Most new business ventures will need to secure new funding at some point, unless they have a rich Aunt or Uncle with money to burn.
There is always trepidation when it comes to finding a suitable funder and there is always risk involved. But if a business wants to grow, launch new products or scale, it needs external funding that won’t destroy your existing operations or cash flow.
A clear goal and strategy for the funding is the principal starting point. There has to be a proven case for the requirement of the capital and its deployment within the business aimed at clear objectives.
Securing funding is a pivotal milestone for startups, but those seeking funding need to be aware that investors are discerning, and are mostly seeking businesses with high potential for returns and long term prospects.
Funders consistently prioritize three key elements when evaluating startups:
- A compelling value proposition,
- Proven market traction,
- A capable management team.
By strategically addressing these, startups can position themselves as irresistible opportunities. Here’s how to meet these requirements and stand out in the competitive funding landscape.
Compelling Value Proposition
Funders want a clear, differentiated idea that solves a real problem. A strong value proposition articulates why the startup exists, who it serves, and how it’s better than existing solutions.
Investors are drawn to startups addressing sizable markets with innovative approaches, whether it’s a new technology or a fresh take on an old problem.
For instance, African fintech Flutterwave won funding by simplifying digital payments in a fragmented market, proving demand for a unified platform.
Tip On How to Show Value:
- Businesses should refine their pitch for funding to focus on the problem with a solution fit.
- Conduct market research to quantify the pain point—cite data like market size or customer surveys.
- Develop a succinct and punchy elevator pitch, ideally under 30 seconds, that conveys the unique benefit.
- Test the idea with potential users to validate demand, ensuring the proposition resonates.
- Avoid jargon; clarity wins. A deck with visuals or prototypes can further illustrate the solution’s potential, making it tangible for investors.
Proven Traction
Traction is evidence that the startup is gaining momentum, whether through revenue, market share, subscribers, users, or partnerships.
Funders want data showing market validation—proof that customers want the product. Early traction, like Buffer’s 55,000 users in 2011, can outweigh a polished pitch.
Even pre-revenue startups can demonstrate traction via beta testers, waitlists, or pilot programs. In Africa, M-KOPA’s 3 million households served showcased scalability, securing $75 million in 2022.
Tips On How to Show Traction:
- Focus on measurable metrics. Track key performance indicators in your business such as; customer acquisition, retention, or revenue growth.
- If in a pre-revenue stage, highlight softer traction—letters of intent, social media engagement, or user feedback.
- Be transparent about numbers; investors value honesty over exaggeration.
- Present data visually in pitch decks—charts or graphs make trends clear. If traction is limited, emphasize a roadmap showing how funding will accelerate growth, tying milestones to investment needs.
- Regularly engage early adopters to refine the product and build a story of progress.
Capable Management Team
Investors bet on people as much as ideas. In proving you have a capable team, you need to demonstrate the skills, experience, resilience, and vision to execute the plan.
Funders look for complementary expertise—technical, operational, or market knowledge—and a track record of problem-solving.
Airbnb’s founders leveraged their design backgrounds to build trust in their initial funding pitch. Similarly, founders with domain experience, like those at Nigerian startup Kuda, reassured investors of their fintech competence.
Tips On How to Show Management Capability:
- Highlight the team’s strengths in pitches and decks.
- Include concise bios showcasing relevant experience, past successes, or even lessons from failures.
- If gaps exist, acknowledge them and outline plans to fill them, such as hiring advisors or key roles post-funding.
- Demonstrate cohesion—investors favour teams that communicate well and share a unified vision.
- Engage in networking events or accelerators to build credibility and gain endorsements from mentors, which can bolster investor confidence.
While there are a vast number of other possible options to present to potential funders the best advice is to keep the business case and any pitch concise and focussed on a few key business aspects and rather allow for questions from funders to fill any gaps that they might see. Prepare well to cover these information requests as broadly as possible. If unable to supply the information be honest about it and offer to follow-up with this information.
