In a year of massive uncertainty and upheaval, the Atomico State of European Tech report found that 2020 was on track to be a record year for the amount of capital invested into European technology companies.
Despite that, 46% of founders said that access to capital was the biggest challenge they faced in 2020. So to help you overcome this challenge, we’ve put together this guide, bringing together insights from both founders and investors on raising funding in a fully-remote or hybrid world.
In this post we cover:
- Meeting investors in a remote or hybrid world: what’s changed?
- What to look for when meeting with investors
- Alignment on big-picture goals
- Will this work as a long-term partnership?
- Why you should do your own reference checks
- What to do if you receive a pre-emptive offer
- What investors are looking for when they meet with founders
- The pitch
- Know your SaaS and growth metrics
- Resilience: the most important trait your team can have right now
Meeting investors in a remote or hybrid world: what’s changed?
The biggest change is raising funding used to involve a ton of face-to-face interactions. In-person meetings with investors, matchmaking sessions at conferences and events, investors meeting with your team…
So much of the process involved building a personal relationship and rapport between the founders and investors, with a particular focus on both parties spending time together, as this advice from the Holloway Guide to Raising Venture Capital shows:
“Schedule to meet investors in person. Though technology allows founders to meet with investors over video (and this is a good thing!), if it is possible for you to meet investors in person, do so. Certain things are easier to communicate when you’re all in one room, and your physical presence can make you human to them.” – Andy Sparks
But the pandemic has forced all of those interactions to move online. This means:
- Founders may find it easier to arrange an initial meeting with investors. An initial video call can feel like less of an ask than an in-person meeting, so investors may be more open to an initial meeting with you.
- But on the other hand, it’s easier for investors to meet with more founders in the same timeframe. With no travel time, it’s easier for investors to book more meetings in their day, so they may be meeting with more startups than when all their meetings were in-person.
- It may feel harder to build that rapport with the people you meet with. It can be harder to build that human connection with people over video meetings. And later in the process, it may be harder for investors to get a feel for your team culture and morale remotely, compared with visiting your team in an office.
“For most VCs, investing in teams without having met the founding team is unchartered territory. We’ve found that not meeting early on hasn’t been a massive problem, but in the later due diligence stages we’re missing that human connection. We’ve had to adapt the ways we build that relationship with the founders and build trust – for example we’ve increased our focus on referencing as one way of doing that.” – Peak Capital
While the VC market is still active, it’s now impossible to meet investors in-person. At SaaStock EMEA Online last year we brought together some of the leading SaaS VCs and founders to explore how to build founder-VC relationships in the new digital normal. This is a must-watch panel for founders wanting to get first-hand advice from other founders and investors on how to meet VCs virtually:
So, is it easier or harder for founders to raise funding in this new remote normal? With so many different factors affecting your ability to raise funding (everything from your timing to your metrics), it’s impossible to say. But one thing’s for sure: there’s never been a better time for European SaaS founders to seek investment:
“European SaaS continues to go from strength to strength with record levels of capital invested in 2020 — $12bn.” – Sifted
Founder seeking investment? Here’s what to look for when speaking to investors
Align on big-picture goals and values
It’s important to realise how taking on venture capital funding will affect your business:
“It’s highly likely that when receiving VC investments, you’ll cede a large ownership stake to your investors and give up a certain amount of control over your business as a result. Your investors will expect significant return on investment, too—there’s much less room for failure and experimentation when you’re being backed by VC.” – Profitwell
So one of the most important things to look for when speaking with investors is that you’re aligned on the high-level goals for your business, as well as having similar values. This was true before the pandemic, and is still true today.
Will this work as a long term partnership?
When you’re looking for an investor, keep in mind that this is going to be a long-term partnership – years, rather than months:
“Now more than ever it is important to partner with investors who really understand your business and take a long term view on scaling companies. Someone you can work with at a personal level and who can help you address any challenges while supporting you to achieve your growth ambitions.” – Scottish Equity Partners
It’s easy to focus all your energy on all the work that’s required to raise your funding round, and forget to think about what comes next. Can you see yourself working alongside this investor in the years to come?
Do your own reference checks
After a couple of meetings, potential investors will start to do reference checks on you. But just as they’re doing their research on you, it’s essential that you take the time to research them. The best way to do this is to reach out to other founders of their portfolio companies. You want to get a feel for:
- What their working relationship is like
- Whether the investor is more hands-on or hands-off
- And any red flags that may indicate a misalignment of goals or working culture.
