Visible Blog

Startups are in constant competition for two resources: capital and talent. Without capital, a business fails to exist. Without talent, a business fails to flourish. This guide is intended to help you understand the venture markets and improve your likelihood of raising venture capital. We will cover the history of venture capital, the investor thought process, finding and pitching investors, sharing data and documents, closing your new investors, and building strong relationships to help with future fundraises. Note: You can find the resources (blogs, podcasts, videos, books, etc.) used to fuel this guide in the resources tab located in the top right. If you’ve raised venture capital before, you already have some combination of a great product, a highly functioning team, and a growing market. Before we jump into these aspects, we need to take a step back and study the history of venture capital. As recent as the 1990s, the venture capital space was dominated by a few large firms that did incredibly well. Capital was enough of a scarcity that it was a differentiator for these large firms. As the internet skyrocketed in the 90s and early 2000s, in turn the cost of starting a company started to decline (and still is today). Fast forward to 2005, and Y Combinator is started. Y Combinator cracked the code on scaling entrepreneurship and used their founder and investor network to help more companies succeed. Since the inception of Y Combinator, thousands of VC firms have started and have drastically changed the space. Capital alone is no longer a sufficient differentiator for a VC firm. Firms have started to specialize in specific verticals, offer extensive resources to their portfolio companies, and have created their own “secret sauce” for yielding the best returns. That brings us to today, where it is easier to start a company, yet harder to build a company than ever before. Access to capital can be the difference maker between a startup thriving or joining the startup graveyard. Below we will share the tips and tricks to systemize your fundraising process to better increase your odds of raising venture capital. Further reading and resources to help you learn more about venture capital: [Video] The Founder’s Guide to Investor Communication and Fundraising Types of Venture Capital Funds: Understanding VC Stages, Financing Methods, Risks, and More Are you ready to raise capital? First things first, you need to ask yourself, “are we ready to raise venture capital?” Or better yet, “what do I have to offer a potential investor?” As we previously mentioned, to raise venture capital you need some sort of combination of a compelling market, qualified team, or strong product. Understanding How VCs Work To understand if you’re ready to raise venture capital, you need to understand how VC firms function and how you can fit into their larger vision. In simplest terms, VCs go through a consistent life cycle that goes something like this: raise capital from LPs, generate returns through risky venture investments, generate returns in 10-12 years, and do it again. Easy, right? Actually, quite the opposite. A median VC fund is generally not a great investment for limited partners. Just as companies are in competition for venture capital, venture capitalists are in competition for capital from limited partners. In short, LPs are institutional investors (University endowments, foundations, pension funds, insurance companies, family offices, sovereign wealth funds, etc.) looking to create excess returns by investing in VC firms (generally a small % of their overall investment strategy). According to Scott Kupor, “If you invested in the median returning VC firm, you would have tied up your money for a long time and have generated worse results that the same investment in Nasdaq or S&P 500.” So why would an LP invest in a VC firm at all? Because VC returns follow a power law curve; a small % of firms capture a large % of industry returns. In simpler terms, LPs are in pursuit of VCs generating excess returns who are in pursuit of investing in companies that can offer huge returns. Which brings us to our next point… A Compelling Market VC fund returns are not the only place we see a power law curve throughout the fundraising process. The breakdown of a VC funds individual investment returns follows a power law curve as well. It might look something like this. Long story short, VCs are in search of home runs, not singles and doubles, to create the excess returns for their LPs. The best chance of being one of these companies that creates the huge returns for a fund, have a compelling market. As Scott Kupor, Managing Director at a16z puts it, “Everything starts and ends with addressable market.” As a founder, it is your duty to model the total addressable market and paint a picture of how you will penetrate the market to become a “home run” investment. Without a compelling market, a VC fund will have a tough time justifying making an investment in your company. With that being said, if a market is not big enough right now, strong and innovative companies can find and create new ones (E.g. Uber’s TAM). Markets fluctuate and you may have an investor that invests in specific products or teams to differentiate themselves. The Product On the flip side, there are investors who will base their investment decision of the product. No matter how big the market or strong the team, some investors will tout that a strong product is all that matters. The idea being that a strong and innovative product will sell itself and will have the ability to create new markets. As Peter Thiel states, “If your product requires advertising or salespeople to sell it, it’s not good enough.” The Team While the team may have no direct attribution to how large of returns your company can generate, it can display your ability to execute on the vision. Having a well experienced team is a great way to portray your credibility. Some very early stage investors, such as the Hustle Fund, may even place the most stress on the team when making an investment decision. As Elizabeth Yin of the Hustle Fund puts it, “of the two things I am most interested in for early stage investments is the assessment of the team… how well do they know the market? Are they executing?, etc.” So the question is not, “are we ready to fundraise?” It should be, “do we have the market, product, or team to warrant an investment from an investor?” If so, it is time to get started on the fundraising process. Further reading and resources to help you determine if you’re ready to raise venture capital: [Video] How to Raise Capital in 15 Days: Debt vs. Equity Financing The Free Visible Total Addressable Market Template and Evaluation Model Finding the Right Investors When you’ve determined you are ready to raise capital, you’ll find that the fundraising process often mirrors a traditional sales process. Like any sales process, the fundraising process starts by finding qualified investors (leads) that you’ll build a relationship with the end goal of them writing a check. Fundraising is often compared to a cocktail party, when the waiter comes around with a tray of snacks, you should always take one. You’ll never know when the waiter will make it back to you. The same with VC capital. However, it is important to remember that the average VC + Founder relationship is 8-10 years so you’ll want to make sure you’re starting with the right people to build a valuable and long-term relationship. We suggest starting with your “Ideal Investor Persona.” This is a firm or person, that is highly targeted in all facets of your business. We suggest starting with qualities below: Location – Where are you located? Do you need local investors? Or maybe you are looking for connections and networks in strategic geographies. Industry Focus – What type of company are you? Where should your future investors/partners be focused? e.g. If you’re a B2B SaaS company don’t waste your time with marketplace focused investors. Mark Suster suggest that it is best to prioritize investors with companies in your space. Stage Focus – What size check/round are you raising? e.g. If you’re raising a $1M seed round avoid a firm with $2B AUM. If you’re raising a $30M round avoid a firm with $75M AUM. Current Portfolio – How is the rest of their portfolio constructed? If current companies are doing well, there may be less pressure to exit so they can return funds to their LPs. If current companies are performing poorly, there may be more pressure for you to exit so they can return as much as possible their LPs. Fund Age — How long ago did they raise their current fund? How many investments have they made? If the fund is young, there will be less pressure to exit and a higher likelihood of them having capital saved for a future round. If the fund is older, they may feel pressure from their LPs and may be looking for an exit as soon as possible. Deal Velocity – Are you in need of capital as soon as possible? Or are you taking your time and looking for strategic investors? Varying investor’s have different philosophies for the velocity they’re making deals. Point Nine Capital and Kima ventures are both regarded as top firms in Europe. However, Point Nine makes ~10 investments a year whereas Kima makes 1-2 investments a week. Motivators – Who are the firm’s limited partners? What do want to get out of your investors and what do they want to get out of you? Do they need to match your values and culture? Once you’ve determined someone that meets your “ideal investor persona” you’ll need to do everything in your power to get a meeting with them. In fact, many VCs will use your ability to get their attention and set a meeting as a gage for your “hustler” prowess. Cold emails, your network, and events are all great ways to get a meeting. Regardless of how you get a meeting, it is vital to do your research beforehand. Start with current connections and do what you can to get an introduction. Other founders and current investors are a great source for finding new investors. Go into the first meeting full of knowledge and ready to question investors. Further reading and resources for finding the right investors: Our Free Fundraise Tracking Tool How To Find Private Investors For Startups How Rolling Funds Will Impact Fundraising Startup Syndicate Funding: Here’s How it Works Pitching Your Company Effectively Just landed your first meeting? Great! But the pitching does not start yet. Many founders will walk into their first meeting and immediately start flipping through their deck and give the same presentation to each investor. However, you need to remember you are selling your company and want to make sure your pitch is as tailored as possible to each investor. The first meeting should be most valuable for you as a founder. This is your opportunity to ask questions so you can figure out their pain points, figure out their motives, and other nuanced things you may not be able to find in internet research to tailor your pitch for future meetings. As Elizabeth Yin, Founder of the Hustle Fund puts it, “Your job in the first meeting with a potential investor is to ask a lot of questions – ala customer development style – to understand how you might be able to tie your story to their problems and interests. And so your pitch should not be stagnant, and although you may have created a deck before the meeting, it’s important to tie your talking points together as a solution to the problems you learn about in that meeting.” If you’ve done your research and asked the right questions, you’ll be armed with the information you need to effectively pitch your company. At the end of the day, pitching is storytelling and it is your job to figure out how each potential investor fits into the narrative. If done correctly, you’ll be able to control the conversation and better your chances of setting future meetings. Further reading and resources for pitching your company to investors: [Video] The Founder’s Guide to Investor Communication and Fundraising Data, Documents, and Due Diligence Once you’ve determined an investor is the right fit for your company, you’ll need to share data and different documents with your investors. Data & Metrics At some point throughout the process, investors will need to see the metrics behind your business. You should have a deep understanding of your key metrics and have them ready to share at any time. Generally, we’ll see that metrics potential investors want to see fit into one of the following categories: Growth & Financials — This more often than not comes in the plan of a business/financial model and historical data. Show them a strong financial model that creates growth for the business and returns for them and their LPs. Margins — Margins on your product is a large part of the path to profit and returns for your investors. Investors generally have a % they are looking for in the back of their mind. Customers — Your customers are your business. Clearly showing potential investors that you can attract, convert, retain, and engage your customers is vital. This can come in the form of customer satisfaction surveys, net promoter score, and retention rates. Documents & Due Diligence Going from “I’d like to close” to actually closing is a big difference. When facing due diligence it is important to be prepared, understand the process, and do your part to speed up the process as much as possible. There are a number of different corporate documents, protocols, references, etc. that you’ll need during the due diligence process. To learn more about the specific documents head over to our fundraising resources section. Signaling most certainly matters throughout this process. You’re likely only meeting a few times before jumping into a 8-10 year relationship so everything will be magnified throughout the process. Be prepared and transparent throughout the due diligence to help avoid speed bumps and start your relationship off on the right foot. Further reading and resources for sharing data, decks, and documents: Our Free Guide for Building Your Financial Model Nurturing for Later Rounds Inevitably, you’ll hear a slew of “no’s” and maybe’s” throughout the fundraising process. An investor “no” can always be turned into a “yes” at a future date. As you would nurture a lost deal in a sales process, the same should be done with your potential investors. If you’ve asked the right questions, you should have a good idea of what they’re excited about and be ready to pull the trigger to pick the conversation back up. How exactly do you keep potential investors engaged? We have found it best to send out a short update on the state of the business and industry. Share a promising metric or two showing strong growth in the business and any significant wins/improvements. If possible, address any concerns with the industry, team, product, etc. that you have discussed in the past with numbers. Hundreds of emails land in investor’s inboxes so be sure to include a quick snippet of what your company does and any personal notes. By building a strong relationship with potential investors, it will make it that much easier when you set out to raise at a future date. Most importantly, make sure you are armed with the right information and data to stay top of mind. Startup Funding Tracking We’ve talked with a lot of founders who have raised money, and we continue to hear the same things: Fundraising is a difficult and time-consuming process, one that is often unstructured and chaotic. Done poorly, it can cost startup leaders countless hours of valuable time—not to mention their valuable sanity. One of the key challenges of the fundraising process is it is non-linear. Seasoned founders will tell you that fundraising is essentially a sales process, requiring a founder to prospect, nurture and move potential investors through a “pipeline.” While this is true, it doesn’t tell the full story. Most sales interactions have a natural order to them, an order that both sides generally understand. The fundraise process? Not so much. There is no proven playbook for getting funded, because every company is different, and so is every investor. Often, these interactions need to be managed on a case-by-case basis. When managing a fundraise, a little structure goes a long way. We’ve built our Fundraising CRM to help founders track their fundraise simply, but effectively. Use it properly, and you’ll be on well your way to completing your round. How the CRM Works The Fundraising CRM is free for all users. To get started with your raise, login to your Visible account and check out the “Fundraising section” To help get started, we include generic pipeline stages that are easily customizable to fit the needs of your fundraise. We’ve included what we have found to be the most common stages for an investor: Research — Any new investor that you’re prospecting, or has contacted you, but has yet to discuss potential investment. Contacted — Any investor that you’ve emailed or called to discuss the opportunity to invest in your business. Meeting — Any investor that has agreed to sit a meeting. From here, you can continue to move through the funnel or move directly to “Keep in Touch” or “Passed” depending on the meeting outcome. Light Diligence — Any investor that has expressed serious interest in your business and has started to perform due diligence on your company. Partner Meeting — Any investor that would like to bring in the partners of the firm to get sign off from the remaining partners. Term Sheet — Congratulations! Any investor that has extended a term sheet to fund your startup. Closed — Any investor that has wired the money to your business. Keep in Touch — Any investor that has passed on your business for the time being. We suggest keeping these investors in the loop with brief milestone Updates throughout your startup’s journey. Passed — Any investor that has permanently passed. This is a firm that you feel is unlikely to invest in the future. A crucial part of the fundraising process is keeping your eyes on communication and making sure you’re nurturing investors through the funnel, especially if you have a lengthy fundraising cycle. The notes section of each contact can be used to keep tabs on your communication and meetings with different investors. We hope this tool will help simplify your fundraising process and get funded faster. Startup Fundraising Resources At certain points in a company’s life, fundraising becomes a full time job for the founders or CEO. That is, of course, in addition to all the other full time jobs that come along with being a startup founder — hiring, selling, cleaning up dirty dishes. Constant outreach, pitching, deck revisions, not to mention the time spent answering diligence requests. One of our goals at Visible is to improve the fundraising process for companies and there are a ton of other great tools and resources that focus on the same thing. We’ve curated 100s of fundraising articles and resources for our Founders Forward Newsletter. You can find our favorite startup fundraising resources below: Startup Funding Tools Foresight Product, market and team get a lot of investors excited but not having your numbers down is a dealbreaker and hints at a lack of professionalism. Foresight helps you make sure you know your numbers as well as any CFO or accountant would. By the way, we spoke with Taylor Davidson, founder of Foresight, to get some insight into his best practices for building a great startup financial model. Visible Hey! That’s us! As we mentioned above, we offer a fundraising CRM to help founders track their fundraise from start to finish. Visible is the best way to report your performance numbers to your potential investors, helping you combine data, visualizations, and narrative to tell a compelling story about the growth of your business. Startup Fundraising Content Venture Deals: Be Smarter Than Your Lawyer and VC This is, without a doubt, the best book you can read on venture financing. Buy it for yourself and for every single person on your team. The 20 Minute VC Podcast We’ve talked before about the importance of thinking like an investor. This interview podcast gives you a look inside the thought process for investors like Mark Suster, Kanyi Maqubela, and Aaron Harris. Elizabeth Yin Blog Elizabeth Yin is a co-founder and General Partner at Hustle Fund, a pre-seed fund for software entrepreneurs. Previously, Elizabeth was a partner at 500 Startups where she invested in seed stage companies and ran the Mountain View accelerator. Elizabeth covers the ins and outs of venture fundraising on her blog. The Fundraising Wisdom That Helped Our Founders Raise $18B in Follow-On Capital One of our favorite post covering how to run a successfully fundraising process. The post from the team at First Round reviews surveys founders that have raised $18B+ of combined capital. They also introduce the idea of “taking on investors in sets” which we believe to be a key component of running a good process. Berkshire Hathaway’s Letters to Shareholders While he is known as an investor, Buffett is also an entrepreneur whose Shareholder letters are a masterclass on how to attract and retain long-term investors for your business. For a free compendium of Buffett resources, check out BuffettFAQ Founders Forward Newsletter We search the web for the best tips to attract, engage and close investors, then deliver them to thousands of inboxes every week. Subscribe for the Founders Forward Newsletter here. Startup Fundraising Platforms SeedInvest For high-growth companies with proven traction, SeedInvest is a great platform to connect with over 14,000 individual accredited investors. Angellist Funds Raising on Angellist – where many top investors run what are known as “Syndicates” – can be a great way to tap into a network of well connected VCs, Entrepreneurs, and Angels. Seedrs Seedrs has helped European companies of all sizes – from idea stage to the publicly traded firms – raise capital more efficiently. Kickfurther If your company is dependent on effective inventory purchasing and management then Kickfurther, where you leverage backers and people who love your brand to fund inventory purchase orders, can be a great place to look. Republic Since the SEC enacted the Title III of the JOBS Act a majority of the US population can invest in startups for the first time. In order to allow more investors to invest in more startups, the team at Republic built a platform for startups to raise capital from the new found investors. Earnest Capital Earnest Capital provides early-stage funding, resources and a network of experienced advisors to founders building sustainable profitable businesses. Startup Fundraising Fun The Pro Rata Newsletter “Dive into the world of dealmakers across VC, PE and M&A. By Dan Primack, the best-sourced deals reporter on Earth.” Related Resource: 7 Essential Business Startup Resources

