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From Diligence to Discipline: Building an Investment Process That Scales

From Diligence to Discipline: Building an Investment Process That Scales

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    Building A Financial Model

    2 min read Building a financial model is an important aspect of running a startup and achieving investor funding. Below, we learn how to create a quick version of the financial model, how to capture assumptions and drivers, and mistakes to avoid in financial modeling. Quick Version of The Financial Model When setting up your fundraising plan at a high level, set a revenue target five years out. Then, draw a line from today to that five-year mark. Your fundraise and hiring plan will come from that. To calculate this quick and dirty version of the financial model, follow these steps: Start with current revenue. Apply your organic growth rate and map out your top-line revenue for five years. Calculate your revenue per person metric. Apply your expenses for five years using the revenue per person metric. Identify the negative profit line.  Set your fundraise to cover the negative working capital. If the amount is greater than one million dollars, break the fundraise into two rounds. This will give you a rough idea of how much you need to raise and how many people you will need to hire.  Assumptions and Drivers In building out your financial model, make explicit the assumptions you are using and identify the drivers in your business. Create a tab on your financial modeling spreadsheet for assumptions and drivers for the investor to review. As you build out the revenue forecast, capture the assumptions behind the growth rate. For the costs, make clear which are fixed and which are variable costs. Identify the drivers within the business. Typically, this is the number of products sold or the number of customers signed up. This drives the revenue line as well as the variable costs. For example, the more customers targeted for revenue, the higher the cost of sales and sales commission. Investors look to see if the costs align with the revenue forecast. Understanding what drives your revenue and costs will help you build out your financial model and create more accurate projections. Mistakes To Avoid in Financial Modeling Your financial model can be used not only for fundraising but also for running your startup. Avoid these mistakes in setting up your financial model: Tying your revenue to a factor that doesn’t actually drive revenue. Instead, figure out what actually drives sales and build your model around that. Trying to identify exact numbers for factors such as conversion rate. Instead, use a range of numbers to account for variations. Skipping the research into companies in your sector. Instead, spend time looking at similar companies to find out what drives their business. Trying to include too many drivers in your business model. Instead, focus on the top drivers that account for the majority of your sales. Setting up the financial model for generating financial statements only. Instead, set up the model so it also calculates key performance indicators. Design the spreadsheet for running the business in addition to raising funding.   Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

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    Key Points to Know Before Building Your Financial Model

    2 min read The financial model summarizes a company’s performance using key factors such as revenues, assets, cost of goods sold, and more. The information derived from this model is used to create financial projects about future years’ performance. In this article, we look at key metrics including cash flow, financial model outputs, and the purpose of financial projections derived from the financial model. Key Metrics to Capture Your financial statements will generate a wealth of metrics on your business called Key Performance Indicators (KPI). Investors want to know these metrics, and they are useful to you as a business owner as well. Metrics help you focus your efforts on the important things. You can use them to identify new opportunities for growing sales and reducing costs. Key metrics for the overall health of the business include sales growth, gross margin, and profitability. For cash flow, you’ll find the burn rate, runway, and fundraise requirements will be useful. For recurring revenue, businesses measure the cost of customer acquisition, track the lifetime value of a customer, and indicate the churn rate.  Cash Flow The most important financial statement is the cash flow statement as cash is the most important financial metric for the business. If you run out of cash, you most likely will have to put the business on hold or shut it down entirely. There are two ways to account for cash: cash-based accounting and accrual-based accounting. As a startup, you’ll want to focus on cash-based accounting as it matches expenses with cash more tightly. The cash flow statement will give a runway number of months of operation. Run what-if scenarios based on different outcomes of the sales funnel. If your runway falls to six months or less, you must take steps such as launching a round of fundraising. It’s also helpful to understand your costs — you have variable and fixed expenses. Variable expenses rise and fall with sales activity, while fixed expenses stay the same regardless of activity. In the early days of the startup, you want to push as many expenses into the variable side as you can. As you grow larger, you’ll want to move from variable to fixed expenses as the overall cost will be lower.  Outputs of The Financial Model A financial model provides three outputs- key financial statements, an operational cash-flow forecast, and key metrics for the business. Key financial statements include the profit and loss statement (P&L), the balance sheet (BS), and the cash-flow statement (CF). The P&L shows revenue matched with costs and indicates whether or not you are profitable over a period of time. It can be used to compare different time periods such as this year versus last year or this quarter versus last quarter. It’s often used to compare the actual results with the budget.  The balance sheet shows the company’s assets and liabilities. This is a snapshot in time. The difference between assets and liabilities must always equal shareholder equity (assets = liabilities + equity). The cash-flow statement shows cash inflows and outflows over a period of time. Key metrics include gross margin, profit margin, cash runway, and more.  Purpose of Financial Projections Your company’s financial projections document, also called the pro forma, is a key document you’ll need for your fundraise. Investors will want to see a detailed, five-year financial projection to show that you’ve thought through the financial side of the business.  A quality financial projection shows investors you know your business and have a good idea about what things cost and what customers will pay. Investors also glean from the financial projections how you are going to use the funds they offer you. Financial projections are not about predicting the future with great accuracy, but instead showing the causalities and interdependencies of your business. This document answers questions such as: If sales double, what is the impact on costs? If sales drop by 50%, what happens to cash flow?  Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

