If you’re growing your company and looking for investors, make sure you know your numbers. It’s not enough to understand your qualities and value, you need also to be able to think like the backers themselves. You need to understand your percentages on value, assets and a myriad of other qualifications that help them to determine your value and potential risks. Watch our video to learn more about the specific numbers and concepts that can help you secure the funding that you need.
When you’re looking at the entrepreneur, ie tech startup management, who are you backing? When you’re raising capital, and we sit in the room with a lot of these businesses, the first thing you look at is management, the people who are driving it. You want to know that they have enough skin in the game, ie they don’t overpay themselves.
One of my favourite questions to ask in a tech startup management meeting or in these companies is how much do you pay for rent? The reason that is an important question is it gives you a really good understanding, if they spend a lot of money on rent and if they’re cost conscious. Or their wages, what are your wages like? Or how much cash have you invested in the business to date?
I’ll give you an example. Domino’s Pizza developed an innovative technology that you can know when your pizza is ready in real time and vice versa. We saw an Israeli company, there are a lot of tech companies from Israel or San Francisco or Asia willing to list on the ASX. I’ll go through that. This company is valuing their technology at $40,000,000.
When I asked how much money has been invested to date, $3,000,000 to date. Your upside on cash is more than ten times, which is a nice return for those people who have come in. Normally the golden rule is one or two times on cash. You want to know that if they’ve invested $1,000,000 to date, you don’t want to pay more than $2,000,000 to $3,000,000. I’m not saying look at different revenues and multiples and the growth and all of that.
What we also look at is the capital structure. I’ll explain what the capital structure means. The capital structure is probably the most important slide when you’re looking at these types of opportunities. What the capital structure tells you is how many shares on issue, what did everyone pay, what were the previous rounds that they raised capital at? The issue is for guys like us is, we need to know, that’s fine, if you value the business at $20,000,000, who came in at ten, who came in at five and who came in a one. And If you are listing the company at $20,000,000, will the $1,000,000 investors, are they escrowed, will they be able to sell their shares on market and what impact that will have.
When you are going back on management, tech startup management is very important. You need to look them in the eye, you need to know how much skin is in the game, you need to know how much they get paid, how much they pay for rent, how much cash has been invested to date. Taking Pecko for example, which is an early stage business, in Pecko for example, Andrew is not paying himself a wage, he’s getting accrued wages based on equity in the business. He’s got a lot to lose.
Getting a grasp on your financials can be tricky. You may be brilliant when it comes to your technology, but that’s not an automatic guarantee that you’re on top of all of your numbers. If you’re looking to get the most from your valuation, you really need to know your numbers. Take the information from this video and make it work for you. When you’re ready to work with potential backers, you’ll be prepared for the numbers game and be able to present your company as the strong investment that you hope to be.
Are you looking for professional experience to leverage your position in the tech startup sector? Get in touch with us to make your mark with potential investors.