As a founder, landing your first meeting with an investor is an exciting experience. You’ve got your deck together and a talk track ready to go. You’re ready to walk in, paint your picture, and walk out with plans for your next meeting. However, we often see pitches can go off the rails and it can be easy to lose control of the conversation. But the first conversation should be most valuable for you as a founder. The average VC + Founder relationship is 8-10 years so it is important to make sure that you’re building a relationship with the right people. As Elizabeth Yin, Founder of the Hustle Fund, puts it, “an experienced fundraiser knows that the goal in going into your first fundraising meeting is to ask lots of questions and walk away understanding what next steps make sense.” While it can be intimidating questioning an investor, the following questions should help you start your own due diligence and tailor your pitch for future meetings. How old is the fund? It is important to understand where a fund is at in its lifecycle. In general, a fund lifecycle is 10-12 years. After the 10-12 years a VC fund is expected to return capital to its investors (limited partners). If a fund is getting older, they may feel more pressure to generate quick returns to please their limited partners. This pressure could be passed down to you and could force you into an early exit. If a fund is younger, they are likely ready to deploy capital and will have additional capital set aside for your future rounds. How is the rest of the portfolio performing? Remember that VC funds have pressure to generate returns for their LPs. Say a fund has raised $100M and owns 10% of each investment on average. Their LPs are likely expecting a minimum of a 5x return which means the portfolio would need a cumulative exit value of roughly $5B ($5B x 10% = $500M). So what does this mean? If you are the single shining star in the portfolio, there could be a misalignment of incentives. You could have the ability to exit for a life-changing outcome but your investors need a larger exit so they could block the sale. On the flip side, you could get pressured into an early exit. If the rest of the fund is performing well, you may have more slack and be able to take your time as the rest of the fund can generate substantial returns as well. Related Reading: Understanding Power Law Curves to Better Your Chances of Raising Venture Capital Who are your investors? Understanding where your potential investors’ capital is coming from will help you understand their behavior. VCs raise capital from Limited Partners (LPs). Generally, LPs are institutional investors like university endowments, foundations, pension funds, insurance companies, family offices, sovereign wealth funds, etc. A firm usually keeps the names of their LPs under wraps but this can be a sign of their openness and transparency (remember… 8-10 years, you want to build this relationship on trust). What happens if you lose all of the capital you invest? Everyone is generally aware that a VC investment is very risky. Your potential investors should understand that there is a chance they’ll lose all of their investment but press on this issue. As Jason Lemkin simply states, “If they look too nervous, find another.” Can you help us with our next round? Outside of having their own additional capital to invest in your next round you’ll also want to understand how a firm can help you with other investors. Try to understand what companies they have helped make introductions for and what % of their portfolio has gone on to raise future capital. Don’t be afraid to do your own digging and reach out to founders of companies in the portfolio to understand how the firm helped throughout their fundraising process. While they are hundreds of questions you could ask a potential investor we have found that the 5 above will help understand their behavior and decision-making process. Once you have these answers, it will be easy to go back to the drawing board and (1) decide if you’re ready to enter an 8-10 year relationship and (2) tailor your pitch for future meetings.

