Startup - 3,2,1... take off or dissolve

Actualizado: 22 jun 2021

In Spain, we could consider an investment of around 200K euros to be a success. However quite frankly, that amount is only good for launching your project and gaining traction.

You will be able to execute your marketing strategy, finish developing your product and contracting a small team which will allow you to acquire your first clients. However, when you need to scale your business you are going to need to appeal for a bigger volume of investment than the seed capital.

What do we mean by scale?

Before moving on, we are going to clarify a few terms. Scalability is the quality through which a system or model maintains (or improves) its performance when it is faced with large workloads. Applied to the world of business, an organisation has a scalable model when it has the structure necessary to support business growth.

In technological start-ups, this growth is normally very quick and often, due to lack of necessary resources to manage it, it can cause the famous “death by success”. Does it sound familiar that only 90% of new companies don’t make it past their first three years of operation?

How to ask for the money to scale your start-up?

The importance of making clear to the investor the profitability that anchoring your company is going to deliver them. Remember that in the first round of financing you have to make it obvious that your product offers a solution to a real problem; however, in the second round the point of view changes slightly.

In this second round the investor draws from the premise that your business model is validated, you possess a respectable turnover and a priori, there is growth potential. Now you need to demonstrate again that investing in your company is worth it in terms of profitability. For that you must clearly get across the three points I am about to detail: who you are and at what stage you are, what makes you different and where you want to get to.

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Strong selling proposition

Although at this point you probably have a validated business model, an excellent company presentation will make things easier. Present your team, the market opportunity, your solution to the actual needs of the market, as well as your model for revenue generation and main financial indicators that describe your current situation in terms of number of clients and volume of business.

What makes you different?

How you differ continues to be a vital element for an investor, no matter what stage your company is at. At this point, you will have validated the hypotheses on which your business model is sustained and you will have rejected others. Your surroundings have changed and you have to adapt to that.

Probably as a consequence you have iterated your business model and found new competitors. Study your competition and show what qualities make you unique. Once again, make it clear what it is that makes you difficult to replicate and what allows you to leave the other companies in your industry behind.

Yor road map

It’s the most important idea and what will prove decisive in the investor taking the decision on whether to invest money in your start-up or not. So, it is where you must present your strategic mid- to long-term plan with all the key details.

The success of our search for financing will depend largely on whether or not we are capable of presenting a defined plan for each euro that has been requested, that’s to say, explain in detail to the investor where their money is going to end up, using milestones and indicators which will allow the fulfilment of this plan to be evaluated over the course of time. The following is a series of important points for when it comes to constructing your growth plan and putting it to the investor in such a way that they can feel that you have done your homework.

  • Market potantial / porduct:define the state of your company from the moment you receive the money up until three years later. What volume of business do you hope to achieve? Are you going to integrate any technology? Could your company be acquired by a larger one that needs to increase its value? Convey to the investor the idea that you are looking for a long-term ally.

  • Team. the human team is the fundamental key for successful scalability. What additions are going to be implemented to sustain growth? Do they have experience in your sector? Is commercial or product development strength needed? What salaries are going to be paid in order to attract talent?

  • Processes: as well as the team, the processes through which they are guided are as equally important, especially when we expand or we enter into a new market. What function is each member of the team going to perform? How are commercial opportunities going to be managed? What is the sales process? And that of reporting?

  • Channel: to accelerate the time-to-market and the geographic reach of your company, you will need partners. What profile are they going to have? Will they be commercial or technological partners? What type of clients do they have? How much money is going to be allocated to management and development of the channel?

  • International growth: it is possible that at this stage of growth a large amount of the financing that you are requesting will be allocated towards opening new international markets. Which ones? Will you have a physical presence there or a team based at your offices that is operating remotely?

Obtaining financing is not an easy task. If you think that at the point at which you find yourself, the amount that you are asking for is normally much more than at a stage in which the seed capital was sufficient. What’s more, the profile of an investor willing to take a gamble on your business is more adverse to risk: you find yourself in a position whereby the alternative to growth is probably to dissolve.

Expressing your plan for the future in a clear and complete manner will make the decision easier for your investor. You will be conveying to them that they are putting their money in good hands.

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