Crafting a Compelling Financial Story for Fundraising

One way to attract investors and raise money to fuel your startup is to tell a compelling story. Weaving your financial situation into the narrative can help resonate with investors and also help establish your startup as one that operates with transparency and fully understands its financial data and key metrics.

Fundraising can be storytelling that’s supported by solid financial data. A good story also acknowledges any anomalies and provides realistic expectations. This demonstration of openness about both achievements and pitfalls can help build strong investor relationships and trust.

Why a Financial Narrative Matters

So why does a financial narrative matter? Because a good financial narrative can tell a compelling story.

A good financial story describes the metrics and why they look the way they do. When you consider the fact that investors tend to favor founders and startups who demonstrate clarity of thought and concrete plans for capital deployment, the payoff of crafting and then conveying a good financial story can have a significant payoff.

Conversely, data without context may leave investors skeptical or hesitant.

Building the Backbone: Your Core Financial Metrics

Financial storytelling begins with identifying core key metrics to convey. Some of these core metrics you’ll want to be sure to include are revenue growth, churn rate, CAC, LTV, burn rate and runway. Additionally, it’s important to tie each of these metrics back to aspects of your startup’s overall health or its future plans. When used correctly and told appropriately, these core metrics can show traction, market validation and proof of efficiency.

Connecting Metrics to Milestones

Connecting metrics to milestones to tell your financial story can be challenging. To do it effectively, try to frame milestones as part of a cohesive growth story. For instance, talk about it if you’re hitting ARR goals and reducing your churn rate to show your startup’s growth and stability.

Furthermore, weave your startup’s milestones into its next set of targets to give investors a sense of your overall trajectory and how you plan to build momentum off your successes.

Transparency and Trust

Building trust with investors in your fundraising campaigns is about telling your full financial story — both the good and the bad. In addition to discussing milestones and overall trajectory, it’s just as important to discuss anomalies to present an accurate picture to your investors. On this note, be sure to:

• Discuss financial spikes, dips or anything that appears unusual with honesty and transparency.
• Don’t cherry-pick data that overstates or overshadows certain performance indicators.
• If something hasn’t been working, address it and present solutions to correct it.

The more transparent you are with your financial data, the more trust you’re likely to build with investors.

Turning Weaknesses into Opportunities

All startups ebb and flow on their path to success — it’s all about how you learn from mistakes and ensure that you don’t repeat them that matters. You’ve likely heard the concept of “failing forward,” that is, turning challenges into opportunities.

So how can you turn weaknesses into opportunities and build trust and respect with investors? It all goes back to transparency and honesty. Don’t hide from mistakes. Embrace them and detail how you plan to learn from them. For example, maybe you’re presenting data where your SaaS startup experienced high churn one month. Turn this data blip into a learning experience and detail what measures you took to reduce churn in subsequent months.

While you may think that addressing challenges can be detrimental to attracting investors, demonstrating problem-solving capacity and resiliency can be more impressive to investors compared to startups that gloss over challenges.

Weaving Your Financials into a Cohesive Story

So how can you take your financial statements and data and turn them into an engaging and compelling narrative? Here’s a look at some practical tips and tricks for structuring a pitch or slide deck so that your metrics flow with a narrative:

• Begin by identifying a market opportunity and describing how your product or service meets any needs in this space. You can then weave in any metrics that demonstrate traction and conclude this section by describing any future plans.
• Present how data points reinforce your established goals. For example, if your LTV:CAC ratio is 3:1, present it and then detail how you plan to scale from there.
• Keep it simple. Don’t overcomplicate any charts or visuals. Make sure that even complex financial information is easy to decipher so investors can quickly interpret the data you’re presenting.
• Plan out your presentation and deck structure before you start creating it. A presentation outline can help ensure you illustrate key points and help keep you on track.

Engaging Investors with Realistic Projections

While it can be natural to want to shoot for the stars when you make projections, it’s also important to make sure that they’re grounded in reality. Think of it this way: Any projections you make, you have to be able to defend them to investors. If you’re not able to confidently defend them, you probably shouldn’t be making them.

If your projections are too “rosy” and aren’t backed by credible data, it’s going to hurt your standing with investors. Including real world examples that support your assumptions can significantly strengthen your case.

One way to ensure your projections are realistic is to run several of them. Create best-case, worst-case and most-likely case scenarios to present a variety of situations and show your startup’s overall preparedness based on various internal and external factors.

Backing Up Every Assumption

Can you back up your assumptions? If you can’t reinforce forecasts with data, you’re less likely to maintain investor confidence. Make sure any assumptions are tied to either historical financial data or sales projections. Framing assumptions in a realistic context helps build credibility with investors.

The Power of Narrative Consistency

Your financial narrative can be an essential tool for attracting investors. However, it’s how you tell your story that’s critical to making or breaking a deal. Financial storytelling needs to be coherent and present your startup authentically and realistically. Transparency is also key — both as it pertains to the good and the bad. This all helps establish credibility and shows you can build on the good things and learn from the challenges.

Additionally, you should commit to sharing further updates on your metrics to maintain credibility, even if it’s after the fundraising round closes.

Strengthen Your Fundraising Narrative

If you need help aligning your metrics with an impactful narrative, consider looking outside of your startup and working with a qualified partner like Graphite Financial. As experts in financial management and startup support, we can help tell your financial story in a way that’s powerful to investors. At Graphite, we also provide comprehensive fractional CFO services to help your startup understand its metrics better and set strategies for improving them so you become even more impressive to investors.

For more information and to schedule a free consultation, contact us today.

FAQs

How detailed should my financial story be during early funding rounds?

You should provide sufficient details on your metrics. Consider breaking down cash flow items into specific categories to help potential investors understand where the money is coming in from and how you’re spending it. Be transparent about your fundraising efforts as that builds trust and shows you can manage financial resources effectively.

What’s the best way to discuss unpredictable spikes or dips in revenue?

Discuss financial spikes, dips or anything that appears unusual with honesty and transparency. If you can, try to present spikes and dips into lessons learned and address how you plan to move forward when anomalies occur.

How often should I update investors on key financial metrics post-investment?

We always suggest committing to transparency with investors — both during and after fundraising rounds. Minimally, consider providing updates every quarter. However, in some cases, it may make sense to provide updates as often as monthly.

Can a strong narrative compensate for weaker metrics or performance?

A strong narrative can turn any weaknesses into opportunities. Startups are going to face their fair share of challenges — it’s how you address these challenges and the knowledge that you take away from them that really matters.

What are typical investor red flags in a financial presentation?

Inconsistent revenue growth, unusual accounting practices, high debt, poor cash flow, low gross margins and high churn are all red flags in a financial presentation if you’re not able to explain them or turn weaknesses into opportunities or learning experiences.

Should I include multiple financial projections (best, base, worst) in my pitch?

Yes, this can help demonstrate a range of possibilities and show preparedness. It’s also a way to show that your projections are realistic and based on internal and external factors.