Are you funding-ready?
Are you ready to get your business funded?
That may seem like a no-brainer to many cash-starved startup founders; after all, who says no to money? But being funding-ready isn’t just about being willing to receive a cash injection. It’s going to mean a lot more than that: letting go of a percentage of your business, entering into a long-term partnership with an investor or fund, and fulfilling their expectations as well as your own.
If you’re thinking about starting to seek out investment, you need to go into it with eyes wide open. Are you ready to show what you have to investors, with whom you may only get one shot - do you have the data they need to see, can you answer the questions they have?
Metric Bee specialises in helping fast-growing SMEs and startups organise their financial history and secure their financial future. When the startups we work with begin to think about funding, we use a four-step flow to check for readiness. The data we uncover come together to tell the story of the startup.
So how does that help you get funding-ready? It’s two-fold: adding value to your pitch in the eyes of investors; and adding to your own knowledge and understanding of your business’ financials. Investors see that you know how to manage money, and how to measure success in your business. They see that you have thought through every aspect of the financials - and remember, to investors, the financials ARE the business. That ‘one shot’ you get when pitching starts to look a lot easier if you have the data in your hands that show investors you have control and command over your business.
Whether or not you’re actively seeking startup funding, you can never understand too much about your business. Examining your financials is the fastest way to get a clear, evidence-based picture of what you know, and what you still need to learn. In other words, working through these steps shows that you have done your homework, and that homework is incredibly useful to your business. So let’s take a look through the four steps.
1. Book-keeping and accounts
Here’s where you show investors that you can manage your cash. For investors, that is massively important - they are parting with money for you to look after and grow. If you can’t show that you’re able to keep track of cash, understand how and when and on what to spend it, you’re going to be in trouble when seeking funding. And for you, your accounts are your guide to what is working and what is not - from spending patterns to revenue increases.
2. Metrics dashboard
There’s no one-size-fits-all solution for how to measure success. Is COCA your north-star stat? Does retention play a pivotal part in your business plan? The metrics you select (and make it no more than ten, for clarity’s sake) should be based on your deep understanding of your product and market; and investors will be looking not only at the data, but which metrics you’ve chosen to track and analyse it.
3. Financial forecast
Put simply, what do you intend to do, and when? What will that involve, and what will it cost? Do your research on each component here - don’t guess. Each guess decreases accuracy, and looks lazy to investors; you need to be able to back up your numbers here. Show the steps you need to take to reach your goal, including operational and marketing plans. Anything that moves you forward and has a dollar amount attached needs to be researched and added here.
The funding you want is unlikely to come without some reciprocal payout. What are you willing to ‘pay’ for funding? How much of your company are you comfortable giving up in return for cash? How much involvement will you allow an investor? How much control? Investors aren’t out to do you any favours: they are looking for profits from your business, fast. If you’re unsure about how you value your business and their investment, you’re vulnerable to investors taking advantage of your naivety, or being put off by indecision.
Taking a look at these four steps with your own business in mind - which questions would you be happy to answer right now? What can you back up with evidence, confident that you’ve examined the data from all angles? And is there anything you see that makes you stop in your tracks?
Just as with product design, when you’re testing on users, you are looking for the gaps, the negatives, the questions that arise. Working through the steps above, being honest with yourself about what you know and what you’re assuming, what you need to research and what you need to think about further, you’ll see that what emerges is a true picture of your business as an investor will see it. And looking at that picture is the best way to work out if you and your startup are really funding-ready.
If you're looking for an in-depth check-up on your financial readiness for funding, get in touch with Metric Bee. We love to help startups succeed.