What to Prepare Before Meeting Venture Capitalists – The 5 Essentials for Every Report
What to Prepare Before Meeting Venture Capitalists – The 5 Essentials for Every Report
Venture capital firms are opening a new stream of funding for start-ups and SMEs looking to scale their business. These firms can change your business’ fortune and help you fulfil your potential. Whether it’s a £500,000 or £5 million investment, these VC firms could be the key to the long-term success of your business.
Research shows that one-fifth of market capitalization is made up of public companies with VC backing. While shows like Dragon’s Den and The Apprentice make VC applications look like a PowerPoint presentation, it takes more than a captivating backstory to secure your funding.
Working with a part-time, full-time, or interim CFO can help your organisation prepare for meeting with VC firms. At FD Capital Recruitment, we connect businesses with talented CFOs who can audit their company and get them ready to meet with VC firms for potential funding opportunities.
Not every CEO has the skills – or the time – to get reports ready for a VC meeting. Numbers are one of the first things that every venture capitalist will want to see. Data is king. Working with a CFO on an interim basis can help you prepare for your meetings and win over a VC firm from your first meeting.
We’re sharing the 5 essential reports that you’ll need to prepare before meeting with potential investors. When you work with one of our CFOs, they’ll help you gather and analyse this information to present to your VC firms.
Fundraising is a number’s games
When a VC firm is considering investing in a company or start-up, they want to see your numbers. These firms will go through every report you present with a fine-toothed comb, looking for any potential hiccups that could occur. They’ll analyse everything from your balance sheets to your expenses, income statements, and gross profits.
Your reports should also shine a light on key consumer behaviour, such as retention rates and the average purchase amount. This data all feeds into the decision-making process for VC firms when considering your funding application.
Each penny within your company should be accounted for. VC firms will use their own teams of accountants to go through your reports. The last thing you want is for a potential fundraiser to find a discrepancy in your submitted reports and data. Even a simple error could set alarm bells ringing for a VC firm.
It’s worth remembering that venture capitalists spend their days reading through reports, analysing data, and forecasting trends. Getting fundraising takes time. It doesn’t happen as quickly as shows like Dragon’s Den make it look. Having your reports in working order and correctly filled will help to streamline the process.
Amongst our talent pool, you’ll find freelance CFOs who specialise in helping start-ups and businesses prepare their reports for VC firms. Every CFO will tell you that five things should appear in your reports when meeting with VC firms for potential fundraising opportunities.
1. Your company’s structure – including capitalization, debt, and equity
One barometer that VC firms use to determine the potential success of a business is its capitalisation ratio. You can help present this information in your reports by providing information about your company’s financial structures. Most organisations are funded through equity, giving a stake in your company to someone else, and debt, such as taking out a loan.
Research by the National Bureau of Economic Research found that virtually all VC firms consider a company’s management team to be one of the most important factors when deciding whether to invest. Almost 50% consider it to be the number one factor. This research suggests that the company ownership and management structure is one of the first things that you should present to a potential investor.
VC firms want to become familiar with the organisational structure within the companies that they’re interested in investing in. The c-suite and leadership team will always be a partial focus for any VC firm. They’ll want to look at the company’s structure, including its capitalization, to determine the success of the existing leadership team.
When a company leader sells more than 50% of their equity, they’re not the major decision-maker within the business. If your company has any large outstanding debts, these will have to be accounted for when reviewing your company’s annual revenues and profits. Your company’s structure could prove to be a deal-breaker for VC firms.
You can expect this information to be one of the first things that a VC firm will ask for when you meet with them. Including this information in your report ahead of time can streamline the process and help your business tick all the boxes for a VC firm. Investors want to know that they’re putting their funds into an organisation with stable leadership and a capitalization ratio that has them feeling confident about the company’s future.
2. Your business model, sales, and marketing
Once a VC firm has established the leadership and financial structure of your business, they’ll want to find out more about your sales, marketing, and overall business model. While a leader may sound impressive on paper, numbers never lie. Sales are the ultimate test of the success of a business with marketing playing a key role in helping to drive sales and make the company successful.
Sales and marketing go hand in hand when developing your business model. When we think of the elevator pitch that candidates give during Dragon’s Den, you can imagine how the business model feeds into it. Your business model is how you explain your business, its structure, and how you present it to your target demographic through marketing.
Without a business plan, you have no clear path on how to make and maintain sales. If you can’t explain your business plan to a VC firm, you’ll fall at one of the first hurdles. A CFO can help you gather and incorporate the data that will bring your business plan to life and translate it to VC firms.
Why does your business model matter? The research we mentioned earlier shows that an organisation’s business model is the second most important factor for VC firms. Business models matter due to how they feed into the greater decision-making process within an organisation.
