How much detail do angels & early stage (seed/pre-seed) VCs want to see in a SaaS financial model?

(Original post on Quora at bottom of this article. Answer by Aristos Peters):                              QuoraLogo

To a degree, it can depend on who you ask and what stage your revenues are. Jason has answered well from his perspective as a VC looking for post-revenue deals (very often VCs are looking for ‘established revenues’, or ‘significant early revenues.’).

For those that are willing to look at the riskier ‘pre-revenue’ deals, the answer to “how much detail” is largely a matter of personal investor preference.

Then you also need to qualify what those ‘details’ might be because in your text you mention three aspects: 1) projections/assumptions (usually taken to mean financial), 2) key (performance or validation) metrics and 3) costs.

My experience of deal reviewing both with angel and VC peers is that most investors usually look to see how you have arrived at 1 and 3 (hopefully via benchmarking), but investors worthy of a place on your capable know their way around key metrics such as CPA or churn rate, etc.

I am working on this very issue and can’t talk about it just yet but I’d be happy to continue the conversation offline. Catch me in Twitter? (@weklik)

How much detail do angels & early stage (seed/pre-seed) VCs want to see in a SaaS financial model?

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6 Things To Do Before Approaching Investors

Here’s a quick checklist of a few things that you can do to make sure you’ve got all your ducks in a row before you take your deal out on the road to investors (if you are a concept stage business, or thinking of taking the programme accelerator route then this may be less relevant but still worth checking out anyway).

"Got all your ducks in-a-row before taking your deal on the road?"

“Got all your ducks in-a-row before taking your deal on the road?”

1 – Update all team Linked In profiles

This seems an obvious point to make but just a reminder that most people in business very often visit your LinkedIn profile ahead of a meeting or conversation with you. It goes without saying to not only make sure the profile is an accurate reflection of both past and present but it’s a good idea if you can stoke up your profile in other ways such as: adding any links to blogs and websites, getting recommendations from business colleagues, subscribing to relevant LinkedIn ‘Groups’ and connecting with a healthy number of peers, colleagues, friends and associates.  www.linkedin.com

2 – Outsider’s second opinion 

Get a company outsider with experience, perhaps a mentor or advisor if you have one, to review all investor communications, including: the executive summary, pitch deck, business plan and financial statements. In fact if you can get more than one outsider to look over everything, then that would be even better. Hopefully, they will spot any unqualified statements, areas that lack clarity or detail. If they feedback to you with similar ‘weak-spots’ then this could be an indication that an investor might query the same aspects. You will then need to considering de-risking these aspects before making investor contact.

3 – Do the ‘D RISK IT’ test

This business tool can help startup founders to spot any deal weaknesses and prepare their deal before they take it to angel investors. As well as two calculators that help suggest an early valuation starting point and ROI multiple position, there is also a tool that takes a deal proposition on a 7-stage review. Loaded into the app’s information files are suggestions of what investors are looking for, as well as how to address the weaker aspects of the deal that you are putting before investors:  www.drisk.it

4 – Try out a canvas or two

This one is debatable but the sort of focus that doing the ‘canvas’ brings will show when you get a grilling from investors when pitching. Do some business case ‘canvas’ testing (Lean Canvas, Business Model Canvas & Strategy Canvas, etc). In the absence of any early revenues and traction, having user/audience validation is the next best piece of good news that you can present to investors and is a major de-risking step in itself. Just like accelerators and crowdfunding websites, new canvas variants are springing up all the time.  www.leanstack.com  www.businessmodelgeneration.com  and http://strategycanvas.org

5 – Get an AngelList profile

This site has become ‘the’ online place to seek out investors if your are a startup founder. I’m not sure how true that statement is if you are outside of the US or Europe but if you are fundraising, or expect to be in the near future, then it is definitely worth (and increasingly expected) that investors may check  you out in this deal-flow portal. Startups can put up a deal profile, as well as search out investors (both angels and VCs) according to their location or sector.  www.angel.co

6 – Get a Gust profile

A close second to Angel List is Gust. This site started as an investors post-deal due diligence platform where investors could talk, share and huddle around a deal’s due diligence prior to making an offer but because entrepreneurs and investors can also submit/receive deal info at the pitch stage, it’s a pretty good international investment meeting place.  www.gust.com

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From the other side of the table, perhaps also take a look at the following article showing a particular investor’s checklist prior to engaging with a startup founder …  http://techcrunch.com/2011/06/18/my-angel-investor-checklist

Another article gives “Six tools used by startup investing insiders to – identify and invest in the next Facebook” … http://www.forbes.com/sites/zackmiller/2014/01/06/6-tools-used-by-startup-investing-insiders-to-identify-and-invest-in-the-next-facebook

Have I missed anything off? Do let me know.

Aristos

D RISK IT – An app to get your fundraising on track

Driskit logo rgbA large part of my work involves helping companies with their fund-raising. I turn down over 90% of the companies that land on my desk because quite simply they are not investment ready, let alone deal ready. Even though the proposition often seems to be quite good, if not excellent, there are still many other reasons why an investor is likely to reject it. This all makes for a lot of frustrated entrepreneurs out there. Well, I’ve decided to do something about it by taking some of the real world processes, guidance and help that I give out and wrapping it all up in a smartphone app. The app is called ‘D Risk It‘ because that’s what founders ultimately need to do when they are configuring a deal proposition for investors; they need to de-risk it.

App icon with bevel CMYK

The app should be ready Autumn 2013. If this sounds interesting then you can follow the link to do a simple registration and get an alert when the app is ready …. www.drisk.it