As a founder, the day-to-day can often feel like a juggling act. Constantly, trying to optimize time between building a product, growing revenue, attracting capital, and delighting employees. At the end of the day, one could argue that the overall health of the business comes down to attracting capital and retaining employees. Without capital, a business fails to exist. Without talent, a business fails to flourish. When a founder sets out to raise capital it can often feel like a siloed process where the rest of the company has little to no knowledge of the status. However, a company’s ability to fundraise is often one of the only external benchmarks a startup employee may have. So how do employees think about the company’s fundraise? And what does it mean for a founder? Finding the Right Valuation For a startup employee, measuring their company’s success can be difficult. More times than not, an employee’s only external benchmarks are how much capital their company has raised and at what valuation. Employees use their company valuation as a measurement for their overall company success and in turn their desire to stay and grow at the company. It is the founder’s duty to find the right balance between the company, investor, and employee needs. When there is high demand for a round, it can be easy to raise at the highest valuation possible. If you overvalue the company, you’ve raised the bar for what it takes to clear the valuation bar for your next round. If you undervalue the company, employees may start to wonder if things are actually going well. Inevitably, a company’s valuation will eventually meet the true worth of the company. Deciding how to portray and manage this is in the hands of the founders. At the end of the day, employees will want to see the valuation of the company moving up and to the right. Raising the Right Amount With a valuation comes the amount fo capital the company actually needs to raise. Most employees would be thrilled to open Crunchbase and see news that their company raised a huge round. However, this may not be in the best interest of the business. When a founder thinks about how much to raise, they need to keep their next 12 to 24 months in mind. As Scott Kupor, Managing Director at Andresseen Horowitz puts it, “Raise as much money as you can that enables you to safely achieve the key milestones needed to raise your next round of fundraising.” Remember that raising too much money can be death for startups as they recklessly burn capital. Scarcity is the mother of invention. However, raising too little money at an aggressive valuation can weaken ambition to hit big goals in a short amount of time. Just like everything in a founder’s day to day work, fundraising is about finding the right balance. It is the duty of the founder of balance the needs of their company, their employees, and their investors. Want to learn more about raising capital? Check out our other fundraising posts.

The ideas below are largely based off of Scott Kupor’s new book, Secrets of Sand Hill Road: Venture Capital and How to Get It. We highly recommend giving it a read! If you’ve read our blog before you know we often compare a fundraising process to a traditional sales process. You might find potential investors to fill the top of the funnel, set meetings and build relationships with future investors in the middle of the funnel, and eventually close them at the bottom of the funnel. Throughout a traditional sales process one of the first things a seller does, is finding the motivators behind a buyer’s decision to make a purchase. However, we often see founders forego the research to understand an investor’s motivation. Sure, they’ve got to return capital to their investors. But how do they raise capital for their fund and who are their investors? Understanding the Limited Partner and VC Relationship A VCs job is to raise capital from limited partners, generate returns in 10-12 years, and do it again. Venture capital firms are funded by limited partners (LPs). LPs are generally institutional investors like university endowments, foundations, pension funds, insurance companies, family offices, sovereign wealth funds, etc. These institutional investors often have much larger funds and use a small % (typically 5%) of their investment capital to diversify with venture capital funds. Historically, a VC fund is generally not a great investment. According to Scott Kupor, “If you invested in the median returning VC firm, you would have tied up your money for a long time and have generated worse results that the same investment in Nasdaq or S&P 500.” So why would an LP invest in a VC fund at all? The Power Law Curve VC funds do not follow a normal distribution, they follow a power law curve. For the sake of this post, a power law curve is when the distribution of returns is heavily skewed. Or simply put, a small % of firms capture a large % of industry returns. This means that a small % of VC funds take home a large % of venture returns. VCs are constantly working to make their way into the “winning” part of the curve so they can continue to attract capital from limited partners. How does a VC fund become a “winner?” The best VC funds portfolio returns also follows a power law curve. A small % of a VC funds investments will yield the majority of their returns. What does all of this mean for a founder? Why the Market Matters VCs are in pursuit of investments that will yield massive returns for their LPs. Generally speaking, this conversation starts and ends with total addressable market. Without a compelling market, a company is capped by the returns they can generate. This does not mean that the market has to be big now, but has the chance to develop into a major market (check out this example on Uber’s TAM). Check out our free guide for modeling your TAM here. Why the Fund Age Matters When raising capital, be sure to ask investors questions about the age of their fund and the capital they’ve committed. Remember that a VC generally returns funds to their LPs in 10-12 years. If their fund is getting older in age, they may feel pressure to create returns for their LPs. This pressure may be passed down to portfolio companies and could force you into an early exit. A younger fund will feel less pressure to generate returns and will likely have capital set aside for a follow on round. A younger fund may be eager to put capital to work and will help speed up the fundraise as well. Why the Portfolio Performance Matters It is also important to understand how the rest of the portfolio is performing. Are there a number of standout companies? Would you be the standout company? If the overall fund is performing well, your likelihood of raising capital at a future date is higher. If the overall fund is performing poorly, you may be pushed to exit so they can generate returns for their LPs. Understanding the motives behind a VCs investment process is an easy way to conduct your own due diligence on potential investors. Remember that fundraising starts and ends with relationships. To find the right investors for your raise get started with Visible Connect, our investor data base. Give it a try below: Be prepared, do your research, and ask the right questions to make sure you’re building relationships with the right people.

A guest post for the Founders Forward blog by Florent Merian. Visible is on a mission to move founders forward. We’ve built an automation tool that lets you, founders and startup leaders, instantly create and send updates to your team and your investors. We often preach treating fundraising and investor communication as a process. It should be no different from any sales, marketing, or product process that you would implement at your business. In this blog post, we explore how you can apply your support process to your investor communication and why getting feedback from your investors is so important to build trust, engagement, and a successful long-lasting relationship. Know your investors, enhance your relationship To get feedback from your customers is vital to increase your business. So is feedback from your investors to build transparency and trust in your relationship. As Fred Wilson, partner at Union Square Ventures, reported, “founders and their teams spend a lot of time preparing for a meeting, and then they give the meeting their all, and often the Board leaves, and nothing is really said about it.” As he stated, “one of the most frustrating things about board meetings is that it is difficult for founders and CEOs to get feedback on them.” By engaging with your investors to know how they feel after a meeting and how you can improve, you better know them, their expectations and you get valuable insights to improve your performances as a startup leader. Related Resource: Navigating Investor Feedback: A Guide to Constructive Responses Build a personalized online survey to get insights There are several ways to ask for feedback. For instance, you can build an online review with a simple web tool, and share it with your investors when done. You can ask them the following questions: What are the three things we’re doing well? What are the three things we need to do better? What would you like to see followed-up on from this board meeting? Are there any topics you’d like to explore in-depth at the next board meeting? As your investors might be overwhelmed by emails and might not have the time to reply, personalize your survey with their first name to make more engaging and make sure it has a responsive design, so it’s accessible from any where and from any device. Then, you can collect data as part of your process to review your performances, to improve your management, and ultimately to foster your business development. This way, you can get valuable feedback from your investors and you can rely on it to improve your next meetings and updates. Get continuous investor feedback The same way you would do with your customers, regularly request feedback from your investors. Send them surveys after your Board meetings and keep them informed of your activity with regular updates to build and maintain a trustworthy relationship. Remember founders who regularly engage with their investors are 200% more likely to receive follow-on funding. To engage with your investors by getting feedback and sending updates regularly helps you maintain a trustworthy relationship, and it also enables you to build a better company. Thank you for your read! How about you, how do you engage with your investors?

