Last week, our Consultant Konstantin sat down with Konstantin Kariapin and John McTavish from Paralect – a Venture Studio, Accelerator & Fund - to talk about startup fundraising and the current challenges, hows and whys of financial modelling and investor relationship managementfor early stage ventures.
Hows and whys of financial modelling and investor relationship management for early stage ventures
Fundraising is tough, more so in the current market climate. With that being said, it's not impossible to secure funding for your startup—you just have to prepare for a longer fundraising process . In this blog post, we'll share some tips Konstantin talks about in the video on how to raise funding and build healthy investor relationship.
Startup financial modeling
One of the most important things is to convince investors of your business and secure funding able to back up your ideas as well as your growth strategy with financial data. For this, financial modelling is indispensable.
What is Financial Modeling?
Financial modeling is the process of creating a tool—usually in Excel—that projects your company's future financial performance. This tool can be used to forecast everything from your revenue to your expenses to your funding needs.
Internally, it is used to perform plan-actual comparisons in order to make the best possible, data-driven decisions. Externally, it helps potential investors understand your business model, such as scalability and the path to profitability.
Why Do Financial Modeling?
There are a number of reasons why every startup founder should create a financial model for their business. First, it's a great way to track your progress and ensure that you're on track to meet your milestones. Second, it can be used to make data-driven decisions about your business—such as whether or not to hire new employees or lease office space. Finally, if you're looking to raise capital from investors, having a well-crafted financial model will make you look much more attractive to potential investors.
How to Do Financial Modeling
The first step is to gather the data that you'll need to populate your model. This data includes things like historical financial data (if available), assumptions about the future (for example benchmarks about conversion rates in your marketing funnel), market trends, etc. Once you have this data, you'll input it into an Excel spreadsheet (or another software program) and use formulas to projection your company's future performance.
Financial modeling may seem like a complex task, but it's actually relatively simple once you get the hang of it. And it's an essential tool for every startup founder, as it can be used to track your progress, make decisions about your business, and attract investors. We at Trustventure can support you to build a financial planning and define relevant cost factors and revenue drivers as part of this. This is also part of our service when we accompany financing rounds. Need help with that? Contact us under email@example.com.
How to position early-stage startups for successful fundraising
Raising money for your startup is critical. The early stages of a startup are often the most precarious, and investors are typically hesitant to put money into ventures that don't have a proven track record. So how do you position your startup for successful fundraising? Here are four tips to get you started.
Have a clear vision and mission statement. Investors want to know that you have a plan and that your business has potential. They need to be convinced that you're not just throwing together some ideas in the hopes of making a quick buck - they're looking to invest in businesses with long-term potential. Make sure you can articulate your vision and mission statement clearly and concisely; if you can't convince yourself, you definitely won't be able to convince investors.
Make sure your numbers add up. Investors will want to see detailed financial projections, and they'll be especially interested in how much money you'll need to raise in order to get your business off the ground. Be prepared to answer questions about revenue growth, burn rate, and other financial metrics.
Demonstrate traction. If you've already been generating revenue or user engagement, show investors that there is real market demand for your product or service. Don't shy away from highlighting positive trends - even if things haven't gone perfectly so far, emphasizing the progress you've made will help reassure investors that you're on the right track. If your venture is not yet showing any traction, stress why you are the one who can make it happen.
Have an impressive team in place. Investors want to know that their investment will be in good hands, so having an experienced and talented team is key.
How to maintain healthy investor relationships
If you're able to secure funding from one or more investors, congratulations! You're on your way to growing your business. However, securing funding is only half the battle—you also need to focus on maintaining healthy investor relationships. Here are a few tips for doing so:
Be prepared for uncomfortable questions: expect investors to grill you on every aspect of your business plan—be ready to answer their questions with confidence.
Be communicative: keep your investors updated on your progress and let them know if there are any hiccups along the way. They want to see that you're still committed to growing the business and achieving your set milestones. The best way to do that is to implement regular investor meetings (monthly, quarterly, yearly) and create an investor newsletter.
Honesty is the best policy: if something goes wrong, don't try to hide it from your investors—they'll appreciate your honesty and transparency and will be able to help out.
Give them a seat at the table: involve your investors in major decisions relating to the growth of the business. After all, they are partial owners and should have a say in how things are done.
Respect the investor's time: when seeking advice or feedback from investors, be concise and to-the-point—don't waste their time with irrelevant information.
Be grateful: last but not least, don't forget to show your appreciation for their support—a simple thank-you goes a long way!
Even though early stage startups may find it difficult raising money from venture capitalists or angel investors these days one should never give up! There are still ways a young company can obtain funds through creative methods such as government grants or competitions etcetera. With a well-prepared funding round with carefully prepared documents, a clear equity story and passion for the own idea, finding suitable investors is not impossible! At Trustventure, we provide support on these topics. Our expertise in questions of corporate finance, planning and controlling creates transparency and security for you and your investors. Reach out to us via our contact form or write to us directly at firstname.lastname@example.org.