How to grow your scaleup in uncertain times (or how to beat competitors over time)

At the moment it is more difficult than ever to navigate in the right direction if you want to continue to scale up your company. The playing field has changed and what was right yesterday may no longer apply. But if you play your cards right, you also have a good chance of using the opportunities that arise in relation to competitors.

Continued success in today’s economic climate hinges on certain key elements. According to Maria Smith, Growth Banker at Nordea Startup & Growth, there are growing demands to show profitability. This is also in line with the bank’s demand where underlying profitability has always been a focal point.   

"We need to see that the company really has the capacity to become profitable and the ability to make repayments. For a fast growing company, the cost side often needs to be reviewed in order for it to sustain a healthy financial situation. We see that our demands are currently closer to the investment side," says Maria Smith.

Important key figures and cost transparency

The fact that it’s more difficult for companies to raise capital today than just six months ago – when growth was the only strong focal point – is confirmed by both Maria Smith and Erik Lindblad, who is partner and CEO of Zenith Venture Capital. 

“Focus on finding the right investors for you. If your company is still in an early startup phase before you launch your product, it’s a good idea to turn to business angels – preferably someone linked to the industry. They don't require such a comprehensive process and could help open strategical doors for you along the way,” says Erik Lindblad.

If you have reached a later stage of your business journey and need help from a bank to invest, it’s important that you can show how you plan to use incoming capital and not least meet certain key figures. 

“We’re in a situation where you as a business owner need to be very specific about how the money will contribute to the company’s profitability. You also need be transparent about costs and be able to show which costs are linked to driving growth and which costs are linked to running the business,” says Maria Smith.

Burn multiple and “fancy SaaS metrics”

According to Erik Lindblad, the burn multiple is one of the key metrics that has received a lot of extra focus lately in connection with raising capital. It measures how much capital a startup is burning in order to generate new revenue. The burn multiple should be as low as possible, but it may vary for various reasons depending on the stage of the startup. 

“You must be able to prove that you can grow rapidly and on the right path towards profitability, but in a capital efficient way,” says Erik Lindblad.   

Maria Smith adds that it’s a good idea if you can show a bootstrap analysis and how far you can reach with your product or service at minimal costs, preferably on a monthly basis. 

“We must be able to see which costs you can reduce and how fast you can become profitable if you get into a difficult financial situation.”

Stefan Thelberg, CEO of the rapidly growing SaaS company within cyber security, Holm Security, adds that during their latest capital round it became clear that investors look more closely at metrics coupled to profitability than previously. 

“We felt that traditional targets such as free cash flow, EBITDA and net results had become more important. But we also saw an increased focus on “fancy SaaS metrics” which all include some kind of profitability target.” 

One of the key figures that Stefan felt investors had become more interested in was the “Rule of 40” where growth plus profit margin must equal 40. A company with sales growth of 10% and an EBITDA margin of 30% meets the Rule of 40.

”But in the current climate it seems that investors would like to reach the Rule of 50 and that EBITDA is more important in the equation than growth,” Stefan Thelberg continues.  

Sustainable development rewarded

Maria Smith emphasises that softer values are also considered before helping growth companies.

“We pay extra attention to companies with focus on ESG, those who want to make a change and strive to contribute to a sustainable development.”

Erik Lindblad agrees that there are advantages for companies with a strong sustainability focus and that they should offer a need-to-have solution to an important problem. An additional plus is if the company takes the diversity issue seriously.    

”We will support diversified teams as we’re convinced they will perform better, understand more customers’ perspectives and can recruit from a broader talent pool. It is important for us to invest in people we believe in. Quite simply the right people who are ready to build very strong tech successes, also in a tougher climate as now,” says Erik Lindblad.