Preparing for fundraising is critical to ensuring the success of any company poised for growth and scaling. All too often, founders are motivated by an innovative idea only to find charisma, and the strong idea is not enough to warrant funding. It is important to maximize these meetings to prevent spending time on something that might go flat. Meticulously prepare before connecting with investment firms by nailing these prequalification criteria first:
1. Realistic Growth Projections by Revenue Stream
It is insufficient to use a top-down approach to forecast revenue, which sounds like this: “The market is $100 billion. I will get half a percentage of the market, therefore, my revenue will be $50 million in one year.” Founders must ground their projections in reality, basing them on actual revenue to date, proof of concept, and a clearly defined Ideal Customer Profile (ICP). They need a proven pricing strategy and a detailed plan for realistically acquiring new customers, their sources, the length of the sales cycle, and the repeatability of sales.
2. Correlated Revenue-to-Operations Scaling Projections
Founders are strongly encouraged to present a realistic operations growth plan to support the additional revenue they are forecasting. This plan should detail how many salespeople will be required to achieve these goals, how customer support and product development needs will be met, and the management structure to support this growth. Each layer of the company’s operations must be considered, from sales and customer support to engineering, human resources, and beyond.
3. Articulation of Use of Funds
Founders should precisely articulate what they plan to do with investor money. Is there a clear pathway to profitability, while balancing the “growth at all costs” approach? Investors are looking for a return on their investment, so optimally, the business plan must demonstrate a feasible path to profitability. A detailed financial plan should outline how the investment will be used, whether for hiring personnel, enhancing marketing efforts, product development, or as working capital. If working capital, the plan should show exactly how this capital injection will help the company grow revenue and when the cash burn will decrease to pivot into profitability.
4. Clean, Clear Books and Records
It is strongly advised that founders not only have their financial records in order but also have all customer and vendor contracts neatly organized and easily accessible, along with employee offer letters and documentation of outside party relationships, such as with banks, early investors, and consultants. Demonstration of a rigorous process to keep these records consistently clean is also pertinent. This practice ensures founders will not inadvertently create commitments that could later be problematic. The foundation needs to be built accurately for the strategic aspects to be informed correctly. Remember, bad data leads to bad decisions or, at least, poor decision timing. While this may seem like the boring stuff, it’s mission-critical.
It is imperative that founders looking to pitch understand that investors are now more cautious and are steering away from companies without a clear path to profitability or, at the very least, accurate and audit-ready financial data. In fact, investment firms today often prefer companies that can sustain themselves and grow organically, which, in many ways, is a return to the fundamentals of business.
In preparing for fundraising, meet or exceed these criteria as the cornerstones of a successful fundraising round and the company’s growth thereafter. Founders who are determined yet unprepared to pitch can turn to AVL to ensure that financial narratives are compelling, coherent, and, most importantly, convincing to investors.
