If you receive the opportunity to speak to an investor on behalf of your business, it is essential to seize the chance by tailoring a pitch that ensures success. In this pitch, you will need to encompass several components, but one of the most critical is your venture’s financial prospects.
When discussing finances, investors want to see a few things. Firstly, they want to understand your financial situation to date to determine how your business has operated. Secondly, they want to know your growth potential, with a focus on generating profit down the line. Finally, they want to be confident you have the financial understanding and cash flow to make that growth happen.
To convince investors in each of these three areas, you will need to provide relevant financial information. This ensures any claims you make are founded in data and provide investors with additional insight they can take away for their due diligence checks.
Below, we have outlined what financial information you need to provide, so you can have it ready ahead of your first funding pitch.
- Historical data
- Breakeven point
- Sales and profit forecasts
- Cash flow projections
- Business valuations
- Investment requirement
- Other funding sources
Historical data
Utilising existing information you have about your finances is a great foundation to understand how these might grow moving forward. This means taking a look at your accounts and identifying patterns around sales, revenue, expenses and so on.
Historical data about your finances gives real-life supporting evidence to investors about the state of your business and your ability to manage money. It can also indicate the demand for your company’s products or services, determined by your sales. Moreover, this can highlight what you might be able to achieve with the right investment to scale up your operations.
If you are seeking funding for a pre-revenue business, you won’t have access to existing insight. However, you can still utilise market data and competitor research to create comparative views of the trajectory your own business might take, once again founded in reality.
With this historical information behind you, you can then focus on projections for your future finances.
Breakeven point
Another factor an investor is interested in is at what point you expect to breakeven. This is the stage at which your cost of sales and overheads equal your income, allowing you to begin to generate profit by continuing to increase your revenue (while maintaining overheads).
As profitability only happens after the breakeven point, it is a good indicator of when investors can expect to see returns on their investment. The earlier this happens, the better, as it can provide a quicker exit for investors or perhaps a better return rate. However, it is also important to be realistic about when breakeven will happen and not make false promises. Ultimately, even if it takes a few years to reach that stage, investors will be willing to commit if they know they will receive beneficial returns.
Sales and profit forecasts
Financial forecasts are a prominent part of an investment pitch because they indicate the profit potential. They predict the shape your finances will take in the longer term, including how you expect revenue, expenses and sales to adjust over time.
These forecasts need to be based on data, which is why bringing insight into your current finances and market research matters. It is also essential to consider different contexts and how they may impact your finances to prove to investors that you have weighed up the risks and put contingencies in place. You will also need to align the finances to any strategies you are hoping to implement and their effect on income and outcome.
Your final forecasts should be favourable, clearly demonstrating the profit potential for your company. However, they need to be predicated and able to be justified, as investors will quickly spot exaggerated and poorly researched claims. So, be sure to get this balance. Look at some sensitivity analysis to consider different scenarios.
Cash flow projections
A cash flow projection is similar to your other financial forecasts, but the focus is on how you will keep the cash in the business with the constant timeline challenges between your expenditure that needs to be made (such as salaries, supplies and other expenses) and your incomings (sales, revenue and investment).
Again, your historical data and market research will come in handy here. Using these, you can determine what you expect your recurring expenses to be against your revenue. This is particularly significant if you have expansion strategies in your sight so that you can ensure the increased cost required (such as through hiring resource or new assets) is weighed up against the rising revenue you expect to see as a result.
What the investor wants to see here is carefully considered finances, with no risk of substantial cash flow blockages that could harm the prospects of the business. This will show the ability of your business to stay afloat long-term and reduce the requirement for further funding.
Business valuations
The valuation of your business links to how much you believe your business is worth based on its future potential. So, naturally, an investor is interested in this figure when trying to determine what share of the business they are willing to negotiate in exchange for their investment.
It is possible to get share or business valuations carried out by third parties, which some investors may choose to do as part of their due diligence. However, it will also boil down to your venture’s value and how well you can portray it. So, aim to highlight your company’s potential throughout the presentation and focus on what investors will get out of it.
This will help you to put an accurate ‘price’ on shares in your company, preventing investors from giving you less than your worth as well as giving you a realistic expectation of what funding you can raise.
Investment requirement
Next, you need to outline what investment you want to achieve through your funding pitch. This will directly align with your business’s valuation so that you can ask for a reasonable sum from investors. Asking for too much could ruin your efforts to impress, so it is crucial to be considerate.
When predicting your investment requirement, you need to calculate your predicted expenditure in your bid to grow your business, whether you are pre-revenue or at scale-up phase. You’ll also need to consider your financial situation and projections, and any cash gaps that need to be filled via investment. This will leave you with a ballpark figure to take to investors.
Ideally, investment should fulfil all your funding needs. However, if it does not, you may need to explain to investors where else you will get money from to realise your ambitions. If they aren’t willing to offer you all the funding and you have nowhere else to go, it is likely to prevent them from giving you any cash – as either way, you won’t be able to deliver on your goals and offer them the promised returns.
Other funding sources
Finally, if you are pulling in external finance from other sources, investors want to know. This could encompass other investors already in the business or any bank loans, grants or additional support you are receiving.
When discussing the funding, you need to match it to the bigger picture of your finances and explain how that support will help you to achieve your goals, alongside the investment you hope to receive. This should be carefully thought-out to prove your ability to manage finance and prevent your company from spiralling into debt.
It’s also essential to give this information in case there are any conflicts of interest. While it is possible to mix and match different forms of funding to grow the capital available to you, there may be specific scenarios where an investor or investor group wants exclusivity or isn’t willing to work alongside other stakeholders. So, be upfront to iron out any issues here from the off.
Get advice
When approaching investors, it is essential to be prepared and provide all the information they could as they decide to back you. This means offering detailed financial insight that proves the ability of your business to survive and profit.
By understanding the evidence that investors want to see and how it fits into your broader pitch, you can create compelling arguments for your venture and the return on investment it will offer. This enables investors to make informed choices about you and the funding they can offer.
Providing the right financial information as part of a persuasive funding presentation could prove critical to your success.
If you need guidance in putting together your pitch deck or increasing your investment readiness, we’re here to support you. Our team of advisors has worked with various pre-revenue and scale-up businesses to help them obtain the finance they need – and we can assist you too.
With services covering business plan writing, access to finance and introduction to valuable investment contacts, we can kick-start your funding journey.