A Good Story Isn't Enough to Get Your Startup Funded. Here's What Else You Need.
There is a growing sense among founders in the global tech startup scene that numbers have become more important than narratives. But here's why you need both to succeed.
There is a growing sense among founders in the global tech startup scene, and to some degree in the media, that numbers have become more important than narratives. Long gone are the days when a startup could raise millions of dollars on a unicorn valuation purely based on a good story and some wild predictions about the future of X.
The economic tides have turned for VC-backed startups. Higher interest rates mean that asset managers will favor less risky investments, which means that there will be less venture capital in the market — which, again, means that it's no longer enough to have a compelling story and a grandiose vision to get funded. Now you need the numbers and the raw data to back it up. You must be able to show a clear path to profitability to maintain a VC darling and raise new capital.
In my opinion, this is a rather simplistic view of the current economy. It presupposes that the low and negative interest rates made money so cheap that certain VCs would throw money at just about anyone with a well-designed pitch deck and a futuristic approach to the market. It might be true in some cases. Some companies — especially in crypto — raised money on unrealistic expectations, and some companies raised money on what seemed to be unrealistic valuations. But it wasn't the norm.
You need the numbers to support your story
The fact is that in nine out of 10 instances, you always needed the numbers to support your story. And what's equally important (and the essence of this post) is: You always need the story to convince your investors that those numbers are sustainable.
It's beyond doubt that the current market cycle forces startups to be able to present themselves as less of a risk. A series B investment will never be a really safe bet compared to treasury bonds or gold bars, but you at least want to make it seem safer. Showing sustainable growth rates and good unit economics is part of that, but so is having a compelling argument as to why you will stay relevant and win the market over the long term.
You can have impressive revenue and be super profitable with outdated technology, but that doesn't necessarily make you interesting to investors. A traditional German diesel car manufacturer can still be profitable with Tesla around. The question is, for how long? Knowing how to win the quarter is crucial, but to attract the funding, you also need to know how to win the market in five years. You must convince investors, the market and everyone around you that you are the future — not just a present grounded in the past.
With that said, we will probably witness a return to the real in the startup market. If you have raised money on a Web3 solution waiting for a problem to solve or some immature AI technology that doesn't really work yet, you might have a problem. You are simply too risky of an investment. However, that doesn't mean you have to chase immediate profitability at the expense of vision and innovative force.
Those things must go hand in hand. You must balance the ability to meet the immediate market demands with an ability to anticipate the market demand. To win the market in the medium and long term, you must educate the market and make it buy into your vision.
So, how do you do that?
First of all, you must invest in thought leadership. You must show the market that you are in-the-know, and that you are able to predict how it's going to develop. Investors and customers should have a feeling that you are the future — that you can adjust to future trends and maybe even shape them.
Secondly, you must invest in long-term product development. It's tempting to develop features based on current demands and whatever makes you reach next month's targets. Sales requested a new button, because it can make them close two deals in their pipeline. Okay, fine. But how is that going to impact your product in the long term? Now you have a button nobody uses, and you spent developer resources that could have been spent on developing something innovative that could have ensured your growth six months from now.
And last but not least, you must stick to the vision that enabled you to raise funds in the first place. Visions and futuristic bets are the true attraction of tech startups. This is the X factor that gives us an edge over other kinds of companies. You can't throw that away. Startups can have a tendency to zigzag their way through the market. I believe in sticking to a steady path and finding the middle of the road. That involves sticking to your vision.
We are in a challenging phase right now. Most of us have never experienced real downturns in tech, so it requires full force to overcome it. Narrative won't get us there alone. But neither will the numbers. We need both. The narrative is the key, but we need the numbers to support it.
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