Tips on Business Financing

1. Develop a financial model

If you’re raising $50,000 from friends & family, this may not be necessary, although I recommend the exercise to show your respect to your investors.  Building out a financial model gives you the chance to really think about the details of budgeting, costs, revenues, etc.  It will also help set expectations.  Brainstorm new product ideas and set milestones and goals.

Be prepared to show the VCs your financial model, it is the basis for what you will pitch them.

2. Set a realistic revenue target

Give VCs a revenue target, at least for the next 3 years.  Beyond that, is basically a black hole, except that you hope revenues will skyrocket!

Don’t tell them it’s extremely conservative.  Do tell them how you arrived at that numbers.

3. Explain your assumptions

You’ve set your 3 year revenue targets.  Now it’s time to explain to the VCs how you’re going to get there;  and this is really the key.  It’s at this point where you’re going to justify your revenue target and your business model.  Be prepared.  If you can not defend your numbers don’t bother presenting until you can.  You get one chance to present, don’t screw it up.

Avoid using target market percentages in your pitch.  VCs hate hearing “All we need is 1% of the market…” “thank you for coming in”.

Be able to justify every number that supports the next number and in detail.  If a VC is interested, they are going to ask many detailed questions, I would.  If they don’t, they don’t believe you.

4. Show VCs you’re thinking about the right things

Venture capitalists expect you to have most of  the answers. They know you won’t have all of them. But they do want to see that you’re thinking about the critical things, namely: The Business Model and The  Sales and Marketing Plan.

Going through the steps above will help you demonstrate to VCs that you are thinking about the right things.

Remember: Your financials can’t be pulled from thin air.

Presenting financials is hard. If you can bring in more experienced entrepreneurs and advisors, do it. First-time entrepreneurs will have little or no experience with financial modeling or even tackling tough questions on how they’re going to market & sell their product. But the more you can tackle this stuff up front the better your pitch (and business) will be.

Good Luck.

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