The Role of a Strategic Narrative in Early-Stage Funding
How a strategic narrative increases your chances of securing funding
My nightly routine usually involves me seeking some form of entertainment before going to sleep. And it was during one of such moments that I came across a video that captured my attention.
In this video, a professor gives instructions to two of his students. And the instruction was for both students to stand opposite one another, whilst he placed a ball in the middle. Then he turns to the first student and asks what the color of the ball was, and the student responds without any hesitation “black”. The second student surprised yells “white,” and proceeded to accuse the first student of just being difficult.
This little disagreement led to a banter until the professor finally intervened. The professor takes the ball and reveals both sides of the ball, turned out the ball was 50% black and 50% white.
As a founder, It’s pretty tempting to assume, like the students in our story, that the world of an investor is more forgiving than yours. Choosing what business to invest in is a big choice for investors as they have a lot riding on the decisions they make.
Additionally, investors have to sift through an overwhelming amount of information and data points, especially in today’s fiercely competitive capital market in order to make a decision.
What the story of the two students and the ball teaches us as founders who are fundraising, is to take a step back and try to see the world of an investor through the eye of the investor.
Let’s go on to understanding how a strategic narrative can increase your chances of getting funded especially now that we’ve had the opportunity to share an understanding of the overwhelming world of an investor.
1. It simplifies the investor’s decision-making process
Ever heard of the term narrative theory? It is a study currently enjoying a major burgeoning of interest throughout the world. The study makes us understand that narratives help us organize, structure, and make sense of an already complex world.
If humans ever had super-human abilities, then it is our ability to recognize patterns. This ability of ours is closely linked to our ability to understand and make sense of narratives. Think of this as our brains using mental shortcuts as a way to conserve energy during the decision-making process. When we encounter any information, our brains naturally scan for patterns and connections in the information being presented, and we use those patterns to help us understand and also recall the information when it is needed.
The investor’s world is replete with so many data points and numbers, which makes their world quite complex and overwhelming. Investors don’t always have the mental bandwidth to sift through a complex or unclear business message. If they don’t get it, then they will consider it a risk. In a world replete with data points and numbers, narratives can prove invaluable. By presenting a coherent and captivating story structure, narratives can provide investors with a clear and compelling explanation of the business opportunity, its value proposition, and most importantly “why” you care so much about solving this problem. Think of narratives as a frame that provides the context for your data, research, financials, and your conviction.
2. Gives you a competitive edge during fundraising
Today’s business world is highly competitive. Raising funds in 2016 is way different from raising in 2023. Globalization has had a significant impact on competition for capital from investors. With the increasing global interconnectedness of markets, more startups are seeking capital from investors which means, investors have more opportunities to choose from. Globalization has also led to the proliferation of cheaper products and services, which can make it more difficult for startups to differentiate themselves based on price.
Technological advancements and the continuous democratizing of information have lowered the barriers to entry for every market, directly increasing the competition in the capital markets.
Don’t get me wrong, it is not all doom and gloom. There are more avenues to access capital than ever before. The problem is that the mediums of differentiation have only become more constrained with the rise in competition. The stiffer competition is what makes it harder for companies to stand out and secure the funding they require to keep the lights on.
One underused point of differentiation for startups to gain a competitive advantage is through the use of a differentiated narrative. In simpler terms, a unique perspective. I once came across an interesting quote; “Art is often created through the reimagining of ordinary things”. Having a unique perspective is not all about the next big tech innovation, it can be as simple as reimagining something ordinary in your industry.
In a market full of noise, a differentiated narrative can be your best strategy to cut through the noise. Let’s take an insanely competitive industry like “Sportswear” with big players like; Nike, Adidas, Puma, and Rebook. GoEqual didn’t try to sell cheaper footwear or invent AI-powered footwear. Instead, they built a differentiated narrative.
3. Gives your data life and meaning
Data isn’t compelling, or ownable in itself. Imagine you and another founder seeking investment for your startups, which happen to both be in the same market space. Both of you have access to data showing the size and growth of your market, as well as data on customer demographics. It is very likely that both of you will present this data to investors in an effort to demonstrate the potential of your businesses. So, the chances that your investors have come across those numbers before are very high.
It’s situations like these that make it challenging for startups to stand out to investors based solely on data points. In this case, it becomes even more important for you as a founder to build a strategic narrative that breathes life into your data by connecting the data points to a larger story about the business’s opportunity and vision — its not what the data says, but what the data represents.
Lourdes was the founder of an online marketplace that connected small farmers with local consumers in Nigeria. And during her meeting with a VC, she presented data showing the size of the local food market, which happened to be growing at a rapid pace. The data also showed that there was a growing demand for locally-sourced food and that consumers were willing to pay a premium for it.
While the data seemed impressive, Lourdes goes ahead to use the data to illustrate the overall opportunity for the business and how it fits within the larger narrative of her business’s vision. She goes on to explain how the online marketplace not only provides a valuable service to small farmers and consumers but also supports the local economy and promotes sustainability, which was what she was all about.
What’s Lourdes’s larger narrative?
To secure the future of smaller communities, we should prioritize localization over globalization
One key thing to note when using data is to first understand that it is not just about the data itself, but more importantly about what it represents.
4. Can act as a signal for potential success to investors
Your ability to persuade and rally key stakeholders behind your vision or novel way of thinking will be one of your biggest flex as a founder, especially to investors.
Building a business is high stakes, with a lot of uncertainty. It is pretty difficult to predict the future and make informed decisions based on speculations. That’s why we often fall back on patterns from the past to guide our decision-making moving forward. Investors are not perfect and are humans with dreams and goals as well. Most of their decisions are not governed by facts alone, but also by patterns from their past mistakes and wins.
One pattern that has proven consistent in the business world is the use of a differentiated narrative to attract and enroll people into a shared vision. Exemplary leaders, such as Steve Jobs of Apple, Phil Knight of Nike, and Blake Mycoskie of TOM’s, have helped reinforce the pattern that a differentiated narrative can inspire and keep people engaged in a business.
Having a differentiated narrative can act as a signal to investors that you have the ability to persuade and enroll outstanding individuals to help you realize your vision. Especially in today’s highly competitive talent landscape, when an organization’s success often depends on its ability to attract and keep top talent.
Fundraising is like playing the game of life, you either win by playing the odds in your favour through the stacking of advantages or you wait on the “lady luck” (for those who must have read “The Richest Man in Babylon :))
There is a reason we fundraise for our startups, deepen our knowledge by reading and listening, hire coaches and advisors that have walked the path, or stay up all night pondering on how to execute our ideas.
Either conscious or not, we do all this to stack the odds in our favour.
Will a strategic narrative in itself get you funded? The answer is no, but it’s one of the ways we stack the odds in our favour.
About Wilfred Alfred:
I help founders and VCs build differentiated investment narratives and strategic brands so they can be heard by the stakeholders that matter most. Connect with me on LinkedIn: Wilfred Alfred
