How to Communicate Your Plans for Funding a Product Roadmap to Investors
Investors like to know how you’re going to use their money. Before you can start explaining your spending strategy to them, you and your team need to decide what you’re going to do with their investment and why. Marcy Ewald, Labs mentor and COO at ThinkNimble, hosted a Labs session all about funding a product roadmap. With the help of her ThinkNimble cofounders, she was able to explain their plan to investors when they were raising both their angel round and their series A for their previous startup, Aspire.
Aspire’s story: “One of the biggest funding mistakes we made was in the angel round,” Ewald says. “We basically told investors, ‘We don’t really know what we’ll use the money for, but join us on this ride and we’ll see what happens.’” They got investors based on their team, “but we weren’t clear on what our goal outcomes were. We grew, but maybe not as fast as we or the investors hoped for, and we weren’t able to tell them why that was happening. As a result, we had some dissatisfied investors,” Ewald says.
“If we had been more intentional about what we were trying to do and what we were testing with that funding round, we would have been able to head into a new round faster because we would have known whether or not we were successful,” Ewald says. “It would have been a clear, ‘Yes, this test worked,’ or ‘No, this test didn’t work so we need to scrap it and move on.’”
The lesson: You and your team have to know what your goals are for the money that you’re raising, and what actions that funding will enable you to take. That knowledge not only helps you set expectations and create clear lines of communication with investors, it also helps you understand what you’re focusing on so you can establish clear internal signals for success and failure. (Read more about what founders should know before raising and angel round.)
Aspire’s story: “We had an investor ask us in the initial stages of our series A funding round, “What happens if you raise $500,000 instead of $750,000?’ and we didn't have a great answer,” Ewald says. “We’d just decided this was the amount of money we needed to stay alive for two years or whatever time frame we were looking at.”
“It was a great moment for us to look at why we were trying to build the features we were trying to build, what it would look like if we only accomplished a portion of our funding goals, and how that would delay our growth as a team,” Ewald says.
The lesson: Everyone assumes they’ll have an answer if they’re asked what their contingency plan is if they don’t raise their target amount of capital, “but most people don’t” Ewald says. And you need to have an answer.
Specificity is your friend here. You don’t want to give answers like “I’d hire more people,” Ewald says. “Diving into the specifics of what those people would be doing proves that you know how to run this business, not just spend an investor’s money.”
“If you can, break your product down into smaller goals,” Ewald says. Then ask yourself questions like: What does each of those goals take to complete? How many engineers and engineering hours do you need? How can you speed up or slow down your growth path based on the amount of money that you’re raising?
With that information at the ready, you can say: “If I got $200,000 tomorrow, here are the things that I would do with that cash. And if I got $500,000 tomorrow, here’s what I would do differently,” Ewald says. “That delta, or change between the growth patterns, is what tells an investor that you know exactly what you’ll do with their money and where that money will be put to work for maximum impact.”
Aspire’s story: The company, which at the time was “creating software that helped employers provide perks and benefits to their employees that were highly targeted to their needs,” Ewald says, was growing. They wanted to take their model and plug it into other cities that were similar in size to Washington, D.C., “then do it at a larger scale. That was the hypothesis we were raising the round of funding around,” Ewald says.
“From there, we went to investors and said, ‘We can find five to six clients who can give us $50,000 apiece in monthly revenue. Then we can set up a vendor network that we can get discounts from and create a larger margin. And if we can create a larger margin, we can increase our efficiency as a team. Those are our three main goals,” Ewald says. “And given those goals, these are the feature sets we’re looking to build in the next couple of years, and here’s how we make that happen.”
“We took each of those growth plans and created different categories of things we could do to make our product better,” Ewald says. “Processing payments, automating feedback, etc. We put all of that into a one-year roadmap and showed investors exactly which features we would have to be able to build to grow at the pace we promised.” The team presented this visually in a way that allowed investors to see what amount of funding meant which projects moving forward, which projects would have to be cut if funding goals weren’t reached, and how that would affect growth.
The lesson: “Investors really like to understand why you need their money and why you need the amount you say you need, as opposed to them saying, ‘Here’s a couple hundred thousand dollars. We’ll see what happens,’” Ewald says. “[Investors] loved that we were spending money on product,” Ewald says, and that fact was clear to them from the beginning thanks to the team’s efforts to communicate that clearly and visually. (Learn more about what should be included on each slide of your pitch deck, including your product roadmap.)
Aspire’s story: The team was prepared to both talk through and provide collateral explaining the details of their funding roadmap, but they kept things simple and concise in their investor deck. “It went through revenue efficiency and defensibility, and showed how we were going to create value over time,” Ewald says. “An investor would see that part of our deck and say ‘Okay, I see why you’re seeking money for this type of technical hire’ and how quickly we could make things happen based on the total hires we were able to make. From there, we could go into more in-depth conversations as things progressed.”
The lesson: Be ready to go into the details of your funding roadmap and how exactly you’ll put investors money to use and why, but keep things high-level in the investor deck that you both send out over email and share in person. Interested investors will ask questions and you can dive into the minutia from there.
This post is based on content from a WeWork Labs programming session.
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