This sponsored post is produced by Nexercise and is Part III in the series, “The Myth of Continuous, Up, and to the Right: The Challenges of a Seasonal Startup.”
In Part I of this three-part series we provided some key indicators to look for to determine if you have a seasonal startup on your hands. In Part II, we discussed tips on managing the metrics and spending in seasonal startups. In Part III, fundraising in a seasonal startup takes center stage, specifically how to present your numbers to potential investors.
Understand your seasonality and tell the story visually
If you’ve been running a startup for more than a few months and ever plan to raise money, you know that you’ll need to have a beautiful pitch deck to show to investors. You also know that these investors will want to see a growth projection that looks like the standard “hockey stick.” But as the founder of a seasonal startup, you realize your key metrics don’t look like the hockey stick you see in all the examples. What do you do?
For starters, remember that investors are investing in YOU and YOUR TEAM. In addition to market size, concept, traction, etc., they want to be confident that you know what you’re doing and what you’re talking about. You need to know your business inside and out. A large part of that includes understanding any cyclical or seasonal aspect of your business. If you have a company that sells candy canes, and you tell investors that your company will grow 30% every month, either you’re including some addictive, and likely illegal, substance in your candy, using that same substance yourself, or don’t have a clue how the market affects your business.
However, if you’re a founder who knows your business inside and out, you know exactly where the peaks and valleys are going to occur. But the challenge is communicating your expected growth to prospective investors without having them look at your projections and think, “meh,” or even worse, “pass.”
It’s all about framing your numbers properly and communicating a deep understanding of the underlying economics and assumptions. Here are some tips on how to present your projections in an honest way that properly frames your growth.
Show cumulative numbers: Assuming that your churn isn’t too high, this could be useful in displaying total growth. For example, if your monthly active user or total subscriber count is always increasing, but at different rates depending on the month or quarter, this may be a better option than just showing new users or subscribers on a monthly basis or quarterly basis.
Show quarterly numbers: Quarterly data will help smooth out some of the peaks and valleys associated with a seasonal business. This is useful when displaying revenue or discrete events like orders. For example, if December is your peak month and January is the valley, including October and November and displaying Q3 versus Q4, which includes February and March data, could soften any drop and present your business in a more comprehensive manner.
Display data as it compares to the same period the previous year(s) if you have it: For example, if July is your big month and September is the low point, show July of 2014 as it compares with July of 2013 and July of 2012. Do the same for September. This will shift the focus from month over month growth into year over year growth.
The goal is to show your growth in the way that matters to your business so combinations of these and other techniques can work just fine. Consider this: if an investor sees you making $10M in a year with $8M coming in one month, he cares more about what that same month will look like the next year versus what the other 11 months look like.
Know when you will need cash
If you have a seasonal business, chances are you have to work that seasonality into your working capital management. Many seasonal businesses spend money and time on things like marketing, manufacturing, and inventory in the weeks and months ahead of the strong season. As a result, right before your key season, you need to be focused on efficiently deploying capital and effort and not on fundraising. Otherwise, fundraising will suck your attention away from what needs it the most — execution.
With that in mind, plan to raise money before you need it so that you can deploy it effectively when you do. For the typical entrepreneur, whose company is not an obvious unicorn, this process can take from three to six months. Plan accordingly and give thought to how much cash you need to make it through 12-18 months. Once you have a number in mind, add 10-20% and start the process three to six months before you’ll need to go heads-down in the business.
Pay attention to the investor calendar
In addition to being acutely aware of your own seasonality — how to illustrate it, and when to raise money — you have to pay attention to the investor’s seasonality as well. Specifically, keep in mind that investors are particularly difficult to pin down in the summer and during the Christmas holiday season. When you combine this with your own seasonality, you may find that in a 12-month calendar, there is a three to six month fundraising window that is optimal for you.
Putting it all together
We want to leave you with the following fundraising tips:
- Get to know all aspects of the seasonality of your business inside and out.
- Frame the seasonality in a way that demonstrates great and sustainable growth.
- Get ahead of your cash needs by focusing on fundraising well before you need the money.
- Work your knowledge of the investor calendar into your own fundraising plans in order to determine the best time to raise.
Hopefully you are now a little better prepared for the challenges of fundraising in a seasonal startup. Ultimately, it comes down to knowing your business, knowing what metrics matter, knowing when you’re going to need the money, and knowing when you should be approaching investors.
Best of luck!
Greg Coleman is the Co-Founder and COO of Nexercise, a TechStars company focused on helping people exercise more consistently through its Sworkit personal training app and Challenges motivational app. In addition to being a TechStars alum, Greg has an MBA from The Wharton School and a BS in Electrical Engineering from the US Air Force Academy.
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