1. Socialize your product idea early in the development process, then learn and iterate.
The bar for fundraising is rising. Investors are making fewer deals, and they are on investor-friendly terms with longer closes. Customers are re-evaluating spend, and a strong product-market fit is vital for VCs. Socializing your product idea and business plan early in the development process can help gain much-needed viewpoints on your product and business plan.
Reach out to valued members of your network and talk to potential customers. Gaby sees female founders sometimes playing it too safe — they don’t want to discuss their product until it’s perfect. However, feedback will help you develop a better and ultimately more fundable pitch.
From there, take the input, learn, iterate and evolve your product and plan. Wellthy launched as a direct-to-consumer product, but the price point to deliver quality service proved cost-prohibitive for most Americans. After about two years, Wellthy pivoted to working with employers to provide its services as an employee benefit. This move put the company on a stronger growth trajectory, but its earlier iteration did not go to waste. It allowed Wellthy “to understand the needs of families first and foremost,” Lindsay says.
2. Tell your story effectively and be receptive to feedback.
When a company has very little history, investors back entrepreneurs because they believe in their vision and ability to execute. You need to articulate your ideal customer inside and out, while clearly explaining your offering, its market potential and how you will generate revenue and profit. For companies in newer markets, founders also need to advocate for why their industry deserves innovation and investment. In Wellthy’s case, Lindsay had to explain how caregiving is critical because it supports workers in every other industry.
Lindsay notes that articulating the track record of your KPIs and milestones as your business grows can help secure your next funding round. “When you execute as planned, you get to just show up to these investor meetings and talk about metrics,” she says. “They don’t have to believe any story.”
Once you’re in those meetings, be receptive to feedback. Don’t litigate it. Every conversation has the potential to lead you somewhere — improvements on your idea, actual funding or to a potential funder that is a better match. Gaby looks for founders who appreciate being made aware of blind spots.
3. Your network is your net worth, so ask for what you need.
When it comes to fundraising, your network matters. Before joining The Fund XX, Gaby had founded two successful SaaS legal technology businesses. Their rapid growth required equity raises, which is when she realized she was ill-networked. Gaby worked with investment bankers to bridge the gap and leveraged that experience nurturing her network into how she raises funds from limited partners today.
Developing your network requires building genuine relationships and being clear about how your contacts can help. When you’re meeting with investors, don’t be intimidated during your pitch to ask for everything you need. And never take shortcuts that jeopardize your integrity or the trust you’ve built within your network.
4. Keep tight reins on your business.
Startup costs are always subject to creep, and investors are no longer funding growth at all costs. Entrepreneurs must develop a sound value proposition with a viable path to profitability and a long-term plan for growth.
Make sure you have a tight operating plan based on detailed cash flow models that underpin your capital needs. Show investors that your business is capital efficient. In challenging times, investors want to see how well business leaders can use the resources at their disposal and be profitable.
Founders should be highly focused on what their company does best and not waste time or resources on product developments or partnerships that may not be fruitful. At the same time, be sure to maintain the proper level of investment for key initiatives that set your company up for the next round of funding.
With the pressure on to deliver top-line revenue and operate a tightly managed business, founders who can effectively convey a story of operational excellence, disciplined investments and tangible business impact are more likely to garner the attention and support of investors.
The views reflected in this article are the views of the author(s) and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
Gabriela Isturiz is a General Partner at The Fund XX, an early-stage VC fund investing in women-led businesses.
Jeff Grabow is the EY US Venture Capital Leader at Ernst & Young LLP.
