September 10, 2018 | 4-minute read (647 words)
This article was originally posted on Forbes, by David Ehrenberg, Early Growth CEO & Founder.
Before you pitch to any investors, there are a few things you need to know to be successful. Part of building a pitch deck that will wow investors is making sure you have a financial plan that’s practical and tells the right story for your business, relative to its operational needs. That story goes well beyond your secret sauce and a five-star team, although those are important investor considerations.
When it comes to presenting the numbers in a compelling way, informed financial planning is paramount. Here are some insights on what your investor audience needs from you, the information you need to pull together and how to keep priorities in check as your startup evolves post-funding.
Knowing What Really Wows Investors
Perhaps more than anything, investors love to see strategic thinking. What does that mean? They expect you to have deep knowledge of the inner workings of your startup. You should be able to present a detailed summary of what is true now, as well as a realistic contextual vision for what you anticipate seeing over the next three years. They want to see that you’ve run multiple practical scenarios with variable and fixed costs, revenue, operations, all of it. And even though you likely won’t have time in your pitch meeting to get into the granular details, you should always be prepared to back up your predictions with confidence and evidence.
You should also be able to justify all core expenditures to demonstrate you’ve dedicated time to evaluating which costs are most critical for the stage of business development you are in. What assumptions can, or should, you make based on the market segment your business serves, and how does that play out from a financial perspective? Do you anticipate any short- or near-term changes in the market or industry you’re operating in? Do your research and confer with experts beforehand. Make it clear that you understand and can speak to where your business sits in the investment landscape -- that will help investors (and you) get the most of your short time together.
Especially if you are new to the pitch game, that may mean bringing in outside help. Our CFOs typically recommend consulting an outside financial service professional any time you are seeking funding in the amount of $50 million or greater. If you are just starting out and still in the bootstrapping stage, outsourcing your accounting and finance functions may not make sense.
Essential Financial Planning Checklist
The financial plan portion of your startup pitch presentation should include, at minimum:
• Financial projections (top-down and bottom-up)
• Key assumptions worksheet
• Departmental expense worksheet
• Revenue worksheet (profit & loss)
Defining Success for Your Startup
As valuable as advice on what to do can be for a young company, knowing what not to do can also help. With respect to financial planning for startups, I have some cautionary wisdom to offer: One of the biggest mistakes I see entrepreneurs making is gauging their success by the amount of money they raise in early-stage funding rounds. Remember to keep your eye on the prize -- the enterprise -- and fully embrace the fact that, at the end of the day, you are running a business.
The final thing you should know if you’re diving head-first into securing venture capital funding for your startup is: Once you get funded, be smart about your spending. That seems like a no-brainer, but I have seen young companies suffer for burning through capital too early. They’ve been forced to ask investors for more money, which can be a nightmare for all parties concerned. I cannot emphasize this enough: Be conscious of your burn rate and track actual expenses closely.
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