Slide 7 - Timeline
This is from both a historic and a future perspective. Evidence what you've achieved so far, how long it's taken you, how much you've spent and where that money came from. Investors like you to put your own money in, because it shows commitment. Be clear about the market research you've done and why that's given you the confidence the market is ripe for the taking.
The key to the future timeline is not to be outrageously ambitious - give yourself the time to develop the product or service, launch it (or an MVP), test it, refine it and so on. Be realistic - investors want to see energy and ambition, but not stupid over-optimism.
Slide 8 - Valuation, Equity, Investment & Use of Funds
Valuation is tricky if you have no trading record; otherwise it's a multiple of turnover or net profit. But if this is an angel round then your valuation is based on future projections and what investment you need. What's important is that you don't get diluted so much in your first funding round that you lose control (i.e. go below 50% equity) in the next. Savvy investors recognise that over-diluting founders serves as a disincentive.
So you might say, "Our 3-year financial performance warrants a 'pre-money' valuation of £400,000 this round. We're looking for an investment of £100,000, which gives a 20% equity position 'post-money'.
Play with the Cap Table to get your best position.
Also talk about how the investment monies will be used. Summarise in a table – numbers, not %’s but be prepared to talk in detail about how the money will be spent. Don't forget a contingency.
Slide 9 - Resulting Financials
The first thing a potential investor will say about your finances is that they are wrong, and of course they are perfectly correct. You will not perform to those numbers. Even the most predictable businesses that have been running for years cannot perfectly forecast their financial results. But numbers (a P&L and cash flow forecast) are important because they hint at the direction of travel – how quickly are you going to grow, what does that mean in terms of revenue and gross profit, how quickly do your expenses grow and what's the resulting net profit? Critical to the cash flow forecast is the flow of funds in and out of the business. If you’re paying suppliers before you get paid by your customers, as your numbers increase so will your working capital requirements – which means more cash or an increasing line of credit, if you can get it. It’s unusual for a new business to be cash generative at the start, but it can happen and will certainly influence the investment monies you need. But if you're paying suppliers after your customers pay you (which is unusual) then the more you sell the more cash you'll put in the bank.
Don’t present spreadsheets but do summarise the important numbers in a table – volume, revenue, gross profit, expenses, net profit and cash each year for the next 3, 4 or 5 years. But these numbers should come from a carefully thought through financial plan on a spreadsheet.
What’s important is what you say about how your numbers will be achieved – the narrative, “We’ll launch the first service in 4 months’ time and will start generating revenue after ……”
Your potential investors may ask you if you've done a Sensitivity Analysis and it's good to be prepared for this. Perhaps it's one of the slides in your appendix. What they're asking is, "How sensitive is the financial model to certain changes?" These might be:
Your service launch is delayed by a year.
Your staffing costs are 50% higher.
You have to spend twice as much on advertising.
You only sell half or a quarter what you forecast.
Of course, what they're really asking is how will your cash runway be affected by changes like this and what can you do to mitigate against them.
Slide 10 - Exit & Multiples
Investors try to balance risk with reward, and they're going to invest in your risky venture for a (much) bigger reward than they'd get from the bank. Their payday (their Exit) is when you IPO or are purchased by someone. So you need to have an idea why someone might buy you - competition, portfolio extension, technology requirement, new market - and how much they might spend. You could say, "We believe our business will be attractive to companies looking for better logistics capability, like ABC plc. In 5 years our turnover will be £4m giving a valuation of £12m to £20m. In that scenario, today's investors will get a 30 to 50x return on their investment." It's not a promise, it's an ambition.
But There's More
Then create an appendix with the additional slides.
Final Thought: Be proud of your business. It's a great idea and there is an investor out there who will love it.
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