An Entrepreneur’s Checklist for Raising Early Stage Capital

Are you hoping to secure capital to properly fund your business?  If so, you need to know how to prepare to maximize your opportunity for success.  Obtaining financing is a complicated process, but below are elements that the right CFO can help identify and execute to successfully raise early stage capital.

Understand short-term and long-term financial needs of the company. While insufficient funds may prevent your company from realizing its true growth potential, raising too much capital too soon may generate costs that far outweigh the benefits intended from financing growth.

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Bootstrapping Isn’t Dead

While lending is easing again, the lessons and reminders from a difficult borrowing environment these past few years should be remembered.

Savvy entrepreneurs realize that the most readily available and cheapest sources of capital are to be found inside their businesses…aka ‘bootstrapping’.

Finding, developing strategies for, and managing wisely the cash already in your business can carry you through difficult periods in your business driven by either constriction or growth.

In short, these strategies usually amount to the following:

  1. Actively managing the collection of cash owed to you by customers, rather than passively letting it come in;
  2. Minimizing the amount of inventory you carry;
  3. Carefully analyzing and controlling the payments you make to your vendors.

Each of these very general strategies has many options to consider, but some are more impacting than others.

The available information on the internet to help educate entrepreneurs on the strategies to manage their cash for growth is almost endless.  Nevertheless, here is a link to a well written piece by Scott Bergquist of Silicon Valley Bank and posted on CFO.com.

Another source that holds a tremendous repository of articles to help guide entrepreneurs manage their cash is Inc.com.

David Chase has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With 14 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $450 million.

13 Week Cash Flows – An Effective Tool for CEOs and CFOs

The 13-week cash flow has emerged as an indispensable tool to help our clients actively managing cash flow in businesses where cash flow is tight.

By the way, this does not mean that a business is in trouble – rapid growth is just as likely to cause a cash flow crunch as is operating at a loss.

Unlike the common practice of backing into an estimated cash flow based on high level working capital assumptions, the 13-week method is built upon a strong understanding of the underlying cash sources and uses in a business.

Fundamentally, the 13 week cash flow estimates detailed weekly receipts based on revenues, offset by weekly cash expenditures organized by type (e.g. payroll, inventory purchases, taxes, other vendor payments, etc.).  Experience with our clients has taught us that the most important step in creating a 13-week cash flow is to perform an estimate-to-actual comparison each week against the just completed week.

An increasing number of savvy investors and finance institutions are asking for, or even requiring, 13-week cash flow forecasts…an indication that a business has a good handle on short-term cash needs and is less likely to be caught by surprise – a very good thing in the mind of a bank or investor!

There are many websites discussing the merits of 13-week cash flows and the one from wikicfo.com is just one good example.

David Chase has experience in small to medium private companies and large public companies as a senior operational and financial leader.  With 14 years in finance, a CFO of multiple entities and divisional EVP experience, Dave has a breadth of experience.  Dave has led or been instrumental in raising multiple rounds of equity and debt in excess of $450 million.

Before Seeking Funding, Ask these 3 Basic Questions

Many start-up companies are looking for funding to help them achieve their dream of creating a commercially viable company.

Before seeking funding these 3 basic questions need to be answered.

1 – Does It Work?

It’s a simple question, but it is really critical to ask up front. Many good ideas end at the idea stage. Before an investor will write a check, you have to prove that your idea works, be it technology, a new service or a new product.

Proof of concept means more than just a white paper or your own research. It really means you need to have third party validation. Sometimes you can have outside research firms contribute to the proof, but the best source is a customer that is willing to pay cash for your product or service.

Determining the market size is also part of this research. If you are trying to sell into an existing market, some of that data may be readily available, but that is when you really need to prove that you can differentiate yourself from the competition.

One of our past clients is Skullcandy, they sell headphones and earbuds – lots of them! This was not a new market – there were lots of companies selling headphones. They were able to differentiate themselves from other headphone companies by becoming one of the best marketing companies around and targeting their marketing to their core customer base. It is critical for you to verify that your business actually has a market and that the identified customers really will buy your product or service.

2 – Is Your Idea Protected?

If your idea can be protected through a patent, trademark or through other intellectual property, investors feel much more comfortable about making the investment. It is critical that you have that protection in place before exposing your idea to the market place.

Some ideas cannot be protected and the strategy is simply a “land grab” and an attempt to gain market share. Skullcandy did not have IP on its headphones, but they did a great job of marketing to a specific niche that allowed them to obtain significant market share. Your strategy has to be identified up front and executed effectively.

3 – Who Will Manage The Company?

You must show investors and lenders that your team has the experience and knowledge to manage the investment. Having highly-qualified, experienced team members who have demonstrated success will go a long way to helping you secure the investor’s trust and then their money! Your core management team members, employees and consultants / advisors have to demonstrate that they have experience in the industry you are pursuing.

It is critical that you have a CEO who is experienced in the industry. If you are a technology company, you have to have a CTO who has experience in the industry. Naturally, your CFO has to be a very seasoned veteran who can help you provide timely and accurate financial reporting as well as key performance indicators (KPI). Your KPI’s should include financial and non-financial information about your business.

A solid financial forecast is also critical to be a financial roadmap for the management team. This tells lenders and investors that the Company and its team understand their business model and are able and prepared to monitor and act on key information to therefore manage the business and achieve success.

Starting a business and raising capital is not easy but if you take the right steps to get customer traction, properly protect your concepts and have the right team your journey is more likely to lead to the desired destination!

JB Henriksen is with Advanced CFO Solutions, L.C. With over 500 clients served and  experience with financing transactions totaling over $600 million, Advanced CFO Solutions is Utah’s largest  and oldest provider of  out-sourced CFO and Controller services.