2 min read There are many factors you must keep in mind when trying to secure venture funding. Our Venture Funding Calculator uses these to give you a score you can use to see how fundable your business is in the eyes of investors.
Here is a breakdown:
Product/Platform
Venture investors seek platform-based businesses over product-based businesses because platforms give the business an inherent cost advantage due to the structure of its system.
If you don’t yet have a platform or a product, a working prototype will demonstrate some value.
Monetization
Consulting services are the least scalable choice and thus receive the lowest score.
If you have a core product/service that has some elements of scalability, this will receive more points. If you have a platform that carries multiple products, points will be even greater.
Revenue Model
Investors look for predictable revenue. If it’s an annual payment it’s called Annual Recurring Revenue (ARR). For monthly payments, it’s Monthly Recurring Revenue (MRR).
The most ideal case is If you have recurring revenue in software only. Next is recurring revenue with hardware.
Revenue from users who are not repeat customers also fits here. Freemium users indicate potential revenue in the future which has some value.
Competitive Advantage
In pitching to investors you must have a competitive advantage and be able to demonstrate it.
You must identify your core competitive advantage and show how it gives you at least a 30% cost reduction or 30% revenue increase over the traditional methods. This could be through network effects, virality, channel access, or monetization.
Market Size
The size of the market will ultimately determine the growth limitations of the startup. The bigger the market, the more valuable the startup. The larger the market, the greater the growth potential.
Team
The team is a critical factor in your deal rating. The core team should have experience. The longer the team has worked together the better. The best case is two experienced founders who have worked well together for over 3 years.
Growth Rate
The growth rate of the company’s revenue is a key factor as it determines how fast you can scale the business. To be considered a venture deal, you must have an annual growth rate of at least 50%.
Customer ROI
The higher the ROI, the stronger the value proposition of the company, and the faster others will switch to your solution. The ROI takes into account the value of the product as well as the reduced cost compared to a competitor.
Exit Potential
Using comparables you can determine what type of exit your business will have based on a multiple of revenue. Calculate your expected exit multiple based on revenue.
Other Factors to Consider:
Proprietary technology: This is a piece of technology that is operational and no one else has it.
Network effects: If you set up your business to use network effects, then the size of the network you built will generate value for the business.
Virality: If you have virality factors in your business, then it will reduce the cost of customer acquisition.
Monopoly: If you have a lock on a segment of the market through regulation, network, or some or other factor this gives you an advantage.
Channel Access: If you have a channel to a market that others don’t have, then that is a competitive advantage as well.
Click on the following link to try out the calculator for yourself: https://www.startupfundingespresso.com/venture-funding-calculator/
You can also read more from the TEN Capital eGuide Do You Have a Venture Deal?: https://www.startupfundingespresso.com/venture-deal-eguide/
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
