This is a guest post written by Markko Vaarnas from Takeoff Partners. Photo: Shutterstock
A little more than a year ago, I sold our company and became an investor and advisor for start-ups and growth companies in the B2B software and services space. For me it meant a major change of perspective, as instead of raising finance for our own company, I started to spend my time with evaluating business plans of others.
At the point of having screened 100+ companies and spent more time with over 15 of them, I wanted to share my view on the most critical success factors in seeking finance for internationalization. Below are the three things that typically make or break a financing deal. Do you agree or have additional thoughts?
1. Have a compelling plan
When seeking finance, you will have to be able to prove, with your plan, that you’ve done your homework. “We think” is not good enough. The problem that you are addressing in the first place needs to be substantial enough, and your solution to the problem needs to be clearly better than the existing solutions. And ‘better’ refers to the customer’s point of view – not your own subjective thinking.
Understand the facts and figures of your targeted markets and be prepared to drill down into details if needed. This is not to say the Investor Deck should be filled with details; It should communicate the essence of your plan visually and effectively, in an easy to digest format.
What else to include in the plan except for insights on customers, market dynamics and competition? You should have a validated go-to-market model, in other words a repeatable way of entering a market that scales over time. This may involve e.g. automated sales to small companies, or a proven channel model, or perhaps both. And if your products are complex to sell and the typical deal size is large, don’t expect someone to do the sales on your behalf.
2. Demonstrate traction to prove the plan
So why would someone buy your product? Investors will seek evidence of traction, and you should be able to provide that. Your monthly recurring revenue and market penetration should show strong growth at home, and preferably you can already demonstrate the first successes overseas.
You will need detailed metrics about the history and predictions related to a) How much it costs to acquire a customer (CAC=Customer Acquisition Cost), and b) What the lifetime value of a customer is (CLV=Customer Lifetime Value). If your go-to-market model is based on channel sales, you will need to know how much it costs to acquire a channel partner, how much revenue they will likely bring in, and what the lifetime value of a channel partner is estimated at.
Not easy, however traction is typically the factor that most directly impacts the valuation of your company.
3. Have a team that can execute the plan
Everything you’ve heard about the priority of the top notch team is, well, true. And this doesn’t mean the operative team only but also the forces in the background. Naturally, the operative team will do most of the hard work. Ideally, it’s a combination of leaders with relevant international experience, as well as young and hungry doers. Everyone should be resilient; More often than not, the plan with which the finance is sought will evolve over time.
The Board, too should be knowledgeable and energized to direct the company towards its goals. It may also make sense to have an Advisory Board, or at least a group of advisors that will bring specific expertise in areas where the operative team lacks in-depth knowledge.
As the company seeks growth, investors will also want to see a recruitment plan to address the expected HR requirements of international expansion. This is particularly important since hiring new people will mostly happen overseas, which always increases risks. Well-positioned advisors with their networks may prove highly valuable in finding the right people as the recruitment needs actualize.
Set the terms of your financing round
To summarize, having two out of three of the above factors in a good shape may land you the financing deal you’re looking for to support your company in growing abroad. However, have all three rock-solid, and you will be able to set the terms for your finance round. Therefore, rather than rushing into a finance round unequipped, it certainly pays to optimize these three factors first and then have investors compete over your case!
This is a guest post written by Markko Vaarnas from Takeoff Partners, a company providing finance and advisory to internationalizing B2B software and service companies.
More tips for raising finance will be shared at Finance Board event on March 10th, organized by Boardman2020 in Helsinki. The event includes Reverse Pitching session hosted by ArcticStartup, where finance providers – such as for example FiBAN, Finnvera, Nasdaq, Finpro and Open Ocean Capital – will be pitching to entrepreneurs.