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    Startup Forecasting Using Financial Projections

    2 min read  Startups use key performance indicators to gather financial projections on a five-year scale. These outcomes are then listed in the financial projections document. This document can be used for many purposes, including startup forecasting. More than one forecasting method is available to startups. Let’s take a look at the different methods you can use. Best Case Worst Case After completing the financial projections, you may want to create various scenarios of your financial model. Startups are often optimistic, while investors are pessimistic, so it can be helpful to create a best-case scenario and a worst-case scenario. For the worst-case scenario, keep your revenue at the current level or only with small increases. Check your cash position and runway and adjust the expenses and fundraise plan accordingly. For the best-case scenario, use the revenue targets you have in mind. Check your cash position and runway and adjust the expenses and fundraise plan accordingly. Here are several common errors: As sales grow, so do sales costs – in particular commissions. Make sure these costs are included with the revenue ramp. Fundraises typically take longer than expected. For every $1M of funding you seek, it will take you one calendar year to raise it. Include your working capital needs for your fundraise planning and its impact on cash position. Founders typically work long hours for little to no pay. This is not true with non-founders. Make sure you include reasonable salaries for the work you expect from others. Top-Down Forecasting There are two approaches to financial forecasting for startups. The first is top-down forecasting. Top-down takes a macro perspective by using the overall market sizes and industry estimates for your type of business.  The top-down approach uses market share. Market share is divided into three segments: Total Available Market- anyone you can sell to Serviceable market- your target market Beachhead market- your initial segment to pursue Base your financials as a percent of market share. Look at similar companies in the space to identify the COGS, gross margin, and operating expenses. Give yourself three years to ramp to profitability. Bottom-up Forecasting The second approach to financial forecasting for startups is bottom-up forecasting. Bottom-up forecasting uses the company’s historical data for cost and sales. It takes a micro-view and focuses on the core drivers in the business.  Through experimentation, the startup learns the cost of sales and marketing through various channels. Having sold some units of the product will guide the revenue forecast based on the sales funnel and the sales resources available.  The bottom-up approach may generate a forecast that looks weak to an investor. You may add your growth initiatives in to show what will drive the growth upwards past the organic growth rate. The initial growth (1-2 years out) comes from the current state of the business, while the future growth (3-5 years out) comes from your growth initiatives. Make clear your assumptions in the spreadsheet. Your thought process and approach will weigh more heavily than the numbers themselves. Include attributions for market research such as websites, news articles, and market reports.  Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

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    Best Practices for Entrepreneurs Seeking Funding

