The Pitchford Investability Index: Fundraising Essentials


Author: Daniel Pitchford

Words: 1246

Time to read: 5 minutes

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When I first started what became Futurum Media some 5 years ago, my co-founder George and I deliberated over the optimal business plan: what level of funding we required to first break even, and then create substantial value and profits. What we didn’t count on was the fact that fundraising isn’t for everyone. Depending on the sector you’re in, the product or service you’re developing, and the business model you’re going to operate, there are a number of different options to consider, if indeed your business requires funding at all. There are nuances between opting for angel, VC, and corporate investment. They have different strategies, ROI requirements, and day to day engagement in their investments. Depending on what stage you’re at, and growth plans, there are pros and cons to each to be aware of. 

Long story short – we bootstrapped Futurum Media, maximising on our ability to win business early on, and being fastidious about invoicing for immediate payment. We practised the fine art of balancing cash flow with a short turnaround on sales invoices and as long a runway as professionally possible for suppliers, mixed with a creative utilisation of two VAT schemes. For us, it worked – we were able to grow organically and fuel our scaleup through cash generation. 18 months in,we were very profitable with a YOY revenue growth rate of 100%, along with a strong brand built on creating  long term value for our growing community.

That’s not the only path to scale and/or exit. If we were in a sector or business model which had a higher barrier to entry, required long product development cycles, and expensive software or hardware manufacturing, we’d certainly have gone further down the fundraise route; and for those that are – it can feel like a long and winding road.

Since the Futurum days, I’ve had more and more experience not only with the exit process (which is a lot like a fundraise in terms of creating a strong pitch deck and IM, and the ‘enjoyable process’ of due diligence), but also in the various mechanisms and types of fundraising that are available. 

As well as joining Collingwood Advisory as a Senior Adviser, I’ve taken up a position as a Venture Partner at Seed stage, Tech VC; SuperSeed. Now I am seeing how it works from the other side of the fence and have got a real sense of how the model operates when it comes to assessing a startup’s potential for making an investment. What I feel is worth sharing at the offset is, the majority of VCs aren’t evil entities looking to muscle in and lure away power and equity through clever financial mechanisms. No, instead, at least what I’ve learnt through my time  in the industry is VCs and intelligent investors more broadly, seek to serve the founder and business to support them in maximising on their potential. Incentivising and nurturing the founding team comes high on the agenda. Before you get to the stage of receiving a term sheet, there are some important elements that prospective investors will need to get comfortable with. The more you can build these into your deck and pitch, the smoother and more productive a first meeting you’re likely to have. 

Here are my 10 steps to nail down a successful fundraise and pitch deck – at Collingwood Advisory, we also use these elements to build out IMs when we help clients to sell their companies.

 

  1. Business and background
  • Why do you exist?
  • Story so far – successes and learnings?
  • Fundraise – what have you raised to date, how much are you raising now, at what valuation, and the workings for how you got there. Are there any incentives for investors to be aware of (SEIS/EIS). Who else is in this round (good to see a mix of existing investors VS all new)?

 

  1. Founders and team
  • Why you? Relevant domain experience.
  • What is your vision and what is driving you toward this?
  • How strong is your team and can the existing team deliver the business plan?
  • What gaps are there and how will you address them?

 

  1. The customer problem
  • Is it well defined and acute?
  • How is it currently being solved/served?

 

  1. Solution
  • What’s the value proposition?
  • How would you articulate to a customer prospect?
  • What is unique about your solution?
  • Is it a long term play or a short term fix?

 

  1. Market
  • What is the TAM (Total Addressable Market)?
  • What % will you penetrate, given how crowded the space is?
  • How strong is your brand in this market?
  • What is the immediate market potential and customer feedback to support your claims?
  • How will you focus as you grow – geo expansion, and when?
  • What are the risks to this market and how can you mitigate?

 

  1. Customers
  • Profiles of buyers and users.
  • How many do you have?
  • Are they renewing?
  • What made them buy now?
  • Who can we talk to in order to reference and validate the solution (3+)?
  • How will you acquire new customers, and who are they (top 30 as a minimum).
  • How long is the sales cycle and how can you create efficiencies?

 

  1. Financials and KPIs
  • Past 2 years’ P&L and narrative to support data (reason for % growth/decline/margins)
  • Current year and forward forecast – is the CAGR over 10%?
  • Focus on margins – Gross and Net with narrative to support increasing both or clear reasons why not if in growth phase
  • Don’t overcook early years as expectation is you need to spend to grow and acquire customers
  • Revenue model and how robust it is
  • Cash flow analysis – what are you spending, and where?
  • AOV and retention rates

 

  1. Competition
  • Who are the top 5 in this market?
  • What are your clear differentiators?
  • What is it that gives you the edge and how will you maintain this?
  • How defensible is your solution or angle?
  • How many customers have you taken from each of your competitors?
  • What do any of your competitors currently do better than you?

 

  1. Fundraise and ROI
  • The raise and valuation (pre/post)
  • Use of funds
  • Next fundraise milestone
  • What does an exit look like? And timeframe.
  • What will the business be valued on, and likely multiple?
  • What examples can you share on similar businesses and EVs?
  • Who will buy the business, and do you have existing relationships?
  • Overall risks to the business plan and ultimate ROI
  • Can we see a clear path to a >10x return?

 

  1. Why us?
  • What do you want from an investor?
  • Why do you feel we are a good fit?
  • What do you feel you add to our current portfolio?
  • What value (outside of capital) can we add to your business?

 

These are broad and can really be applied to any sector or business – the more time I spend assessing tech startups, the more it’s clear that there are different models and metrics which apply. If you’re one of these startups you’re going to want to focus on metrics for MRR/ARR, CAC, CLTV, net churn, net new revenue, and the different way valuations are calculated. For example, in a pure SaaS business you’re going to be valued on a multiple of forward recurring revenue VS your EBITDA.

For media companies – subscriptions, memberships, events and digital publishing – the main metrics are the same: EBITDA, EBITDA growth, top line growth, retained revenue, forward booking profile. Whenever we prepare for a fundraise or a sale process, Collingwood Advisory drills down into specialist detail:

  • For subscription businesses we look at CLV vs cohort attrition rates, pricing matrices, sales cycles
  • For exhibitions these include onsite rebook by volume and value, monthly or weekly m2 sales pacing
  • For digital media, customer KPIs are as important as company KPIs: volume and value of leads generated as well as share of wallet and market penetration

Putting yourself in your prospective investors’ shoes helps to position your business in a way that makes sense, and is easy to relate to – leaving more time to build a strong relationship, and one on the right terms.

 

*** Find out more about fundraising and other funding options at our Balance Sheet Hacks webinar ***

4.30pm BST, Weds 15 April

 

 

 

 

 

 

 

 

Daniel Pitchford
Senior Adviser
Collingwood Advisory
daniel.pitchford@collingwood-advisory.com