Without funding, the majority of startups will not exist. The amount of money needed to take a startup to profitability is usually well beyond the capacity of founders and their friends and family to finance.
A startup means a company that is built to grow fast. Fast growing companies almost always need to burn capital to sustain their growth prior to achieving profitability. A few startup companies do successfully bootstrap (self-fund) themselves, but they are the exception.
Investors write checks when they understand what the company is selling, when they are persuaded that the management team can realize its vision, and that the opportunity described is real and scalable.
The management team is the first point investors look at. The fit between investors and management team is not sufficient; we need a team with convincing track record, a board of directors / advisory board with diversified experience and management structures allowing for quick scale-up.
To persuade investors, we usually need a product they can see, use, and touch, a service they can understand. Ideally, we should have a strong IP protection with a clear USP and a business model with a high degree of scalability and with recurring revenues.
The investors will want to see that there is a market. The main reason why startups fail is no market need. A strong market growth with diversified customer base and a manageable competitive situation is certainly a key point to succeed in an equity fundraising. Therefore, the fast growing company should raise money when they have figured out what the market opportunity is and who the customer is, and when they have delivered a product that matches their needs and is being adopted at an interestingly rapid rate.
In the UBS Growth Advisory activity, we put in place a proven fundraising process where we give startup access to our bank’s extensive investor network. Before to send investment opportunities, we analyze in detail the investment case with the criteria mentioned above to assess the attractiveness for potential investors.
Philippe Schlegel
UBS Growth Advisory