Investor communication is a key skill that all startup founders should hone. Whether you're pitching new investors, updating existing ones, or trying to raise your next round, your ability to engage investors can mean the difference between failure and success. In this webinar you’ll learn: How to reach out to investors and get a meeting How to pitch effectively How to stay top-of-mind with prospective investors How sending consistent investor updates can make getting your next round easy How to leverage your investors’ experience and networks to get the help you need

Investor communication is a key skill that all startup founders should hone. Whether you’re pitching new investors, updating existing ones or trying to raise your next round, your ability to engage investors can mean the difference between failure and success.

Introducing Our New Update Editor Updates are the core of the Visible product. It’s no secret that we believe that regular investor updates are a key component of startup success and raising follow-on funding. We want to continue to be the best way to build and send your investor updates, which is why we’ve released our Update Editor 2.0. With our newest release, writing Updates is quicker and easier than ever before. In addition to a UI facelift, we’ve also added features that are as functional as they are fun to use. Here are a few of the things you can do with our Update Editor 2.0: Move and organize text, objects, charts and images easily with universal drag-and-drop Get a clean, professional look with side-by-side charts Use new blocks to add charts, tables, files, text and images anywhere in your update Drop local files and images directly into your update Split your update into sections with line breaks To see the new Editor in action, you can check out this short video: These improvements also pave the way for some exciting new features we’re currently working on. We can’t wait to share them with you! The Update Editor 2.0 is live in the product now. If you’re a Visible customer, sign in and check it out. If you’re not a Visible customer yet, we’d love to offer you a free 14-day trial so you can check it out for yourself.

Operating a business across many countries and dealing with multiple currencies presents plenty of unique challenges. Converting and consolidating financial data from QuickBooks, Xero and other sources should not find itself in the “challenges” category; however, it often does. No reason to fret, the Visible team has you covered with this guide. We’ve helped many customers handle their currency conversion needs with our formula builder and Google Sheets integration but wanted to kick things up a notch with a comprehensive guide. Transparently, we’d love for you to trial Visible & be a hopefully become a customer, but anyone will be able to find value in our currency and consolidation guide, especially for those of you using QuickBooks, Xero and/or Google Sheets! This guide will be broken down into 3 parts: Automatically creating currency exchange rates with our Google Sheet Template Combining your QuickBooks or Xero data with our formula builder to consolidate financials to one currency Charting & sharing consolidated data using Visible Currency Exchange Rates with Google Sheets Our first stop on our journey of currency conversion and consolidation takes us to Google Sheets. Google Sheets is great because their =googlefinance formula is able to grab exchange rates (and historical rates) for any currency. Rather than make you work for it and end up with something like “=GOOGLEFINANCE(“Currency:”&‘Currency Conversion’!$C$3&‘Currency Conversion’!$C$4,“price”,‘Currency Conversion’!F1,‘Currency Conversion’!Q1,“Daily”)” we decided to play nice and do the work for you. In the Google Sheet you’ll find 3 tabs. For you #lazyweb people, you can skip to the next section. For those who want to learn about the 3 tabs, keep reading. You can download the Google Sheet Template and follow along using the form below: The first tab lets you make your selections of base currencies & the converted currencies. We’ve set it up to automate up to 5 different conversions. This is the tab you’ll be able to connect to Visible as well. The second tab is just a simple list of countries, their currency, currency code & number. Thanks to IBAN for providing this list to us. This is the list that powers the dropdown in Column C on the first tab. The final tab is the actual Conversion Data. This is where Google Sheets and the =googlefiance formula does its magic. This tab references your inputs from the first tab and will spit out all of the daily exchange rates for the given currencies year-to-date. Funnily enough, Google sends us a date/timestamp that does not play nice with the =vlookup we need on the first tab, so we added a Format Date column. This Sheet will update each day with the latest rates. Note: For the purpose of this project, we are taking the exchange rate on the final day of the month and assigning that as the exchange rate for the month. You are welcome to change the formula to be an average or a rate that you personally observed with your own bank. p.s. if you don’t want to use Google Sheets, you can always enter in your own exchange rate data using our User Provided Metrics. Consolidating with QuickBooks, Xero & the formula builder The first thing we will want to do is get your financial data into Visible from QuickBooks and/or Xero. You can also upload data through Google Sheets or Excel (User Provided Data). Head over to our knowledge base if you need any help integrating with QuickBooks or Xero. If you need any additional help you are always welcome to contact support as well. The next thing we will want to do is get automated exchange rates from the Google Sheet we setup. Assuming the template was not changed, the dates will be in row 1 and metrics in column E. If you made your own changes, then enter the respective column/row here. In my example, I am going to Consolidate Revenue to USD from QuickBooks (AUD), Xero (EUR) and User Provided Data (USD). This means I’ll have 2 exchange rates created for me looking like this: Now it is formula time. Head over to “New data source” and create formula. Your formula will look something like: Consolidate Value = Metric (in base currency) + (Metric 2 & Exchange Rate) + (Metric 3 * Exchange Rate) etc etc. For my example it looks like this: Hit “Save” and now we have our consolidated metric! Charting Consolidated Financial Data with Visible This part is the easiest and happens to be the most fun. Once you have your consolidated metrics created, you can use them in charts, tables and Updates. These charts will always be up to date with your data syncing from Sheets, QuickBooks and Xero every night. If you want to level up your Consolidation Reports, check out our Variance Reporting module to generate your Month-to-Date and Year-to-Date variance reports. We hope you found some value with this guide and our Google Sheet template. If you need any additional Visible help or have any questions, you can contact us here. Up & to the right, -Mike & The Visible Team

