Part 8 - Close is still a MISS
David John William Bailey, FCA IFT
Helping founders and investors through crises and turnarounds into growth businesses with successful exits with actionable financial strategy and trustworthy insights.
Having digested part 7, we can put some numbers against this.
When answering these questions, take into account that the whole chain has to hold up to be a success. Sometimes, I sit with founders and work through their chances of making it. It goes something like this: take the list of questions and rank your percentage chance of meeting all the criteria without investment and then with investment. What changes? Why?
Punchline – you need to hit a 95% chance of success in EVERY question to have a 1:3 chance of success. Business is that brutal. It’s a long chain of dependencies, and any failure in one reduces the overall chance of success dramatically.
Quite often, founders don’t like this. They are fixated on one area of the business: usually an idea, sometimes the need to help people. They haven’t grasped the breadth of skills needed to succeed. I try to point out that this is a good moment. The list shows them where to concentrate their efforts or where to get help before raising money. If a week or two spent getting a co-founder, a project management tool, and some more market information can increase the score above, then doing it before writing a pitch document makes a lot of sense.
Remember, the best VC barely get to a chance of 1:3 of any sort of financial success. So, anyone who thinks they have a ‘sure thing’ is deluding themselves.
Oh, no score can ever be 100%. Ever. The world doesn’t work like that. Random events can always happen. Staff will get sick. They can die. They can leave to become a musician on a desert island. Servers can fail at the worst possible time. Customers can be lured by competitors. Core code can be deprecated by Microsoft. Certificates can suddenly expire. Markets are fashion led, and fashions change. A random company can sue you for no reason you expected. The law can change. Another director can commit a fraud and get caught. Customers can go bankrupt. All of those things have happened to companies I have been a director of. Frankly a score of 95% is irrationally high, but a little optimism has its place, eh?
For more detail - enjoy:
Having got this far, the question for any founders is: “do you really want to go looking for investment in the condition your company is in today, or do you want to get really ready before you lose time in creating a pitch deck, an offer document, and the 6 months of distraction this takes most companies?”
If they still want to go ahead, then the rest of this thread is for them. Or you.