How Important Are The Numbers In An Investment Pitch?
Raising investment capital is hard.
You’ve only got to do a quick google search and you’ll come across many articles. Where founders and investors both share their experiences and advice. With a significant increase in the number of accelerator programs. Founder mentors, often come from a vast array of experience. Offering suggestions for what to include on slides, how to be and what to say. Recently I’ve observed varied advice that ends up causing confusion. Mostly, in relation to the numbers.
Conflicting advice often causes founders to become flustered. Not quite knowing what to do and how to be. There can be a tendency for founders to struggle to present effectively as a result. Their passion and purpose lost from the pitch due to being over anxious or confused. Searching for the perfect balance to suit all investors. Which is almost impossible.
How can a founder stay composed and provide a balanced approach?
Know your numbers. No matter the stage of your startup, the numbers matter. Often founders focus on the problem, the product solution. Of course, these are all important. But we’re talking about asking an investor to buy part of a company. They will want to know about the whole business.
What will investors will look to answer whilst listening to a startup pitch?
Team — Why are they doing this? Do they have what it’s going to take to build the business they are pitching? What startup experience do they have? Will they be capable of giving a return on investment?
The Opportunity — What problem is being solved? How big is this problem?What solution have they discovered? How is this unique?
The Evidence — What has been proven so far? What is the business model? How will it make money? How much money and how long will it take?
A founder’s job is to understand the numbers that underpin the opportunity. The numbers help to provide the evidence. What are you measuring and why? What are you learning from the numbers on a regular basis? For a pitch, deck keep it simple. In general, there is no need for lots of complex slides showing every detail.
What do you intend to use the investment money for? Investors will want to know where their money will be spent and how long it will last. Again for the pitch slides, less is more. A simple summary is generally enough.
How can a founder prepare for ‘numbers’ due diligence?
Some investors will perform due diligence. Regardless of stage or amount of investment. In many early stage, angel investments, legal due diligence is often not performed. The financial statements and forecasts may be requested though. Being prepared is key to preventing delay. Too often, founders underestimate the amount of time a capital raise will take.
Prepare a simple spreadsheet to show a forecast budget. If you’re unsure on how best to do this. I recommend you get some help from an experienced startup CFO.
Be mindful to include cash flow and always consider any liabilities. If you’re using Xero or a similar software to manage your accounts. Check that your balance sheet liabilities marry across to your forecasts. It’s easy to grab current cash at bank numbers. Overlooking outstanding tax or credit card payments.
Your accounting software needs to be up to date. Make sure bank accounts are reconciled before you prepare financial statements. If asked, you’ll need to provide up to date Profit/Loss (Income) statements and a Balance Sheet as a least. Don’t assume that a budget or forecast will be enough. The financial statements are important documents that all company directors should be across.
If you’ve shared revenue numbers in your pitch slides. Triple check they marry up to your Income statement. There’s nothing more embarrassing than inflating numbers. Either as you talk or present slides. Discovering your income statement tells a different story is not a good look.
Check that any product prices you present consider tax (GST/VAT). The accounts will show the net number, it’s important to be consistent.
Consider how revenue will be recognised in the business accounts. Often this catches founders out. There are general rules that apply to this stuff. When payments are received in advance of services being provided. If in doubt, check with a trusted startup accountant.
Show realistic revenue projections. How you hope to achieve the numbers. Using vanity metrics isn’t helpful. Investors will see through these and question your integrity.
Don’t include anything you don’t understand or that you can’t substantiate.
When you’ve got your ducks in a row and you know your numbers. Stop, take a breath and pitch remembering “WHY” you’re doing what you do. Let investors see your passion that drives your business focus.