MRR: What is it? What is MRR? Monthly Recurring Revenue is how much money your company can be expected to bring in every month. Generally, this has to do with subscription costs, retainers, and other predictable purchasing habits. The rationale behind MRR is simple: you need to be able to project out your company’s future revenue. The calculations behind it can be more complex. Going beyond the simple MRR meaning, MRR is a functional metric through which you can gauge your company’s income and success. If your MRR is growing over time, your business is growing; if your MRR is shrinking, then your company may experience lean times in the future. MRR trends are incredibly important to subscription-based businesses, because they compound over time. Once MRR begins shrinking, it can be difficult to control. A company must calculate its MRR not only based on its active subscriptions, but also whether these active subscriptions are trending upwards or downwards. In the case of subscriptions or contracts that are ending, the company must also track which customers are ending their subscriptions, and which new subscriptions are coming on board. Every recurring revenue-based business needs to have an MRR calculator that can project out the future performance of the business, based on the active contracts it will have in the following months. Ideally, a business will be able to use its MRR calculations to project out a year at a time, so the company can review and analyze its future finances. An MRR calculator will be unique to a business. Some businesses have predictable recurring revenue: they have year long contracts with customers. Other companies have less predictable recurring revenue: their customers can sign up and cancel at any time, so they need to pay more attention to general trends. Over time, a company will develop a firmer understanding of its MRR. Most advanced accounting and customer relationship management suites can be used to produce reports related to MRR. This is especially true for accounting solutions and point-of-sale systems which are specifically designed for handling subscription fees. In addition to MRR itself, a company needs to pay attention to its churn: the amount of customers coming and going. All these stats, together, are going to form the basis of the company’s strategies, informing the company on how the business is doing, how customers are responding to it, and whether the company is currently growing or shrinking. Revenue vs Recurring Revenue Recurring revenue is a core tenant of a SaaS (software as a service) company. As defined by Investopedia, “Recurring revenue is the portion of a company’s revenue that is expected to continue in the future. Unlike one-off sales, these revenues are predictable, stable and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty.” For example, if you had a customer paying you $10 a month for a subscription or service that would be $10 in MRR (monthly recurring revenue) or $120 in ARR (annual recurring revenue). Different Types of MRR New MRR New MRR (monthly recurring revenue) is exactly what it sounds like. Any new MRR from customers. Net New MRR Net new MRR takes into account different MRR metrics to calculate what your new MRR is after expansion/upsells, churned customers, reactivated customers, and contracted customers (more on these below). Expansion/Upsell MRR Expansion monthly recurring revenue is MRR from gained from existing customers when they upgrade their subscriptions Churned MRR MRR lost from existing customers when they downgrade or cancel their subscriptions Reactivated MRR Reactivated MRR is when a customer that had previously churned comes back as a paying customer. Contracted MRR Contracted MRR is when a customer downgrades their account to one that is less expensive. For example, going from a $20/month plan to $10/month plan. Why is accurate MRR tracking so important? Having an accurate approach to tracking MRR is vital to your startup’s success. At the end of the day, you need revenue to survive and having the correct number accessible at all times is important to understanding how your business is performing. While it can be easy to inflate your MRR to attract investors and customers, it is important to have an accurate number for a few reasons: Avoid Misleading Metrics Be honest with the size of monthly recurring revenue (MRR) numbers and your month over month growth (MoM) percentage. Your investors are likely assessing revenue figures from a number of portfolio companies, which means they know where to find weak spots. Don’t look unprepared. Don’t pass off big growth rates on small numbers If you’re still gaining traction as a startup, your month over month numbers may be tiny. So boasting mega percentages in MoM growth will be laughable to seasoned investors if you’re passing the rate off as sustainable growth at scale. Don’t hide MoM fluctuation Your numbers can fluctuate. That’s perfectly normal. Especially over the course of quarter, a SaaS company can often begin their first two months hitting only 50 percent of its mark, but rally for more than 50 percent in the final month on the back of the groundwork down in the beginning. Make sure your founders now how your numbers may fluctuate from month-to-month. How to Calculate MRR Consolidate content from How to Calculate Net MRR into this section -> Use all content below the internal linking navigation and restructure accordingly to flow with the “Different Types of MRR” section. MRR Formulas New MRR Formula New MRR does not offer a formula but rather a list of things to avoid. Like: Full value of multi-month contracts: If you have quarterly, semi-annual, or annual contracts, normalize them to a monthly rate. Take the full subscription amount paid and divide it by the number of months in the contract. For example, your customer pays you $1,200 for an annual subscription. Dividing that by 12 gives you a monthly rate of $100 which you should use in your MRR calculation instead of $1,200. One-time payments: One-time payments are not recurring, so you shouldn’t include them in your MRR calculation. One-time payments are not the same as multi-month payments. Even though a customer is paying a lump sum payment for those months, you expect the customer to make another lump sum payment at the end of the subscription period. With one-time payments, you don’t expect the customer to make another subscription payment. Trialers: Until trial customers convert to being regular customers, don’t include their expected subscription values in your MRR calculation. Net New MRR Formula Net MRR gives your company a holistic overview of revenue gained from new subscriptions and upsells/upgrades and revenue lost from downgrades and cancellations. The formula looks like this: Expansion/Upsell MRR Formula Expansion and upsell MRR do not require their own formulas but rather definitions within your company. Generally speaking, expansion and upsell MRR are simply current customers that expand their account to pay more the next. E.g. upgrading from $10 a month to $30 a month is $20 in expansion MRR. Churned MRR Formula Simply take the revenue lost through non-renewal or cancellation and divide that number by the revenue you had at the beginning of the given period. If, for example, you started the quarter with $10,000 in revenue, but lost $480 through that quarter, your churn rate is 4.8% quarterly. Reactivated MRR Formula Reactivated MRR is when a customer who churned in the past becomes a customer again. For example, if an old, churned customer comes back at $100/mo that would be $100 in reactivation MRR. Contracted MRR Formula Just like expansion MRR, contracted MRR does not require a formula but rather a definition. Contracted MRR is generally when a current customer downgrades their account but stays a customer. E.g. downgrading from a $30/mo plan to $10/mo plan would be $20 in MRR contraction. Related Resource: EBITDA vs Revenue: Understanding the Difference How to Grow MRR There are hundreds of different strategies and models intended to help SaaS companies grow their MRR. From sales development representatives to product-led growth there are many shapes and sizes that work. At Visible, we have a few that we find to be most interesting and successful. Product-Led Growth From our post, “How SaaS Companies Can Best Leverage a Product-Led Growth Strategy,” we state PLG as: “A successful PLG strategy gets your product in the hands of your customers as fast as possible and starts solving their problems right away. “Growth in [PLG] companies has a significant viral component.” Jon Falker of GLIDR writes, “Users can get unique value from the product or service right away and can benefit from helping to attract other new users.” This is why freemium models are remarkably effective in a PLG environment. By providing the user with a valuable experience upfront, you can inspire more frequent use, greater shareability, and focus on the premium aspects of your product that will drive purchasing decisions and ultimately retain these customers.” Retain Current Customers The easiest way to grow your business is to keep your current customers. Just about everyone preaches the old adage that, “it is cheaper to retain a current customer than buy a new one.” You can read more about reducing churn and retaining customers below. Invest in What Works While it is not a specific strategy, we find the most successful companies invest in what works to grow MRR. If your business has an incredible organic strategy, awesome! You can double down there to increase MRR with predictability. If you have a strong sales team, put more resources there. While experimenting has it benefits, investing in what works is an integral part of successful, early-stage companies. Related Reading: What is a Startup’s Annual Run Rate? (Definition + Formula) Why MRR Churn Rate is So Important To Monitor Most companies spend a great deal of time and financial resources on customer acquisition. This is particularly true in those early months and years of a startup. Acquiring new customers never gets old and watching your sales grow is a good indicator that you have a product that sells. But having a product or service that sells is not the only metric in determining the success of your company. Customer churn is another key metric to be concerned about. How to Calculate Churn Rate for Your SaaS Startup While determining an accurate churn rate for some products and services can be challenging, calculating the churn rate for a SaaS is relatively easy. Simply take the number of customers lost through non-renewal or cancellation and divide that number by the number of total customers you had at the beginning of the given period. If, for example, you started the quarter with 10,000 customers, but lost 480 of them through that quarter, your churn rate is 4.8% quarterly. Churn Rate Impact Startups can often overlook churn rate in the early days of building their business. As we said, during this period it is all about the sales. But if you will be looking for investors, you can be sure they will be looking at churn. Churn rate is a huge indicator of customer satisfaction and can foretell the future of your company. If you have a churn rate of 4% a month, that may make you feel pretty good. You could view that as a 96% retention rate. But if you are churning 4% of your customers each month, you are turning over almost half of your customers each year. As your business grows, the number of customers lost will increase, placing even more pressure on creating new sales. Monthly SaaS Churn Rate If you are doing it right, your customer churn rate should trend like this over time…one of the few times that “up and to the right” is the opposite of what you want. You can determine the actual cost in dollars of churn by multiplying the number of customers lost by your average customer worth. It can really get your attention when expressed in actual dollars. How to Minimize Your Churn Rate If you are uncomfortable with your churn rate, it is time to start talking to your customers and your recently lost customers. Determine what you are doing right, and the reasons churn is happening at the rate it is. It could be something easily fixed like better communication or small product improvements. But you can’t address it if you don’t have a churn rate to track. It is especially critical for new and growing companies. MRR churn is the percentage of revenue lost every month due to cancellations. Naturally, every business wants to reduce this churn. Tracking this churn is especially important for marketing strategies: if churn percentage is rising, that means that more customers are unsatisfied, even if MRR and subscriptions may be going up. The company may need to improve upon its customer retention strategies. A large percentage of churn is never good: it costs more to acquire a new customer than it does to retain an old one. Because of this, companies that want to reduce their overhead and scale upwards need to concentrate on keeping the customers they have. If MRR churn is consistently increasing, then the company may risk a revenue drought. Churn is fundamental to an SaaS company’s growth, and luckily the churn calculation is fairly simple: a company need only find the percentage of revenue lost via cancellations. As long as the company knows its current MRR and its churn percentage, it can also project out how much revenue it will lose to churn every month. MRR and MRR churn for a company may look like this: The company currently has $50,000 in recurring subscription fees. In the prior month, the company lost $5,000 in cancellations, but gained $10,000 in new accounts. In the next month, it can be anticipated the company will lose $5,000 but gain $10,000. The company’s projected recurring subscription fees for the next month will be $55,000. The company’s current MRR churn rate is 10%. Apart from this, the company’s growth is at around 10%, and trends over time will tell the company whether its MRR churn rate and its new account subscription rate are going up or down. As with MRR, a company can use a spreadsheet or another calculator system to determine its churn metrics. MRR and churn should be a part of the company’s financial statements, and should be regularly reviewed for core insights into how the company is doing and whether any changes need to be made in its retention policies. Churn rate vs. retention rate: churn rate differs slightly because it is the rate of revenue that is being churned away from the company, rather than the amount of customers retained. A company could have a high churn rate alongside a high retention rate if they are frequently losing high value customers but retaining large volumes of low value customers. In general, companies are able to reduce their churn rates by improving upon customer satisfaction. Regular surveys regarding customer satisfaction and improved customer service are usually key to reducing churn rates and improving overall customer retention. Companies may also need to identify any gaps in their current product and service offerings if they find that customers are frequently leaving, or are leaving to competing companies. Other SaaS Metrics MRR and churn rate are only two of the SaaS metrics that your company should be tracking. As an SaaS company, your metrics are going to be of exceeding importance. Most SaaS companies need to scale fairly aggressively, and must constantly be moving. Sales and sticky revenue are more important for SaaS companies than others, as widespread adoption is a key to success. Here are a few of the most important SaaS metrics, in addition to SaaS churn and MRR: Customer lifetime value This is the total amount that a customer is expected to spend on the platform throughout their entire relationship with it. For SaaS startups, it may be difficult to gauge customer lifetime value, but it’s important when determining how much to spend to acquire and retain customers. Customer acquisition cost This is the total amount it costs to acquire a customer, which will often be compared to the customer lifetime value. Ideally, a company should be able to reduce customer acquisition cost to at least a third of the customer’s value. Customer retention rates Poor customer retention isn’t just bad for finances; it’s an indicator that there could be a core issue with the solution itself. Customer retention rates are always a major feature of revenue development. Customer acquisition rates Customer acquisition relates directly to how fast your company is growing. Your customer acquisition needs to be continuously outpacing your customer churn; otherwise, your platform is going to experience shrinkage. Over time, customer churn tends to grow. Customer acquisition must grow as well. Number of active users Your number of active users is one of the most direct metrics that you can use to determine your success. Your revenue may be shrinking, but your active users are growing: that means that you have a product that can be monetized, you just need to work on your monetization and your commitment strategies. A SaaS metrics spreadsheet can make it easier for you to track all the important metrics for your financial statements. Likewise, there are a number of software platforms that are designed to keep track of your financials for you. These products can be used to produce reports for your financial meetings, and to give you a better handle on how your company is growing and developing within the SaaS space. Changes within the SaaS market can happen quickly. Your growth trends are going to mean everything in terms of your company’s performance, especially within highly competitive spaces. Being able to accurately predict your growth into the future comes from a thorough understanding of your numbers right now.