    2 min read Working with entrepreneurs every day who are going through the fundraising process. Over time, I’ve found some entrepreneurs employing practices that make the process go smoothly. For those who seek funding here are some best practices to consider in your fundraising efforts: Develop a relationship with investors early on. Entrepreneurs often say that they do not need funding right now so they don’t need to talk with investors. Ask when they will need funding and surprisingly the answer is usually six to twelve months later. I advise the entrepreneur to start developing relationships now. If you wait six months and then start looking you’re behind. In meeting with an investor the entrepreneur can state that he’s not ready for investment but then lay out the plans for developing the business. By building a relationship now and keeping the investor informed of your progress, the entrepreneur will be in a better position when it comes time to raise the funding. Have ready the executive summary, slide deck, and business plan with financials. It helps to have the core three documents – executive summary (one-page only), slide deck, and business plan already developed and ready to go. As the entrepreneur meets prospective investors he can use the appropriate docs for each meeting. Publish a periodical email newsletter for interested investors. In the fundraising process, some entrepreneurs send out email updates to highlight the progress of the company. Some come as often as weekly to show progress in sales, product plans, and other milestones. This shows the company’s ability to execute. Find a lead angel to develop a terms sheet and start off the funding round. By finding a lead angel and creating a terms sheet, the entrepreneur removes the biggest barrier to fundraising – the negotiation process. There are numerous angel investors who find the initial negotiation and due diligence process too time-consuming. By eliminating this hurdle, the entrepreneur opens up the deal to a larger number of investors. Make the deal terms “investor-friendly” Of course, every deal must be negotiated. The harder the terms for the investor to accept the longer the time it will take to negotiate. By making the terms “investor-friendly” through reasonable pre-money valuations, preferences, and other terms, the faster the process goes. Due diligence docs to a password-protected website The due diligence phase can be sped up by having all the key docs already available. I’ve seen some entrepreneurs put everything on a protected website and then give out the password to interested investors. This knocks down the hurdle of trying to send 600 MB worth of documents through the email system. Quarterly email newsletter after funding  It’s important to keep investors up to date even after the funds are raised since investors can help in other ways. Some investors bring a rolodex of contacts while others bring experience and coaching. By keeping them informed of your progress and challenges, they may be able to help. This practice is also useful for when it comes time for follow-on fundraising. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

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    What is a Business Model (and Why is it Important)

    2 min read In starting a new venture, most start by trying to write the business plan before the Business Model because everyone tells you how much you need one. So you sit down to write the business plan and you start through your checklist: “Management team…well so far, there’s only me, so I’ll just add two more positions to be determined later.” “Problem to be Solved…well, that’s an interesting question. I’m solving so many problems, I’ll just say, we’re going to save the customer time, and make it easier for him to do his job. That should cover it.“ If the above description sounds familiar, it should. Most entrepreneurs start by trying to write the business plan but there’s not enough information to carry it through at the early stage. There are too many decisions still to be made. There’s too much information not yet accumulated. Business Plans vs. Business Models Instead of working on the business plan from day one, work on the business model. Focus on how you are going to generate revenue and what will be your core costs. If you figure this out, then you have the key elements of a business plan. You can fill in the other pieces based on the business model. For example, the management team positions will become clear once you know the business model. The problem you are solving is much clearer and so it goes with the other elements of the plan. The Nine Models for Making Money The business model in short answers the question: how do you make money? Here are the nine business models as outlined in Managing the Digital Enterprise: Brokerage Model: bringing buyers/sellers together. Advertising Model: promoting products/services to an audience Infomediary Model: gathering information about an audience and monetizing it Merchant Model: selling goods/service either wholesale or retail Manufacturer (Direct) Model: selling goods/services directly to the user without an intermediary Affiliate Model: providing purchase opportunities wherever people may be Community Model: selling ancillary products/services in a community Subscription Model: charging for ongoing usage of a product/service Utility Model: charging based on how much of a product/service is used. In today’s web-based world, it’s common to use two or more of these models in the same business. Before fundraising, it’s important to identify the business model. The business doesn’t have to generate a great deal of revenue but it needs to have a clearly defined business model that is scalable. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

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    Should I Raise Funding?

