Spring Cleaning Your Financials – Prepare for Fundraising
It’s time to get ready for fundraising. Are your startup’s financial documents in order? Can you and your co-founders speak fluently about the performance of your company? Is your elevator pitch polished? How much are you seeking, and why? If you can’t clearly answer these questions when it’s time to meet with investors and lenders, your plans could be sunk before you ever really get going. BJ Lackland, CEO of revenue loan provider Lighter Capital joined us to talk about what you need to get straight before asking for funding.
View the webinar recording here, or read more in the recap below:
ACCOUNTING STANDARDS
Cash vs. Accrual Accounting – which are you using? It’s not uncommon for startups to be using the cash accounting method (revenue recognized when received, expenses recognized when paid out), but investors will be looking for companies using accrual accounting for consistency’s sake. Not a deal-breaker if you are still using cash accounting when you begin the fundraising process, but be prepared to make the switch.
The balance sheet – standard fare for any business operator…tracks assets, liabilities, and shareholder equity tracked over a specific period of time.
Profit & loss statement – usually referred to as the “P&L” as shorthand. Summarizes revenue, cost of goods sold and expenses, tracked typically over a month, fiscal quarter or year.
Cash flow statement – compiles all data between related cash inflows and outflows.
Cash burn – determines how long cash reserves will hold out.
KEY GROWTH METRICS
Monthly Recurring Revenue – Total monthly value of revenue that repeats without needing to be reordered or signing a new contract
Run Rate – An current amount of revenue, expressed as an annual amount. Example: $100k in monthly revenue is a $1.2 million “run rate”.
Customer Unit Economics (Customer Acquisition Cost, Lifetime Value, etc.) – The all-in financial costs and benefits of the average customer
Gross Margin – (Revenue – COGS) / Revenue
Churn Rate – Percentage of customers lost in a period. Customers lost divided by the total number of customers at the beginning of the period.
Customer Lifetime Value – Total revenue from a customer over the life of business relationship
WHAT INVESTORS CARE ABOUT
|
Equity |
Revenue Loan |
|
| Team/People | Important | Important |
| Market Size | Important | Less Important |
| Disruptive Tech. | Important | Less Important |
| Traction | Important | Important |
| Revenue |
Sometimes Important |
Important |
| Competition | Important | Less Important |
| Financing Risk | Sometimes Important | Important |
PREPARING FOR YOUR INVESTOR MEETING
Know the Investor:
- Stage & funding preference
- Sector focus
- Existing portfolio (firm & individual)
- Target Requirements / Investment Guidelines
Know Yourself:
- Know your numbers (financials, traction, customer unit economics)
- Elevator pitch & value prop
- Total addressable market & competitive landscape
- The ask: How much funding and what you’ll do with it?
ADDITIONAL READING
Telling Your Growth Story Through Financial Projections
https://earlygrowthfinancialservices.com/telling-your-growth-story-using-financial-projections-2/
Creating Credible Startup Financials
https://earlygrowthfinancialservices.com/creating-credible-startup-financials/
The Top 5 Issues We See With Startup Financials
https://www.lightercapital.com/blog/the-5-top-issues-we-see-with-startup-financials/