Quantify Your Growth – What Investors and Institutions Need To See Before They Fund You.

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For Companies on the cusp of monetization (ie: needing another round of funding in order to put the finishing touches on a money making and disruptive venture), numbers matter unlike at no other time.  Assumed is the strong and secure management team with the wealth of experience and managerial pedigree, yet these attributes need to be accompanied by numbers that maximize the probability of success in the minds of investors.

Also assumed is the heightened level of business acumen inherent within the investor pool individuals – how else would they have achieved enough wealth to be able to invest in other business ventures.  They’re all, however,  looking for a realistic probability that their dollars will multiply “x” times within a short time frame (usually no longer than 5 years).

Absent 100% assurance of course, we forecast to the best of our ability certain parameters and components that, when taken cumulatively, provide a strong case for heightened upside potential down the pipe.  This is an important due diligence exercise to engage in prior to apprehending the investors because, if we think like them, then our thought processes should guarantee the eradication of anything within the presentation that undermines subsequent funding.

The presentation for that elusive final push for money is not easy to prepare – the presentation needs to combat the inevitable force of inertia manifested in the response “if you’re not monetized by now, what makes you think this money will get you over the top?”   Also needed is the peppering of fresh, exciting and confidence-boosting ideas to get this thing monetized ASAP.

How do you secure that final financial package to get into the market, knowing that the cost of market entry may ultimately dwarf the costs of conception, implementation, and administration just to get to this point?

1. Quantitative forecasts show your due diligence is intact

 This is not the point to prove that your market exists and that you have a viable product.  That’s in the past, and is the reason you secured previous rounds.  Now is the time to show quantitatively (to the extent possible, combining exhaustive research with tried-and-true mathematics) that this will grow and multiply and produce profits.  The quantitative narrative has to be pervasive in all areas leading to money in the bank.  For example, how can you quantify market approval rates, acquisition rates, cash flow amounts, and at what rate will you need to supply capital to facilitate growth to facilities, supply chains, and marketing efforts?

All subsequent forecasts of business components stem from the sales forecast, and it’s this specific area where, based on our research, at this late-stage and final push for funding, the money, and hence the venture, is either won or lost.  Sales forecasts, and their concomitant component forecasts, are given credibility when driven by reasonable, thought-out market drivers.

Sales forecasts are themselves predicated on economic and industry forecasts.  Proven econometric equations and models are then utilized to produce sales forecasts that can be logically and reasonably extrapolated from the data used to prepare them.

Quantitative analysis sells and has a great ability to squeeze out “soft” or “qualitative” assumptions.

Investors know the qualitative information; substantiating that information with hard numbers and diligent thought and research, however,  shows to investors a commitment to due diligence efforts, and no one will know better than them that this commitment to due diligence will extend to other areas of the business.  They will then be more inclined to consider their additional investment safe and more prone to open their wallets.

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2. Targeting Small and Penetrating Fully

 In its’ compilation titled “Management Tips”, the Harvard Business Review reports what many know to be true: that failing to choose a target market and instead attempting to be all things to all customers has proven, over and over again, to be a losing strategy.[1]  It’s just too expensive, and thins out the company’s resources.  Much better, the book goes on to say, to target your market and utilize your resources to penetrate that market as fully as your resources will allow.  This focused strategy has a greater success rate over time than the all-too-often relied upon “shotgun” strategy.

Corporations today cannot afford to employ a general strategy because competitors  already existing in a particular area are, with high probability, focusing and penetrating there and have been doing so for a long period of time.  So for the corporation to come in and deploy an “average” level of resources in expected return for positive ROI and market share is an exercise in wishful thinking.

Today’s businesses, from start-up to emerging to developed, target.  They research their strengths and value propositions, and find out where they can be best exploited.  In the case of the start-up, this is usually just one area - as much of a test case prior to going bigger as a smart sales strategy to penetrate a closed and workable space.

These target markets, to be considered viable, must be researched and quantified in order to substantiate anticipated strategic movements.   This combines nicely with point #1 above and constitutes a sub-forecasting exercise leading to the sales forecast discussed.

Astute investors will see this discerning and logical strategy, and hopefully will recognize it for what it’s worth:  That it utilizes company resources, both financial and human, most adroitly, and that it is symptomatic of an underlying strength within top management to devise optimal strategy.

3. 3-5 Years and Track

 Assuming that the strategy at this point has been vetted, due diligence and forecasts reviewed and justified, Investors need to be secure in the commitment of top management to the strategy.  There can be no wavering and “changing course”.  The presentation to the investors at this point should discuss a firm commitment in time to this strategy.  The commitment is reinforced not just because you’re verbally restraining the temptation to alter direction, but also because there are events, tasks, and rollouts all scheduled chronologically that keep the conversation going and that all take time to deploy – hence the time frame.

Yes you say that you’re committed to a 3-5 year time horizon, but you’re also busy throughout that time frame raising awareness, establishing the brand, and creating the foundation that will hopefully act as the springboard to subsequent strategic platforms.

 Commitment to the strategy itself through a time frame and the resistance to move away from it shows in the minds of investors a high regard for the “cause”, and to the astute investor will earn you credibility, and funding. 

Nicholas Kilpatrick is a partner at the accounting firm of Burgess Kilpatrick.  He assists companies at all stages of development and growth to secure funding, improve operations and maximize business development.  Please visit our website at www.burgesskilpatrick.com or on Facebook at www.facebok.com/Burgess Kilpatrick for more information on our firm.

[1] “Management Tips” Harvard Business Review, September 2013.