Startupmetrics | Your Startup CFO

Our First Success Story with Magnes

Startupmetrics is excited to announce the recent financing round of Magnes. Startupmetrics supported Magnes to raise a bridge round of CHF 700k.

The reason we partnered up with Magnes is that we got fascinated by their technology and the capability of the management and research team. Magnes is an ETH med-tech spin-off that develops an AI fueled remote monitoring system for patients with movement disorders. The system enables practitioners and pharma companies to measure the efficacy of therapies and medication with the aim to improve the quality of life of patients. The prevalence of all common categories of movement disorders is around 28.0% for men and women aged between 50 and 89 years. The proportion sharply increases with age.

Fundraising is one of the most challenging tasks for young startups. It takes careful preparation, time, patience and professional execution to acquire funds from an investor that fits your needs and domain. Most importantly startups have to convince investors regarding their:

1. Market potential

2. Value proposition

3. IP and technology

4. Business model

5. Exit potential

6. Capability of the core team members and their network

In these areas, we assist ventures largely by working as their startup CFO. With our CFO services we supported Magnes in refining their business case and finding ideal investors in a professional and structured way.

We begin with an assessment and enhancement of the investment proposal by

1. Assessing and challenging the business case

2. Testing the value hypothesis by identifying and arranging meetings with potential clients

3. Improving value hypothesis based on feedback of potential customers

4. Enhancing the pitch deck and the financial model

After the first stage, we proceed with the fundraising process:

1. Defining investor profiles

2. Finding and arranging first meetings with suitable investors

3. Handling investor communication with follow-ups and relevant company updates

We did this full cycle with Magnes and successfully raised CHF 700k. We love to meet founders with ambition and support them in their fundraising activities. Feel free to contact us if you want us to support you in scaling your business with our CFO services. https://www.startupmetrics.ch/contact-us

About us

Founders are exponentially talented in their respective fields. They either have dedicated industry knowledge or a strong technical background to solve real-world problems. But based on past experience as an investment analyst in venture capital, founders often struggle to get enough attention from investors due to reasons that can be mitigated before or during the fundraising process.

1) Creating a comprehensive and easily understandable pitch deck

A pitch deck should cover the most important topics with equal weighting. A deck typically contains the problem, value proposition, technology, business model, go-to-market plan, competitive analysis, team, financial projections, current status and traction. All slides should be self-explanatory and easy to understand, as many investors do not have a scientific or technical background, nor do they have the necessary industry experience. It’s best to test your deck with someone who has a completely different background. A great job is done if such a person understands your presentation without further explanation and would love to join the company.

2) Targeting a relevant market

As a rule of thumb, a $2 billion market is attractive enough for a venture capitalist. There are two variables to change the market potential of a company. Find a way to address more potential customers with your offering or increase the price.

3) Having a clear business strategy

Economic studies show that particularly successful companies master the main components of a strategy right from the start. These are in particular vision, mission and market positioning. Therefore, investors will ask the founders about these three strategy components already at the first meeting. A thorough market and competition analysis as well as one’s own industry and business experience provide the insights to start formulating a clear strategy. Important business decisions in the areas of R&D, marketing & sales and operations should be closely aligned with the strategy, with the aim of creating sustainable unique selling propositions.

4) Demonstrating sustainable traction

Venture capitalists like calculable risk. Rapid sales growth combined with good predictability of the business significantly increases the chances of an investment. The best way to show growth and predictability is through a company’s operational and financial metrics. The presentation of key figures such as lead velocity rate, conversion rate, customer acquisition costs and customer lifetime value help founders to make a good impression on venture capitalists.

5) Managing valuation expectations

In a world without information asymmetries, startups simply determine their fair value and investors receive a share according to their investment. In the real world, however, many factors play a role in how a startup is valued. First, the personalities and sales skills of the founding team play an important role. Second, demand and supply for startup deals overall or in specific industries can drive valuations up or down. Third, market trends shape investor sentiment and can have a positive or negative impact on valuations. Evaluating comparable deals and asking investors about the state of the startup economy can support founders manage valuation expectations. Ultimately, founders need to balance speed, growth and appropriate investor ownership.

6) Running a structured fundraising process

The fundraising process resembles a sales process. It starts with the preparation of documents suitable to present the company to investors and ends with the exchange of company shares for capital. The process mainly consists of finding and contacting ideal investors, providing monthly updates, attending pitching events, defending the business plan and settling the terms with a main investor.

Managing time is one of the most critical skills for a startup founder. Every second you invest and save can take you closer to meeting your venture goals. As Ben Francia said “The future is created by what you do today, not tomorrow”. Time is often referred to as the most valuable resource. Therefore, Entrepreneurs like Bill Gates, Mark Zuckerburg are excellent at time management. They know how to set the right goals and work with intense focus to be highly efficient in time management. So, here are the most essential time management tips for startup founders.

