Let's talk

Business stage: Starting Out

Ready, set, go! What you need to know about raising capital. Part 1: Let’s start preparing

What’s Inside?

  1. Getting your (financial) house in order
  2. Demonstrating traction through metrics
  3. Compliance and governance
  4. Building investor relationships
  5. What’s next?

Share

Facebook
Tweet
LinkedIn

We know it’s been a tough 18 months for capital raising. Many of us have been hunkering down and focusing on cost cutting, doing bridge rounds, and conserving cash. But, there is hope! Early signs are showing more activity in the Australian cap raising market (which we’ve seen first hand with our own clients, 4 of whom collectively raised more than $10m in the last quarter!). So while it’s still early days, it may be time to start thinking about growth again.

 

We’re going to be sharing more info on the capital raising process with a new series of articles: Ready, Set, Go! What you need to know about raising capital. We’ll be delving into the details of what’s really involved in preparing for, executing and post capital raising from a true founder and CFO perspective. 

 

Standard Ledger acts as fractional CFO for numerous startups, and we have helped clients raise more than $40m in the last 5 years, so as always, if we can help let us know!

raising capital meeting

1. Getting your (financial) house in order

Before you even think about raising capital, you’ll need to be organised. Keeping clean financial records and having established reporting practices shows investors you are managing your finances efficiently and responsibly. It’s essential to make sure you are monitoring key financial indicators like profit and loss, accounts receivable, and cash flow on a regular basis, as all of this shows potential investors that their money will be with a safe pair of hands. Don’t be concerned if you are pre-revenue, you can still show investors that you are proactive in monitoring finances, by having a solid foundation in financial management. Use spreadsheets if you’re early, and if you’re not already do yourself a favour and check it out CakeEquity. Let’s get stuck in!

2. Demonstrating traction through metrics

We love metrics, and you should too! A key aspect of preparing for a capital raise is demonstrating traction and growth. Whether you are a pre-revenue startup, or an early stage company, showcasing metrics that indicate progress is essential. 

For pre-revenue startups, this could mean highlighting beta customers or early adopters who are testing your product, and for more established startups metrics such as monthly recurring revenue (MRR), annual recurring revenue (ARR), retention rates, churn rates, and customer acquisition costs (CAC) are important indicators of your performance. If this is sounding like a foreign language to you – read here so you’re in the know.

Showing consistent growth in these metrics will give potential investors confidence in you, and make your startup more attractive for investment. We’ve written more info on startup metrics, so read here to get up to speed.

raising capital paperwork 2

3. Compliance and governance 

Not the most exciting part of running a startup,but staying on top of compliance and governance is crucial for raising capital. Making sure that your company is compliant with regulatory requirements – including tax obligations, superannuation payments, and ASIC filings – will show investors that you are operating within the legal framework.

Governance practices like maintaining accurate board minutes and keeping detailed records of company decisions also shows that your startup takes transparency and accountability seriously, and also sets you up a solid foundation for future growth and scalability. Just remember that future investors will see these so just be mindful of the level of detail you include…

All of this and more will be what you need to get out of the gate, and will all end up in any data room you share with the investor. If there’s static data you can start loading it in early (think company certificates, shareholder docs etc), otherwise investors will always want the latest data, and during the cap raise, they’ll want you to keep updating the latest monthly information (which you’ll be in the habit of already now you know what you need to do!).

4. Building investor relationships 

Often overlooked but vitally important is building relationships with potential investors. Start early by creating a CRM of potential investors, and reach out to them to gauge interest. Find ways of connecting to them, and remember you’re not asking for money yet, but see if they’re open to receiving any preliminary information ahead of opening the round. Think of these as pre-investor updates, so when connecting for the first time you’ll want to have a brief ‘teaser’ describing the company, with some key stats. If you’re lucky some investors may want to engage earlier than perhaps you’re ready, so if that happens you’ll just have to hustle, like any good founder, right?

Engaging with investors before formally seeking funding can help you understand their preferences and expectations, helping you to tailor your pitch accordingly. By nurturing these relationships early on, you can create a network of investors who are genuinely interested in your startup’s success, so get out there! 

raising capital meeting 2

What’s next?

Remember that preparing for a capital raise involves more than just pitching your business idea. It requires meticulous attention to financial management, metrics tracking, compliance, governance, and investor relationships. By getting everything in order before seeking funding, you can massively increase your chances of securing investment and setting your startup up for long-term success.

Our team at Standard Ledger is passionate about startups, and helping you navigate the complexities of raising capital and growing your business. Contact us today to learn more about how we can support your startup’s financial journey. 

Read here for the next part of our series: Ready, Set, Go! What you need to know about raising capital. Part 2: Get ready to raise. 

 

BOOK A CALL with us for a chat, and get your business ready for the next stage of growth.

 

Events coming up

We're not running any events at the moment.

More articles

tax considerations
  • Scaling Up, Expanding/Exiting

Global ambitions, local compliance: Tax considerations for expanding to the UK

We are giving you a bite sized look into that certainty of life - tax! Let’s take a look at some tax considerations for the UK.
Read more
international funding meeting
  • Scaling Up, Expanding/Exiting

Ready to secure funding? What you need to know when expanding to the UK

Startup funding is a journey. We’re focusing on government incentives that you should make the most of to secure international funding.
Read more
Business man looking at documents
  • Scaling Up, Expanding/Exiting

Expanding to the UK – which business structure is best?

