Ted Blosser is CEO and co-founder of WorkRampan all-in-one platform that enables learning as a growth engine for today’s top organizations.
At the beginning of 2022, the tech market was significantly affected when the war in Ukraine started, just as the world was dealing with the rollercoaster of the global pandemic. Big tech investors became increasingly concerned about the economic growth prospects, leading some to shy away from risky opportunities that could be sensitive to rising interest rates. In this environment, it is not only problematic to raise money to fund a growing startup; it’s a tough battle.
At my company, however, we wanted to close our Series C financing in the first quarter of this year, and we succeeded in March. We were not deterred by unfriendly market conditions.
How did we do it? Well, a down market isn’t necessarily a terrible thing, and savvy investors know that the market will inevitably turn. Still, a different approach is now needed to pitching prospects, especially when thousands of Software-as-a-Service startups are clamoring to tap the same resources. Here are three tactics we used to stand out from the crowd and close quickly.
Focus on filling the pipeline.
In a down market, high volume is the name of the game as your close volume will be lower. Conventional wisdom dictates that you first build relationships and target three to five key investors, then hope they close. But if you see a storm coming, I recommend going against the grain and building a “pipeline” of VCs. This approach is similar to building a robust sales pipeline: If you want to make the most money at the end of the quarter, you need to have the largest pipeline at the beginning of the quarter.
To build our business pipeline, we pitched 51 companies in four weeks and held more than 150 meetings in back-to-back video conferencing – a feat only possible in a remote/hybrid world. While a handful of those meetings were face-to-face, we soon learned that face-to-face meeting wasn’t high leverage. During these meetings, be sure to ask five to ten questions to determine the right investor-market match. This will help you focus on only the serious contenders. I found that this approach also allowed my team to drive demand in a short amount of time, which gave us the best chance of success.
As a learning platform, the biggest objection we had to overcome was that business learning is not considered “intriguing” as, say, the new breakthrough solution of financial technology or innovation in artificial intelligence. I found that educating VCs about their importance to organizational success is essential. Once you can convince a VC to believe in your category, they are probably ready to start negotiations.
Optimize for closing, not valuation.
In previous years, many founders were focused on touting high corporate valuations in headlines. They wanted to prove that their company was extremely valuable. But revenue multiples can’t be right. For example, if a company making $10 million receives a billion dollar valuation and public markets fall, it can see a significant drop in valuation in just a few months.
We decided to follow some wise advice: choose a reputable company you feel comfortable with and get the deal off the table quickly. Focus on the close, not the vanity stats. If you let the market determine your value, you don’t have to worry about the valuation; you can focus on closing your round and optimizing for the close at a fair price. Instead of dictating to potential investors what you want, let the companies dictate what she want.
For example, my company received multiple termsheets, all priced less than 15% of each other, so we knew the pricing was on track. That made it easy to focus on closing speed and leveraging investor interests against each other.
Stress efficiency in the pro forma model.
Before the recession, VCs were focused on growth. They would look at sales to see the growth potential. But I’ve noticed that due to the current market conditions, many investors are now more interested in efficiency. They are looking for efficient growth; for every dollar you bring in, how much are you going to spend? This is a complete reversal from a more traditional approach where you would build a model based on becoming cash flow positive or reaching a certain level of growth at any cost. That’s why we’ve emphasized efficiency in our pro forma statements, with an emphasis on burn ratio and gross margin as our key metrics.
In today’s market, I believe it’s important to raise funding with a longer runway in mind. Since you are less likely to burn money to achieve rapid growth, consider delaying a second round for 36 to 48 months. Expanding your mindset — and your money — is a smart approach, especially since you can’t predict how long the downturn will last.
While funding may be a bit scarcer today than in previous years, technology isn’t going anywhere. Realistic valuations will force companies to be more innovative, smarter and more strategic – and that’s a good thing.
Aside from our unique approach to fundraising, my company was able to raise funding during a recession because of our long-term view of the corporate learning category. Investors are visionaries and want to know what to expect from their investments. Sure, they want to see a quick return on investment, but if you have a strong vision for the future of your business and how your products and services will advance the market segment in the long run, it will be much easier for your investors to get ahead of themselves. to win. .