If you pitched on ‘Shark Tank’, would they give you the Money?
Disclaimer: Before we proceed, it's worth mentioning that a Forbes analysis discovered that nearly 73% of business owners who secured deals on Shark Tank did not receive the precise terms they had agreed upon during their appearance on the show (as reported by Forbes). You can find more details about this research here: Forbes analysis.?
The path to a successful business deal goes beyond just crunching numbers. Having an investor who seemingly only owns 20-30% of your company may not be as simple as it appears. Once complex deal terms like liquidation preferences, convertible interest rates, and redemption rights come into play, that 20-30% could easily translate to a far larger stake. There's no such thing as a straightforward deal that can be wrapped up with a handshake after a mere pitch. Also, if Shark Tank required entrepreneurs to navigate a pile of paperwork on air, it wouldn't make for great TV.?So, let's just consider it a thrilling game show more that a reality show, and move on to the exciting article below.
So, would your company secure the bag if it had pitched on 'Shark?Tank'?(or dolphin tank, or to the VCs or PEs, or bank managers…?)
For the astute observer of the show, a consistent pattern emerges - investors fixate on the financials. With keen precision, they probe the entrepreneur with pointed inquiries like? "What's your revenue?" and "What are your margins?" They delve even deeper, inquiring about personal investments and break-even projections, all in pursuit of gaining an enlightened perspective on the fiscal wellbeing of the enterprise.
Mastering your digits is a must, and those who lack this skill are left empty-handed. If you've got a killer product or service, you might think that's all you need to score some serious funding. But the thing is, being a tech whiz or creative genius isn't going to cut it. Investors want to see that you've got the financial chops to manage their money wisely and make their investment pay off big time. You've got to own that stuff and have it at your fingertips if you want to make it rain.
But hey, don't stress. With the right financial guru in your corner, you can prep for these funding battles and come out on top. So, always be ready to bring your A-game (even if you were to randomly meet them in an elevator).
Pitch rejections and the impact of Accounting and Finance
Venture capitalists scrutinize pitches based on four major criteria: the product or service, the market, the entrepreneur/management team, and the financials. A rejected pitch typically stems from a combination of flaws in these areas, rather than just one.
Investors and founders have identified various finance and accounting-related factors that can lead to a rejected pitch, including:
To win over investors and secure funding, entrepreneurs must ace the finance and accounting game by demonstrating their expertise in these crucial areas.
Revamping Financial Data for a Stellar Fundraising Pitch
For startups seeking funding from VCs and PEs, the due diligence process is crucial. It's no secret that financials play a pivotal role in the decision-making process, as investors typically request bank statements, financial statements, and key assumptions to assess the company's financial health, especially for later funding rounds such as Series B.
Financial statements, which encompass balance sheets, income statements, and cash flow statements, provide valuable insight into a startup's operating expenses, gross margins, and cost of goods sold.
But that's not all. To truly captivate investors and secure funding, startups must also provide detailed five-year projections of monthly and annual revenue, gross profit, order size, and number of orders. These projections, referred to as key assumptions, are critical indicators of a company's potential for long-term success.
Furthermore, projecting customer acquisition costs, or the expenses required to acquire new customers, is a crucial component of the due diligence process. This cost is weighed against the churn rate, or how quickly customers are lost, and each customer's lifetime value (LTV). Startups with high acquisition costs can offset them by maintaining low churn rates and high LTVs.
In short, startups must present meticulously crafted financial statements and projections that showcase their business acumen and potential for profitability to stand out in the competitive world of startup funding.
领英推荐
Unleashing the Power of Financial Statements in Your Pitch Deck
To ace your pitch, you need to know precisely which financial statements and projections to include. To determine this, start by identifying the data you have and the projections that investors want to see. Here are some incredible examples of successful pitch decks that got it right:
Square, a leading online payments company, shared growth and margin projections up to 2015 in its 2011 or 2012 pitch deck. Meanwhile, LinkedIn, in its successful $10M Series B round in 2004, presented a five-year financial plan that included revenues, expenses, cash flow, net cash position, and operating margins.
Moz, a provider of search engine optimization tools, impressed investors by presenting margins, profits, current and projected revenue, customer LTV, cost of acquisition, and other critical financials in their pitch deck.
To add more ammunition to your pitch deck, refer to the financials slide on the template shared by Sequoia Capital, a leading 46-year-old venture capital firm. This template advises that a financials slide should cover profit and loss, balance sheet, cash flow, capitalization table, and the amount of investment the startup is requesting.
So, make your pitch deck a financial powerhouse, armed with the right data, projections, and advice from these industry giants.?
If you're uncertain about the significance of financial information in a pitch deck, take note of DocSend's research, which indicates that potential investors devote the lion's share of their attention to this data, making it the shining star of the deck (What it basically says is that viewers spend a stunning average of 23.2 seconds examining the financials slide, in contrast to 22.8 seconds for the team, 13.9 seconds for the product, and 11.3 seconds for the problem page, among other pages).
You need to take your accounting skills to the next level and produce outstanding financial statements that conform to accounting standards, even if you're not a seasoned pro in the field
But that's not all - you need to master the art of crafting realistic and achievable financial models too.
And here's the kicker - even if your projections end up being off the mark, it's crucial to showcase to potential investors that you've done your due diligence and put in the effort to maximize their investment.
The reality is that - beyond the cutting-edge product/service and a killer team, it's the numbers that matter. This is where we step in to assist you, offering specialized financial management services for entrepreneurs. Our services include customizable financial reports, up-to-date dashboards, automatic bank reconciliation, and integrated bank feeds, all at your fingertips.
We've got your back - guiding you through accounting's best practices and giving you the confidence to ace your fundraising pitch. So what are you waiting for? Let's take your financial game to the next level!
Mark my words, there will come a moment when an investor poses a question that will require you to pull up that trusty spreadsheet. Are you ready to rise to the challenge and not only locate the necessary data but also deliver a flawless explanation of how you crunched those numbers? The spotlight's on you, so let's make it count!
"We don the guise of marketers, yet our numbers wield the power of financial wizards - for we are Accountants in disguise." - DJ Rana