An EFM case study in Venture Capital investment for an E-Commerce Start-Up
For entrepreneurs with passion and great business ideas, it can be challenging to attract the investment they need. Even when initial funds have been raised, the demands of forecasting and reporting can present an unwelcome distraction from the focus and innovation needed to drive the business.
But, to realise your vision and access the longer-term rewards of developing a business, it’s essential to have financial controls which ensure the company keeps going - and to satisfy investors.
EFM is frequently involved with businesses which need experienced financial management skills to help keep the wheels turning. Our Associate Finance Director, Neil Simpson describes how he helped an e-commerce startup to get through up and running, and keep their investors happy.
In 2016 we were approached by a UK-based venture capital group. The VC had made a six-figure start up investment in a new e-commerce business; this arrangement was to provide first stage financing, which was tied to an agreed timescale for the launch of online trading.
By March 2016 it was clear that development progress was not on track for launch - and furthermore costs were set to rise. This meant that the business would require more funds in the short-term, and there would be an extended delay in starting to generate sales. The business was short on financial reporting and controls, so the VC was reluctant to progress their investment without a clear financial picture of the future.
Neil was engaged to prepare a fully integrated business model – including a profit and loss statement, cash-flow forecasting and a balance sheet, which modelled the business going forward, based on the current cost position for the investor.
These new controls and reports gave the investor much improved visibility and greater level of confidence in the numbers. In turn, the VC agreed to commission a technical review, supported by Neil, to fully understand the outstanding work required to ensure a successful launch. This technical review revealed that significant additional investment was required and indicated a further delay in launch timescales. With this information EFM was able to produce a new financial model, now including the revised costs and rescheduled timescales for income.
This revised model was presented to the VC’s investment committee, who approved the stage two financing arrangements. Neil used the new plans to produce a drawdown schedule to assist the investor and the business owner in predicting actual cash requirements month by month. We now monitor the situation on a monthly basis, supplying additional input as required to support the trading activity and ongoing business operations.
Find out more about how EFM’s Finance Directors support growing business with practical financial experience. Our flexible, pay-as-you-go FD’s are effective, affordable and are designed to help your business reach its potential.
The question is: Can you afford not to have one board?