Need funding? Get some practical tips from a seasoned investor
We talk with experienced investor, founder and head of Helen Ventures, Terhi Vapola, about startup funding and get some valuable tips.
Timing - When should you raise (more) funding?
"The pragmatic perspective is always the runway, how far you can go without additional funding. So, the question is, do you need it now, or can you wait? Later is usually better, especially if you can reach your next value inflection point before starting the fundraising. The more real traction and business progress you can show improves the valuation of your company and attracts investors. However, you need to factor in 6-12 months for the fundraising process, so don’t start too late either. The other perspective is your competitive position. Evaluate your growth curve with the secured funding you have. Could you reach your next strategic targets and value inflection point faster with more funds? "
Speed – Why should you get more funding?
"As an investor, I am a true believer in driving acceleration through funding. Grabbing the potential market faster and hitting key milestones, like your first million in Annual Recurring Revenue (ARR), proves you have traction and makes fundraising, particularly in Series A rounds and beyond, easier. Great ideas tend to arise in more than one place at the same time. Startups are often literally racing to turn that idea into a successful business. If you don’t raise that funding and supercharge your engines, you may lose the race."
Pitch - What do investors expect from funding pitches?
"A good pitch is well structured. Investors should be able to quickly see what is relevant for them. The essential information is quite straight forward: the team, the size of the market, traction, go-to-market plan, competitive advantage, and, of course, the financials. Just make sure that you are clear on what the concrete problem you’re solving is, why it matters, and how you actually solve it. It’s so simple to build a good pitch these days because you can find all the guidance you need on the internet. Unfortunately, it seems many companies are not doing their homework when preparing their pitch. You don’t need to reinvent the wheel with investor pitches. Don’t make your pitch too marketing-like either, because the investor just wants to quickly find the facts in order to determine whether your case proves worthwhile. Too much hype and you might risk losing your momentum in convincing us, and the investor could potentially miss your fantastic investment opportunity!"
Contacts - How should you approach new investors?
"Some investors say that you should have warm introductions. I personally think this is not quite fair, so I do welcome cold calls and cold emails. A key to successful fundraising, particularly with new investor contacts, is to provide upfront a clear, simple summary of what you are doing and your current funding stage. This may seem obvious, but it is often missing, making it hard for investors to understand why they should be interested in you. In addition, explain in your introduction why you decided to reach out to the particular investor. Investing is not just about money – investors bring value in many ways. You should be able to tell an investor why you are interested in them."
Uniqueness – How can you set yourself apart from other startup pitches?
"To set your company apart, there’s one more simple step to take: follow up. If you’ve been asked specific questions, provide precise answers promptly. You should also remember that investors are evaluating not only substance, but also how you handle the process. It is quite simple to make your case more fundable by being proactive. Investors get lots of pitches, so put in the extra effort to keep in touch and stay on top of expectations. You just need to do the little things others aren’t doing. Helping facilitate due diligence puts you in a better position and keeps the investor’s attention on you."
Offering - How does your business affect funding decisions?
"Some business models, like SaaS, have become quite standard in terms of evaluation. The KPI benchmarks are quite well established, so investment decisions are more a numbers exercise, especially once you reach Series A and B funding. Investors are crunching the same numbers no matter what the sector is. Depending on how your KPIs compare to other investment opportunities, this makes fundraising either easier or more difficult. Monthly recurring revenues, growth rates and margins speak louder than unique value propositions. Deep technology, say, new battery chemistry, on the other hand is far less a numbers game and more about the technical advantages, sustainable competitiveness, patents and so forth. Raising funds requires more work – from the startup and the investor."
Strategy – What are investors looking for?
"What you are offering matters, but don’t forget to whom you are making your pitch. Particularly among VCs, generalist investors were prevalent. Nowadays, you see more specialization. The focus could be on a particular sector or geographic region, a certain startup stage or business model, etc. You need to understand the investment strategy of your target investor(s). If you don’t fit into that investment strategy, it is highly unlikely that your case would be taken forward. With the increasingly more focused investment market, startups need to do their homework and find the right investors and tailor their pitches accordingly."
Investors - What should startups be looking for in investors?
"Most investors will tell you they have great networks, can open doors, can add value through board work, the coaching, mentoring, recruiting, and so forth. Everybody says that, but as a startup you need to find out what it means for your company in practice. Take a look at what is beneath the surface. Does the investor really understand your industry? Who do they actually know? Do they have access to partnerships or alliances that you could leverage? How much of the potential market can the investor open for you, and can they do it fast enough? It’s perfectly fine to ask tough questions. After all, your investor is someone you will be working with for 5, 10 or so years. Do your due diligence on investors."
Energy sector - Is funding different for energy sector startups?
"Definitely. The sector in general leans towards conservatism. Breakouts with exponential growth are extremely rare. The energy sector moves slower in part because we work with highly regulated, critical infrastructure and utilities. Built-in dependencies and large capital investments in assets create longer market cycles. Energy sector startups need to play the long game and look for partnerships. This isn’t to say you can’t go it alone, but you need account for the unique market dynamics of the energy sector. Here I would point out the importance of financial endurance. I know from experience it is easy to be very optimistic about a new idea, but often things turn out to be more complicated than expected. You need a contingency plan, a funding buffer that ensures you have enough runway to compensate for the likely delays and still get you to your targeted value inflection point."
Sustainability – Does it really matter for energy sector startups?
"Sustainability is a key trend dominating the entire energy sector: practically all investors are looking at how to build a greener, sustainable future. We need solutions to some of the biggest problems the world faces. Startups in the energy sector must be aligned with that goal. From the financial return perspective, addressing climate change is actually the biggest value creation opportunity of our time. Finding solutions to address the challenge is a must."
The best advice - If you give just one piece of advice, what is it?
"When it comes to raising funds, everything is a distant second to the importance of the business itself. A strong business with good numbers is the honey pot investors want to find. They see through the fancy presentations – if your business isn’t there, they will notice. Don’t get caught up in the frenzy – keep calm and carry on building your business. Spend 95% of your effort on building your business to achieve real traction with actual numbers. Then, when it comes time to raise funds, show investors the actual traction, not intent. Too often startups turn to funding too early. Solve the business first. The money will follow."
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