It’s the age of the start-up. Technology is enabling us to solve more problems at a greater speed than ever before. Solutions to big enough problems often have commercial value – leading to new enterprises being founded. New companies are formed and funded faster than ever before.
Gaining access to the lifeblood of seed capital is critical for any high growth start-up. You need to be fast to market with enough resources to develop your product, gain traction and unlock value. But a strong team, good infrastructure and market access all create a burn that cannot be bootstrapped for long.
So you have that great team who has developed a kick-ass product andearned the loyalty of a new client base. You now need to focus your energy on how to obtain that next round of funding. In working with multiple technology, IT and innovation companies pre and post Series Seed and Series A funding as well as the Angels and VCs that fund them, we have put together a recipe to ensure that all of the boxes are ticked before your pitch. First impressions and all. Here are 5 key steps to getting your start-up funding ready from our learnings:
- Number Crunching
Every company has a trading history. Whether it has been four months or four years – you need be able to account for your current financial position. Being able to present up to date management accounts and financial statements is critical to an investor. Even if you are pre-revenue and can only account for costs, being able to accurately portray your financials through comprehensive management reports will help establish that first bit of credibility. No-one will care about where you want to go if you cannot account for what you have done this far.
- Project the future
Although up to date historic financials are needed, they often don’t paint an exciting picture of a start-up. The value lies in being able to project future earning potential and expense structures. No matter how exciting your tech might be – investors always want to see the numbers. It’s very easy to make any company look good in Excel. I’m not talking about thumb-suck billion dollar profits in year three. Care must be taken to build a strong financial model, incorporating solid assumptions and all key variables. Revenue streams need to be broken down and substantiated by realistic, achievable assumptions. Expenses should be scaled in accordance with the scaling of activity, and all cash flow implications need to be portrayed. Be confident, but not unrealistic.
- Govern well
Governance of a company – even a young one – can tell an investor a lot about the capabilities of the founders. Having all of your ducks in a row here can be make or break. Ensure that you can accurately portray your current company structure, and that you have the secretarial backing for it. All registration documents and resolutions need to be obtainable and compliance with all industry bodies and laws need to be in place.Also make sure that you are on a good foot with the taxman, having clearance for all tax types. As mundane as it sounds, good corporate governance adds or subtracts a material portion from the price tag of a start-up.
It is very hard for a solo entrepreneur to run a business. A diverse skill set and personality type is needed to pull of such a task. Make sure that you clearly communicate the skills and experience of the core team. Skills and experience both in your industry and in running a company.
Roles, responsibilities, remuneration and commitments of each of the core team members need to be defined, and up to date CVs need to be in hand. An investment in a start-up is very much an investment in the people who will be running it – hit this out of the park by selling your team well.
- Pitch Deck Perfection
Presentation is everything! You will not be allowed unlimited time to pitch, so make sure that you impress with a pitch deck that captures all the vitals in a short space of time.
- Describe the extent of the problem that you are offering a solution to and how your product will solve this problem to such an extent that it has commercial value.
- Clearly define the size and nature of your market and how you will reach them.
- Showcase your technology – make sure that it is defensible and exciting.
- Demonstrate that you understand who your competitors are and in what ways you will stand out from the crowd.
- Paint the picture of that big exit so clearly that the potential investors already get excited about their returns. Show what global companies will want to buy your business in a few years and why, and that you know what needs to be done in order to attract them.
Getting a company funded in its early stages is not easy, but by ticking the above boxes with precision you will ensure that you have a great chance when approaching an investor within whose mandate you fall. Happy fundraising!
Louw Barnardt CA(SA) is the managing director of Outsourced CFO, a financial management boutique that specialises in private company and tech start-up financial management.