Early-stage start-ups are facing a financing dilemma that has intensified since the venture capital loan market tightened significantly in 2022. To attract potential investors, especially those who are aware of the recession, the founders must provide convincing evidence of a good gain. One way to achieve this is quantitative forecasting — but with little or no financial history, the available measures to support such a forecast are scarce.

The good news is that there are tactics to meet this challenge and build a convincing matter. When implemented correctly, these steps can not only provide compelling data-driven financial forecasts, but also lay the foundation for a data strategy that helps founders scale operations.

Since moving from financial services to consulting in 2018, I have advised dozens of startups in business development and fundraising efforts. While venture capitalists like big, bold business ideas and have recently highlighted measures such as cash consumption rates and pathways to profitability, strong annual revenue forecasts remain paramount.

Start with a data strategy

Even in the early stages of a startup, investors draw a line from revenue forecasts to the potential value of the company. For your business to be valued at few billion, you need to be able to prove that you can generate about million per year over the next five to seven years. There are several ways to achieve this, but in general, the higher the rate of income growth, the greater the potential valuation and the higher the interest of investors.

Companies must be agile to grow quickly and generate the recurring annual revenues they need. To do this, you need to be data literate, which means that you need to make operational data accessible and easy to interpret. You need to use metrics to establish benchmarks for your operations, and then include these metrics in your business plans, financial models and pitch decks as you progress through the various stages of fundraising.

However, I realize that no company has unlimited resources to research and produce these statistics.Therefore, every startup must lay the foundation for a streamlined data collection and analysis function that focuses on the most necessary measures. That’s why I advise clients to start with three crucial building blocks:

  • Market research
  • Pricing
  • The Sales Pipeline

By focusing on these three pillars, you can develop the quantitative measures you need to get investors to bite and create the necessary foundations to evolve.

Market research: study your customers and your sector

The first pillar you need to put in place to maximize revenue and lay the foundation for a versatile data strategy is market research. A thorough understanding of the target markets helps the founders to create a factual framework for forecasting revenues and profitability through valuable comparative data. The information you collect will help you define the widest target market and develop the basics of pricing and other key financial indicators.

Even the most basic market research can provide significant results for a company trying to define its customer base. Surveys of potential customers are excellent sources of qualitative and quantitative data, and I use them extensively in the form of electronic questionnaires and remote interviews. In-depth interviews with the company’s current employees, suppliers and customers can provide qualitative information that you can use to shape the company’s strategy to maximize business value. I usually avoid newsgroups because I find it difficult to manage them impartially.

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