Are you a SaaS CFO looking to stay ahead of your competition in the world of fundraising? Then you need to brush up on what we call “next generation fundraising” and how it can revolutionize your approach to securing startup funding. In this blog, we’ll take a deep dive into what next generation fundraising is and why it’s critical for securing success in your funding rounds.
We’ll also explore common questions surrounding this topic and provide four forecasting tactics tailored for SaaS CFOs to help you confidently navigate funding rounds. Without further ado, let’s see what makes for results-based SaaS fundraising.
What is Next Generation Fundraising (and how does it contribute to startup success)?
Next generation fundraising embraces modern tools, techniques, and perspectives. It prioritizes financial automation and advanced forecasting techniques to smoothly and gracefully progress through your funding stages. Whether you’re just getting your proof of concept or prototype together or at a further funding stage like Series B or Series C, the next gen approach makes all the difference.
In particular, forecasting your startup funding rounds is a make-or-break factor as a SaaS CFO. Especially if your company has aspirations for an initial public offering, forecasting has an outsized role to play in your success. From seed investors to hedge funds or private equity investors, there’s one thing that everyone committing capital to a company wants: certainty.
Automated forecasts provide that by allowing finance leaders and new investors alike to glimpse the likely near-term future of a company’s finances. This is especially vital when it comes to rolling out new products or gaining traction in your early stages. When you do it right and invest in the business through an IPO, you can create an amazing outcome, such as the $10B IPO at Marqeta. Let’s go further into the value of forecasting for your various rounds of funding.
The Importance of Forecasting Funding Rounds
Forecasting funding rounds is pivotal for any SaaS CFO whose company uses venture capital or fundraising. By accurately predicting your future financial needs, you can effectively allocate your resources. This allows for better budgeting, reducing the risk of running out of funds and ensuring financial stability.
Forecasting your equity funding also allows you to:
- Identify potential funding gaps: This enables your organization to develop proactive strategies to avoid issues on the horizon before you crash into them head-on.
- Provide a clear roadmap for fundraising activities: By carefully mapping your funding stages onto clear and specific financial benchmarks, you’ll offload much of the bustle and stress of SaaS fundraising.
- Monitor your financial stability: Regular forecasts allow you to monitor your financial stability over time to stay within desired benchmarks. Consistency is key for fundraising success, after all.
Let’s move on from the benefits of fundraising forecasts to some practical tips on the process.
How to Forecast for Funding Rounds as a SaaS CFO
Forecasting your funding rounds plays a vital role in whether they succeed. It allows you to plan and manage your financial resources effectively, ensuring the company’s smooth growth and expansion.
Accurate forecasting makes you aware of potential funding gaps you might run into in light of poor market conditions, the competitive landscape, and internal growth projections. Having that data in advance enables you and your team to find solutions to problems while they’re small and distant. In other words, easily solvable.
Let’s look at what SaaS CFOs should be mindful of when running fundraising forecasts. After that, we’ll answer some key questions about next generation fundraising.
Embrace cloud-native financial automation.
Cloud-native accounting software equipped with automation enables low-variance, long-range forecasts at the click of a button. With so much riding on accurate fundraising forecasts, making room for manual errors in your forecast process is a non-starter.
When you centralize your forecast data in the cloud and stop sending email attachments during the assembly process, peace of mind and accuracy are the result.
Forecast your goals and performance.
By accurately estimating your required funding for future rounds, you can align your fundraising activities with strategic goals and timelines. It can be tempting for SaaS CFOs to help their companies bring on as much capital as possible without properly pacing that intake.
If and when that happens, it can throw a wrench into progressive funding rounds–whether you’re still at the seed stage, further along and seeking Series C funding, or even approaching an IPO.
Run detailed “what-if” forecasts. (Plan for lean times.)
The recent pandemic showed companies and investors alike that “business as usual” can be upended almost overnight. Automated forecasting enables CFOs to run granular forecasts to help plan for and prevent large customer outflows.
What guardrails do you have in place to prevent that, if any? For instance, do your contract terms prevent a fast and sudden churn event? Investors greatly value this kind of data. But how you give it to them matters quite a bit.
Maximize financial transparency and storytelling when presenting to investors.
The most effective CFOs are also great storytellers. If you can simply and effectively show investors why you have a strong market fit, why the amount of money you’re generating is set to rise, and similar points, half the battle is already won. Bessemer Venture Partners has a great article around scaling to $100M and what they want to see.
In the context of investor presentations, that means leveraging visual storytelling techniques like role-based dashboards, graphs, charts, and other visual aids that maximize transparency.
Let’s move on to the Q&A.
Q&A Session: Common Questions about Next Generation Fundraising
Below we’ve answered 3 of the most critical questions for CFOs looking to enhance their fundraising results.
1. How does next generation fundraising work?
Next generation fundraising leverages accounting tools equipped with AI and ML to expand finance executives’ reach and effectiveness. Cloud-based tech utilizes a centralized data lake approach rather than traditional data silos, in which every department manages its data separately. Data silos and similar manual processes make it extremely difficult to execute fast and accurate forecasting, reporting, and other essential fundraising activities.
By embracing automation and prioritizing strategic initiatives like ML-based forecasting, next generation fundraising paves the way to dollars-and-cents results.
