George Robinson, CFO Partner at Scaleup Finance, offers a comprehensive view on what investors are currently seeking in the financial reporting and analysis of their portfolio companies.
The Changing Investment Landscape
Gone are the days of zero-interest rates and unrestrained topline growth. With the rising cost of capital, investors are delving deeper into startups’ financials to gauge efficiency and potential. The critical question dominating the investment arena in 2024 is, “Which company will optimise my capital investment?” Fortunately for astute founders, this shift provides a unique opportunity to differentiate their early-stage ventures by aligning with investor expectations.
Core Reporting Principles
At the outset, investors are looking for an accurate and realistic evaluation of a company’s performance against its forecasts. Trust is paramount, and it is built on the foundation of a startup’s ability to understand and realistically present its position and trajectory. The reporting format should be tailored to fit the unique aspects of each business and its investors, typically encompassing an executive summary, key performance indicators, revenue, and cash flow analysis.
Executive Summary Essentials
An effective executive summary is concise and direct, akin to a well-orchestrated team standup. It should spotlight performance highlights, focusing on the current period and projecting future trends. It’s crucial to articulate key business achievements that resonate with previously set development sprints or commercial initiatives. Additionally, articulating managed risks and potential issues is vital for maintaining open and transparent communication with venture capitalists.
Metrics that Matter
In 2024, venture capitalists are keen on KPIs that shed light on operational efficiency. These metrics are bespoke to each company but should always be clear, concise, relevant, and well-reasoned. Whether it’s understanding the payback period of sales and marketing efforts, net revenue retention for SaaS startups, or average order value for e-commerce ventures, these indicators are pivotal. Additionally, understanding the net burn and the revenue it generates provides a holistic view of the company’s growth efficiency.
The Imperative of Topline Growth
Despite changing market conditions, the importance of sales and revenue growth remains unchanged for early-stage companies. A solid business model marked by clear milestones, coupled with key metrics and a transparent presentation of actuals versus forecasts, offers a comprehensive view of the company’s current status and future expectations. Utilising graphical representations of revenue can significantly enhance the impact of these discussions.
The Primacy of Cash
With a significant majority of European and American early-stage ventures operating with less than a year’s cash runway, understanding cash flow is more critical than ever. Accurate cash projections and scenario planning are indispensable tools for informed decision-making and investor reassurance. Presenting a well-structured profit and loss statement, balance sheet, and cash flow statement not only provides investors with necessary insights but also demonstrates a company’s mastery over its financials. In a competitive market, such detailed and insightful reporting can significantly distinguish a venture within an investor’s portfolio.
