In addition to partnering with co-working spaces and business accelerators, EGFS participates in a number of events, workshops, and office hours at top tier universities including Stanford, Berkeley, USC, University of Washington, and NYU. Recently, I had the chance to sit through several mock pitches at Columbia’s Startup Lab in New York.
Chris McGarry, Director of Entrepreneurship at Columbia Startup Lab, and David Ehrenberg, Founder and CEO of Early Growth Financial Services, coached and critiqued participants.
I came away with these five pointers for startup founders.
1. Think long-term when it comes to your business plan.
That means validating your assumptions with primary research and empirical evidence, including talking to other people in the industry as well as doing the work to develop customers.
One of the biggest mistakes entrepreneurs make is to go through the work of creating a budget and forecast, then never look at them again. A budget forecast should be one of the most important management tools in your arsenal: not a hook to attract investors. And it’s not just one and done. You should regularly review actual performance versus what you budgeted and reforecast as needed.
2. Understand your assumptions.
In order to build credibility with potential investors, you need to be able explain how you came up with your financial projections and justify the underlying assumptions. Be prepared for questions that delve into the assumptions behind your revenue projections. As you work on your projections, be careful to find the balance between being optimistic as to your business’ potential, while presenting a realistic scenario with numbers that you have a chance to hit.
Everyone expects that three year projections are subject to change, but by going through your projections VCs are assessing whether you’re thinking strategically. Being overly optimistic will seriously jeopardize your credibility.
3. Know why you’re raising and practice milestone funding.
With this approach, you start by thinking through how much money you need to raise to reach specific goals, set 18 month timeframes, then plan your raises to coincide with you reaching your milestones. Not only will this keep you from raising too much, it will also set you up for big increases in valuation with each funding round.
4. Understand the dynamics of VC investing and what makes for a successful startup pitch.
For every 10 investments VC make, five will fail and two to three will break even. So the balance need to be home runs. That means VCs will focus on the size of the overall opportunity — it needs to be big — and the size of the market you’re targeting when they’re deciding whether to invest in your business. Investors also like tangible products, e.g., iPhone apps. Product demos are a great way to bring it home for your audience.
5. Be realistic about valuation.
The bottom line is that the value of your company is what someone is willing to pay for it. If you want to estimate yours, start by looking at comparables. TechCrunch and CB Insights are good sources. Talk to other entrepreneurs and advisors, and build your assumptions as to what your business is worth based on what they’ve been able to achieve.
Deborah Adeyanju is Content Strategist & Social Media Manager at Early Growth Financial Services (EGFS), an outsourced financial services firm that provides small to mid-sized companies with day-to-day accounting, strategic finance, CFO, tax, and valuation services and support. Prior to joining EGFS, Deborah spent more than a decade as an investment analyst and portfolio manager with leading financial institutions in New York, London, and Paris. Deborah is also a Chartered Financial Analyst (CFA) charterholder.
Do you need help pulling together financials for your startup pitch? Tell us about it in the comments section below or contact Early Growth Financial Services for support with your startup fundraising.