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It's famously tough to acquire a meeting with a venture investor, but there is such a thing as being too quick to connect. If you aren't prepared, you risk squandering your one chance to create a good first impression.
You roll over an hourglass of around six months from the time you make it public that you are seeking financing. If you don't receive all of the cash you need in that period, investors will start to wonder why you've taken so long. Meeting venture capitalists and raising venture capital should not be done on the spur of the moment; instead, you should be as prepared as possible to increase your chances of success. Rather of doing the things you might have done earlier; you should concentrate on talking to investors for the next six months.
If you can accomplish these goals, you'll be well on your way to approaching VCs.
1. The structure of your business, including capitalization, debt, and equity.
The capitalization ratio is one metric that VC companies use to assess a company's chances of success. By supplying information about your company's financial structures, you may assist in the presentation of this information in your reports. Most businesses are financed by a combination of equity (offering someone else a part in your firm) and debt (taking out a loan).
According to research conducted by the National Bureau of Economic Research, almost all venture capital companies consider the management team of a business to be one of the most essential elements in selecting whether or not to invest. It is seen as the most important element by almost half of those polled. According to this study, one of the first things you should show a prospective investor is your company's ownership and management structure.
VC firms want to learn about the organisational structure of the businesses they're considering investing in. Any VC firm will always have a partial emphasis on the c-suite and executive team. They'll want to look at the company's structure, including capitalization, to see whether the current leadership team is successful.
When a firm's founder sells more than half of his or her stock, he or she loses control of the company. If your firm has any big outstanding debts, these must be taken into account when calculating yearly sales and earnings. For VC firms, your company's structure might be a deal-breaker.
When you meet with a VC company, you can anticipate this information to be one of the first things they ask for. By include this information in your report ahead of time, you can speed up the process and ensure that your company meets all of the criteria for a venture capital firm. Investors want to know that their money is going into a firm with a strong leadership team and a capitalization ratio that gives them confidence in the company's future.
2. Your sales and marketing strategy, as well as your company model
After a VC firm has figured out your company's leadership and financial structure, they'll want to learn more about your sales, marketing, and general business plan. While a leader's words may seem great on paper, statistics never lie. Sales are the ultimate barometer of a company's performance, and marketing plays a critical role in assisting sales and ensuring the company's success.
When it comes to creating a company strategy, sales and marketing work hand in hand. You can envision how the company strategy flows into the elevator pitches that candidates present during Dragon's Den. Your business model is the way you describe your company, its structure, and how you advertise it to your target population.
You have no obvious way to create and keep sales if you don't have a company strategy. You'll collapse at one of the first obstacles if you can't communicate your company idea to a venture capital firm. A CFO can assist you in gathering and incorporating the facts necessary to bring your company strategy to life and present it to venture capital companies.
What is the significance of your company model? According to the data indicated previously, the business model of an organisation is the second most crucial criteria for VC firms. Because of how they feed into the larger decision-making process inside an organisation, business models are important.
You want to be able to sum up your company in a single statement. What is your USP and what is your goal? What are the fundamentals of your company? This material will be used into your elevator pitch when meeting with VC firms for the first time. An interim CFO may assist you in fine-tuning your company strategy in order to make it more appealing to venture capital companies. Many of our independent CFOs have substantial experience dealing with start-ups and companies seeking funding from venture capital firms.
One advantage of employing a part-time or temporary CFO is that they might provide your company with a new viewpoint. When meeting with VC companies, you want to put your best foot forward.
Your CFO will assist you in preparing a business plan report that will serve as the foundation for your elevator pitch. It's one of the first important roadblocks to overcome, and it might pique the curiosity of prospective investors in learning more about your company's future growth plans.
3. Revenue predictions in the future and in the past
The first thing VC companies will want to see is information about your company's leadership, identity, and business strategy. VC firms may begin to imagine how your company will run in reality after these have been formed. The third thing that VCs want to see is the value of your firm. To calculate prospective profitability, this data is obtained using your previous sales and future predictions.
While VC investors will want to see historical income, this does not ensure that future initiatives will be as successful. Venture investors aren't the kind to take a chance on a whim. They'll want to go through the finer points of your revenues and safeguards to make sure they're correct and to see whether your company fulfils their investment criteria. At this point, data such as forecasts and forecasting are critical.
Gathering as much data as possible is an important part of painting a financial picture of your company. Your post-investment value add, selection, and transaction sourcing should all be included in your early reporting to VC firms. It's not enough to present these figures in a slick data graph. To determine the future beginnings of your company' financial affairs, you must be able to crunch these figures and go behind the facts.
These figures will aid VC companies in determining if your business has the potential to provide a respectable return on their investment. Because of the significance of this data, venture funders will scrutinise every line of data in these financial reports. An examination of this data will also assist VC firms in determining if a business can meet their objectives, as well as the success of certain c-suite roles.
4. Your operating costs, which include budget and expenditures
It's tempting to believe that all the reports VC firms want are high-level. Potential investors are interested in your company strategy and leadership structure, but they are also interested in the smallest details of your expenditures.
Before you meet with VC companies, a CFO will compile a report detailing what every cent in your company does, from allocation to spending. These documents should substantiate the results you've given to investors. While it may be tempting to manipulate the statistics in your favour, being open and honest about your money will create a better impression.
You may demonstrate a VC firm how their money will be spent if they give by displaying your company's budgets, expenditures, and operating costs. Most venture capitalists invest in a start-up or small business for a period of ten years. A fast-growing firm, particularly one that they can leap on at the appropriate moment, is something that no venture investor can refuse.
Your VC companies will also want to hear about your business's operating expenses, since these will assist them assess whether your company may be considered profitable. This statistic, which venture capitalists use to assess the returns on their investments, may already be recognisable to you. Seven years is seen to be a reasonable amount of time for profits to be realised.
5. The cost and benefit of acquiring a customer
Your first focus is always the consumer. While it's tempting to think of venture capitalists as a never-ending flood of facts and data, they're also interested in how your company succeeds with its consumers. Every VC will want to see metrics on client acquisition, as well as customer lifetime value.
It's easy to understand why venture funders could be worried if you're spending £100 on marketing to get clients who will spend £50. You can notice the company's greater ROI if you invest £5 to acquire consumers who spend over £500.
Your cash flow is impacted by the cost of client acquisition (CoCA). It's one of the most often requested pieces of information from venture capital firms. Having this information on hand will impress any VC company and help you advertise your brand's profitability.
When you employ a freelance CFO, they'll curate client acquisition materials on a monthly, quarterly, and yearly basis to provide you with a quick snapshot of your company's prospective profitability. Your CFO will keep track of this information and assist you in presenting it to VCs in reports.
Finally, some ideas
Obtaining venture capital money may be transformative for your company. It's fast becoming one of the most popular methods for businesses to finance their expansion. Getting investment from VC companies, on the other hand, isn't as straightforward as TV programmes make it look. You should begin developing your brand pitch in preparation for your first business meeting with VC companies.
When meeting with a prospective fundraiser, it's easy to get overwhelmed. Investing in the services of a CFO — whether full-time, part-time, or interim – may assist you in producing winning reports that will entice venture capitalists to invest more in your company. Instead of attempting to prepare reports on your own, get the help of an interim CFO to manage fundraising activities.