Refer to Module: Business Models & Financial Planning prep work for slides mentioned below.
Most funds have a preferred check size they like to write. Larger funds need to write a larger investment check since they are constrained by the number of investments they can make per year, and are managing more money. Smaller funds need to write a smaller check for the same reason. The best way to know what size check an investor likes to write is to ask them. Barring that, if you know the size of their fund, a ROUGH rule of thumb (although this is very crude and may be off) is to divide the fund size by 100. That is, a $500m fund will typically like to write a $5m check, for example. A $300m fund a $3m check.
Which creates a dilemma when you are asked by an investor: “How much are you raising?”.
Your answer should be catered to the size fund you are pitching. If you don’t know, a default can be “We need $1.5m to take us out 9 months, and $4m to take us out 24 months.” This approach makes it clear what you want to spend the money on but also creates flexibility for the investor to choose what size check they want to give. If you know it’s a larger fund, you can err on the side of focusing just on the larger investment amount.
When you pitch a large fund (e.g. a fund > $100m), you will need to justify an institutional raise.
The slides above should capture at a minimum the slides you need to show a plan to spend an institutional level raise (e.g. $3-$8m).
Time permitting, you can also start to build a financial model to bring up if an investor wants more info.
If you don’t have time to build a model, the above slides could work with this hack. Put a Line Item above with “Average Full Time Equivalents” under your Milestones slide or Financial Projections Slide. In general, there’s a rule of thumb that you will spend -- fully loaded -- $15k / month / full time equivalent (inclusive of salary and all other expenses of the business). So, 1 person over 10 months in $150k. 5 FTEs justifies $750k of spend over 10 months; 10 FTEs justifies $1.5m spend over 10 months. And it’s fine to have a bit of a buffer -- e.g. 10-20% of the raise can be greater than expected spend as a buffer.
You can also try to build an excel model.
The top businesses grow 4-6x between their first and second years of real revenue, then 3x, then peter down to 1.5 - 2x for 1-2 years, then grow between 50-100%.
More SAAS metrics