Customer Development was introduced by entrepreneur Steve Blank in the early 90s. Since its inception, customer development has become core curriculum for startup founders and operators. Customer Development is one of the parts that make up a “lean startup,” an idea introduced by Steve Blank and Eric Ries. As the customer development framework has become a widely used approach in the startup world, we’ve decided how the process can be applied to a key facet of building a startup: investor development. In order to better understand investor development, it is important to understand customer development. As Steve Blank puts it in his book, The Four Steps to the Epiphany, “Broadly speaking, customer development focuses on understanding customer problems and needs, customer validation on developing a sales model that can be replicated, customer creation on creating end-user demand, and company building on transitioning the company from one designed for learning and discovery to a well-oiled machine engineered for execution.” The customer development framework can be broken down into the 4 steps below: Customer Discovery — “The goal of Customer Discovery is just what the name implies: finding out who the customers for your product are and whether the problem you believe you are solving is important to them.” Customer Validation — “Customer Validation is where the rubber meets the road. The goal of this step is to build a repeatable sales road map for the sales and marketing teams that will follow later.” Customer Creation — “Customer Creation builds on the success the company has had in its initial sales. Its goal is to create end-user demand and drive that demand into the company’s sales channel.” Company Building — “Company Building is where the company transitions from its informal, learning and discovery-oriented customer development team into formal departments with VPs of Sales, Marketing and Business Development.” Finding and marketing to new customers is hard. To help with this, it is important to note the four steps are recursive and iterative. As Steve Blank writes, “The nature of finding and discovering a marketing and customers guarantees that you will get it wrong several times. Therefore, unlike the product development model, the Customer Development model assumes that it will take several iterations of each of the four steps until you get it right.” What is Investor Development? As founders and investors often stress, raising venture capital is very much a structured process. And more times than not, a process full of nos and disappointments. Just as the Customer Development model assumes it will take several iterations until you get it right, the same can be said for pitching and closing investors. Elizabeth Yin, founder of the Hustle Fund, says, “an experienced fundraiser knows that the goal in going into your first fundraising meeting is to ask lots of questions and walk away understanding what next steps make sense. You should understand your potential investor’s pain points. Is there something you can solve for a potential investor by having him/her invest in your company? Do you have a solution for those pain points?” Following the core principles of the Customer Development model and Elizabeth’s idea mentioned above, a founder can easily systemize their fundraising process using the four investor development steps below: Investor Discovery — Investor discovery is the process of identifying targeted potential investors and whether your company/product/service can solve your investor’s needs and requirements. Investor Validation — Investor validation is where founders iterate on what they learned in the discovery stage and tailor their pitch and begin targeted outreach and conversation. Validation proves that investors are reacting positively to your company/product/service by investing capital. Capital Creation — Capital creation builds on the success from the first 2 stages and creates a scalable process for the current, and future, fundraises. Checks are being written and demand is being created for follow-on and future investors. Relationship Building — Relationship building is when your fundraising and investor relations process has matured. Formal expectations have been set between you, the founder, and your current and future investors. Note, that this is an iterative process (just like the Customer Development Model). If you believe your company cannot satisfy a potential investor’s requirements, ask questions to understand why and reiterate your solution to solve their investment pain points and requirements. Investor Discovery Investor discovery is the start of your fundraising journey. Before you begin the investor discovery stage it is important to identify who you believe your target investors to be by creating an ideal investor persona and list of targeted investors. The discovery process will happen during your first meeting with a new investor. A first-time founder may be tempted to begin their meeting with a company pitch and paint a picture of why their company is worthy of being venture-backed. However, this should be a time to understand the investor’s needs. Ask plenty of questions and pull together your learnings to tailor your solution and pitch to their needs. As Elizabeth Yin sums it up, “Your job in the first meeting with a potential investor is to ask a lot of questions—a la customer development style—to understand how you might be able to tie your story to their problems and interests. And so your pitch should not be stagnant, and although you may have created a deck before the meeting, it’s important to tie your talking points together as a solution to the problems you learn about in that meeting.” Investor Validation The next step in the process is to validate your solution and scale your process to other investors you’ve identified. As mentioned above, the first meeting with every investor should be about uncovering their pain points and requirements to tailor your pitch for each investor. The same holds true for the validation stage, but with an emphasis on rolling out your learnings and dialing in your pitch as you uncover different strengths of your business and your pitch from each new meeting. By completing both investor discovery and investor validation, you confirm that your company/product/solution is worthy of being venture-backed. These steps verify that your business model is feasible, the market is of interest to investors, establishes your price, and creates the perceived value to the market, and investors. Capital Creation To create capital you need to have proved your company is worth of being venture-backed. By completing investor discovery and investor validation you have likely confirmed your company is ready to be venture-backed. Capital creation is when checks from initial investors are being cashed. By validating the value of your company, a new sense of demand will be created for your company, new opportunities with co-investors and future investors will arise. It is important to note that new opportunities will arise for a future round. However, by taking your learnings from the first discovery and validation, you’ll be to engage these investors for a later fundraise. Relationship Building The final stage is relationship-building. The relationship-building stage is when your investor relations and fundraising processes have matured. You’ll have an established rhythm for communicating and engaging with your current investors as well as an approach for reaching out to prospective investors. Investors are invested in your success as a company and have validated that you are fulfilling a pain point. It is your duty to show that you’re taking their commitment seriously and sharing how you’re deploying their capital and ensuring they can help create value along the journey. All in all, it is vital to create a process that allows you to iterate and improve along the way. At the end of the day you are selling your company to a potential customer (read: investor) and communication is at the center of the relationship. Interested in learning more about investor development? Check out other ideas on our Founders Forward blog here.

One of the most powerful tools at investors’ disposal is equity research reports. Wall Street firms employ some of the sharpest minds in the industry who study companies with publicly traded stocks. These analysts delve into every aspect of the company, from its financial statements to its management team and competitors. Equity research reports provide solid analysis and the opinions of the analysts who follow the companies and their stocks extremely closely. What Is an Equity Research Report? An equity research report is a detailed report written by an analyst at a sell-side firm or independent investment research firm that analyzes the company’s business and finances and gives the analyst’s opinion of the company’s prospects and future stock price. Analysts are experts in the companies’ businesses, finance, and industries they follow. They research a company’s financials, performance, and competitive landscapes. They also create models to predict metrics like future earnings per share, sales, and a target price for the stock. Analysts keep a close eye on every move of the companies they follow and update their equity research reports at least once a quarter after the company issues its quarterly earnings report. If significant material changes occur mid-quarter, the analyst will write an update to their research report in a flash report. An example of an equity research report is a report on Apple written by a sell-side analyst from Argus. This report includes the analyst’s analysis and opinions about the company’s financials and future revenue and earnings predictions. The report also provides the analyst’s target price estimate and rating. Important Components of a Typical Equity Research Report The typical equity research report includes components that dig into the company’s financials, industry landscape, risks, and other vital aspects that can materially affect the company’s future business performance and stock price. Recent Results & Company Announcements Shortly after a company announces its quarterly results, an analyst will issue a new equity research report. This report will include an analysis of the recent quarterly results, including EPS, sales, and various financial metrics like EBITDA and profit margins. When releasing quarterly results, a company often makes announcements in a press release or through a conference call between management and the analyst community. The equity research report will include an analysis of these company announcements. Organizational Overview and Commentary An equity research report typically summarizes the company’s organizational structure. This summary outlines the management structure and the company’s major divisions. If the company makes any significant structural changes, such as appointing a new CEO or shutting down a division, the analyst will discuss the implications of these changes in the equity research report. Valuation Information Perhaps the most impactful part of an equity research report is the valuation analysis provided by the research analyst. The analyst provides an overview of the company’s performance through this analysis. The valuation information included within an equity research report includes margin analysis, EPS and sales estimates, the stock’s target price estimate, and other valuation and financial metrics calculated through a deep dive into the company’s financial statements. Estimates An analyst uses a company’s reported results and their own research into the company’s operations and the industry to calculate various estimates. The most prominent estimate is the EPS estimate, the analyst’s estimate for earnings per share for future quarters and fiscal years. Analysts also calculate forecasts for sales, margins, and other financial metrics. Many equity brokerage reports include a target price estimate, which is a short-term estimate for the stock’s price. An analyst may also issue a rating for the company’s stock, such as buy, sell, or hold. Financial Histories An equity research report typically contains financial data going back several years on both a quarterly and fiscal year basis. The analyst uses this financial data to perform an analysis of the company’s financial health and create projections. While research reports typically do not include complete financial statements, the reports often include important line items, valuation ratios, and financial metrics in tables which the analyst will reference in the commentary. Trends Evaluating trends is a big part of an analyst’s job; equity research reports discuss these trends. The report includes trends like year-over-year and quarter-over-quarter growth rates for metrics such as EPS, sales, and margins. The trend analysis gives an excellent overview of the growth of the company. For example, suppose sales significantly grew year-over-year, but EPS was stagnant. In this case, the company may be facing higher expenses, and the analyst will dive into the financial results and attempt to uncover the cause of the problem. Risks Many equity research reports include a section that describes the risks the company and investors may encounter. These risks may include economic headwinds, an increasingly competitive landscape, and company-specific risks like failed product launches or management changes. In-Depth Industry Research While analysts are experts on the companies they follow, they are also experts on the companies’ industries. Equity research reports include the analyst’s evaluation of the industry trends, the competitive landscape, and how the company’s prospects align with changes within the industry. Buy Side vs. Sell Side: What Role Do Both Sides Play? Buy-side and sell-side firms play different roles in financial markets, and it is vital to understand the role of each. Buy-side firms, such as hedge funds, pension funds and asset managers, have money to invest. They buy stocks and other investments and are fiduciaries of their client’s money. Sell-side firms, such as brokerage houses, sell investments to their clients, including buy-side firms. Sell-side firms employ analysts that write equity research reports. The sell-side firms provide these equity research reports to their buy-side clients. Buy-side firms use these equity research reports to help make investment decisions. Other Types of Research Reports Analysts produce several types of equity research reports. These include initiation of coverage reports, quarterly results reports, flash reports, and sector and industry reports. Initiating Coverage Reports When a sell-side firm begins covering a stock, the first analyst report is called an initiation of coverage report. This report gives the analyst’s first take on a company and its stock. Many investors pay attention to initiation of coverage reports because they provide a fresh perspective on a stock. Quarterly Results Reports After a company reports its earnings, an analyst will issue a new research report incorporating recent results. The analyst discusses the results and what went wrong and right in the last quarter. The analyst will also calculate new financial projections based on the results, company guidance, and management commentary. Related Resource: Portfolio Management: What it is and How Visible Can Help Related Resource: How To Write the Perfect Investor Update (Tips and Templates) Flash Reports Analysts issue flash reports when significant material changes involving the company, or the company’s industry, occur. An analyst may issue a flash report if the company’s CEO resigns, the company initiates a significant stock buyback program, or other major news breaks. In a flash report, the analyst will discuss the relevant news and how it may impact the company and its stock price. Sector Reports Sell-side firms also issue sector reports. The sector reports will dive into trends within the sector, a high-level analysis of the top companies in the sector, and past and future predicted performance of the stocks within the sector. Industry Reports Like sector reports, industry reports discuss the competitive landscape and major players within an industry. An industry is a subset of a sector. For example, the technology sector includes the semiconductor, personal computer, and cloud computing industries. Industry reports focus on a narrower industry rather than a broader sector. Equity Research Report Example Although each sell-side firm has a unique style for presenting analysts’ research in equity research reports, most contain similar types of information. Let’s conclude our discussion of equity research reports by looking at a recent Microsoft report written by Argus analyst Joseph Bonner after the company issued its fourth quarter 2022 results. The report starts with several tables of key statistics, such as financial and valuation ratios and the analyst’s investment thesis. The table also includes the analyst’s rating and target price for the stock. The report continues with the analyst’s investment thesis for Microsoft stock. This thesis briefly explains the analyst’s rationale for his Buy rating on MSFT stock. A section detailing recent developments within the company, which the analyst derives from the company’s earnings report and conference call, is followed by a look at select financial data. An analysis of growth rates for several key metrics like revenue and margins leads to an overview of risks that investors of Microsoft may face. Equity research reports offer investors a great way to harness the power of Wall Street analysts. These analysts live and breathe the companies they follow. Investors can use their expertise to advise them in the investing process.

