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How to make your company investment-ready

tech users round a table

Sam Myers is an investor at London-based Balderton Capital, a venture fund that invests in early-stage European technology businesses. In this article, he explains what tech startups need to do to make sure they are investment-ready.

Identify the right investors

Funds and even investors within funds have different experiences, preferences for sectors, stages and business models, not to mention differing views of where the world is heading.

It is important to identify which funds and partners are most likely to understand your business, and the opportunity that your business seeks to address. The benefits of doing this background research are twofold: you’ll ensure time isn’t wasted in the process and, more importantly, you’ll stand a better chance of finding a good match.

Know your fundraising story

Knowing your fundraising story is important in all cases, but it becomes absolutely key when your business has little deep technology or defensible IP. By ‘fundraising story’, I mean how you position your business, the opportunity, and what the company will need to deliver to be the type of outcome a VC would need to make it an interesting investment.

When it comes to this, there are generally two types of fund-raising stories that apply to most companies (yes, a huge oversimplification, but for this purpose it should work).

The first type of story: your company promises to become a huge business by growing a base of very high-value customers or users. For consumer products, a company like Strava is a good example. Each user is a heavy spender and margins are high, but the user base will never be as large as a company like Snapchat might have.

On the B2B side, these are the companies who are able to earn customers who each spend over $100,000 or more annually.

The second type of story: you are going to become a big business by scale. Your customers are lower value, but come on-board faster and in large numbers. These are companies like WhatsApp, where sheer user-base outweighs the fact users are difficult to monetize.

If you are the former, you need to demonstrate ability/strategy to land the whale clients early on. If you are the latter, you will need to tell a story that demonstrates a clear path to building a large user base that can be monetized down the line.

Path to profitability

The days of pure-play ‘users first, revenues later’ businesses are coming to an end. When raising Series A money, there is pressure to have a clear plan for switching revenue streams (if pre-revenue), and for bringing a company to break-even or profitability in the mid- to long-term.

Companies with unclear unit economics, or those who find it difficult to answer questions about who will pay what for their product, will struggle.

This is not to say companies need to be revenue-generating as soon as they pitch VCs. And they definitely do not need to be profitable – I very rarely see any cases where they are, and if they are they should probably be reinvesting for growth – but there needs to be a clear plan on how a product will, at some point, translate into a profitable business down the line.

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