Welcome to our series of short, sharp articles - all focused on going international! To kick us off, we are looking at business structures when setting up in the UK. If you get the structure right at the start you won't have to deal with headaches later on, so keep things as simple as possible, as you'll have enough going on without worrying about complex business structures and international agreements.
Read more

We’re here while you build your dream

And for everything in between
Let's talk

Our journey through different startup valuation methods continues! After exploring the Venture Capital (VC) Method in our previous Quick Insight in the Exploring Valuation Methods series, let’s dive into the Scorecard Valuation Method. This method is particularly useful for early-stage startups, providing a balanced view by incorporating qualitative assessments when quantitative data is limited.

Understanding the Scorecard Valuation Method

The Scorecard Valuation Method, also known as the Bill Payne Method, involves comparing your startup to an average startup in the same region and industry. It adjusts the valuation based on several qualitative factors, each weighted according to its perceived importance. This method provides a balanced view by considering both qualitative and quantitative elements.

How Does the Scorecard Method Work?

Here’s how to apply the Scorecard Valuation Method:

Determine the Average Pre-Money Valuation

Start by finding the average pre-money valuation for startups in your region and industry. This data can be sourced from industry reports, financial databases, or recent comparable transactions. This serves as your benchmark.

Assess Key Factors

Next, compare your startup against the average startup across several key factors. Common factors include:

  • Strength of the Management Team (0-30%): Evaluate the experience, track record, and cohesion of your team.
  • Size of the Opportunity (0-25%): Assess the market potential and the problem your product or service addresses.
  • Product/Technology (0-15%): Consider the uniqueness, innovation, and development stage of your product or technology.
  • Competitive Environment (0-10%): Analyse your competitive advantage and market position.
  • Marketing/Sales Channels (0-10%): Review your go-to-market strategy and sales channels.
  • Need for Additional Investment (0-5%): Determine how much more funding is required to reach key milestones.
  • Other Factors (0-5%): Include any other relevant factors specific to your startup.

Each factor is assigned a weight based on its importance.

Assign Scores and Calculate the Valuation

Assign a score to each factor based on how your startup compares to the average. Multiply the scores by the respective weights and sum them up to get the total score. Adjust the average pre-money valuation by this score to arrive at your startup’s valuation.

Benefits of the Scorecard Method

The Scorecard Valuation Method offers several advantages:

  • Qualitative Focus: This method takes into account qualitative aspects such as team strength and market potential, which are crucial for early-stage startups.
  • Balanced Approach: By incorporating both qualitative and quantitative factors, it provides a well-rounded view of your startup’s potential.
  • Adaptable and Intuitive: The method is relatively straightforward and can be adapted to various industries and regions.

Downsides of the Scorecard Method

However, there are also some drawbacks:

  • Subjectivity: The method involves subjective assessments, which can vary significantly between different evaluators. This could lead to inconsistencies.
  • Limited Quantitative Analysis: It may not provide as detailed a financial projection as more quantitative methods like the DCF or VC methods, potentially overlooking some financial intricacies.

Practical Example

Imagine you’re the founder of GreenTech Innovations, a startup developing renewable energy solutions. The average pre-money valuation for similar startups in your region is £2 million. Here’s how you might evaluate GreenTech using the Scorecard Method:

  • Management Team (30%): Strong team with a solid track record, scoring 1.2 (0.3 x 4/4).
  • Size of Opportunity (25%): Substantial market potential, scoring 1.25 (0.25 x 5/5).
  • Product/Technology (15%): Unique and innovative product, scoring 0.12 (0.15 x 4/5).
  • Competitive Environment (10%): Clear competitive advantage, scoring 0.08 (0.1 x 4/5).
  • Marketing/Sales Channels (10%): Strong go-to-market strategy, scoring 0.09 (0.1 x 4.5/5).
  • Need for Additional Investment (5%): Moderate additional investment needed, scoring 0.02 (0.05 x 2/5).
  • Other Factors (5%): Additional relevant strengths, scoring 0.04 (0.05 x 4/5).

The total score is 1.8. Adjusting the average pre-money valuation by this score:

£2 million x 1.8 = £3.6 million.

So, the adjusted valuation for GreenTech Innovations, according to the Scorecard Valuation Method, is approximately £3.6 million.

Wrapping It Up

The Scorecard Valuation Method offers a structured approach to valuing early-stage startups by comparing them to average peers and adjusting for qualitative factors. It’s a useful tool when financial data is scarce but qualitative insights are strong. This method provides a balanced view that combines both qualitative and quantitative elements, giving a well-rounded perspective on your startup’s potential.

In our next Quick Insight, we’ll delve into the Discounted Cash Flow (DCF) Valuation Method. This method provides a more quantitative approach, focusing on projected cash flows and their present value!

Choosing the right valuation method is essential for understanding your startup’s true worth. Each method brings a different perspective on your business’s value, depending on your stage, industry, and goals. At Standard Ledger, we guide you through the various valuation methods, helping you determine the most accurate and strategic approach for your needs. Discover the best valuation method for your startup and gain clarity on your company’s true potential.

Welcome to our new Quick Insights series on Crafting a Successful Fundraising Strategy! We know that fundraising can feel like a daunting task, but don’t worry – we’re here to help you navigate the journey. Over the next few posts, we’ll break down the essential steps to secure the funding your startup needs to thrive. Today, we’ll kick things off with the basics: preparing your startup for fundraising.

Why Preparation is Key

Think of fundraising like hosting an important event – you wouldn’t invite guests over without tidying up first, right? The same principle applies here. Before you start reaching out to investors, it’s crucial to get your house in order. Proper preparation can make the difference between a successful fundraising round and a disappointing one. It shows investors that you’re serious, organised, and ready for growth.