6 Effective Ways to Connect With Investors One of the first questions on a startup owner’s mind is how to find investors. Angel investors, grants, venture capital: all of it goes towards making sure that your business can grow and thrive. Finding funding is one of the most pressing concerns for a startup, especially a new company. And it can be difficult to know where to start. How to find investors to start a business will vary depending on the type of business you have, as well as the type of funding you’re looking to procure. You may need to change your strategies depending on your industry, the size of your business, and your business model. There are certain types of funding that are more useful depending on the type of business. Yet regardless of the type of business you have, there are specific things that your business will need to do to ready itself to procure investors. To find investors, you’ll need to have a clear and concise business plan, in addition to current financials. Your financial statements will need to be accurate and timely, as you have to show that your company is stable. Related Resource: 6 Helpful Networking Tips for Connecting With Investors Related Resource: How to Find Venture Capital to Fund Your Startup: 5 Methods Learn more about finding the right investors for your business below: 1) Use a Powerful Online Platform When searching for investors the best place to start is with the resources that are immediately available to you. Thankfully for startup founders, there is countless platforms, lists, and databases full of active startup investors. At Visible, we offer a free investor database, Visible Connect, with the data and information founders need to build out their fundraising pipeline. Give it a try here. Related Resource: How To Find Private Investors For Startups 2) Get Your Startup at a Networking Event After you’ve done some preliminary research, it is time to hit the ground running and get in front of the investors that you believe are the best fit for your business. One of the most common ways to find investors is by attending a networking event. Startup networking events have become very common and can be found in most major cities. Related Resource: Investor Relationship Management 101: How to Manage Your Startups Interactions with Investors Related Resource: 7 of the Best Online Communities for Investors 3) Reach Out to Friends and Family Members If you’ve determined that venture capital or particular investors might not be best for your business you can turn to friends and family (or angel investors). Approaching friends and family can be a delicate situation and needs to be treated thoughtfully. Learn more about raising capital from friends and family in our guide below: Related Resource: 7 Tips for Raising a Friends & Family Round 4) Network Online Using Social Media Startup investors are notorious for their use of Twitter and other social media platforms. Social media, especially Twitter, can be a powerful tool for a founder looking to find an introduction to an investor. If you find an investor you have on your target list is a frequent Twitter user, don’t be afraid to Tweet at them or reach out via direct message. 5) Utilize a Crowdfunding Platform As the startup space continues to grow so do the funding options available to startup funders. Over the past decade, crowdfunding has taken the funding world by storm. While it is not for every business, crowdfunding can be a valuable tool. Learn more about raising crowdfunding below: Related Resource: How to Raise Crowdfunding with Cheryl Campos of Republic 6) Apply for an Incubator Program As put by the team at Investopedia, “An incubator firm is an organization engaged in the business of fostering early-stage companies through the different developmental phases until the companies have sufficient financial, human, and physical resources to function on their own.” Incubators can be a valuable tool for startups looking to work through the early phases of building their business and model. Oftentimes, this comes with a built-in network of startup investors and opportunities to pitch them for future investment. How to Find Angel Investors How do you find angel investors? They may be closer than you think. Angel investors are usually your very first investors, and many of them come from your family and friends. An angel investor is simply an individual who has money to invest: they invest it directly through you. Often, angel investors are available even when you can’t get venture capital or a traditional bank loan. Angel investors have numerous advantages. They are less likely to have strict requirements. They are more likely to loan you affordable money — either at low interest rates, or for a small share in your business. While traditional investors often require that you have a proven business model and financial statements to match, angel investors simply need to believe in your business. When courting investors from family and friends, you’re working with those who already know you best. These are individuals who know that you’re trustworthy, that you are confident and capable, and that you have a solid business idea on your hands. Rather than having to prove yourself through business proposals and raw numbers, you can instead bank on their familiarity with yourself as an entrepreneur. If there are no prospective investors in your immediate family or friend group, you can begin networking with those you know. By letting the people you’re close to know that you’re in need of funding, you may be able to connect with a friend-of-a-friend or a more distant family member. This is an opportunity not only for you but for them. If you truly believe in your business, then you know that you’ll be able to pay the money back and more. And an angel investor doesn’t necessarily need to be someone you know. There are networks of angel investors online who are specifically looking for opportunities, though they may be more difficult to court than someone you have a prior existing relationship with. An angel investors network will connect you to a broad spectrum of investors, often who specialize in different types of business. If you cannot find angel investors, you may need to instead turn to venture capital or a bank. But this is going to take a lot more work. You may need to fund your business yourself until you can prove that it has revenue-generating potential, or you may need to grow slowly as you prove yourself capable of dealing with conventional credit lines and debt. Angel investors are by far the easiest way to aggressively grow your business, and they should be courted whenever possible. But because it relies upon knowing someone who has the cash to invest — or at least finding someone through someone you know — it can be a challenge. Related Resource: How To Write the Perfect Investor Update (Tips and Templates) How to Find Small Business Grants If you’re unable to find an angel investor, a small business grant may be a better solution. Small business grants are grants awarded to small business owners in specific locations, industries, or of particular demographics. These grants are intended to encourage the health of small businesses: a successful small business is often foundational to a local economy’s strength. Most small business grants have fairly specific restrictions. There are grants for rural businesses, technology-focused businesses, and innovative businesses. A business must often write a grant proposal which outlines why the business needs the grant, why they are worthy of the grant, and what they will do with the grant money. This is very much like a proposal for a loan. However, as long as the small business meets the terms of the grants, it doesn’t need to pay the grant money back: the grant money is gifted to the business to help it grow. Grant proposal writing is a fairly niche specialization, so many businesses (especially startups) may want to hire a grant writer to complete their proposal. There’s no limit to the number of grants a business can apply for; small business owners may want to apply for as many as they feel qualified for. Connect With More Investors With Visible Connecting with the right investors is crucial to funding success. In order to better help with your fundraise, we’ve got you covered. Related Resource: A Step-By-Step Guide for Building Your Investor Pipeline Find the right investors for your business with our investor database, Visible Connect. Add them directly to your fundraising pipelines in Visible, share your pitch deck, and send investor Updates along the way. Give Visible a free try for 14 days here.

