Stories abound about the excitement and fear that surrounds startup investment pitches. Entrepreneurs often wrack their brains on best opening lines for meetings, the most effective slides to introduce business ideas and fret over the dreaded eye-gloss during minute two of their presentations.
But what happens when entrepreneurs start companies, run them for a few years and then want to ask investors for expansion funding? For most business owners, these investment conversations are very different from the ones when companies were just ideas. These companies have customers, employees, possibly multiple offices and—in many cases—stories that don't always cast a favorable light.
“Medium-sized companies aren't starting from a blank slate; they come into those meetings with baggage," says Charlotte Brown, CEO of Adelie Ventures, a growth strategy consulting firm with offices in Honolulu, Chicago and London, adding that baggage can come in the form of a failed product attempt, debt, fallout from bad press and so on. “Oftentimes, these entrepreneurs are asking for investment so they can pivot into a new area or recover from some troubles. This causes some of them to go into meetings with a little less confidence than when they were starting out."
While Brown's sentiments can be true for some, there are also examples of entrepreneurs whose companies are doing so well, additional investment is deemed essential to go to the next level.
The story of Front, a five-year-old app designed to streamline email for business teams, is one such case study. Showing signs of growth about four years into the business, co-founder and CEO Mathilde Collin decided to dedicate one week to visiting the offices of venture capitalists (in the industry, this is also referred to as a roadshow) in late 2017 to secure a Series B round. The result: $66 million in funding from a few top VCs in Silicon Valley.
“We had more than 2,000 customers and very consistent revenue growth," says Collin. “Churn was trending down while usage was growing exponentially. While we had plenty of cash in the bank, I recognized that we were in a unique position and could use more capital to significantly accelerate our trajectory."
Collin's ability to take a step back, even while her business was doing incredibly well, is a good lesson for entrepreneurs—many of whom struggle to pause while running their businesses.
“Entrepreneurs started their businesses for a reason," says Brown. “When they start hiring people and responsibility builds, a lot of time their risk profiles shift. That shift sometimes will cause them to focus on the day-to-day job and away from the big dream they had originally. It requires a business owner to step back and think more strategically—to think about what it would look like to grow their businesses by five, maybe 10 times, to expand internationally and so on.
“When you have the pressures of being a CEO or board member, it can be very hard to take the mental space and time away from your business to do that."
The business hamster-wheel, if you will, can be one of the largest challenges faced by medium-sized businesses. Unlike large, established enterprises, these companies don't often have board members whose job it is to think big. Instead, all of that responsibility falls on the shoulders of the founder.
Thankfully, there are a lot of things founders can do to secure growth investment, starting with establishing relationships with potential investors early on. Brown recommends trying to get businesses into the press to acquaint investors with trajectories and founder stories. If businesses can't afford to hire public relations teams, start posting regularly on LinkedIn. Then use connections to connect to venture capitalists who may be willing to invest later on.
“Do that for a few years and share your posts with partners at the investment funds you want to eventually target," recommends Brown. “This provides credibility and authority and, when you ask for money, it won't seem out of the blue."
And remember: startup pitches and growth pitches look and feel much different—so don't go in with the same deck.
“When you pitch to start a business, you're trying to prove that you have unique insights into a market ready for disruption, you have some proof that you're making what people want and you have a great team able to execute," says Collin. “You don't know yet how you'll scale the business, nor do you have a lot of numbers. When you pitch for expansion, you need to show that you have something that's working, and that you can predictably grow the business. In both cases, however, you must demonstrate that if they don't invest, they could potentially miss a huge opportunity."
—Mathilde Collin, co-founder and CEO, Front
Collin's latter point rings especially true to Mitch Grasso, serial entrepreneur and CEO and founder of presentation company Beautiful.ai.
“Being with investors can be an interesting dynamic and pretty nerve wracking," he says. “But the reality is, they want you to be successful and want you to make the case to fund you. Go in with the mindset that they want this to happen and that it is their job to meet with you."
But what is your company has, as Brown puts it, “baggage?"
Address the elephant in the room right out the gate, she suggests. Explain what the company did to overcome challenges and how it has grown since.
“They want to know that your team can come up with creative, innovative solutions for any challenge that arises," she says, “that you came out of the challenge better than how you came into it."
During Collin's recent experience raising a Series B round for Front, she learned a few other valuable lessons. One: Growth-round investors want to talk to customers. She wasn't prepared in advance for this, so the “burden fell on a few customers to speak with all investors," she says. Next time, she plans to give each investor a different customer to contact.
Other lessons: Make sure to feel good about where the business is going and project confidence, have all metrics that might be requested (such as numbers around customer churn, sales growth and cash flow) and have a clear vision for how you want your company to grow.
“And only fundraise once you've reached the milestone you had set for your previous round," she says. “In the spirit of inspiring trust and confidence, before giving you any money for new endeavors, investors will expect that you've delivered on what you previously set out to do."