Understanding Your Financials

One of the first steps in preparing for fundraising is to have a clear understanding of your financials. Investors will scrutinise your financial health, so you need to be ready with detailed and accurate financial statements. Here’s what to focus on:

  • Balance Sheet: This provides a snapshot of your company’s financial position, showing assets, liabilities, and shareholders’ equity. Think of it as a summary of what you own and what you owe.
  • Income Statement: This document shows your revenue, expenses, and profits over a specific period. It’s essential for demonstrating your profitability and growth potential. Basically, it tells the story of how your business is performing.
  • Cash Flow Statement: This highlights how cash moves in and out of your business. Investors want to see that you manage cash effectively and can sustain operations. It’s all about showing that you can keep the lights on and grow at the same time.

Crafting a Solid Business Plan

A well-thought-out business plan is essential for convincing investors of your startup’s potential. Your business plan should include:

  • Executive Summary: A concise overview of your business, including your mission statement, product or service, and key objectives. This is your elevator pitch on paper – make it compelling!
  • Market Analysis: Detailed research on your industry, target market, and competitors. Show investors that you understand the market dynamics and have a clear strategy to capture market share. Think of this as proving there’s a big enough pie and you know exactly how to get your slice.
  • Business Model: Explain how your startup makes money. Describe your revenue streams, pricing strategy, and sales channels. Investors need to see a clear path to profitability.
  • Marketing and Sales Strategy: Outline your plans for attracting and retaining customers. Include your marketing tactics, sales process, and customer acquisition costs. This is where you show how you’ll get your product into the hands of customers and keep them coming back for more.
  • Operations Plan: Describe how your business operates on a day-to-day basis. Include details about your supply chain, production process, and key partnerships. This shows that you’ve thought through the nuts and bolts of running your business smoothly.
  • Team: Highlight the expertise and experience of your team members. Investors invest in people as much as ideas, so show why your team is capable of executing the plan. Brag a bit here – this is your chance to showcase the talent driving your startup.
  • Financial Projections: Provide realistic financial forecasts for the next 3-5 years. Include revenue projections, expense estimates, and profitability targets. Show investors where you’re headed and how you plan to get there with numbers that add up.

Building a Strong Team

Your team is one of your most valuable assets. Investors want to see that you have a capable and dedicated team that can execute your business plan. Focus on:

  • Leadership: Ensure you have a strong leadership team with relevant experience and a proven track record.
  • Talent: Highlight the skills and expertise of your team members. Show how their backgrounds complement each other and contribute to your business’s success.
  • Advisors and Mentors: If you have advisors or mentors, mention them. Their involvement can lend credibility and provide valuable guidance.

Developing Your Product or Service

Investors want to see that you have a viable product or service that meets a market need. Ensure that:

  • Product Development: Your product is well-developed, tested, and ready for market. If it’s still in development, have a clear timeline for completion.
  • Market Fit: Demonstrate that there’s a demand for your product. Provide evidence such as market research, customer feedback, and early sales data.

Legal and Compliance Check

Before you start fundraising, ensure that all your legal and compliance matters are in order. This includes:

  • Incorporation Documents: Ensure your business is legally incorporated and that all necessary documents are up-to-date.
  • Intellectual Property: Protect your intellectual property with patents, trademarks, or copyrights as needed.
  • Regulatory Compliance: Ensure you comply with all relevant regulations in your industry. This can include data protection laws, industry standards, and other legal requirements.

Wrapping It Up

Preparing your startup for fundraising is a crucial step that sets the foundation for a successful investment round. By understanding your financials, crafting a solid business plan, and highlighting your team’s strengths, you’ll be well-prepared to attract investors. Remember, getting your house in order before inviting investors in shows them that you’re serious, organised, and ready for growth. It’s all about making a great first impression and demonstrating that your startup is a worthy investment.

In our next Quick Insight, we’ll explore how to identify the right investors for your startup. Knowing who to approach can save you time and increase your chances of securing funding. 

At Standard Ledger UK, we specialise in supporting startups through every stage of their fundraising journey. Whether you’re just starting out, preparing for a major funding round, or scaling up, our team of experts can provide the financial insight and strategic guidance you need to succeed. Contact us today to learn how we can support your fundraising efforts and help you achieve your business goals!

As we conclude our series on Understanding Fundraising Basics, it’s time to get familiar with the key terminologies that you’ll encounter in the fundraising landscape. Knowing these terms will help you communicate effectively with investors and navigate the complexities of raising capital for your startup. Let’s dive into the essential fundraising lingo that every UK startup founder should know.

Equity

Equity represents ownership in your company. When you raise funds by selling equity, you’re giving investors a share of your business. Understanding equity is crucial because it determines ownership percentages, control, and profit-sharing within your startup.

Valuation

Valuation is the estimated worth of your startup. It’s assessed at different stages, such as pre-money (before investment) and post-money (after investment). Your valuation impacts how much equity you need to give up to secure funding. A higher valuation means you’ll give away less equity for the same amount of investment.

Term Sheet

A term sheet is a non-binding agreement that outlines the terms and conditions of an investment deal. It sets the groundwork for the final legal documents, helping both parties agree on key terms before committing to the deal. Getting this right is crucial for setting expectations and avoiding future misunderstandings.

Convertible Note

A convertible note is a form of short-term debt that converts into equity at a later stage. It’s typically used in early-stage financing to delay valuation discussions until a future funding round. This flexibility can make it quicker to close deals, providing the necessary funds without immediate equity negotiations.

