What investors want
The summer days of zero-interest rates and topline growth at all costs are a thing of the past. As the cost of capital goes up, capital allocators are increasingly looking further down the financial statements for indications of a startup's efficiency. “Who will make the best use of my capital?” is one of the main questions driving investment decisions in 2024.
The good news for financially savvy founders is that this pivot gives an opportunity for early-stage ventures to stand out by delivering what investors want to see.
Starting with the basics: Investors want an honest appraisal of their investments performance vs forecast. They bought into a combination of a founder's vision and financial opportunity. If the business doesn’t have a firm handle on where they are, or worse, are being unrealistic in their assessments, that does not build trust.
The format of how you report is customisable to your business and investor. As a general rule, share an executive summary, key performance metrics for your business, revenue and cash analysis.
Much like your weekly team standup, this should be snappy and to the point…
Clear, Concise, Relevant and Reasoned. Your key metrics give a snapshot of what matters.
This is individual to every business, but as a general theme, in 2023 VCs will want to see KPIs that give greater visibility over operational efficiency.
Market conditions might, but some things never change! For early-stage ventures, sales and revenue growth will always drive board conversations. A good business model with well-defined milestones is the starting point. Combined with key metrics and clearly presented actuals vs. forecast, this gives a clear picture of where your business is, relative to expectations (graphic 2). Graphs are a great way to lead conversations about revenue, so make sure to think about how you can visualise the data you are presenting in an impactful way.
72% of early-stage European ventures have less than 12 months runway (84% in the US). That makes cash runway, burn and future funding strategy pretty damn important! In a market where liquidity is tightening, more so than ever.
Understanding your current and future cash projections clearly gives you need to know information to make informed decisions - and your investors the reassurance they want to see. Make sure you base your cash projections on a timeframe that makes sense for your business. Taking this a step further, you should combine this with scenario planning to assess the impact of potential events on your business.
Backing up all of the above, sharing a well formatted P&L, balance sheet and cash flow statement will not only give your portfolio manager what they need - it gives an investor comfort your own the numbers. In a tight market, optics like this matter. Standing out among portfolio ventures by delivering insightful business reporting enables you to start conversations in a favourable light.
Scaleup Finance is here to help. Our platform relieves the burden of financial management and reporting for startups - so you can be the founder you want to be.