You want to be able to explain what your business is in one sentence. What’s your USP and goal? What are the basics of your business? This information feeds into the elevator pitch that you’ll give when meeting VC firms for the first time. An interim CFO can help you fine-tune your business plan to make it more attractive for VC firms. Many of our freelance CFOs have extensive experience working with start-ups and businesses that are fundraising through VC firms.
One benefit of hiring a part-time or interim CFO is that they can bring a fresh perspective to your business. You want to put your best foot forward when meeting with VC firms.
Your CFO will help you create a business plan report that forms the backbone of your elevator pitch. It’s one of the first major hurdles to overcome and can get your potential investors interested in finding out more about the future development plans for your business.
3. Future projections and your historical revenues
The first information that VC firms will want to see is related to the leadership, identity, and business plan for your company. Once these have been established, VC firms can begin to picture how your business will operate in practice. The third thing that VCs want to see is your company valuation. This data is gathered using your historical revenue and future projections to determine potential earnings.
While VC firms will want to see previous revenue, it doesn’t guarantee that similar projects will be met with the same success. Venture capitalists aren’t people who will take a shot in the dark. They’ll want to analyse the finer details of your revenues and protections to verify them and decide if your business meets their investing requirements. Data, such as projections and forecasting, are vital at this stage.
Painting the financial picture of your business includes gathering as much data as possible. Your early reports to VC firms should include your post-investment value add, selection, and deal sourcing. Presenting these numbers in a sleek data chart isn’t enough. You need to be able to crunch these numbers and get behind the data to establish the future start of your business’ financial affairs.
These numbers will help VC firms decide whether your company has what it will take to make a reasonable return on their work. The importance of this information is why venture capitalists will go through every line of data in these financial reports. An analysis of this information will also help VC firms determine whether a company can live up to their expectations, as well as the success of certain c-suite positions.
4. Your operational costs – including budget and expenses
It’s easy to think that all the reports you need for VC firms are high level. While potential investors want to know about your business plan and leadership structure, they also want to get down to the tiniest numbers in your spending.
Before you meet with VC firms, a CFO will put together a report of what every penny does within your business – from its allocation to how it’s spent. These reports should back up the performance that you’ve presented to investors. While it might feel tempting to stack the numbers in your favour, you’ll make a better impression by being transparent about your finances.
By showcasing your company’s budgets, expenses, and operational costs, you can show a VC firm how their money is likely to be used if they donate. Most VC capitalists make a 10-year commitment to a start-up or small firm. One thing that no venture capitalist can resist is a fast-growing company – especially one that they can jump onto at the right time.
Your VC firms will also want to know the operational costs of your business as they help them determine when you can consider your business to become profitable. You may already be familiar with this metric that venture capitalists use to estimate the returns they’ll receive on their investment. Seven years is considered a relatively short time for earnings to be realised.
5. Customer acquisition cost and value
The customer is always your number one priority. While it’s easy to see venture capitalists as a never-ending stream of data and numbers, they also want to know how your business performs amongst your customers. Customer acquisition is one set of data that every VC will ask to see – including customer lifetime value.
If you’re spending £100 in marketing to attract customers spending £50, it’s easy to see why venture capitalists could be concerned. If you’re spending £5 to attract customers spending over £500, you can see the company’s better ROI.
The cost of customer acquisition (CoCA)has a knock-on effect on your cash flow. It’s one of the most requested pieces of data from VC firms. Having this information on hand is guaranteed to impress any VC firm and help you promote the profitability of your brand.
When you hire a freelance CFO, they’ll work on curating customer acquisition documents on a monthly, quarterly, and annual basis to give you an instant overview of your brand’s potential profitability. Your CFO will stay on top of this data and help you present it in reports to VCs.
Final thoughts
Securing venture capital funding can be a game-changer for your business. It’s quickly becoming one of the most popular ways for brands to fund their growth and development. However, getting funding from VC firms isn’t as simple as TV shows make it appear. You’ll want to start preparing for your first business meeting with VC firms by building your brand pitch.
It’s easy to feel overwhelmed when meeting with a potential fundraiser. Investing in the help of a CFO – whether on a full-time, part-time, or interim basis – can help you create winning reports that will have venture capitalists coming back to invest more into your organisation. Instead of trying to create reports by yourself, hand the number-crunching over to an interim CFO to oversee fundraising efforts.
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Adrian Lawrence FCA with over 25 years of experience as a finance leader and a Chartered Accountant, BSc graduate from Queen Mary College, University of London.
I help my clients achieve their growth and success goals by delivering value and results in areas such as Financial Modelling, Finance Raising, M&A, Due Diligence, cash flow management, and reporting. I am passionate about supporting SMEs and entrepreneurs with reliable and professional Chief Financial Officer or Finance Director services.