    2 min read Not all capital needs are best addressed through fundraising, and not all startups are ready to start a round of funding. Before beginning your raise, consider if fundraising is the best way to go for your startup. In this article, we will help you determine if you should raise funding by looking at your organization’s metrics, team, and product or service.  Should You Raise Funding for Your Startup Not all capital needs are best addressed through fundraising. Before beginning your raise, consider if fundraising is the best way to go for your startup. Ask why you need funding. See if you have a specific need for funding that is tied to growing the business.  If you have a business that is on a high growth trajectory, consider venture funding. If the company is not high growth or has no vision of selling it, consider other forms of funding such as SBA loans or revenue-based funding.  Investors expect a return in the ballpark of five times their investment in five years. Angel and venture capital funding goes to those startups that can provide this level of return. Other factors to consider for venture funding include the following: You have a large addressable market. You are building a scalable business. You are using a recurring revenue monetization model. You are building a platform-based business rather than a single product. You plan to sell the business rather than keep it for a lifestyle business.  You have built enough business to prove product and market validation- the product works, and people will pay for it.  When to Raise Funding Most founders go out for a fundraise prematurely because they need money, not because they are ready for fundraising. Consider the following to understand when it is best to raise funding: Do you have a compelling idea that you can articulate? Do you have a validated customer, market, and product lined up? Are your investor documents prepared? Of course, your pitch deck will change over time, but it always needs to show the core product, team, and fundraise. Can you demonstrate the product, even at an early stage? Can you show customer interest through engagement as well as revenue? Have you spoken with some investors to identify what risks they see in the deal? Do you know how you can mitigate those risks? Only after completing the above preparations should you consider launching your fundraise. You can then successfully engage investors with your deal, and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. Can You Show Product and Market Validation? In talking with startup investors, the first two questions are Product Validation and Market Validation. Essentially, these measures show that the product works and that someone will buy it. Investors look for evidence of this before moving into further diligence, so it’s essential to show this in your pitch. Beta users are a great way to show the product works, as well as customer interest. In many cases, the product is a website supplying some value in data storage or analysis. In today’s world, the chance of getting the product up and running is relatively high- but will someone use it? And more importantly, will someone pay for it? Customers who pre-pay for your product check the market validation box. This demonstrates you are solving a real problem. If you don’t have anyone paying for it, you’ll need to resort to pipeline metrics showing the number of downloads, trials, and pilot programs. While these metrics are not as valuable as showing proof of a paying customer, they indicate that the customer will most likely buy. It’s helpful to show the funnel prospects in engaging your product. This includes lead generation, qualification, closing, trials, pilot tests, and signed customers. Investors look for a consistent signup percentage on the leads going through your program. While the absolute number of signups may not be high, the repeatability of your model can be compelling to the investor. How To Know If Your Startup is Venture Fundable The following points will help you to understand if you are venture fundable. But, first, consider if you have the following: Recurring Revenue – Do you have recurring revenue in your model?   Platform-Based Approach – Are you taking a platform-based approach to the product/service delivery, or do you sell one-off products?   Data-Centric – Are you capturing key data elements that improve your process and product?   Strong Team- Do you have a strong team? Does each member bring expertise about their field to your business?   Fast growth (>50% YoY) – Are you growing at least 50% YoY?   Large Target Market – Are you targeting a market over $1B? The more checkmarks you have on this list, the more fundable you are with VCs. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group.

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    The Golden Rules of Fundraising Success

    2 min read  Here are the basic rules of fundraising that all startups should keep in mind: The Golden Rules of Fundraising Success. Know your investors It’s important to know what kind of investor will benefit your business. You want to understand what that investor wants to see in your deal. Educate your investors After you pitch to the investor, it’s essential to educate the investor through updates about your deal. It’s often the case the investor is unfamiliar with your application or space. Build trust Demonstrate that you can be trusted by showing examples of how you’ve performed in the past. Respect your investors Actively show respect to the investor throughout the process. Please do not take the investors’ time and advice for granted. Investors will lose interest and look for other fundraising opportunities if their feedback and advice go unrecognized.  Focus on current supporters Make sure you keep your current investor and investor prospects updated on your startup. If you don’t articulate progress in your deal, the investor will most likely not know. Feel free to try out our calculators and contact us if you would like to discuss your fundraise: http://staging.startupfundingespresso.com/calculators/ Hall T. Martin is the founder and CEO of the TEN Capital Network. TEN Capital has been connecting startups with investors for over ten years. You can connect with Hall about fundraising, business growth, and emerging technologies via LinkedIn or email: hallmartin@tencapital.group

