5 elements for your financial deck you can’t afford to miss – Venture Suite
The financial slide on your pitch deck conveys the most crucial information about your business. Often, it becomes the deciding factor in whether you are going to get funded or not. These slides must clearly and concisely describe a company’s financial situation while estimating its future revenue potential. The key to getting your financial deck effectively accepted is to translate your numbers into a meaningful and understandable presentation that is harmonious with the investor’s psyche. According to Venture Suite’s research, investors look for certain key metrics to be displayed in certain ways.
On the contrary, there is no hard and fast rule that investors will like a certain display of key metrics. This sentence might sound quite ambiguous. It is so mainly because financial data is always influenced by the startup’s maturity. For instance, a startup seeking angel investment that has no clients won’t have the information necessary to make financial projections. On the other hand, startups that are raising larger rounds can show investors financial information that dates back years. Simply put, a financial deck is a representation of your finances influenced by your operational history, size, expertise, and related variables.
Present Yourself Succinctly
Understand the importance of financial data in your pitch deck. Your data should represent what you do and should reflect your ethics on practical business grounds. So let’s focus on the basics of checking to interpret your data.
As a business, you should represent:
- Income & Expenses
- KPIs
- Profitability
- Existing Funding
- Market Sizing
Financial data always depends on the startup’s maturity. A startup seeking angel investment, for instance, won’t have the information necessary to make financial projections if it has no customers. On the other hand, startups that are raising more money have years’ worth of financial information to share with investors.
Income and Expenses
Investors are most concerned with income (and a company’s potential for future income) when assessing financial metrics.
Investors desire huge revenue growth from the businesses they fund. Higher revenues for startups translate into higher valuations, which eventually translate into higher investor returns.
The three prime elements of income are:
- Revenue: a general overview of all income earned thus far.
- An income statement is a proper financial statement that lists income and expenses.
- Sales Forecast: An estimate of future sales revenue.
Business is about generating a profit and scaling in the long run. Profit has a price, so to more accurately assess their investment, investors want to know how much a startup’s operational costs are.
Investors are going to question you about certain elements of expenses, and the questions might be:
- How much does the product’s manufacturing cost (cost of goods sold) total?
- How much does the startup spend on labour?
- How much do administrative and general overhead costs cost?
- Spending plans for sales, marketing, and advertising
- What about anything that is sector-specific, like credentials or licences?
To give investors a general overview of the company’s financial health and profitability, income and expenses are frequently combined on the same slide.
Business KPIs
Every business model needs to develop its own specific KPIs (Key Performance Indicators). These KPIs ensure the path to business success.
Any business metric that helps a founder to ensure scalability and chart a growth trajectory is an essential KPI to be presented. Investors not only look for quality KPIs but also for the dedication of a founder towards the growth trajectory of a business. In general, the KPIs can be:
- Customer Growth: The rate, typically displayed monthly or annually, at which a startup acquires new customers over time.
- Customer Lifetime Value (CLV) is a forecast of how much money a customer will spend with a company throughout their relationship, as measured by average turnover.
- Churn Rate: The percentage of customers who discontinue doing business with a startup, typically displayed monthly or annually.
Profitability
Investors may not be interested in immediate profitability, but they are interested in revenue potential, which, as we previously mentioned, ultimately determines a company’s future value.
A company with $100 million in revenue and a 10x valuation when it goes public will have an equity value of $1 billion. A shareholder may choose to sell their shares and profit significantly from their investment.
To justify your profitability, certain metrics need to be presented in front of investors to make a solid mark. They are:
- Break-even rate: The point at which a company’s income equals its costs.
- EBITDA / Gross Profit: Earnings Before Interest, Taxes, Depreciation, and Amortisation.
- Gross Margin: Calculated as the gross profit multiplied by the revenue.
Existing funding
A startup’s likelihood of receiving funding can be increased by social proof in any form. Providing evidence of prior funding can be done for later-stage startups (Series-A and above).
The capitalization table is a more in-depth version of the previous funding slide. A complex breakdown of their shareholder equity is frequently displayed by startups using this method. Common equity shares, preferred equity shares, warrants, convertible equity, and more are all included in the cap table.
It aids investors in comprehending current ownership percentages and offers social proof that other investors are optimistic about the prospects of a specific startup.
Market Sizing
Every pitch deck must include a slide for market size, which is typically a stand-alone slide. Market sizing is an opportunity for a separate explanation. However, it is a very important aspect when it comes to investors considering funding your startup. As a founder, if you can convince the investors that you are aware of the market size and your brand positioning, then you are halfway to your funding.
Market sizing is the term used to describe the volume of demand for a startup’s goods or services. Additionally, it goes by the names TAM, SAM, and SOM.
- The total Available Market (TAM) refers to the total market demand for a wide range of goods or services. The largest of the three numbers is this one.
- The segment of the TAM that a company’s particular products and services are targeting is known as the SAM (Serviceable Available Market). A geographical region or a smaller sector (TAM) within the larger sector could be this. This is the second largest number.
- The portion of the SAM known as the SOM (Serviceable Obtainable Market) is what a startup can reasonably expect to take over in the coming years. In the upcoming years, a startup can expect to take over the portion of the SAM known as the SOM (Serviceable Obtainable Market). This is the smallest number of the three.
Final Words
Similarly, you have to be intelligent about your presentation of facts and not confuse your investors by providing too much information. Consciousness is the key to cracking your presentation. The overall idea is to provide a clear, numerical picture of your business in front of the investors for them to decode in their way. Once they are thorough and satisfied, they will be interested in investing in your business. The elements mentioned in this blog hold much importance and, when done right, can be enough for your financial presentations.
Overall, follow the tips for amplifying your presentation and nailing your pitch in the very first instance. Remember, providing clarity to investors is the key to success and getting funded. Be clear, professional and thorough to succeed in your coming pitches.
