Securing funding for a scale-up phase of a business is potentially more complex than securing funding as a startup. The risks and rewards are likely to be higher and there may, or may not, be evidence to support your assertions. Even if there is some evidence of success so far there is still likely to be a leap of faith needed by the investors.
There are several options to raise funding; however, scale-ups have to take into consideration that they need to manage a growing business and make smart decisions with the money they currently hold. Obtaining more debt by financing through banks may cause more problems, so attracting investors for funding is a popular alternative.
Investors may not be willing to risk such a large amount upfront despite the fact that scale-ups have proved their potential in the market. Many businesses can be successful, but not all can withstand the challenges they face. The COVID-19 pandemic, for one, is a true testament to the seriousness of this matter as 54% of high growth businesses were negatively impacted in the first few months. While this number decreased over time, a significant proportion of businesses still struggle to get back on their feet.
Investors are likely to act smarter and with greater caution about where they put their money. Likewise, business owners need to double down on making their company stand out amidst challenges of future crisis.
What investors look for before funding a scale-up
The considerations of investors for start-ups and scale-ups may be quite similar, but it’s vital that scale-up business owners recognize the risk that investors are taking with them..
Established businesses will have years worth of experience and data about their business’ growth. Detailed metrics and audited financial statements would also be available. Investors will expect scale-ups to present themselves in a way that compensates for the lack of hard evidence. For instance if a scale-up has deviated from their original plans have these decisions been good ones that have actually moved the business forward in another positive way.
Investors also want to see if you have an edge in the market and if stable growth is in your company’s future. Realistic projections will be a focus for investors to dig into.
Aside from that, investors would want to know your long-term plans. Since the time you executed your initial business plan, you’ve likely come a long way. Now that you’re at a different level with a bigger landscape, highlight that growth potential and be clear about how you plan to move further.
Four things to highlight to investors
- Effective leadership and management
The senior management must not simply be command givers as those they work with and their investors will expect them to be fully engaged in the business.
While financial and performance results are paramount, 52% of investors evaluate leadership strength alongside the numbers presented. They see greater potential in companies with effective management executives that lean away from the traditional autocratic approach and, instead, promote an environment for softer skills that encourage collaboration and teamwork.
- Ability to adapt to changes and crisis
If the 2020 pandemic taught us anything, it’s that a sudden crisis can cause us to crumble if we’re not prepared. Coming out of the pandemic, 44% of investors claim to be more risk-averse compared to before and 39% prefer investments that are considered safer.
As a business owner, you have to be able to reassure potential investors that you are prepared for risks that can negatively affect the business. Clearing those out and having strategic plans laid out for potential threats can lessen the insecurities that investors may have.
- Forward-thinking mindset
Competition for scale-ups is more serious because their priorities shift to growing the business and gaining more market share. Investors will tend to assess if the business has a significant advantage against its rivals and a long-term plan on how it will expand.
With rapid changes in digital technology, aggressive innovative thinking is important to show that you have promising ideas for the business. While you are not necessarily expected to invent new products or services immediately, you are expected to anticipate growth trajectory and milestones to ensure that the business does not become obsolete or taken over by competitors.
- Concern for the social good
Businesses are encouraged to be a holistic force for profit, people, and planet as a push for sustainability. In a 2019 survey, more than 70% of people capable of investing state their interest in investments that positively impact society and the environment. If more sustainable products were available, they would likely invest more. Satisfying this demand and showing how one’s business can promote sustainability for the world can catch the attention of investors.
Scale-up business owners should be mindful that investors are not only concerned with the operational and financial technicalities now. They also care about the impact of their money in other aspects outside financial growth, so businesses with transformative values and management matter.
Making your business more attractive to investors means more than just showing good numbers and a strong strategic plan, it’s a 360-board and company effort that will show just how much potential your business has, ultimately answering the question — why would investors put their faith and money in you?
