I’m a Startup Founder, Not A Finance Guru!
Startups, Keep Your Investors Happy
You’ve a great idea, have assembled a great founding team, and are ready to conquer the world! Great! The world of a startup founder is always an interesting one! One in which, whether you know it or not, will mean the learning of so many new skills. It will also mean the learning things about yourself that you may not have known. Take resilience, a founder’s life is not one of easy riches, always having resources on tap, or technologies that always go to plan. You need to be tough, and resilient. At some point in your start-up journey, you will find that you may need funds with which to bring your vision to life. You may even need to accelerate growth, therefore taking advantage of your market opportunities. This will possibly mean courting investors, or institutions. Investment attraction can be a daunting and time-consuming battle.
The Startup Pitch Deck
This battle commences with you convincing an individual or group that your business is going to be the next big thing, the new Canva, or Atlassian. How do you convince them so…? If your pitch is perfect, It should address the following:
- Your expertise and uniqueness
- The strength of your team
- You recognise a clearly defined and understood problem with existing models, businesses, an industry or you apply existing thinking in new ways to solve a problem in another setting
- Your market and its problem is well understood
- You understand the competition, their strengths and weaknesses, as well as possible substitutes in the market
- You understand the true opportunity and what part of that opportunity is truly reachable
- That your solution is well accepted and gained market traction
- You have a compelling business model
- Your needs for funds will help accelerate the market opportunity
Thus, your slide deck concisely and succinctly conveys that you know your business, and you’ve done your homework.
Now Step Into Your Investor’s Shoes
Now look at the investment equation from the opposite side. You are an investor looking to earn suitable a return for the risk of the investment being made. That risk is great. More than 80% of all start-ups will not be around in 4 years! Your potential investment is in its infancy, possibly with an untried and tested technology with a management team that are also unknown to you.
Your job is to seek out a return for that investment and minimise the risk of that investment to an acceptable level. How do you know that the startup founder or their management team are quality until you work with them, understand their risk appetite, their understanding of the opportunity? You need regular updates as to their progress, but are frustrated at having to ask for metrics, or get inconsistent metrics provided by the management team.
Here’s the problem; your management team are not financial whizz kids. They are passionate about their solution, but not necessarily about the financials of the business. In fact, their eyes may glaze over at the mere mention of the need for financial and business reporting. So, we have a bit of a gap that needs filling – the need to update investors as to the wellbeing of their investment, and the need of the founders to fulfill their reporting and management obligations that won’t get in the way of doing what you want to do, i.e. develop your business and technology to meet your market need. Founders are from Mars, Investors from Venus!
Here at Jazoodle we try to fill that chasm! So, let’s look at both sides of the equation again:
The Founder’s Needs
As a startup founder, you need to be constantly showing your investors that you are in control. That you are across the financial performance and overall health of your budding Unicorn. That you understand the tolerances of the business and that the effect that taking on those new members of staff, or investment in new technology will have a positive impact on the performance of your business and will help it grow in the way your investor and you need it to grow. You need to understand the likely business value, and how far off your exit value this is likely to be.
There’s lots you need!
You need to know how you can pull different management levers in the business to affect positive financial outcomes. Levers that affect profits, available cash, and the strength of the balance sheet. The big problem, is that you either rely on putting a finger in the air to assess the wind direction, or at best, spend huge amounts of time and therefore money, on devising complex spreadsheets. These may or may not integrate with your accounting system, therefore, you suffer inconsistent data. And that’s when you remember to provide it, or when your investor asks, nee demands it.
The Investor’s Needs
As investor, you want consistency in reporting, first and foremost. This consistency means both regular, along with being able to compare apples with apples. Yyour founders are not financial geniuses, but also you need to ensure that they are not failing. You need to understand underlying data within the business and see this quickly and visually. You won’t have time to pore over rows and rows of spreadsheet data. Nor get to the bottom of the bullshit from a qualitative overview. You want clear, concise, visual, and consistent start-up performance information. Information that cannot be argued with, or always available for you without asking.
You want to ensure that your start-up health is going in the right direction, and if not, be able to act early enough to get it back on track. Understanding how resilient your start-up is to potential economic or market shocks is critical. You need to understand if the business is valued in line with your expectations and your plans for exit.
For both investors and startup founder, Jazoodle is a must have in your business management toolkit. As a start-up ourselves, we also want to support the wonderful pioneers and entrepreneurs.
Andrew Paton-Smith is the founder and CEO of Jazoodle, a cloud-based business performance, valuation, and scenario modelling solution. Jazoodle.com