Cap Table (Capitalisation Table)

A cap table is a document that details the ownership stakes, equity dilution, and value of equity in your startup. Keeping an accurate cap table is vital for tracking ownership and understanding the impact of new investments on equity distribution. It’s essentially a snapshot of who owns what in your company.

Why not take a look at our free downloadable Cap Table Template?

Dilution

Dilution happens when new shares are issued, reducing the ownership percentage of existing shareholders. While dilution is a natural part of raising funds, it’s important to manage it carefully to maintain control and maximise value for existing shareholders.

Vesting

Vesting is the process through which an individual earns their shares over time, rather than receiving them all at once. Vesting schedules help retain talent by incentivising long-term commitment and performance. It ensures that key team members stay motivated and aligned with the company’s goals.

Preferred Stock

Preferred stock is a type of equity that gives investors certain rights and preferences over common stockholders, such as dividend payments and liquidation preferences. Understanding the terms of preferred stock is crucial for negotiating fair and favourable investment deals that protect your interests.

Liquidation Preference

Liquidation preference determines the order in which investors are paid back in the event of a liquidation, such as a sale or dissolution of the company. It ensures that investors recover their investment before common shareholders receive any proceeds, affecting how exit proceeds are distributed.

Runway

Runway refers to the amount of time your startup can operate before running out of cash, given your current burn rate. Knowing your runway helps you plan fundraising efforts and manage expenses to ensure your operations can continue smoothly without hitting a financial crisis.

Wrapping It Up

Understanding these key fundraising terms is essential for UK startup founders as they navigate the complex world of raising capital. Being well-versed in this terminology will not only boost your confidence but also enhance your ability to communicate effectively with investors.

This concludes our series on Understanding Fundraising Basics. We hope these insights have equipped you with the knowledge needed to embark on a successful fundraising journey. Next month, we’ll launch Series 2 – Crafting a Successful Fundraising Strategy, where we’ll delve into topics such as preparing your startup for fundraising, identifying the right investors, and crafting a compelling pitch deck. Stay tuned for more invaluable insights to help you secure the funding your startup needs to thrive!

At Standard Ledger UK, we specialise in supporting startups through every stage of their fundraising journey. Whether you’re just starting out, preparing for a major funding round, or scaling up, our team of experts can provide the financial insight and strategic guidance you need to succeed. Contact us today to learn how we can support your fundraising efforts and help you achieve your business goals!

In our last post, we covered the essentials of startup fundraising and highlighted why it’s such a crucial aspect of your business journey. Now, let’s dive deeper into the different stages of startup funding. Each stage of a startup’s lifecycle comes with its own set of challenges, opportunities, and appropriate types of investment.

From the initial idea phase to scaling your business and eventually preparing for an exit, the funding landscape changes dramatically. So, understanding these stages can help you map out a strategic fundraising plan, ensuring you seek the right type of investment at the right time and from the right sources. Let’s dive right in!

Pre-Seed Stage

The pre-seed stage is the earliest phase of funding. At this point, your startup might just be an idea or a project in its infancy. Funding at this stage often comes from:

  • Founders’ Personal Savings: Most startups begin with the founders investing their own money.
  • Friends and Family: Close connections who believe in your vision may provide early financial support.
  • Incubators and Accelerators: Programmes that offer small amounts of capital in exchange for equity and provide mentorship, office space, and networking opportunities.

Objective: Develop a minimum viable product (MVP), conduct market research, and validate your idea.

Seed Stage

Once you have an MVP and some initial validation, it’s time for the seed stage. This stage is about building your product and starting to gain traction.

  • Angel Investors: Individual investors who provide capital and often bring valuable industry experience and networks.
  • Seed Funds: Specialised venture capital firms that invest in early-stage startups.
  • Crowdfunding: Platforms where you can raise small amounts of money from a large number of people, validating your product in the process.

Objective: Further develop your product, acquire early customers, and refine your business model.

Series A

The Series A round is the first significant round of venture capital funding. At this stage, your startup should have a solid user base, consistent revenue, and a clear business model.

  • Venture Capital Firms: Professional investors who provide substantial funding to scale your business.
  • Strategic Investors: Companies that invest in startups for strategic benefits, such as entering new markets or integrating new technologies.

Objective: Scale your operations, expand your team, and grow your customer base.

Series B

Series B funding is about taking your startup to the next level. You’re looking to expand even further, optimising your product and services to outperform competitors.

  • Venture Capital Firms: Continue to be a primary source of funding.
  • Private Equity: Some startups begin attracting private equity firms at this stage.

Objective: Expand market reach, enhance product offerings, and increase market share.

Series C and Beyond

As your startup continues to grow, you might go through Series C, D, E, and beyond. Each round aims to scale the business further, explore new markets, and prepare for an eventual exit (like an acquisition or IPO).

  • Late-Stage Venture Capital: VCs that specialise in large, later-stage investments.
  • Private Equity Firms: Provide substantial capital for expansion and growth.
  • Institutional Investors: Include mutual funds, hedge funds, and other large-scale investors.

Objective: Achieve market dominance, diversify product lines, and prepare for an exit strategy.

Bridge or Mezzanine Financing

Sometimes, startups need additional funding between major rounds to reach specific milestones or prepare for an IPO. This is where bridge or mezzanine financing comes in.

  • Short-Term Loans: Provided by existing investors or financial institutions to bridge the gap between funding rounds.

Objective: Maintain momentum and achieve key milestones without disrupting growth.

Exit Stage

The exit stage is when investors realise their returns. This can happen through:

  • Acquisition: Another company buys your startup.
  • Initial Public Offering (IPO): Your startup goes public, allowing investors to sell their shares on the stock market.

