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Date25 Mar 2022
AuthorWil Hamory

How to De-Risk Financial Sourcing to Attract Investors

Founder Shield x Rho PT2
March 25, 2022
4 min read
Wil Hamory, Vice President
Will HamoryVice President at Founder Shield

Attracting quality investors is a top priority for many high-growth companies. Some founders have networked fervently in pursuit of this goal. And while some leaders achieve financial backing without any significant hiccups, others face waves of challenges. After all, embarking on a Series A, B, or C round is more than presenting a flashy roadshow. 

Still, is it possible to take some of the risks out of financial sourcing? We think it is.

Rho, a leader in corporate cash and spend management solutions, and Founder Shield, a tech-enabled commercial insurance broker, teamed up to create a three-part Founding to Funding series highlighting key elements of de-risking the traditional VC-backed journey. This second post of the series talks about making your business its “best self” by disarming some of the most significant (and unattractive) risks. Let’s dive in!

Refine Your Business Narrative 

A business story or narrative that compels investors to support your company financially is a healthy mix of storytelling and hard-earned facts. It’s different from merely telling the story of your business. Remember, most people enjoy a good Cinderella story — but that won’t cut it this time. 

Instead, tell the story of your business with financial proof binding the entire narrative together. Investors live for numbers. Sure, they might listen as you talk about your humble beginnings, but they will expect to hear about your year-over-year growth, profitability, KPIs, sales performance, etc. 

In other words, this story must bridge the gap between your financial history and your growth plans. If it doesn’t, investors might view your story as “fluffy” and your company as too big of a gamble. An excellent place to start developing your business story is in your financial records. Many companies align with Rho to automate and streamline their corporate finances on one platform, making reconciliation cleaner and easier at the end of each month.

According to Forbes, your sale and valuation depend heavily on your numbers. So, make sure your financial records are tidy, and make friends with the idea of auditing, or at least reviewing three years of financials before a funding round. Then, weave this information into your storyline. With Rho, you can gain visibility into your business's entire financial picture, from your Treasury and checking Accounts, all the way to your corporate cards and bill pay. Rho streamlines this process. The one-two punch impact of a compelling and fact-filled narrative is almost too hard to resist, even for investors.

Create a Detailed Plan

A viable plan of action is something that investors can sink their teeth into. In addition to writing a riveting narrative, investors want to know how their money will be used if they choose to invest. Rather than overloading investors with information about your products or services, offer them the vitals and outline your plans.

As mentioned earlier, knowing where to spend your money is critical. This information alone could make or break your investor relationships, mainly because it speaks to how risky you are to support. 

That said, investors are thrilled to see companies eliminate excess costs. They’re ecstatic to hear how you’ll grow your business or what your eventual exit strategy will be. These juicy details tantalize hungry investors and prevent issues from surfacing in the future. So, keep the goals achievable and the path clear.

Focus on Your Management Team 

Very few things matter more or as much as your financial history in a funding round. However, management teams are an exception. The group of individuals surrounding you and leading your workforce plays a vital role in your success. Most investors have been around the block once or twice before, so they know these dynamics well. 

As a result, investors will be curious about your company’s leadership. Will your fellow leaders represent your brand sufficiently? There’s a good chance that you’re the heart of the operation. But can your business carry on without your constant presence? 

According to Small Business, five qualities set good management apart from the rest, including:

    01
  1. Showing appreciation of employees

  2. 02
  3. Providing necessary resources for employees to complete tasks

  4. 03
  5. Staying abreast of industry trends and share this information generously 

  6. 04
  7. Listening to employees and makes informed decisions

  8. 05
  9. Leading effectively by delegating tasks according to employee’s strengths

If your dream team falls short of its mark, consider tightening up the requirements. In addition to motivating your entire workforce, your management team must also have a unified vision of the company’s mission. Armed with experience and industry knowledge, let your management team be an asset to your financial sourcing goals and not a liability. 

Protect Your Executives

Investors often want to fill a spot on your Board when they choose to invest in your company during a funding round. And for plenty of good reasons, too! However, no investor will consider this arrangement without directors and officers (D&O) insurance in place.

D&O litigation has been at record highs for several years, and other commercial lines have begun to fade into the D&O space. As a result, D&O and cyber litigation have crossed each other’s paths many times recently. For example, in our last post, we reviewed some of the best but commonly overlooked cybersecurity practices, and many involved company leaders. Strangely enough, executives now shoulder the responsibility of cybersecurity more than ever before.

Aside from cyber concerns, your executives face their share of scrutiny from shareholders, even as a private company. Plus, with vaccine mandates and remote work complicating the private sector, employment practices liability issues are rising alongside D&O and cyber litigation. The bottom line is that your directors and officers run the gauntlet every day.

Despite the increasing intensity of litigation, it’s not all doom and gloom for your executives or company. Sure, obstacles are in the way, but bypassing costly litigation isn’t impossible. Start by working with a trusted commercial insurance broker well-versed in your industry. They’ll help you identify any gaps in your coverage and mitigate potential risks. 

Sharpening these few checklist items will help your financial sourcing goals become more achievable. And have fun with it! Now is your time to write your story and strengthen your brand — and your future.

About the Author

Wil Hamory is a Vice President at Founder Shield. Wil aims to match the pace of business of Founder Shield’s innovative clientele to provide tailored insurance solutions at scale. He has been involved in various emerging industries and assisted many of Founder Shield’s On-Demand and FinTech clients to meet legal requirements while positioning them to expand rapidly.