Key takeaways
- Investors read the numbers to test the story, so the story and the numbers must say the same thing.
- Historical statements have to be clean, consistent and reconciled before the forecast earns any credibility.
- A driver-based forecast with explicit assumptions is worth more than a hockey-stick chart.
- Securities rules apply to raising money, so the structure and the offering are handled with your lawyer and registered advisers.
Raising money from investors is a financial exercise long before it is a legal one. Angel investors, family offices and growth funds in BC will form a view of the company from its numbers within the first meeting, and that view is hard to change afterward. The good news is that the preparation is the same work a well-run company should be doing anyway.
This guide covers the financial preparation. The legal structure of any raise, the offering documents and compliance with securities rules are handled with your lawyer and registered advisers, and we do not offer investment advice.
Start with clean history
Investors will ask for the last two or three years of year end statements and current interim statements. They will reconcile the two. If revenue has been recognised inconsistently, if owner expenses run through the company or if the books are months behind, the conversation slows down and the valuation conversation gets harder. Fix the history first, with your bookkeeper, a controller and your CPA, before any deck is written.
Prepare a short schedule of one-time and owner-related items, so the investor can see underlying performance without guessing at it. Be conservative. Investors will test every adjustment.
Know the unit economics cold
Whatever the business sells, investors want to understand the economics of one unit: one customer, one order, one job, one subscription. What it costs to acquire, what it earns on the first sale, what it earns over its life, how long it stays and what it costs to serve. Build these numbers from your own data, show the trend over time, and be ready to explain every assumption.
If the unit economics are not yet attractive, say so and show the path. Investors fund trajectories, and a credible plan to improve a weak number is better than a strong number nobody believes.
Keep a single source for every unit economics figure and make sure the deck, the model and the data room all agree. Investors compare them. A customer acquisition cost that differs between the deck and the model, even slightly, invites a question about which other numbers were rounded in the company's favour.
Build a driver-based forecast
A forecast that grows revenue by a percentage each month is not a forecast, it is a wish. Build the forecast from drivers: sales capacity, pipeline conversion, pricing, retention, hiring plan and the costs each of those brings. Show the assumptions on their own page. Show how the money raised is spent, by month, and what it produces. Show the cash balance through the plan and the point at which the company is self-funding or needs the next round.
Include a downside case. Investors will build one anyway, and the version you build will be more accurate.
Tie the first year of the forecast to the current interim statements so the starting point is a fact, not an assumption.
Assemble the data room
Organise it so an analyst can find everything without asking. Every request that has to be answered by email is a day of delay and a small loss of confidence.
- Year end and interim financial statements, with reconciliations between them
- The forecast model with its assumptions tab
- Revenue by customer, product or channel for the last two years
- Receivable and payable aging, debt schedule and any lease commitments
- Payroll summary by role, without personal information beyond what is required
- Material contracts, pricing policy and the cap table, prepared with your lawyer
- A short written explanation of accounting policies and any adjustments
Questions investors will ask about the numbers
Why did gross margin move last year. Which customers make up most of the revenue and what happens if one leaves. What is the real cost of acquiring a customer and how has it changed. How much of the forecast is already contracted. What does the company look like if the raise takes six months longer than planned. Who produces these numbers and how often does the owner look at them.
Prepare the answers in writing before the first meeting. The owner should be able to give every one without looking at a page.
What a finance lead adds to a raise
A controller or fractional CFO makes the history credible, builds the forecast with the owner, assembles the data room, sits in the investor meetings to handle the financial questions, and manages the reporting investors expect afterward. Investors also read the presence of a competent finance function as a sign that their money will be looked after.