Objective: Provide a return on investment for stakeholders and transition the company into its next phase of growth.

Wrapping It Up

Understanding the different stages of startup funding is crucial for strategic planning and securing the right type of investment at the right time. Each stage has its own unique objectives, sources of funding, and challenges. By navigating these stages effectively, you can ensure that your startup has the financial resources needed to grow and succeed.

Next in our series, we’ll unpack the key terminologies in fundraising. Familiarity with these terms will help you communicate effectively with investors and navigate the fundraising landscape with confidence!

At Standard Ledger UK, we specialise in supporting startups through every stage of their fundraising journey. Whether you’re just starting out, preparing for a major funding round, or scaling up, our team of experts can provide the financial insight and strategic guidance you need to succeed. Contact us today to learn how we can support your fundraising efforts and help you achieve your business goals!

Welcome to our new Quick Insights series: Understanding Fundraising Basics. We know that diving into the world of startup fundraising can feel overwhelming, especially if you’re navigating it for the first time. That’s why we’ve created this series to break it all down into manageable, easy-to-understand pieces. Whether you’re just getting started or looking to take your business to the next level, we’re here to guide you every step of the way.

In this series, we’ll cover everything from the fundamentals of fundraising to the different stages of funding and the key terminologies you need to know. By the end of it, you’ll have a solid understanding of how to secure the funding your startup needs to thrive.

Why Fundraising Matters

Raising funds is a crucial step for many startups. It’s not just about getting money; it’s about fuelling your growth, scaling your operations, and achieving your business goals. Whether you’re in the idea stage or looking to expand, understanding the fundraising process can set you on the path to success.

Check out our useful online checklist to assess your startup’s readiness to attract investors and navigate the world of funding!

Reasons for Fundraising

There are several reasons why a startup might seek external funding. Here are a few common ones:

  1. Product Development: Turning an idea into a tangible product often requires significant investment. Funding can help you cover the costs of research, development, and prototyping.
  2. Market Expansion: Once you have a product, scaling your operations to reach a broader market can be expensive. Funds can help you with marketing, sales, and distribution efforts.
  3. Team Building: Hiring the right talent is crucial for growth. Fundraising can provide the resources needed to attract and retain top-notch team members.
  4. Operational Costs: Everyday expenses such as rent, utilities, and salaries can add up. Having adequate funding ensures you can cover these costs without compromising your growth.
  5. Technology and Infrastructure: Investing in technology and infrastructure is essential for scaling. This might include purchasing new equipment, upgrading software, or expanding your facilities.

Types of Funding Sources

There are various ways to fund your startup, each with its own pros and cons:

  1. Bootstrapping: Using your own savings or revenue to fund your business. It gives you full control but can limit growth.
  2. Friends and Family: Borrowing from those close to you. It’s accessible but can strain personal relationships if things go south.
  3. Angel Investors: Individuals who invest their own money in exchange for equity. They often provide valuable mentorship and networking opportunities.
  4. Venture Capital (VC): Firms that invest large sums in high-growth startups in exchange for equity. They offer substantial funds and strategic support but expect high returns.
  5. Crowdfunding: Raising small amounts from many people, typically via online platforms. It’s great for consumer products and validating market demand.
  6. Grants and Competitions: Non-dilutive funding sources where you don’t give up equity. These are often competitive and require a strong application.

Take a read of this great guide by Focused for Business to dive in further!

Key Considerations

Before diving into fundraising, it’s important to understand your needs and goals. Here are a few questions to ponder:

  • How much money do you need and what will it be used for?
  • What type of investor is the best fit for your business?
  • Are you prepared to give up equity and control?

Having clear answers to these questions will help you approach the right investors and make the process smoother.

Fundraising can be daunting, but with the right knowledge and preparation, you can navigate it successfully. Remember, it’s not just about the money – it’s about finding partners who believe in your vision and can help you achieve your goals.

In the next Quick Insight, we’ll delve into the different stages of startup funding. Understanding these stages can help you plan your fundraising strategy more effectively. Stay tuned!

At Standard Ledger UK, we specialise in supporting startups through every stage of their fundraising journey. Whether you’re just starting out, preparing for a major funding round, or scaling up, our team of experts can provide the financial insight and strategic guidance you need to succeed. Contact us today to learn how we can support your fundraising efforts and help you achieve your business goals!

Hey founders! Welcome back to the final post in our Quick Insights series on Financial Modelling Fundamentals. We’ve already talked about what financial modelling is and the key components of an effective model. Now, let’s dive into how you can use these models to make strategic decisions for your startup.

Why Financial Models Matter for Strategy

Financial models are more than just a bunch of numbers in a spreadsheet. They’re powerful tools that can guide your business decisions and help you strategise effectively. Think of them as your business’s decision-making playbook. Here’s how they can help:

Forecasting the Future with Confidence

One of the coolest things about financial modelling is its ability to forecast the future. By analysing various scenarios, you can predict potential outcomes and make informed decisions. Whether you’re planning to enter a new market, launch a new product, or seek additional funding, a solid financial model provides the data-backed insights you need.

Scenario Planning: Financial models let you simulate different scenarios, from best-case to worst-case. This helps you prepare for a range of outcomes and plan your strategy accordingly.

Revenue Projections: By forecasting future revenues, you can set realistic goals and track your progress. This is essential for strategic planning and performance measurement.

Allocating Resources Efficiently

Financial models help you understand your business’s financial health and identify where to allocate resources for maximum impact. This ensures that you’re investing in the right areas to drive growth and avoid potential pitfalls.