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    Fundraising 101

    2 min read Are you considering starting a round of funding for your startup? If this is your first time running a raise, you likely have a lot of questions. In this Fundraising 101 guide, we will share when you should consider starting a round of funding, what type of funding to consider going after, how to prepare, and how long it will take. Read below to better understand the basics of fundraising for your startup. When to Raise Funding Most founders go out for a fundraise prematurely because they need money, not because they are ready for fundraising. Consider the following to understand when it is best to raise funding: Do you have a compelling idea that you can articulate? Do you have a validated customer, market, and product lined up? Are your investor documents prepared? Your pitch deck will change over time, but it always needs to show the core product, team, and fundraise. Can you demonstrate the product, even at an early stage? Can you show customer interest through engagement as well as revenue? Have you spoken with some investors to identify what risks they see in the deal? Do you know how you can mitigate those risks? Only after completing the above preparations should you consider launching your fundraise. You can then successfully engage investors with your deal, and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. Types of Funding Before choosing a type of funding, consider the following: Investigate every kind of funding and think about where it may fit into your overall funding plan. It’s most likely that you will use two or three types of funding over the life of your business. To understand the type of funding you should look for, ask: “How will you pay the investor back?” For example, if you plan to pay back when you sell the business, equity funding should be considered. On the other hand, if you plan to pay back out of the company’s cash flow, then debt funding is a better choice. If you have a consumer-facing product, consider crowdfunding which offers both debt and equity options. Break your funding down into parts, and consider using more than one type of funding for your business. How to Prepare for a Raise Before launching your fundraise campaign, prepare your business, complete your investor documents, and build your investor network. Preparing your business is the first step in preparing for a raise. The preparation consists of checking in with your team, the board, and both potential and current investors to gain alignment- your fundraise launch should not come as a surprise to them.  Next, complete your investor documents, including a pitch deck, financial proforma, and diligence room. Your financial proforma should lay out how much you should raise and what you will do with it. If you’re unsure how to set this up, write down your current revenue and the revenue you predict to have in the next 24-36 months. From this, you can extract how much funding you will need to raise and how many people you’ll need to hire. Finally, your pitch deck should tell the story of how your business makes money and why it will succeed. Finally, build your investor network. Make a list of investors to contact, including existing investors. Setup a few initial meetings and tell the prospective investor you plan to launch a fundraise in three months. This removes the pressure from the investor and often elicits feedback on how much to raise, how to structure the deal, and more. What Are Fundraising Differences by Stage In raising funding over the life of the startup, you’ll find there are differences in the fundraise at each stage. The goal at the Seed stage is to show you can sell the product. At this stage, the investors will look primarily at the team since there’s little product or revenue. However, you will still need to show a working prototype and initial customer validation. Finally, you must convince the investor that customers will pay for the product and use it. At the Series A stage, the goal is to show you can grow the business. At this stage, you need to establish a repeatable and predictable process for acquiring the customer, delivering the service, and retaining them. Show a sales funnel with prospects tracking through the process of turning into customers.  At the Series B stage, the goal is to show you can scale the business. You need to show you have growth drivers built into the business that scales the company in this stage. This includes systems that can drive scale growth, such as a partner network, sales force capability, and expanding into new markets with the same platform. At each stage, the pitch deck will need to reflect the goal for the fundraise and show what the business is doing to achieve it. Fundraising Timeline As a rule of thumb, for every $1M of funding you want to raise as an early-stage startup, you should expect one calendar year to grow it. This includes time to prepare the company, the investor documents, the pitch, and contacting, pitching, and following up with investors.  It’s best to have your pitch deck and financial projections prepared before the fundraise, as well as a primary data room with the essential documents investors expect. This shows you have the fundraise well organized. Investors have their diligence process and are remarkably busy, so you have to work through their schedule. Fundraising should be a full-time job for the CEO, with support from the team for document preparation. The first few investors are the most difficult as no investor wants to go first. Therefore, this stage takes the most time. Once you reach 50% of your fundraise goal, you can estimate the remainder of the raise will take about 30% less time than the first half of the raise. The process may run faster if you have

