Founders: cash isn’t always king; you need to ask what else investors offer
In the UK, there is a huge wealth of innovation potential in early-stage startups. They are developing some of the most exciting products of the future, which have the potential to shape industries and change lives. The key to unlocking the innovation in these startups, and providing a stable route-to-market, is often considered to be funding. As a result, ambitious startups can find themselves in an endless quest for financial backing so that they can unlock their full potential. But for early-stage startups, and deep tech ones in particular, it can be a huge challenge to access funding as VCs tend to see them as more of a risky investment. For that reason, it can be tempting to accept the first offer of cash that comes across the table.
However, funding alone won’t always lead to success. Amidst the allure of funding, a fundamental question founders must ask is “what else does my investor bring to the table?”. Beyond the immediate financial aid, the true essence of a supportive investor lies in their capacity to offer a multifaceted support system which can encourage and enable long-term growth.
Building the dream team
Given many founders are inexperienced when it comes to business, they need to build an ecosystem of people around them that can help them navigate the twists and turns of startup life and make the best decisions for the business. Smart investors can both be part of this team of allies, and help to grow the dream team to ensure it aligns with founders’ changing requirements at different stages of the business. Before looking for investment, founders should consider what expertise and networks they most want access to. That could be within their own sector or to other sectors or business functions which they might want more expertise in. It could also be expertise helping similar companies scale, or simply pure networking potential. Once they have a clear image of the dream investor to add to their dream team, they can then tailor their investor hunt around the experience required.
One of the most challenging decisions a founder can make for their startup can be whether they should be CEO. While it might make sense when first starting a business, two or three years into the journey, its founder might be better suited to a different role. Investors can be a critical external mentor for founders when deciding whether, and at what stage, to appoint a different CEO, and can use their networks to find someone best for the role.
Refining your pitch
Being clear on your pitch is essential to communicate the value of a business to investors, board members, potential customers and future talent. The ability to successfully articulate the problem a business is aiming to solve, and the difference it’s able to make in 5 minutes or less can be what sets a startup apart. But founders might not get it right the first time. Given VCs are experts in what makes a good pitch, investor feedback can be incredibly valuable to help founders refine and develop their pitch to effectively communicate their value as they go-to-market, look to attract additional investors and expand their team. Founders should aim to extract all the feedback they can from the investors they engage with on their business journey so they can improve their pitch, strengthening the foundation for everything else going forward. Just ask, you might be surprised at how many investors actually genuinely want to help.
Connection to customers
An essential part of success as a startup is talking to customers early on to better understand their views on the problem the business aims to solve, so that founders can explain with integrity what customers’ needs are, and can fix the problem in a way that customers will engage with. A great investor, while keen for founders to prove that one day customers will pay to have the problem solved, can also help connect them to potential customers to allow them to further refine their offering. Customer conversations start at the beginning not the end!
A blueprint for a new era of innovation?
While capital can understandably be front of mind when securing funding, there is so much more to consider before signing that deal. My message to founders is to step back and consider your perfect outcome in 5 or 10 years down the line. What will you need to ensure that’s a success? If it’s more than just money you need on that journey, investors can be a one stop shop to supercharge you towards that goal: not just financiers, but mentors, advisors, and strategic collaborators. While it might take longer to find that perfect deal, it will ultimately pay off long term.
Ultimately, it’s this symbiotic relationship between investors and startups that must become a blueprint in the UK if we’re to see sustained innovation, growth and a transformative impact on society. There are already so many brilliant investors and communities out there, and so many people who get it. But we need more – so much more, and an inclusive, diverse approach to our innovation eco system on which we are barely scratching the surface.