Budgeting: Use your financial model to create detailed budgets. This helps in managing your expenses and ensuring you have enough funds to cover all operational needs.

Investment Decisions: Whether it’s hiring new staff, expanding your marketing efforts, or investing in new technology, financial models can guide you on where to invest for the best returns.

Communicating with Stakeholders

A well-crafted financial model is an excellent tool for communicating your business strategy and financial health to stakeholders. It provides a clear, transparent picture of where your business stands and where it’s headed.

Investor Relations: Investors want to see a solid plan backed by data. A detailed financial model shows them you’ve thought through all aspects of your business and are prepared for various scenarios.

Internal Communication: Use your financial model to communicate with your team. It helps align everyone with the company’s goals and ensures that all departments are working towards the same objectives.

Managing Risk

Every business faces risks, but financial models can help you identify and manage these risks proactively. By running different scenarios and stress tests, you can understand the potential impact of various risks and develop strategies to mitigate them.

Risk Analysis: Identify the key risks your business might face and model their potential impact. This helps in developing contingency plans and reducing uncertainty.

Mitigation Strategies: Use your financial model to explore different risk mitigation strategies. This ensures you’re prepared for any eventuality and can navigate challenges effectively.

Wrapping Up

As we wrap up this series on Financial Modelling Fundamentals, remember that financial models are your startup’s secret weapon for strategic decision-making. By forecasting the future, allocating resources efficiently, communicating with stakeholders, and managing risk, you can steer your business towards success with confidence.

Watch this space next month for when we launch Series 2 of our financial modelling Quick Insights, “Essential Financial Modelling Techniques”, where we’ll delve deeper into scenario analysis, sensitivity analysis, and dynamic financial modelling with real-time data. The journey to mastering financial modelling continues! 🚀

Ready to see your startup’s future with clarity? At Standard Ledger, our bespoke financial models do more than just crunch numbers – they empower you to make informed decisions, secure investment, and drive growth. Whether you’re planning a capital raise or optimising operations, our models are built to evolve with your business. Get your custom financial model today and gain the insights you need to steer your startup towards success.

In our previous Quick Insight, we explored what financial modelling is and why it’s essential for your startup. Now, let’s dive into the nuts and bolts of creating an effective financial model. Understanding these key components will help you build a model that’s not only accurate but also provides valuable insights to guide your business decisions.

Tailor Your Model to Your Stage and Needs

First things first, your financial model should fit your startup’s current stage and specific needs. A pre-revenue startup will need a different model than a growing business with steady revenue streams. Here’s what to consider:

Assumptions and Drivers: Pinpoint the key assumptions driving your business. These could be market growth rates, pricing strategies, and customer acquisition costs. Make sure these assumptions are realistic and based on solid research or historical data.

Revenue Projections: Forecast your sales and revenue. For early-stage startups, this might involve estimating market size and potential market share. For more established businesses, use historical data to predict future revenue growth. Break it down by product lines, customer segments, or geographical regions to get a clearer picture.

Expense Estimates: Getting the Details Right

Next, let’s talk about expenses. This includes both fixed and variable costs. Fixed costs might be things like rent, salaries, and utilities, while variable costs could include marketing spend, cost of goods sold (COGS), and commissions. Accurate expense estimates ensure you’re prepared for the financial demands of running your business.

Operational Expenses: Include day-to-day operational costs such as salaries, office rent, utilities, and administrative expenses. This helps in understanding the baseline expenses required to keep the business running.

Capital Expenditures: For startups planning to invest in equipment, technology, or infrastructure, including capital expenditures in your model is crucial. This helps in forecasting long-term investment needs and depreciation.

Variable Costs: These costs fluctuate with your business activity. Examples include production costs, sales commissions, and marketing expenses. Accurately estimating these will help you understand the true cost of scaling your business.

Cash Flow Projections: The Lifeblood of Your Business

Cash flow is the lifeblood of any business. Your financial model should include detailed cash flow projections, outlining when cash will come in and go out. This helps you ensure that you have enough cash to cover your expenses and avoid potential shortfalls.

Cash Inflows: Track all incoming cash, including sales revenue, investments, and loans. Knowing when cash will come in allows you to plan for significant expenditures.

Cash Outflows: Similarly, keep a detailed record of all outgoing cash. This includes operating expenses, loan repayments, and capital expenditures. Understanding your cash outflows helps in maintaining liquidity and avoiding cash crunches.

Net Cash Flow: Calculate the net cash flow by subtracting cash outflows from cash inflows. Positive net cash flow indicates that your business is generating more cash than it’s spending, which is a good sign of financial health.

Scenario Analysis: Preparing for Uncertainty

A good financial model isn’t just a single forecast; it’s a tool for exploring different scenarios. By creating best-case, worst-case, and most-likely scenarios, you can prepare for a range of outcomes and make more informed decisions.

What-If Scenarios: Test various assumptions by changing key variables. For example, what happens if your sales grow faster than expected? Or if your marketing costs double? This helps in understanding the impact of different factors on your financial health.

Sensitivity Analysis: Identify which variables have the most significant impact on your financial performance. This can help in prioritising areas that need more attention or contingency planning.

Visualising Data: Making Insights Accessible

Finally, an effective financial model should be easy to understand and share. Use charts, graphs, and tables to visualise key data points. This not only makes the model more accessible but also helps in communicating your financial insights to stakeholders.

Dashboard Views: Create summary dashboards that highlight key metrics and trends. This provides a quick snapshot of your financial health and performance.

