What is an equity story?
An equity story is a compilation of the advantages (and risks) of owning the equity capital of a particular company, presented in the context of a funding round. Rather than being a document in itself, it is a thought and planning exercise that helps to ensure that founders have identified, and are following, the right path for the company’s shareholders.
An equity investor, benefiting from unlimited upside potential with only limited losses, is a naturally risk-seeking creature. As such, an equity story should be built around the pursuit of high growth and strong profitability, ideally through an innovative solution to a large (and valuable) problem. In order to (realistically) achieve this, both solution and problem need to be understood in detail by the founder(s) and their management team. The equity story is a business plan built on this understanding, which can then be used to raise capital from investors who believe in it.
The process of developing your equity story with Ithaca typically takes four steps:
I. Meet with your expert team
From our network of freelance experts, we will assemble a team that deeply understands your target market and proposed solution. This team will offer their combined experience of raising capital from VC and angel investors, to ensure your business is positioned in the correct way for your funding round.
II. Market / problem
analysis
You will work with your team to map out the market that your business is addressing. This is typically framed from the perspective of the problem that you are solving for your users. Of particular interest here is the scale of the potential opportunity. This is typically addressed through the TAM / SAM / SOM methodology,
as outlined here.
A detailed plan of the approach to be taken by your business to solve the problem outlined above. This strategy will help you to assess the suitability of your solution to the problem, as well as decide how the solution will be deployed to the market (your Go To Market, or GTM).
Often the journey to the final goal (i.e. a large and profitable business) is divided into specific milestones, and each of these are addressed in turn. A milestone may, for example, be to have 10,000 paying users by the end of the year. A plan can then be developed to achieve this – perhaps a new product feature is required to attract more users, or an investment in the sales team. These items can then be reflected in the roadmap for the company, with details of the resources required to achieve them. Our experts are matched to clients based on sector expertise and, as such, can work with you to develop the strategy for your business.
IV. Risk identification / mitigation
In order to convince investors, an equity story must be based on understanding as well as aspiration. Clearly outlining the risks to the business, and how each will be managed, is therefore a central element of the exercise.
This is another area in which expert advice can make all of the difference – someone who understands how investors think about your industry can help you identify their likely areas of concern, and develop a plan to manage them. Note that while these risks may not be directly referenced in the pitch deck, they are likely to be key discussion points during the diligence phase.
A central thread of the equity story will be the key value drivers of the business. Whether these are developing a new technology, the skill of the team or achieving pricing leadership, an understanding of both how they can be achieved and how that will drive shareholder success is essential.
From here, the founder can assemble a roadmap of milestones that enhance or utilise the value drivers. Identifying the right value drivers within a business can be difficult, but more often people struggle to develop a strategy around them. An expert advisor who deeply understands both your business model and target market (like those on Ithaca), can help you to identify your value drivers. Furthermore, together you can develop a plan to enhance them through effective allocation of your resources.
Often neglected and completed as a foreword to pitch deck drafting, an equity story represents your fundamental belief in what your business will achieve. Once this knowledge has been consolidated, it can be transferred to the pitch deck (in sales format) and financial model (in detailed format).
Our team will spend time with you to deeply understand your business. They will then overlay this understanding with their knowledge of what investors are looking for, both in this sector and with reference to the current market environment.
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