2. How is next generation fundraising superior to traditional manual approaches?
Next generation fundraising surpasses traditional manual approaches by combining cloud-based data integration with AI. Data integration combined with the elimination of manual processes is a game-changer for SaaS finance departments. It allows leaders and team members to devote their time to the most critical activities while automation handles the necessary-but-repetitive financial tedium.
Beyond that, it simplifies, streamlines, and strengthens the investor presentation process. Using automated accounting software, you’ll be able to clearly and easily answer investors’ most pressing financial questions about your company’s current and future performance. Which is, of course, the critical objective in getting your next round of funding.
3. What mistakes should SaaS CFOs avoid when engaged in funding rounds?
For one thing, SaaS CFOs should steer clear of overestimating their company’s present or future valuation, as it can create unrealistic expectations and hinder funding efforts. Accounting automation makes it easy for finance leaders to keep their valuations accurate. Additionally, automated reporting means it’s effortless to keep track of financial contributions, share ownership, and other fundraising data.
Another fundraising problem that sometimes occurs–especially in pre-seed funding or seed capital rounds–is the lack of a crystal clear business model. Investors are hardliners for profitable, efficient business models. Automated accounting creates end-to-end clarity for organizations, making it much easier to fine-tune your revenue model.
What specific forecasting tactics should you use for your next funding round?
Next generation fundraising: a template on funding stage goals, plus 4 fundraising forecast tactics
We’ve already established that manual fundraising (or fundraising without forecasting) is a no-go. But when it comes to forecasting for VC funding rounds, where do you start?
For next generation fundraising, look at things from your investors’ perspective. Empathy is an indispensable skill for CFOs. You need to look through your investors’ eyes and understand their perspective. Specifically, what do they want for your next round of funding?
Here’s a short breakdown of investor expectations by funding round:
- Seed: Just get 10 thrilled customers. The seed stage is about showing investors you have a viable product that people enjoy.
- Series A: Achieve 100% growth. Series A funding is all about proving your revenue model. Your seed round showed that you could get some level of traction. Series A is about showing you can sustain and build on that traction through an effective business model.
- Series B: Establish customer loyalty. Series B funding hinges on showing investors you can create a loyal customer base. Repeat purchases, upgrades, and upsells are what point to that.
- Series C-F: Check off all three boxes–profitable, predictable, and repeatable. By this stage in your company’s journey, investors want to know that your revenue model and go-to-market strategy for new products will continue to scale successfully over time.
- IPO: Expand product lines, go global, and pursue acquisitions. Large-scale expansion strategically executed is what investors want to see in a pre-IPO organization.
Automated forecasting is critical to staying one step ahead of your current funding round. It allows you to look into the future and compare those projections against the benchmarks you need to achieve superior fundraising results.
1. Opt for built-in flexibility.
Forecasting involves developing a comprehensive financial model that considers factors such as customer acquisition costs, churn rates, and revenue growth. Since all of these are subject to change at practically any time, constantly monitoring and updating forecasts as conditions change is crucial for strategic planning.
Manual forecasting has a tendency to lock finance teams into past forecasts since it’s simply impossible to update data in real time through manual accounting. SaaS CFOs can use advanced analytics tools and cloud-based software to enhance their forecasting flexibility. If a significant change occurs in your churn rates or CAC, both you and your investors will want to know about it as soon as possible.
2. Don’t skimp on your SaaS forecast metrics and KPIs.
Automated cloud-based forecasting equips finance departments with the full range of metrics your investors care about most. The fundraising process depends on a huge variety of metrics ranging from customer acquisition cost to churn, growth efficiency, annual and monthly recurring revenue, and many others.
Automation enables you to swiftly and effectively analyze all these KPIs, in the present and your organization’s future. KPIs bring a level of investor certainty to your fundraising that almost nothing else can, and they represent an area where automation can have a massive fundraising impact.
3. Analyze and forecast your various funding sources.
Successful fundraising requires attracting various types of investors, including angel investors, venture capitalists, and private equity firms. By demonstrating a proven track record and a solid business model, SaaS organizations can attract funding from venture capital firms and secure additional funding for product development, market research, and expansion into new markets. Forecasting is essential in all of this–both in terms of proving your value to investors and looking ahead at which funding sources will yield the best financial outcomes.
Whether you’re an early-stage startup or have progressed further into your funding rounds, one thing is certain. Legacy manual fundraising needs to stay where it belongs: in the past.
Elevate your fundraising and forecasting today
Expert forecasting helps SaaS organizations plan and strategize for future fundraising efforts. Equipping your department with real-time data analytics allows you to make informed decisions about your fundraising goals and tactics instantly. When it comes to fundraising, CFOs are expected to make strategic contributions on par with any other executive at the company. Embracing automation and making next generation forecasting part of your department is the best way to do that.
If you’re interested in maximizing your fundraising results or even going public, the Modern SaaS Finance Academy has what you’re looking for. The academy features dozens of online courses taught and curated by SaaS finance and accounting leaders. Learn how to tell your story to investors (even in turbulent markets), see how finance prepares for an IPO, optimize your team across the company lifecycle, and so much more. Patterned off the success of the Hubspot Academy, but built for SaaS CFOs, Controllers, FP&A, RevOps, and CEOs, it is free and offers the option of CPE credits.
If you’re ready to step up your fundraising and start learning today, click here to register.
Modern SaaS Finance Academy
The Modern SaaS Finance Academy is a free online training hub designed for CFOs, Controllers, FP&A, Revenue managers, Revenue Operations, and other members of the finance community in fast growth SaaS companies.
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