Detailed Reports: For more in-depth analysis, include detailed reports that break down revenue, expenses, and cash flow. This helps in making data-driven decisions and identifying areas for improvement.

Conclusion

Creating an effective financial model is crucial for guiding your business decisions and planning for the future. By focusing on these key components – tailoring the model to your stage, detailing expenses, projecting cash flow, preparing for different scenarios, and visualising data – you’ll be well-equipped to navigate the financial complexities of your startup.

In our next Quick Insight, we’ll discuss the role of financial models in strategic decision-making – don’t miss it!

Ready to see your startup’s future with clarity? At Standard Ledger, our bespoke financial models do more than just crunch numbers – they empower you to make informed decisions, secure investment, and drive growth. Whether you’re planning a capital raise or optimising operations, our models are built to evolve with your business. Get your custom financial model today and gain the insights you need to steer your startup towards success.

Ever feel like your startup’s finances are a jigsaw puzzle with a few missing pieces? Or maybe you’re scratching your head, wondering where your business will stand financially in a year or two? That’s where financial modelling comes into play.

Think of financial modelling as creating a detailed, numerical map of your company’s financial performance. It’s more than just plugging numbers into a spreadsheet; it’s about crafting a comprehensive picture that helps you see where your business is and where it could go.

Picture this: if your business were a car, the financial model would be your trusty GPS. It considers various routes (scenarios) and helps you choose the best path to reach your destination (business goals). By looking at past data and making educated guesses about the future, financial models forecast revenues, expenses, cash flow, and profitability. It’s the closest thing you’ll get to having a crystal ball for your business finances!

Why is Financial Modelling Important?

Why is financial modelling so essential? Here are a few reasons that might resonate with you:

Forecasting the Future

Have you ever tried to budget for a trip without knowing the costs involved? Financial modelling does the heavy lifting by estimating future revenues and expenses, helping you plan better.

Making Informed Decisions

Before diving into a new market or launching a product, wouldn’t it be great to know the potential financial impact? Financial models allow you to simulate different scenarios and see the possible outcomes. This way, you can make decisions with confidence, backed by data.

Communicating with Stakeholders

Whether it’s investors, partners, or team members, everyone wants to know the numbers. A well-crafted financial model provides a clear and transparent picture of your financial health and future prospects, building trust and credibility.

Managing Resources

Running a business means juggling various costs and investments. Financial modelling helps you allocate resources efficiently, ensuring you don’t overspend in one area while neglecting another.

Who Can Benefit from Financial Modelling?

Financial models aren’t just for big corporations with hefty budgets. Startups and small businesses can also leverage this tool to steer their ventures toward success. Whether you’re bootstrapping or seeking venture capital, having a solid financial model is like having a reliable co-pilot.

Think about it – a financial model is dynamic and should evolve as your business grows and market conditions change. By regularly updating your model with actual performance data and new assumptions, you ensure it remains a valuable tool in your decision-making toolkit. It’s not a one-and-done deal; it’s a living document that grows with your business.

In our next Quick Insight, we’ll break down the key components of effective financial models. You’ll learn how to build a model that’s perfectly tailored to your startup’s current stage and unique needs. Stay tuned – your journey to mastering financial modelling is just getting started! 🚀

Ready to see your startup’s future with clarity? At Standard Ledger, our bespoke financial models do more than just crunch numbers – they empower you to make informed decisions, secure investment, and drive growth. Whether you’re planning a capital raise or optimising operations, our models are built to evolve with your business. Get your custom financial model today and gain the insights you need to steer your startup towards success.


Finding the right investors is crucial for startup founders, entrepreneurs, and business owners looking to raise equity investment to grow their business. Different businesses need different types of investors depending on their stage of development (what investors call traction), and it’s important to find the investors who can help you ensure your business reaches its full potential. Our friends at Focused For Business, who run a Funding Accelerator that helps startups prepare for investment, find the right investors and close a funding round in just 90 days, have provided this guide which introduces the different types of investors, their characteristics, pros and cons, and practical ways to connect with them. Let’s dive into the world of business investment and find out how to secure the funding you need.

Different Types of Investors

Friends and Family

Friends and family investors are individuals within your personal network who are willing to invest in your business. They typically invest early in the business’s lifecycle, often at the seed stage, making investments from a few hundred to several thousand pounds, depending on their financial capacity and trust in your venture. As a general rule, they are backing you (as the startup founder) rather than the business.

Pros:

  • Trust and belief in your vision
  • Flexible terms and conditions
  • Faster decision-making process

Cons:

  • Potential strain on personal relationships
  • Limited investment amounts
  • Lack of professional guidance

Accelerators

Accelerators are programs that provide startups with mentorship, resources, and funding. Sometimes these programmes are accessed by paying a programme fee or sometimes in exchange for equity. They usually run for a fixed term and culminate in a demo day where startups pitch to investors. Investments typically range from £10,000 to £50,000, and accelerators usually focus on supporting early-stage startups.

Pros:

  • Access to mentorship and resources
  • Network of investors and industry experts
  • Structured program to accelerate growth

Cons:

  • Equity dilution
  • Fixed program duration
  • Competitive selection process

Angel Investors

Angel investors are high-net-worth individuals who provide capital for startups in exchange for equity. They often invest their own money and bring valuable experience and networks to the table. Investments usually range from £10,000 to £500,000, and angel investors often invest in early-stage startups.

