Prepare financing rounds optimally

When the management prepares a financing round, hectic activity breaks out in the finance department. Investors want to see detailed figures and information: From the business plan to proof of assets to contractual obligations. And the deadlines are usually tight. The task now is to compile these figures, consolidate them and prepare them for presentation.

It does not matter whether it is a capital increase for a long-established company or venture capital investment for a start-up. In any case, investors want to see a detailed overview of all business-relevant facts:

  • Business plan with credible growth forecasts
  • Annual reports
  • Existing equity capital
  • Participations of the company
  • Shareholdings in the company
  • Capital requirement
  • Fixed costs of current contracts

The background to the enormous need for information is ultimately formed by four key questions that every investor asks himself before he invests in a company:

  1. Is the business model profitable?
  2. How reliable is the existing information of the company / about the company?
  3. Are there hidden risks, such as future liabilities?
  4. What return on investment (ROI) can I expect?

What is actually the problem of the finance department?

Challenges of the finance department in preparing financing rounds

Only a small part of this information can be extracted by the finance department directly from the accounting data. Most of the data has to be requested from other departments: Human Resources, Marketing, Development, Product Management, etc. And this is where the biggest challenges for the finance department lie. The reason for this are three problems that almost every company knows:

  • Decentralised filing: Most of the time, each department keeps its own data filing system, has its own "system" for classifying and filing documents.
  • Knowledge: No department knows exactly what data the others have. If the finance team wants information from the marketing team, they have to specify what is needed. Often, however, the finance team does not know what to ask for and the marketing team does not know what kind of documents the finance team is looking for.
  • Time coordination: Each department has its own priority list. And the requests of the finance department are often not at the top of this list.

Reverse roadmapping for financing rounds

The basic idea of reverse roadmapping can be summarised in one sentence:

"Define the goal and calculate from there back to the present".

For the finance department, which has to prepare a financing round, this means concretely:

  1. Define the deadline by which the various documents must be finalised.
  2. Calculate the time needed to prepare the data as required.
  3. From there, calculate back by when which data must be available
  4. Set deadlines for the completion of the data in the different categories.
  5. Ensure that all departments that need to provide data respect these deadlines.

In addition, it goes without saying that a central data room must be created and the form and scope of the required reports, presentations, fact sheets, etc. must be discussed with the management.

Reverse roadmapping using the example of a start-up financing round

Start-up GmbH is planning a financing round. The management wants to announce the successful conclusion of this financing round in exactly six months.

Final deadline: 6 months from today

It is known that investors still need one month to finalise the financing round after they have decided to invest, provided they have the necessary information. This includes, among other things, the signing of contracts, an appointment with the notary and the transfer of the amount of money.

Deadline for completion of investor review: 5 months from today

In order for investors to be able to thoroughly check the available information (due diligence), it must be made available in a central data room that investors can access. And it must be complete, correctly classified, sorted and named in a comprehensible way. The due diligence process normally takes 4 weeks.

Deadline for completion of the data room: 4 months from today

In order to motivate investors to enter into negotiations, they often first have to be convinced that a closer examination is worthwhile with so-called "teaser" presentations. Such "teasers" contain rough information on the financial model as well as data from the past, such as sales figures. They must be available at least 4 months before the planned closing.

Deadline for finalised teaser presentations: 2 months from today

Depending on the situation, it takes up to thirty feedback loops until the teaser presentations perfectly meet the requirements of the management. Often the data is not yet available in the required quality, which makes it necessary to consult the tax office or the legal department, for example. Sufficient time must be allowed for this as well!

Deadline for "version 1" of the teaser presentations: 1 month from today

Schematic representation of the reverse roadmap developed:

Data storage requirements

To ensure that the financing round goes as smoothly as possible, it is worthwhile to think carefully about the storage of the data and documents that need to be gathered and kept within reach during the process.

What requirements must the filing system fulfil in order to become an optimal "data room"?

  • Speed and overview are the main criteria here: Users must be able to access the repository sorted by category and search it using keywords.
  • Language: Negotiations with investors are often conducted in English - sometimes in several languages, depending on the degree of internationalisation of the financing round. This should be taken into account from the beginning when setting up the contract database and when other departments submit information.
  • Central contract database: All current and future liabilities must be available here. A complete contract overview is - as already explained - crucial for assessing future liabilities.
  • Aggregates: Ideally, users can also study the key figures from contracts on a dashboard with aggregated data.

In order to save time in setting up the data storage, online tools can be used which help to scan the documents, extract information automatically and bring order to the flood of data. One of these tools is ContractHero. Here you can find more information on contract management software.

Sebastian Wengryn

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