By Mike Whitmire, CEO and co-founder of FloQast, CPA
Over the past few years, we’ve seen investing in startups fall dramatically. A report from Crunchbase found that, in the last quarter of 2022, investments in North American startups fell 63%. This drop is due to several factors, like an uncertain economic environment, plummeting tech stocks, layoffs in the tech industry, and more.
Despite these numbers, startups are still a smart investing opportunity for venture capitalists. When supported by the right individuals, startups have the potential to revolutionize industries and spark economic growth.
As a CEO and co-founder of a tech startup that has scaled to become a unicorn, I’m comfortable (now) admitting that I’ve been turned down by hundreds of investors. But in our 10+ years as a company, we’ve found some incredible ones to partner with, as well. Here’s what it takes to attract investors, even in the midst of a challenging economic environment:
1. Utilize Your Value Prop to Secure and Build Connections
Investors are looking to put their money into solutions that solve challenging problems they’re familiar with. For example, during FloQast’s formative years, the investors with whom we saw the greatest success were those who had experienced the struggles of not getting the numbers and data they needed from accounting in time. By effectively communicating the value proposition, market opportunity, and growth potential of the startup, you can capture investor interest and secure the necessary resources to fuel growth and scale their venture.
Additionally, when you do connect with investors, it’s critical to forge strong relationships with them as their networks and expertise can be immensely valuable for startups. These relationships can also blossom into incredible strategic partnerships, further accelerating the startup's trajectory toward success. This remains true regardless if an investor decides to join the team or not. Even if a company declines to invest, maintaining a positive relationship with them can still lead to ample opportunities.
Remember: It’s not just the money they’re giving you. It’s also their expertise, connections, and clout that can help the business move forward.
2. Establish an Organizational North Star
Developing and implementing an organizational north star goal or mission is not only critical for strategically propelling the company forward, but it can also help attract investors. It provides a clear vision and direction for company growth and demonstrates long-term viability. Particularly for startups in the earliest stages, a north star can help startups align efforts and stay focused amidst changing trends and tumultuous markets.
In investors' eyes, a strategic, organizational northstar can showcase the startup's commitment to a larger purpose beyond immediate gains and instill confidence regarding the team's dedication and ability. It can also prove as a key differentiator with competitors.
3. Build the Best Teams
Not only do you need the right leadership to appeal to investors, but you also need a strong team. Investors are looking for leaders who are driven and hold a clear strategic direction for the company. They want to know that their money is in good hands and that the person in charge is determined, adaptable, and has a strong track record of execution.
However, good leadership also needs strong individuals backing them up. Investors are looking for teams of employees who are ready and eager to be part of the startup lifecycle — this means going through multiple funding rounds and being prepared for constant shifts in the workplace as the company grows and changes.
4. Showcase Your Passion
Lastly, but just as importantly, investors want to see that you truly believe in what you’re doing. Your enthusiasm and belief in your product or service can instill confidence in potential investors, convincing them of your dedication and drive to succeed against all odds. Additionally, your passion stands to be contagious and inspire your team, customers, and stakeholders to create a ripple effect that propels your startup forward, even in the face of challenges.
A Bright Future Ahead
Despite the recent decline in startup investments, the allure of startups as lucrative investment opportunities persists. By honing in on strategies to appeal to investors — such as cultivating strong relationships — prioritizing compliance and internal controls, building high-performing teams, and showcasing genuine passion and a clear vision, startups can position themselves for success.
As someone who has navigated the tumultuous waters of startup funding, these four tips are the key to mastering investor appeal and, ultimately, paving the way for a groundbreaking future.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Mike Whitmire
As CEO and Co-Founder, Mike Whitmire leads FloQast’s corporate vision, strategy, and execution. Prior to founding FloQast, he managed the accounting team at Cornerstone OnDemand, a SaaS company in Los Angeles.
Read Mike's Bio