It’s best to try and speak to a few different people, to get a well-rounded impression of what that investor is like to work with, and it will be especially useful if you’re able to speak to founders who took investment from them at the stage you’re at now, as this will be most relevant for you.
Don’t take the first offer
While the pandemic created challenging environments for many SaaS companies, some got lucky. Some became the hottest rising stars in the SaaS and tech scene, and naturally attracted a lot of attention from investors.
If your startup is in the fortunate position to be receiving lots of attention from investors, it’s important to remember the golden rule of any negotiation: don’t take the first offer. Hopin CEO Johnny Boufarhat offered this advice at SaaStock’s Blueprint: CEO Phase event at the end of last year:
“If you’re getting pre-empted [by investors], don’t take the first offer you get. It means investors are wary you’re going to speak with other investors. So… do that” – Johnny Boufarhat
Of course, the first offer you receive may be a really great offer, but don’t get carried away. It’s very exciting to have an investor come to you, rather than the other way around, but remember to take the time to properly evaluate any offers that come your way.
And here’s what investors are looking for when they speak to founders like you
Pitching to investors is always daunting. You need a great pitch deck that covers everything they need to know, and you need to be able to deliver your pitch well.
Pitching in-person, you could see how the investors were responding to you, and build a rapport with them. Pitching online is more challenging, because it’s harder to build that connection virtually.
Our top tip for this is to practice. This could mean entering online pitch competitions, or running through your pitch over Zoom with a trusted mentor or advisor. Get comfortable delivering your pitch remotely (especially if you’ve previously pitched investors in-person, as this will feel completely different).
Your pitch deck
Your pitch deck is used to introduce and explain your company and product. Flow Capital shares these top tips for creating an effective pitch deck:
- Create a clear and concise story within 15-20 slides
- Pay attention to the “look and feel” of the slides, making sure to visualize key points
- Use clear language and avoid jargon or acronyms
- Display your market opportunity and where you fit
- Highlight the talent on the team
- Don’t dive into excessive details – touch on key indicators
- Update key metrics or industry changes as they happen – make sure your pitch deck is never out of date
- Protect your intellectual property by adding “Confidential and Proprietary: Copyright of [Company Name]. All Rights Reserved” at the bottom left of your deck cover.
Know your metrics
Your metrics are the objective measure of how your company is performing. Here’s an overview of four key SaaS metrics that investors will look closely at, when assessing your company:
- Churn rate – A low churn rate demonstrates you can retain customers month-on-month, which suggests your business is viable and scalable in the long-term. On the other hand, a high churn rate will be unattractive to investors, as you’ll struggle to grow quickly and consistently if you struggle to retain customers.
- MRR growth – Is your monthly recurring revenue growing, stable, or shrinking? MRR growth rate will vary depending on the stage of your company, but according to the KeyBanc 2019 SaaS Survey, the average annual MRR Growth Rate across all companies surveyed was 52%.
- ARPU – This is the average amount of monthly revenue that you receive per user. It gives a high-level overview of how well your company is doing:
“ARPU is the “canary in the mind” indicating that your product may be too cheap in a market that isn’t big enough. Alternatively, a high ARPU in a large market indicates you’re off to the races in terms of growth and prosperity.” – Profitwell
- CAC – From series A and onwards, it’s essential that you have a handle on your customer acquisition costs (CAC), as well as your CAC payback periods (the time it takes for a customer to pay back their customer acquisition costs). As a benchmark, a CAC payback period of two years or less shows strong potential for growth: you can efficiently acquire new customers, which makes it easier to grow than if your CAC payback period is much longer.
One of the big questions investors will have now is: how has your startup weathered the COVID storm? Did you have to make cutbacks on the team? Take pay cuts? Or were you lucky enough to be boosted by the pandemic, and see your growth accelerated?
2020 was a challenging time for companies all over the world. But this is a good opportunity to demonstrate the resilience of your product, your team, and your business model.
Even if your company was negatively affected by the coronavirus pandemic, the fact that you survived the year and are still here seeking investment to power the next stage of your growth is testament to your resilience.
Raising funding remotely: the new normal
Raising funding in this new remote-first world is different to doing so in person, but at the core investors are still looking for the same things: team, product, business model, and potential for growth.
2020 highlighted the resilience of the SaaS business model. While it was difficult for many businesses, as a whole, SaaS fared better than many industries. Last year we saw record levels of investment in SaaS companies worldwide, even amid huge amounts of uncertainty.
Now we’ve weathered that initial storm. If you’ve been able to adapt your business to work well remotely, and continued to grow despite all the challenges 2020 threw at you, then you’re in a fantastic position to look for investment and fuel your future growth.