5 Ways to Demonstrate to Investors Your Startup Is Prepared for a Rainy Day

StartupBeat Team
By StartupBeat Team December 20, 2022

This article is authored by Rachel Jenkins, Customer Success Managing Director at Founder Shield.

Rainy days seem to arrive at the most inconvenient times — on a beach vacation, during a family picnic, or on the day of a brand’s long-awaited grand opening. Only those of us leading a fast-growing startup know that the term “rainy day” isn’t about literal rain pouring from heavy gray clouds. Instead, this term speaks of unforeseen challenges startups often face, swaying investors from “making it rain.”

This post reviews five ways your startup can display resilience and preparedness, proving to investors that your team and product can handle any storm that comes your way.

1. Display Grit and Resilience in Everyday Operations 

Startup investors consider various perspectives, from 30,000 feet above your business to the nitty-gritty daily grind. Simply put, directors and officers who successfully navigate that daily grind savvily are the beau monde of the startup world. 

We don’t have to tell you how challenging entrepreneurship is; however, we can tout about how your everyday finesse impacts investors. It’s worth noting a handful of leadership qualities investors look for in prospective portfolio companies, such as:

  • Inside-out knowledge of your business and market
  • A clear understanding of market placement and fit
  • Team-building and talent acquisition skills
  • Fund requirement and management precision
  • Effective communication
  • Adaptability and problem-solving skills
  • Critical and strategic thinking abilities
  • Creativity and flexibility

These are the skills that make vision-driven leaders and show up in day-to-day operations. Also, such skills usually trickle down from everyday duties to the company’s panoramic landscape. 

For example, startups must now show a more efficient sales model and strong revenue retention to attract investors’ interest. These dynamics only happen when everyday operations run smoothly. Investors look for such efficiencies in the companies for which they soon might sign a fat check. Better yet, it proves to the check-signers that your startup can handle twists and turns on the path to profitability. 

2. Build a Diversified Management Team

Diversity remains a hot but tender topic. Yet, fostering diversity in your organization is necessary for success in the modern world. Diversity means hiring individuals of varying ages, ethnicities, genders, talents, experiences, etc. Several industries struggle with diversity issues, such as gender exclusivity in the insurance and finance industry. However, companies with diverse teams outperform other companies regularly. 

Rachel Jenkins/Linkedin

Apart from nurturing a diverse workforce — a quality that will attract investors — startups must also focus on diversification. This concept is different from diversity, mainly because it highlights the strength of your team rather than its diverse qualities. 

For example, cross-training is an excellent diversification strategy. But let’s rewind, rainy days for startups come in all forms, from the unexpected exit of valued employees to severe market dips. There will come a time when your leadership team must fill the gaps left by these rainy days, often attending to responsibilities that aren’t their forte. The same goes for your general workforce. 

When your startup can navigate the trials and challenges, investors will drool for that type of organization. Why? It proves that you can handle the bumps in the road, safeguarding your brand and investors’ well-intended capital investment.  

3. Create a Solid Disaster Recovery Plan 

There’s much to be said about an offensive operational plan to prove your validity to investors; however, being on the defense is another promising strategy. And unfortunately, it’s a must-have nowadays — especially in the cyber landscape. 

According to an IBM report, data breaches cost global companies an average of $4.35 million per incident in 2022, a 12.7% hike compared to the 2020 average of $3.86 million. Unsurprisingly, the global pandemic had plenty to do with this increase. The report revealed that 83% of the companies studied had experienced more than one data breach, and over 60% of those breaches resulted in price hikes being passed on to clients. 

Naturally, startups must attend to short- and long-term consequences after a cyberattack. Some aftermaths might involve business interruption, network security resolution, and cyber liability claims — sometimes morphing into costly directors and officers (D&O) litigation

Cleaning up company-wide messes is not something any founder wants to do, and neither do their investors. However, as Founder Shield’s General Manager Johnathan Selby explains, “It’s not if a cyberattack happens; it’s when.” Hence, the necessity of a disaster recovery plan. So, consider the following:

  • Are your systems up-to-date?
  • Do you have adequate cyber liability insurance?
  • Does your company foster a healthy cyber security culture with regular employee training?
  • Have you deployed a zero trust infrastructure?
  • Do hackers highly target your industry?
  • Are you using the cloud?
  • How advanced are your AI and automation systems?
  • Do you run current endpoint protection?

When you have a way to rebound from a disaster, investors will trust you with their capital because they know, without a doubt, you’ll find a way to multiply it.

4. Let Your Money Work for You

Rainy day funds are slightly different from emergency funds, another staple in the startup world. Having a Plan B portion in the company funds is a wise investment, yet, it’s not typically enough to impress investors. 

Instead, demonstrate to investors that your startup is prepared for a rainy day by letting your money work for you. Usually, this strategy relates to personal budgeting and investing — but company finances can also do some heavy lifting.

For example, what have you invested in? As mentioned above, consider updated technology and ongoing employee training a solid investment. Also, think about how well your products or services would fit in a shaky market. Would they stand the test of time? No doubt, your marketing team and powerful PR can help with this endeavor

Furthermore, consider how you’ve used capital in the past and examine your plans for using funds in the future. Investors rest easier knowing that you’ve demonstrated good stewardship already. They’re far more likely to open their wallets when you have a proven profitability plan.

Lastly, Selby has more advice for startups, “It’s not only about incoming money; it’s more about growth potential and history to back up your equity story.” 

5. Use Insurance as a Sword, Not Only a Shield 

Insurance often responds in what many consider worst-case scenarios, such as a data breach, employee theft, a product liability lawsuit, etc. And yes, insurance carriers typically have a well-suited policy for each scenario. This approach is a standard way for startups to use insurance as a sword, defensively and protectively.  

However, high-growth companies and startups with something to prove can utilize insurance plans more proactively. For example, purchasing various insurance policies (i.e., property, cyber liability, D&O coverage, etc.) often comes with prerequisites. Many insurers won’t write the policy unless the insured has met all its predetermined standards.

Why would a carrier underwrite a cyber liability policy for a startup with no cybersecurity, after all? That’s a relatively obvious example; however, the point remains that investors want portfolio companies to have insurance for more reasons than mere protection. 

This approach and the above strategies produce a fantastic trickle effect demonstrating to investors that your startup is ready to handle a rainy day. From an investor’s perspective, startups that purchase a cyber liability policy, for example, will likely also have data protection best practices in force. And this mindset holds true for several other insurance lines.

With a few well-thought-out strategies, your startup can impress and attract investors. Regardless of rainy days, these proven methods can potentially increase your startup’s value and profitability, strengthening the market overall.