What VC investors want to see in a start-up's brand
Watch enough Dragons' Den and you’d assume that securing a backer is the toughest mountain any entrepreneur has to climb. While that can be the case, there’s something equally challenging in bringing an idea for a successful product or service to market.
Most entrepreneurs have a “genesis story”, a real-life experience or a burning desire to make the world a better place, that inspires their endeavour. The difficult bit comes when they try to put their idea into words and concepts that cannot be misconstrued; a description that will protect the integrity of the brand idea while allowing it to breathe and come to life.
No entrepreneur is an island
At the start of their journey many entrepreneurs work alone, but growth requires that pretty soon they need to communicate their idea to investors, manufacturers, retailers, distributors and others.
If at this point, the brand is still nebulous and has not been properly constructed, stress-tested and written down (or to use a branding term, “codified”), then each person who encounters it may interpret it in their own way. If this happens too many times, the entrepreneur and their brand lose all sense of self and the idea can become diluted.
As well as providing clarity and protecting the brand idea, the codification stage removes some of the pressure from the entrepreneur. It means they no longer have to carry the idea around in their head and can shed the burden of sole responsibility now that there are others who can explain it too. It also allows the brand to capture the “genesis story”, personal energy and spirit of its entrepreneurial creator which can translate into financial value further down the line.
A strong brand drives enterprise value
It would be easy to dismiss all of this as lacking in substance, but actually brand and enterprise value are closely aligned. When the sale of a business takes place, brand value accounts for 40% of the market capitalisation of a services business; for products/goods, it’s 20%.
The codification process is far from being just about “look and feel”; done well, it should speak directly to financial outcomes, with a brand that is designed around tangible and universal commercial levers. Increasingly, investors of all backgrounds are brand literate and understand the importance of the brand design process from the outset. Indeed, many of them will insist on their investment being contingent on it happening.
Fundamentally investors want to see that a brand has been designed upfront and with clear intent, ensuring that nothing is accidental and with an eye to a future when the brand will play a key role in driving successful commercial conversations.
A compelling and addictive brand design recruits and retains consumers which in turn drives turnover and EBITDA; a brand designed around higher purpose and the entrepreneur’s “genesis story”, emotionalises and therefore drives the multiple, which in turn drives enterprise value. If the brand that you are building incorporates aspects that a future board or investor can identify with and see how to impact, then your chances of commercial success are much more likely.
Brand design – an emotional journey
Now that the importance of the brand design process is clear, what does that process feel like from the entrepreneur’s perspective? With the right kind of professional partner, codifying a brand can be an exhausting, uncomfortable but ultimately satisfying experience, sometimes akin to coaching or even therapy.
An entrepreneur might be asked about their childhood, their key relationships, challenges they’ve encountered in life, what problem their brand aims to fix and why they are the right person to solve it. It can be a highly charged and emotional journey but if the entrepreneur makes it successfully through to the end, they will have reached a certainty about their brand – even if the brand that emerges is slightly different to the idea they started with - and understood the emotional connection it will make with consumers. They’ll probably also have a better sense of themselves and the nature of the journey they are on.
A brilliantly constructed brand is a powerful means to stoke emotion, and a great brand design will directly connect emotional with financial value, driving the “multiple” by which the business will be valued later down the line. With all of this at stake, why on earth wouldn’t every entrepreneur take brand seriously? Their investors certainly will.