The Right CFO for Early Stage Financing – An Entrepreneur’s Checklist for Raising Early Stage Capital
Are you hoping to secure capital to properly fund your business? If so, you need to know how to prepare to maximize your opportunity for success. Obtaining financing is a complicated process, but below are elements that the right CFO can help identify and execute to successfully raise early stage capital.
Understand short-term and long-term financial needs of the company. While insufficient funds may prevent your company from realizing its true growth potential, raising too much capital too soon may generate costs that far outweigh the benefits intended from financing growth. Thus, an accurate understanding of the short and long-term needs of the company, based on accurate and timely financial information and modeled projections, is essential to successful early-stage financing.
Provide accurate forecasts of revenue, market share and margins. Adequate financial information is also crucial in obtaining the financing. Timely and accurate reporting of key financial and non-financial information tells lenders and investors that your company understands its business model and is able and ready to act on key information to keep the business on track. Advanced planning is important to avoid financial statements becoming the impediment to an successful capital raise.
In addition, accurate forecasts of revenue and related costs can provide a roadmap for determining the now and future value of your company. An accurate forecast will have major consequences for your company and its current and future investors. A valuation set too low devalues the existing investors’ equity and overly dilutes their ownership percentage. On the other hand, a valuation that is set too high may cause investors and observers to doubt the company’s credibility, make it difficult for initial investors to sell their holdings and exit, and make it difficult for the company to deliver on its projections.
Have clear milestones for development. Creating a business plan with clear milestones for development is also crucial to your company’s progression and attracting the right investors. Your company’s business plan is often the first and only introduction to a potential investor. It must drive the assumptions and the direction of your company’s projected financial activity. The milestones described in your business plan need to be clear and achievable.
Understand competition and market trends. As recent history has shown, the markets for public and private equity can change dramatically in a very short time. Your company needs to ensure that team members understand the current market trends. All potential consequences should be weighed when making decisions related to forming an entity and seeking an equity partner.
Understand financing options available.
Obtaining financing is not a one-size fits all operation. There are several sources of equity capital available, including angel investors, private equity firms, strategic partners, and the newly surfaced social investors commonly known as “crowd funding.” It is also important to understand applicable statutory and regulatory schemes affecting each kind of financing. For example, Jumpstart Our Business Startups Act (JOBS Act) was enacted in 2012 and provides private companies with additional avenues to raise capital without registration with the SEC. Understanding the ins and outs of available financing options is essential to increasing the company’s chances of successful financing.
Focus on the team. Finally, it is vital that your company focus on developing a quality team to carry out these important objectives as well as to attract investors. Your company must show investors and lenders that its team has the experience and knowledge to manage the investment wisely with a high probability of generating the desired ROI. Having highly-qualified, experienced team members who have demonstrated success will go a long way to helping the company secure the investor’s trust and then their money.
David Chase has experience in small to medium private companies and large public companies as a senior operational and financial leader. With 14 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience. Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $450 million.