Raised a seed round? Besides the obvious benefit – funding, what you get is the implicit confirmation on the potential of your business idea and the momentum to keep venturing forward. A seed round is meant to supply a start-up with sufficient capital to support product development and initial market research to build a strong foundation. However, in order to continue growing your business to the next level, you should look to raise a Series A round.
Since you have raised your seed round, one would think that raising Series A round may not seem as daunting. However, this is a dangerous misconception which should be corrected early. You cannot spend the money you do not have and you need to prevent the situation where you run out of money when you need it the most – to develop your minimum viable product (MVP). “To be prepared is half the victory.” It is important that you arm your company with the armour for victory in series A because who would ever say ‘no’ to more capital?
Fundraising would likely be your means of getting more funding, but before that, you should consider hiring an interim financial controller or Chief Financial Officer (CFO) to help you be prepared to even start your battle. Here is how a CFO can help:
- Set the right foundation for your finance team
Burn rate may seem like the obvious way to determine the runway of your company since it is the most obvious method to account for capital. However, it is overly simplistic as it obscures the true profitability trend when there are repayments on both the revenue and cost sides. In addition, investing in long-term capital such as people, equipment and intellectual property is hard to quantify in terms of burn rate. You will need to use other profitability metrics such as operating and net profit margins to get a more accurate representation of your company. In fact, series A investors would also want to know these metrics without the wide fluctuation in monthly profit and loss. It would be relatively expensive and time-consuming to change your accounting from cash to accrual at a later stage as your company will only keep growing. The question now is – if not now, then when?
- Substantiate your plans with numbers
If you think you could easily close a Series A round just by reaching out and pitching to investors, think again. Who is going to believe you when investors do not even know you? A financial model is key, if not mandatory, to demonstrate to the investors that you have considered all the factors that would directly impact the success/failure of your company. Some basic questions to ask are:
- What is my company’s funding requirements?
- What are the key performance metrics for my company? Examples include conversion rate, churn, customer acquisition cost and monthly recurring revenue (MRR).
- What are the key factors for product development?
- What are the financial impacts of cost overruns/delays in completion?
…and the list goes on.
Essentially, you should provide a well-constructed financial model that can prove to investors that you will be using their money wisely. The model should not only provide a comprehensive projection of the business prospects, but also allow you to understand your industry landscape better so that you can exploit emerging opportunities faster and better than your competitors. All these combined would allow you to produce concrete figures to pitch your ideas convincingly to investors.
- Prepare your company for enhanced due diligence
You need to prove your ability to execute upon your business idea after you have gathered the resources you need using the funds received during the seed round. From your financial model, you need to identify and track your key performing indicators which can help to substantiate your claims of impressive and consistent growth and scalability.
As the CEO, you would probably be too preoccupied with entertaining venture capitalists that you can ill afford the substantial time nor effort required to prepare for your Series A round. Instead, an experienced interim CFO might be the suitable candidate to help oversee the significant preparation work needed for the more intense due diligence in a Series A round. Above all, a CFO would likely possess the crucial connections with venture capitalists and angel investors to leverage on so as to improve the odds of a successful Series A round.
As such, you should consider hiring an interim CFO to assist you in your fundraising journey to grow your business to the next level.