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January 08, 2019

How startups get investors to sit up and take notice

Written by Sirje Ahvenlampi-Hyvönen
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This article appeared originally in Finnish on December 3, 2018, on the blog of Invesdor, the Nordic market leader in digital fundraising and investing. The post was published in conjunction with startup event Slush, held in Helsinki. We have translated and adapted the content by courtesy of Invesdor.

The Supercells of the future are out there today looking for fuel for growth. For small startups, careful planning is essential. Otherwise, a funding round might end up lasting for months without delivering any results at all.

Every year the world's leading startup event Slush is teeming with growth companies looking for investors. In the middle of all that buzz accompanying fast growth, it's worth remembering that first and foremost investors are keeping an eye out for a clear and logical business story as they debate how they'll invest in startups.

"The biggest challenge for everyone from listed companies to small startups tends to be crafting the business story. Has the company communicated clearly what kind of company it is from an investor point of view and why it pays off to invest in it?" asks Sirje Ahvenlampi-Hyvönen, Business Director of Investis Digital in Finland and Denmark.

Together with the company and market figures, the business story is what crystallizes the company strategy. A startup has to present figures to support its story regardless of how early-stage the startup might be. And they can't just be hiding in an eight-month-old financial statement. They have to be the foundation the entire business strategy is built on.

"The startup needs to be able to communicate its short-term as well as its long-term strategy. If the company is to become profitable in five years, the story must convey what happens prior to that and how the profitability will be achieved. Visualizing and verbalizing all of this is hard work," Ahvenlampi-Hyvönen says.

Stand out from the hordes – educate investors

Many startups are entering the markets with something entirely new to offer. So, they need to proactively explain to investors crucial nuances about their industry that have an impact on their growth story.

Software companies, for instance, typically become profitable only after several years. But investors aren't necessarily aware of this reality. So startups need to communicate it to them. To support their decision-making, investors also need to see some figures from the company's operating activities.

"A good business story also offers realistic insight into the risks involved with the strategy," Ahvenlampi-Hyvönen adds.

When the company pitch is done, complete with information about the market and opportunities, it’s worth considering publishing the information on a website or saving it to the cloud. This offers a hassle-free way to distribute it to potential investors.

"Digital is always scalable, freeing up the entrepreneur's time for face-to-face meetings with investors," according to Ahvenlampi-Hyvönen.

Don't sprinkle meeting invites everywhere – prioritize

Before you start inviting investors you know to meetings, take a moment to think about what kind of investors you are looking for. Are you looking for domestic or foreign funding? How large a share of the company are you willing to hand over to others? Do you want the founders to retain control? 

Combining more than one source of funding often makes sense. Besides venture capital investors, typical sources include crowdfunding and corporate bonds. A funding campaign on a crowdfunding platform is also effective marketing at the same time.

Finding investors is often seen as something terribly laborious and secretive, almost like an obscure activity only taking place behind closed doors. In reality, there's plenty of advice out there. Digital platforms and social media have shed light on applying for funding and made it an open process.

"Just pick up the phone. For instance, you can identify a growth company from another industry and contact them and ask how they went about it. Investors themselves are also a good source of feedback – you can ask them directly what they thought about your pitch. You will find that people are willing to talk and want to help you," Ahvenlampi-Hyvönen says.

Original version of this post was published in Finnish on December 3, 2018 on the Invesdor blog.

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