In a rapid shift from 2020/21 mindsets, venture capital (VC) investors are becoming more conscious of exposure to risk within their portfolios. As a result, when approaching potential new investments, the level of scrutiny they are applying before they invest is higher. Investors expect companies to have a clear and robust long-term plan for growth, even if they are in the relatively early stages of product development. This plan should outline the startup’s vision, goals, and strategies for growth.
While the fundraising landscape has become more challenging for startups, it is still possible to secure funding by being well-prepared, having a clear plan, and being able to articulate your vision to potential investors.
Tanya Yankova, Octopus Ventures
Here are some key considerations for building a scale-up plan ahead of seeking VC funding:
Set ambitious but realistic goals
Investors will conduct detailed due diligence on your financial model to test the assumptions in your long-term business strategy. Strive for a balance between ambitious plans that attract investor interest, and prudence that avoids being overly optimistic. Remember that investors are looking for viable long-term opportunities and will be assessing the potential of your business to generate sufficient returns on their investment. Therefore, aim to highlight the key drivers of growth and your plan to get there.
Understand your cash needs
Investors value businesses that have a robust financial plan in place to forecast future spending and funding requirements. Additionally, tougher economic conditions mean the fundraising process is likely to be prolonged, and companies with less than 9 months of cash in the bank at the beginning of their fundraising process are likely to face challenges from investors. Aim to have about 12 months of cash available and potential contingency plans in place to extend that if needed.
Understand your go-to-market strategy
Developing an innovative product or service is important but commercial strategies should not be an afterthought. Founders should have a deep understanding of the market niche they are operating in and be able to navigate the space efficiently to drive sales. This is also a applies when planning for international expansion.
Identify relevant growth and performance metrics and track those consistently
One essential step in creating an ambitious scale-up plan for your startup is to identify relevant growth and performance metrics and track those over time. By tracking metrics consistently, you can make data-driven decisions for the business and drive cost efficiencies. Moreover, tracking metrics over time provides investors with qualitative insights into the leadership team’s ability to think strategically around optimising costs and maximising revenues. Therefore, it is crucial to identify the right metrics that are specific, measurable, and relevant to your business goals.
Build a strong team
Investors don’t expect founders to be able to do it all – quite the opposite in fact. Founders need to be able to demonstrate an ability to identify their weaknesses and surround themselves with a team that supplements those. This also includes a strong advisory network, as well as a board of directors led by an experienced chairperson. My colleague Will Gibbs has written a very insightful article on how to strategically build your board.
About the author
Tanya joined the Octopus Ventures Health team in 2022, excited to find and support the most innovative businesses in the space, across all stages of development. Prior to joining Octopus Ventures, she was a Portfolio Manager at Cazenove Capital, where she sat on several research committees and dedicated most of her time to healthcare sector research and coverage.