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    Fundraising 101

    2 min read Are you considering starting a round of funding for your startup? If this is your first time running a raise, you likely have a lot of questions. In this Fundraising 101 guide, we will share when you should consider starting a round of funding, what type of funding to consider going after, how to prepare, and how long it will take. Read below to better understand the basics of fundraising for your startup. When to Raise Funding Most founders go out for a fundraise prematurely because they need money, not because they are ready for fundraising. Consider the following to understand when it is best to raise funding: Do you have a compelling idea that you can articulate? Do you have a validated customer, market, and product lined up? Are your investor documents prepared? Your pitch deck will change over time, but it always needs to show the core product, team, and fundraise. Can you demonstrate the product, even at an early stage? Can you show customer interest through engagement as well as revenue? Have you spoken with some investors to identify what risks they see in the deal? Do you know how you can mitigate those risks? Only after completing the above preparations should you consider launching your fundraise. You can then successfully engage investors with your deal, and remember to never show up to an investor meeting empty-handed. Always have some customer engagement to discuss. Types of Funding Before choosing a type of funding, consider the following: Investigate every kind of funding and think about where it may fit into your overall funding plan. It’s most likely that you will use two or three types of funding over the life of your business. To understand the type of funding you should look for, ask: “How will you pay the investor back?” For example, if you plan to pay back when you sell the business, equity funding should be considered. On the other hand, if you plan to pay back out of the company’s cash flow, then debt funding is a better choice. If you have a consumer-facing product, consider crowdfunding which offers both debt and equity options. Break your funding down into parts, and consider using more than one type of funding for your business. How to Prepare for a Raise Before launching your fundraise campaign, prepare your business, complete your investor documents, and build your investor network. Preparing your business is the first step in preparing for a raise. The preparation consists of checking in with your team, the board, and both potential and current investors to gain alignment- your fundraise launch should not come as a surprise to them.  Next, complete your investor documents, including a pitch deck, financial proforma, and diligence room. Your financial proforma should lay out how much you should raise and what you will do with it. If you’re unsure how to set this up, write down your current revenue and the revenue you predict to have in the next 24-36 months. From this, you can extract how much funding you will need to raise and how many people you’ll need to hire. Finally, your pitch deck should tell the story of how your business makes money and why it will succeed. Finally, build your investor network. Make a list of investors to contact, including existing investors. Setup a few initial meetings and tell the prospective investor you plan to launch a fundraise in three months. This removes the pressure from the investor and often elicits feedback on how much to raise, how to structure the deal, and more. What Are Fundraising Differences by Stage In raising funding over the life of the startup, you’ll find there are differences in the fundraise at each stage. The goal at the Seed stage is to show you can sell the product. At this stage, the investors will look primarily at the team since there’s little product or revenue. However, you will still need to show a working prototype and initial customer validation. Finally, you must convince the investor that customers will pay for the product and use it. At the Series A stage, the goal is to show you can grow the business. At this stage, you need to establish a repeatable and predictable process for acquiring the customer, delivering the service, and retaining them. Show a sales funnel with prospects tracking through the process of turning into customers.  At the Series B stage, the goal is to show you can scale the business. You need to show you have growth drivers built into the business that scales the company in this stage. This includes systems that can drive scale growth, such as a partner network, sales force capability, and expanding into new markets with the same platform. At each stage, the pitch deck will need to reflect the goal for the fundraise and show what the business is doing to achieve it. Fundraising Timeline As a rule of thumb, for every $1M of funding you want to raise as an early-stage startup, you should expect one calendar year to grow it. This includes time to prepare the company, the investor documents, the pitch, and contacting, pitching, and following up with investors.  It’s best to have your pitch deck and financial projections prepared before the fundraise, as well as a primary data room with the essential documents investors expect. This shows you have the fundraise well organized. Investors have their diligence process and are remarkably busy, so you have to work through their schedule. Fundraising should be a full-time job for the CEO, with support from the team for document preparation. The first few investors are the most difficult as no investor wants to go first. Therefore, this stage takes the most time. Once you reach 50% of your fundraise goal, you can estimate the remainder of the raise will take about 30% less time than the first half of the raise. The process may run faster if you have

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