Preparing a long-term financial plan for startups is absolutely possible and helps the startup define the most profitable strategy from the early-stages. A good knowledge of market dynamics and strong vision of the founders help make this a reality.
All financial projections that the team may have prepared is helpful in defining your cost structure, but in all cases financial plans will be prepared from scratch. To start, we will have a call to look into the business model. After performing market research, we’ll have additional calls to review the market size and targeting strategy, pricing, inventory orders (if applies), staff, operating costs and investments. You can review this for about 1 month to ensure it reflects your strategy. The financial plan will also include user metrics and breakeven analysis, an integrated balance sheet and cash flows, graphs, an automatic overview funding needs and return expectations. The file is user-friendly, can be updated automatically when market entry dates change and is adapted to your brand – so if you submit your colour palette, you can easily copy tables and graphs directly into your reports.
In the same way, a startup valuation can be integrated into the excel file, first by analysing the potential financing strategy you want to follow and how your competitors are raising funds. Different valuation methods are used, including DCF with startup risk and exit value, replacement value, seed stage and/or VC valuation methods. At the end, we can take into account dilution and investor conditions into your post-money valuation, and also if relevant, have a cap table included.
To present this to an investor, or in case you need to submit a 409a, you can have a professional startup valuation report and analysis prepared.
These services are equally available to startup founders and investors reviewing specific startup investors. For accelerators and other early-stage investors it also possible to organise a 1-day practical training for up to 5 startups where they will learn the following subjects:
– Fundamentals for the startups financing strategy
– Identifying the market
– Basics of the financial plan
– Use of funds
– Exit strategy and value
– Discounting and DCF valuation (basics)
– Seed stage and venture capital valuation methods
– Documents for investors
– Negotiations and due diligence
– Practical business modelling and financial planning in excel in the afternoon
Please get in contact if you want to set up a free call to view templates through screen-sharing.
Why is it important to value your startup?
The importance of valuation does not lie in the unique value that you calculate, but on the assumptions: if you learn what you value depends on, you can challenge this during negotiations when looking for funding. What is important is to understand what brings value so that you can integrate this knowledge in your everyday startup management and in your strategic decisions. When you understand what your value depends on you can evaluate your startup idea from the beginning, choose what expansion option is worth taking and what costs will not bring any value. In fact, some markets and some expansion decisions carry some risk that may deter some investors.
You can understand your competitors better by assessing whether they are building value with branding, users, technology or other processes and compare your USP. If you are ever planning to sell you can prepare yourself in advance by reducing your risks, simplifying your structure and therefore maximising your value over time. In this instance you can analyse your competitive landscape by determining the timing at which it is worth selling and by understanding how your valuation changes with time.
When you have a potentially fast growing startup, funding becomes a priority. Understanding what your value depends on can help you choose a financing strategy. Most investors would expect a return in the short-medium term, so unless you expect a successful exit or medium-term cash flows you may not be able to raise funds from institutional investors.
Identifying suitable investors also means figuring out what type of investors can recognise the value that you see in your company. You need to figure out how much your value can be dependent on the industry expertise that your investor brings to the table. If you understand your value you can understand whether a rejection depends on your business‘s low potential, whether it‘s just too early for receiving funding, whether it’s not the right investor for you or whether it just depends on how you sold yourself.
So securing funds not only depends on showing how amazing your product is, but also selling yourself as a great investment. A great way of earning trust is showing that you have thoroughly researched your market and all the associated risks, and that you can present a profitable but realistic financial plan. Knowing your indicative range of values can help you understand whether a funding deal that does not meet all your expectations can still be considered acceptable or not.