From being transparent with investors to managing spending, Arvi Chana, CFO of Quantexa, reveals the four most important things that can affect your chances of raising money
Most startups begin with high hopes and investor confidence, but with 80% of new businesses doomed to fail in less than two years, securing adequate fundraising to allow you to scale can be crucial. While there is of course no formula that can guarantee funding success, there are ways to make the process a more achievable goal and persuade investors to believe in your story, buy into your vision and back your team. Follow the four below tips on how best to build your business financially.
(1) Raising capital
Investors are looking to back people, not just a product. This means they’re focused on the human capital of your business and seek a team that is comprised of experienced and qualified professionals with clear areas of ownership over their distinctive departments. Venture capitalists don’t want a CEO who forms the centre-point of everything – that isn’t scalable. They want to see a team that will be able to move your business from a £5m to £10m valuation and know they’re backing success in the long-term. Consequently, you should ensure your business has a strong management team with people who understand their areas of expertise.
All staff must know the business plan and be on the same page in regards to your long and short term aims. If potential investors are hearing different information from different people, there is no single cohesive narrative on vision you’re working towards, so investors could easily lose interest.
If circumstances change, be honest and transparent about the reasons behind these changes. Consequently, you must know your numbers— investors will always want to look at your figures where possible. Be prepared to provide as much information as you can and to be as upfront about all elements of your business as possible – investors are likely to walk away if they feel they can’t trust you.
Make sure you never over-promise and under-deliver. Provide a clear set of growth goals that are realistic and attainable and ensure you cultivate a business environment that allows your management team to challenge each other’s thinking and avoid complacency. If your forecast goes off plan, go back to your investment plan and try to manage the elements that are in your control to steer your ship back on course.
(3) Manage spending
Don’t be afraid to ask questions – if budgets are not kept to, ask why this has changed and rectify or adjust accordingly. This means not blindly sticking to a strategy just because you had agreed a plan. Good management involves being flexible and responding quickly to changing circumstances. We all wish we had the clarity looking forwards as we gain in hindsight, but the best way to prepare is to recognise when strategies aren’t working and to make change at pace but with vision. As soon as people begin moving away from your budget ask what has changed and reign them back in as this could risk the investment and damage the company.
Put strict processes in to manage your spending early on; being lax during early growth stages sets a dangerous precedent. It is also good practice to ensure your financial director can challenge the CEO so that erroneous decisions can be challenged, and the optimum strategy is found.
(4) Listen to your board
Try to put in place board members with a wealth of experience to ensure that that your company is not putting investment at risk. Any potential investor needs to be able to feel they can trust that your business is doing the right thing and that a CFO can be relied upon to make sensible and savvy decisions.
Employing these tactics will increase the chance of survival for your startup and help you stay competitive in the market. As you grow, constantly challenge and ensure others can challenge every business decision— will this scale? All your processes, including back-end ones, need to be ready for growth from an early stage and you need to bring all staff and investors along with you in your vision to grow and innovate at pace.