Capchase co-founder and COO, Przemek Gotfryd, recently sat down with Peter Frank, Managing Director at investment firm i80 Group, an investment firm designed to propel the innovation economy forward.
They hosted an open discussion about the process financing companies use to take on clients, the changes in the financing landscape and their tips for facing a potential recession. In this blog post, we’ll share the key takeaways from their discussion.
What do financing partners look for when evaluating potential clients?
It’s not always transparent what financial partners look at when evaluating prospective clients. Przemek shared Capchase’s process:
First and foremost, we ensure you meet our minimum requirement. For Capchase, this means you have 3+ months of runway, $250k-100m+ ARR, and 6+ months of revenue history available.
We then evaluate your core metrics that give us a look into how you generate value from every dollar spent. This includes your LTV/CAC, gross margin and more.
Your specific use case
Lastly, we seek to understand your use case. Are you looking to fund customer acquisition costs? Extend runway? Invest in a new market? Hire engineers?
The key takeaways for you to increase your success during these evaluations are:
- Make sure you have read up on your financing partners requirements, are familiar with all of them and confident you can show how your business meets each one.
- Know your business performance data. Try our guides on LTV/CAC, gross margin and more to familiarize yourself with key metrics. It can also be useful to know how to benchmark yourself against other SaaS businesses on those important metrics, to evaluate your strengths going into a funding conversation. Our SaaS Benchmarking Report is a resource for just those insights.
- Be focused about your funding needs. Do your internal analyses to understand exactly where your business can reap the most advantage from investing further funding. Decide on a clear use case for the funding, with strong reasoning behind it.
Which qualities does a strong management team have?
As a managing director at an investment firm, Peter has seen his fair share of management teams and discussed his criteria for a strong management team. Teams that show these qualities are ones that investment firms like i80 Group are excited to work with:
Being able to evolve quickly to challenges is important, especially under current market conditions. A strong team knows how to adapt their strategy as their product market fit evolves.
If you were asked how you and your co-founders have evolved quickly to meet challenges, do you have an answer prepared? Focus on examples that show your awareness of and responsiveness to product market fit.
A deep understanding of the problem you’re trying to solve
Knowing your market and the value you bring is critical. In Peter’s words, “You don’t need to have 10 to 15 years of management team experience in a specific domain - you can have a really nuanced understanding of the underlying problem and how you want to solve it.”
A thorough and nuanced understanding of a problem does not mean your explanation of it needs to be long and complex. Start by working out how you want to explain the problem, the insight you bring to it and the value your business adds. Then take several more passes. Make it more concise each time: strip out jargon and only keep in technical language where it’s key to understanding.
Strong prioritization skills
You must know how to prioritize and focus while handling many competing tasks. Having a deep understanding of what needs you’re serving your customers (as mentioned above) usually goes hand in hand with this point.
When you’re talking about your actions and approach as founders, make sure you can link each of your choices back to the customer. Where you’ve highlighted your use case for the funding, your ‘why’ behind this choice should cover how your internal need stems from a customer need.
How are recession fears changing the funding landscape?
With headline after headline about the impending recession, businesses are scrambling to make appropriate adjustments. Peter described a few ways this is changing how companies secure - or fail to secure - funding:
Dealing with moving targets
Businesses and investors are being forced to readjust their goals. They’re rethinking everything they once knew - the tradeoffs between growth and burn, how much runway companies should have prepared, and even the Rule of 40. Thus, understanding the market and staying up to date with the data trends and benchmarks in your sector are key to prepare for funding conversations.
Heightened importance on the quality of revenue
As VCs become increasingly selective, a major consideration today is not only the amount of revenue, but the quality of it. Be prepared for questions on this. Is the revenue you’re earning truly recurring? How can you ensure you’re continuing to provide value to customers?