Embarking on a new phase with your organization and preparing to engage with investors? A thorough preparation is crucial to make a strong first impression. How should you approach conversations with investors? How can you achieve the desired valuation for your company? And what should you be mindful of?
Tips from Entrepreneurs:
- Start early in seeking investors: Take the time to find the right match; this preserves scalability for the future. By taking your time, you build strong relationships with potential investors, even when you don’t need funding yet. Additionally, securing funding can be time-consuming; as a CEO, you might spend 30-50% of your time on this, especially in the beginning.
- Assess the value that investors can add: Think beyond financial support; seek and inquire about the expertise and networks investors can offer.
- Be transparent about your company’s volatility: Be honest about the challenges your company may face and how you plan to address them.
- Timing is crucial: Understand the right moment to raise funds and consider external factors like market conditions and interest rates. It’s preferable to seek funding when you have some traction rather than being entirely pre-revenue.
Tips from Investment Firms:
- Substantiate your revenue forecasts: Use reliable data, such as an order book, or demonstrate that current revenue is recurring to give investors confidence in your financial projections. Presenting a Letter of Intent can also serve as solid evidence.
- Clearly explain your company and technology: Ensure that investors understand what your company does and the value you offer. This clarity can positively impact your valuation.
- Thoroughly research the investor: Understand the background and areas of interest of potential investors to find a good match between your company’s goals and the investor’s motivations.
- Build a strong team: Investors evaluate the team behind the company; relying solely on one founder is too risky. Therefore, it’s important to have a complete team capable of realizing growth and, if necessary, taking over the company.
- Consider your exit strategy: Formulate a clear plan for exit and understand the interests of different investors, as this can influence your valuation. Divergent interests can affect the valuation of incoming investors.
“As a CFO, you can make most impact in a scale-up. A startup is still searching for a product-market fit, but scale-up entrepreneurs understand how to achieve growth with more capital.”— Erwin van Meeteren, Greyt CFO
Tips from Registered Valuator and Greyt CFO Ruben Reimering:
- Present the right information to investors: Tailor your message to the interests of investors. For example, with a fund that values ESG, proactively showcasing your impact in areas like Environmental, Social, and Governance (ESG) can positively influence your valuation. Consider aspects like energy consumption, climate impact, availability of resources, health, and safety.
- Demonstrate investment in the future: Showcase your investments in R&D and innovation to enhance investor confidence.
- Prepare your company for acquisition: Optimize your corporate structure and work on improving your working capital. Consider divesting loss-making activities and identify one-time costs and investments (normalizations). This makes your company more attractive to investors.
- Be mindful of dependency on customers and suppliers: Investors want to know how dependent you are on certain customers or suppliers and the risks this poses to your company’s stability and growth.
- Be prepared for due diligence: Ensure that you have all necessary information about your company readily available for investors, i.e., be #alwaysduediligenceready.
Tips from the Corporate Finance Advisor:
- Highlight international expansion and scalability: Show investors the growth potential of your company, including opportunities for international expansion.
- Understand the concepts of stand-alone value and strategic added value: Be aware of how investors assess your company’s value and how strategic aspects influence this evaluation.
- Compare similar companies and analyze market approach: Research comparable businesses, understand how investors assess market valuations, and examine how these companies were valued. In other words: do your homework in advance.
- Be precise when discussing your company’s valuation: Make sure you’re negotiating based on the same definition of valuation—Pre-Money vs. Post-Money.
Pre-Money = the value of shares before the investor contributes capital.
Post-Money = the value of shares after the investor has contributed capital.
Want to learn more about how Greyt can support you in securing funding and scaling your business? Get in touch with us at info@greyt.nl.
