’s passion and determination, it can be easy to doubt yourself.
However, it’s worth remembering that doubt, or having periods of personal uncertainty, doesn’t negate the ability to succeed. Niessen revealed herself that almost every founder she’s ever met has suffered from impostor syndrome, but moving past it to gain perspective is key, and ultimately, the drive to be successful needs to be bigger than the fear of failure. She made a rather comforting remark: “If you meet a founder that’s never doubted themselves, you’ve found a real unicorn.”