1) Maintain a calendar :

It is most important for a founder to always maintain a calendar. This makes sure that nothing is left undone. Maintaining a calendar will help you to prioritize the tasks for the day. Calendar helps you set a morning routine. Although everyone has their own specific routines, having a morning routine that works for you sets the tone for the day

2) Give everything a deadline :

Tasks and goals without deadlines are just wishes and dreams. Therefore, it is important to give deadlines to your tasks and goals to accomplish them on time

3) Assign tasks to colleagues :

Being a founder means a huge workload. So assign tasks to your colleagues, this will save you a lot of time and also finish off work much quicker. Telling ‘no’ sometimes is a good practice because this reduces unnecessary pressure and saves a lot of your time

4) Find your productive time :

Every person is productive in a particular time of the day. For some it may be early mornings and for others it might be late nights. You should try to utilize this time to get more output with less time spent.

5) Organise creative breaks :

Utilise your work breaks in an effective way to connect with your colleagues and people that might be of some help for your startup. Get involved in other activities with your colleagues like some game or walk to know each other well in person. This will improve your networking, team bonding and your spare time will be utilised in a right way

6) Business activity monitoring & controlling system :

Business activity monitoring and controlling system bundle your company’s resources towards your main objective. It helps you to identify opportunities and threats earlier so that you can react before the situation escalates. Initially it takes a bit of time to set up, but once it’s created then you save a lot of time. On the one hand, it enables you to demonstrate your thorough understanding of your market and industry. On the other hand it also enables you to justify and validate your business plan and financial forecast

Many practitioners argue that startup valuation is more of an art than a science. We believe that valuing startups is simply a bit more difficult compared to valuing established companies. This argument is especially true for early-stage companies when little operational data is available.

The following three core elements, which are also shown in our illustration, define the value of any company.

Free cash flow (FCF) Exit value (TV) Return expectation (r) These values are much easier to estimate for established businesses. But both business and market intelligence can help you objectively estimate free cash flow, future exit value and expected market return by determining the respective underlying parameters. We list here the most important ones for early-stage ventures:

1. FCF

a) Market potential

b) Obtainable market share

c) Sales cycle

d) Customer acquisition costs

e) Pricing

f) Net retention rate

g) Variable production costs

h) R&D expenses

I) Operational expenses

j) Working capital requirement

2. TV

a) Revenue at time of exit

b) Industry-specific valuation multiples

3. r

Startup valuation is a hot topic for any founder looking for his or her first investor. The biggest issue stems from the fact that an early-stage startup faces so many risks in the product, market, and team dimensions that financial projections are more a pure demonstration of ambition than financial science. To overcome this challenge, venture capitalists apply three valuation methods that are independent of a startup’s financial projections and are presented below:

1) Payne Scorecard Method

2) Comparable Transaction Method

3) Cost-to-Duplicate Method

The Payne Scorecard Method is a relative valuation approach that compares the target company to a set of startups similar in stage, geography and industry. Variations occur due to differences in qualitative factors.

The comparable transactions method is also a relative valuation approach and is the simplest method. It just takes the average valuation of a set of startups similar in stage, geography and industry.

Many business articles list the top reasons why startups fail. However, the biggest cause is usually overlooked, namely premature scaling. Several studies suggest that premature scaling is responsible for 70% of tech startup failures worldwide.

Let’s see how to identify and prevent premature scaling.

Premature scaling leads to desynchronisation of your business processes and total chaos. It occurs when a business scales faster than it should. The three metrics below clearly show whether a startup is scaling prematurely:

1) Unsustainable CLV/CAC ratio.

2) Low customer retention rate

3) Declining team morale

The iterative process shown in our illustration will help you scale your business sustainably, namely:

1) Improve value proposition

2) Test and strengthen product-market fit

3) Validate growth hypothesis

4) Scale your business

To successfully scale your business, you need to invest enough time and resources in the first three steps. It will improve your CLV/CAC ratio and customer retention rate, which will automatically lead to higher team morale.

Every startup or spin-off may consider hiring a CFO to manage the financials and show relevant metrics to key stakeholders. However, young companies often lack the necessary financial know-how and resources, or just cannot identify a capable person who is up for the task. A specialized startup CFO might be the right answer to that. He or she is very important and can proactively

1) Assess and quantify your market and business from an investor’s perspective

2) Generate business intelligence by measuring market activities and operations

3) Refine your strategy and business model by identifying and selecting attractive markets and customer segments

4) Implement a plan and put procedures in place to ensure you a strong financial future and startup

An interim CFO exactly performs all tasks as a full-time CFO but for a particular time period or project. She or he works as your additional team member to increase the value and appeal of your business by

1) Implementing an efficient business activity monitoring and controllingsystem for tracking your market and operational performance

2) Validating your business model from a financial perspective

3) Preparing and maintaining a financial model and financial forecast for budgeting, forecasting and controlling

4) Identifying and selecting attractive market opportunities with a systematic market assessment

5) Estimating the fair value of your startup or spin-off

6) Creating a convincing business case to bootstrap or present in front of investors

7) Preparing a convincing pitch deck for investors

8) Preparing you for the due diligence process

9) Handling investor communication and preparing investment documents