Pros:

  • Significant capital infusion
  • Valuable mentorship and industry connections
  • Flexibility in investment terms

Cons:

  • Equity dilution
  • Potential for conflicting interests
  • Limited scalability of investment amounts

Family Offices

Family offices manage the investments of wealthy families. They can provide substantial capital and often invest in a diverse range of assets, including startups. Investments range from £500,000 to several million pounds, and family offices invest in various stages, from seed to growth stages.

Pros:

  • Large capital availability
  • Long-term investment horizon
  • Potential for multiple rounds of funding

Cons:

  • Stringent due diligence process
  • Potential for high equity demands
  • Focus on risk management may limit investment opportunities

Venture Capitalists (VCs)

Venture capitalists are professional investors who manage pooled funds from multiple sources to invest in high-growth startups. They provide significant capital and strategic support. Investments typically range from £1 million to £100 million, and VCs usually invest in growth-stage companies with proven traction.

Pros:

  • Large capital infusion
  • Strategic guidance and industry expertise
  • Access to extensive networks

Cons:

  • High equity demands
  • Intense scrutiny and due diligence
  • Pressure for rapid growth and high returns

Private Equity Firms

Private equity firms invest in established companies, often with the intention of restructuring and scaling them. They differ from VCs in their focus on mature businesses. Investments range from £10 million to several hundred million pounds, targeting later-stage companies with stable revenue.

Pros:

  • Large capital investments
  • Strategic operational improvements
  • Long-term partnership

Cons:

  • High equity demands
  • Potential loss of control
  • Focus on profitability and exit strategies

Crowdfunding

Crowdfunding involves raising small amounts of money from a large number of people via online platforms. It can be equity-based, reward-based, or donation-based. Investments can range from a few hundred to several thousand pounds, and crowdfunding is suitable for various stages of business development.

Pros:

  • Access to a wide audience
  • Crowdfunding investors often also become strong brand ambassadors 
  • Marketing and validation of business idea
  • Flexible investment amounts

Cons:

  • Time-consuming campaign management
  • Potential for low funding success rate
  • Need for strong marketing strategy

Corporate Investors

Corporate investors are established companies that invest in startups for strategic reasons, such as gaining access to new technologies or markets. Examples include Google Ventures and Intel Capital. Investments can range from £100,000 to several million pounds, depending on the strategic alignment and stage of the startup.

Pros:

  • Strategic alignment and support
  • Access to corporate resources and expertise
  • Potential for strategic partnerships

Cons:

  • Potential conflicts of interest
  • Strict due diligence and compliance requirements
  • Focus on strategic rather than financial returns

Preparing Your Business for Investment

Before you start fundraising, ensure your business is investment-ready. You will need:

  • Solid Business Plan: Develop a comprehensive business plan outlining your vision, mission, and strategy. Most investors are happy to see a business plan in a pitch deck rather than a long Word document.
  • Financial Forecast: Ensure good financial health and create well-thought-out financial projections. Consider working with an accounting firm like Standard Ledger (hey, that’s us!), which understands the startup journey inside out. We can help you craft financial forecasts that not only impress investors but actually make sense in the real world.
  • Strong Team: Assemble a team with relevant skills and experience.
  • Market Research: Conduct thorough market research and competitive analysis.
  • Intellectual Property: Protect any IP and secure trademarks.
  • Business Valuation: Develop a credible valuation for your business. Did you know we offer expert services for all your valuation needs? Whether it’s a startup valuation for capital raising or preparing to exit, an HMRC-approved EMI valuation for your incentive scheme, or a growth share valuation to motivate your team, we’ve got you covered!

Finding Investors – here’s where to start looking

Networking and building relationships with investors are the key to success, but everyone has to start somewhere. Here’s some practical suggestions for finding investors:

  • Industry Events and Conferences: Attend events to meet potential investors.
  • Startup Incubators/Accelerators: Leverage these programmes for investor connections.
  • Professional Networks/LinkedIn: Use LinkedIn to facilitate warm introductions.
  • Investor Networking/Pitch Events: Participate in events designed for startups to pitch to investors.
  • Online Tools: Use platforms like ShipShape and Scribe Labs to find investors.
  • Crowdfunding Platforms: Use platforms like Kickstarter, Crowdcube, and Republic Europe.
  • Existing Angel Investors: Use this interactive map to find   angel investor networks in your area.
  • Customers and Suppliers: Consider if they may want to invest.
  • Accountants and Financial Advisors: Utilise their networks to find potential investors.

We’d recommend building connections with investors ahead of officially opening your fundraising round. No one likes being asked for money the very first time you meet them so working on building rapport and trust first.

Pitching to Investors

When pitching to investors, you need to be prepared. Most investors will expect you to have the following documents:

  • Executive Summary: A one-page short introduction to hook investors.
  • Pitch Deck: A compelling narrative explaining your vision for the business.
  • Financial Forecasts: 3 or 5 year projections, including a P&L, Balance Sheet & Cash Flow, but also stating your assumptions and plans that show how the business grows month by month, year by year.
  • Valuation Justification: A rationale for your business’s valuation.

Our friends at Focused For Business run a Funding Accelerator programme to help you prepare for investment, find the right investors and build the evidence you will need to negotiate and close the funding round in just 90 days. 

Finding the right investors is crucial – not just for securing the investment you need, but also to surround yourself with the right support, skills and contacts  to grow your business. By understanding the different types of investors and preparing your business thoroughly, you can increase your chances of securing the necessary funding. But it’s networking and relationship-building that are key to connecting with potential investors in a way that ultimately secures you the investment you need..

If you are looking for further support in preparing for investment, a good place to start is at one of Focused For Business’s free Funding Strategy Workshops.