You do a lot of work for your investors. Regular updates keep your board abreast of the latest company developments and current performance metrics. Monthly or quarterly meetings keep you accountable to their questions and concerns. You’re expected to answer their inquiries in a timely and satisfying manner. All of that accountability is wonderful, but it should also work both ways. One of the most valuable aspects of your investor updates is the opportunity it provides founders to make targeted asks of their VCs. After all, you chose these folks on the strength of their experience, capital and network. Accessing those resources with a focused request can be one of the best ways to improve your business. But inevitably, some investors will be better than others when it comes to tapping into their networks and assisting their founders. It’s not a bad idea to let them know where they stand and provide a nudge for improvement. Ranking investors can be an intimidating idea, but when done right can provide a useful way for founders to spur increased engagement from their investors and better illustrate their additional needs from the board. To handle it in the most tactful manner, focus less on creating a zero-sum, Game of Thrones-style battle between investors for the top spot and instead provide up-to-date developments on how investors have made a specific impact on the business. To succeed in doing so, you need to show contributions in several categories – a nice mix of hard metrics like # of intros alongside less qualitative items like offering good product advice. Here’s what I recommend: Ranking Your Investors by Hard metrics Nothing quite beats delivering clean data to convince your VCs of their value or their need to do more. A regular report on these three critical categories can encourage greater participation using nothing other than the facts. Referral revenue – Investors help drive deals. It isn’t a terrible idea to tie revenue directly to each investor or firm and be transparent with the entire board of this growth metric. Your board is likely comprised of a competitive group. Developing a referral revenue leaderboard won’t be the only way you’ll assess contributions, but just putting these numbers down on a one-sheeter could be a great way to fire up VCs to go out and hunt deals for your business. Capital – If you need follow-on funding from your board, you’re going to be asked to deliver data and provide a convincing argument for the initiatives that need cash to scale. Once you’ve completed their requests, it isn’t a terrible decision to start compiling a report that details the contributions of each investor as well and share these dollar figures. You’ll want the help of your current board to assist you in your raises. Detail who matters most. Investor referrals – In addition to follow-on funding from their own pockets, you want your investors to help facilitate venture deals with investor referrals. If members of your board make warm introductions that later lead to signed checks, track that money like a sales lead so an investor’s value isn’t solely tied to the size of their bank. Also, providing examples of referrals that have worked well can be an exciting talking point to inspire other investors to make additional introductions to close your rounds quickly. Human Resources Beyond the easy-to-quantify metrics, there are two core contributions investors can make to attract and retain talent. Here is how to leverage transparency in order to improve their commitment. Employee referrals – Money and deals will keep your startup afloat, but in the long-run, you need top talent to beat the competition. As you build out your leadership team, your investors should be your best recruiters. Their referrals can cut down on the time it takes for you to hire and ensure quality candidates will make the most of your time. The value of one’s networks can be easily shown by identifying for the group who is doing the best to fill the ranks. If a board referral leads to a hire, detail this in your investor’s contributions during your regular update. Employee training – Your investors’ responsibility for human resources doesn’t stop at employee referrals. “Traditionally, VCs and platform teams have helped their portfolio companies attract the best talent by providing recruiting and hiring support,” Maria Palma of RRE Ventures writes. “But recently, some VCs have also started to help their companies on the development and retention front. Many are now offering ongoing training, coaching, and proactive solutions to address the common leadership and management challenges that occur frequently as startups scale.” In order to encourage these contributions, you might both quantify the time they invest in these efforts and outline the specific areas where they’ve filled a need. This informs your entire board of what’s going on with investor-assisted retention efforts and builds a template for employee support in the future. A concise update to encourage contribution Compiling these data points and informal efforts into a single slide or one-sheeter underlines its importance to your work, shows that you value their endeavors, and doesn’t unnecessarily embarrass anyone. After all, you may have a few in the group that have fallen short recently but will be motivated to catch up and make moves soon. A concise overview can be both constructive and respectful. It’s a good jumping-off point to ask for more. It also doesn’t waste their time. As for your own records, you might take a more blunt approach. It will be helpful to regularly review these data points and actually assign a numerical rank to each investor. That way, as you begin to scale and the stakes increase on investor relations, you never lose focus on who has objectively mattered most to the business.

The Importance of Your Quick Ratio Some investors refer to the quick ratio as a company’s acid test. Basically, the quick ratio indicates a company’s short-term liquidity and ability to pay current bills. The nickname and the quick ratio’s ability to demonstrate how well a company can operate in the near future should give you an idea of its importance. You can easily calculate your quick ratio by adding up cash, short-term investments, immediate receivables, and cash equivalents. For the quick ratio, consider assets that you could transform into cash without losing value within 90 days. Then you divide this number by your current liabilities. You can see this calculation’s formula below: Cash + Short-Term Investments + Current Receivables + Cash Equivalents / Current Liabilities For example, you might have $12,000 in cash and $8,000 in receivables. If you have $20,000 in debt, you would divide $20,000 by $20,000 to get a quick ratio of one. What's a Good Quick Ratio? If you have at least enough cash to meet your short-term obligations, that’s considered a positive sign for a new company. In other words, a good quick ratio would be at least one. A number over one might be even better, but any number less than one demonstrates that you could have to struggle to pay your immediate bills. On the other hand, too high of a value may mean that a company isn’t using their short-term assets to fund growth as well as they could. SaaS Quick Ratio Alternatively, there is a SaaS Quick Ratio. A SaaS Quick Ratio is similar to the standard quick ratio above but gives a SaaS company an overview of how efficiently their company can grow. The higher the SaaS quick ratio, the more efficiently a company can grow. In short, the formula divides any new MRR by any lost MRR. An example of a SaaS quick ratio can be found below: SaaS Quick Ratio= (New MRR + Expansion MRR)/(Churned MRR + Contraction MRR) While a higher new MRR growth rate can help fuel a good quick ratio, the best-in-class SaaS companies often have a lower churn rate which allow for a significantly higher quick ratio. With a lower churn rate, companies will have a much more reliable source for predicting future revenue and growth. Your Quick Ratio in Visible Tracking your quick ratio in Visible in incredibly easy thanks to our formula builder. To get started you’ll want to make sure you have all of your revenue metrics in Visible. We suggest creating a user provided metric or connecting Google Sheets, HubSpot, Salesforce, or ChartMogul to get started. From here, you’ll be able to create the quick ratio formula (as shown above) in the formula builder. Once the quick ratio formula is created in Visible it will automatically update as your data sources refresh. We suggest sharing your quick ratio with management and executives so they have a quick view of how the company is performing and growing. Generally, we do not see founders share their quick ratio with their investors and rather share the underlying metrics. Current Ratio The current ratio refers to a number that indicates how well companies can pay bills that might crop up over the next year. To calculate the current ratio, you simply divide current assets by current liabilities like this: Current Assets / Current Liabilities If you company has $100,000 in current assets and $100,000 of debt, your current ratio would equal one. What is a Good Current Ratio? A good current ratio may need interpretation in light of averages for a specific industry or business. As with the quick ratio, a value of at least one indicates that a company has at least as many assets as liabilities. Some companies may consider using excess assets more productively as well. For instance, you can count inventory as an asset; however, you bring in revenue when you move inventory. Quick Ratio Vs. Current Ratio Quick ratio and current ratio sound similar but mean different things. To make sure you understand the difference, browse these comparisons of quick vs. current ratio: Quick ratio: This formula only uses short-term debt and liquid assets that you can turn into cash within 120 days. Current ratio: In contrast, the formula for the current ratio uses all assets and liabilities. To understand the difference between the quick and current ratio, consider a simple example of a company with $100,000 in current liabilities: Cash and cash equivalents: $10,000 Short-term marketable securities: $20,000 Accounts receivable: $50,000 Inventory: $112,000 Prepaid expense: $8,000 You get a current ratio of 2 by dividing total assets of $200,000 by liabilities of $100,000. In contrast, you would have a quick ratio of .8 when you divide $80,000 by $100,000. This difference between the numbers could mean that you should consider freeing up a bit more liquidity for short-term obligations. Again, you have to interpret the metrics in light of the unique situation. That’s why you might include prepaid expenses in your current ratio. You can weigh prepaid expenses against your current liabilities; however, you might not include them in the quick ratio. For instance, you may have to purchase plane tickets for travel. In one sense, those could count as an asset, but they may not be easy to convert back into cash to satisfy an obligation. Liquidity Ratios Sometimes people use liquidity ratio to mean the same thing as the quick ratio. They may also refer to the quick ratio as the quick liquidity ratio. In a broader sense, liquidity ratios refer to various metrics that help investors and owners understand how well companies can meet their current debt obligations. Related Resource: From IPOs to M&A: Navigating the Different Types of Liquidity Events Besides the quick and current ratio, liquidity ratios could also include the operating cash flow ratio. You simply calculate this number by dividing liabilities by cash flow, but you don’t take other assets that you can quickly convert into cash into account. That means that this number will probably be a little lower than your quick ratio calculation. This number tells you how well a company can meet their obligations with the cash they have on hand and without having to collect receipts or liquidate cash equivalents or short-term investments. Why are Liquidity Ratios Important? Quick, current, and all liquidity ratios are important. Obviously, companies need to pay their typical operating expenses. They may also need funds for unexpected expenses and to take advantage of growth opportunities. All of these metrics give investors a quick way to judge the solvency of a company. That’s why they’re the kind of numbers that investors want to see. In addition, they are helpful guides for company owners and managers. Related resource: Dry Powder: What is it, Types of Dry Powder, Impact it has in Trading