Empowering Female Founders in Finance and Fundraising

As an early-stage investor in Pre-Seed to Series A startups, HearstLab frequently engages with first-time entrepreneurs. These founders often bring a compelling blend of passion and innovation to their ventures. However, a common challenge we notice is their comfort level in addressing complex finance-related queries from investors. Mastery of a startup’s financials and the ability to effectively communicate the business’s revenue generation and growth potential are crucial in gaining an edge during investor pitches. To assist new founders in crafting an attractive financial narrative and enhancing their chances of securing investment, we offer several key strategies and insights focused on comprehensive financial management and effective investor communication.‍

Strategies for Financial Management and Investor Engagement:

• Know Your Numbers: Continuously update and be intimately familiar with your financial information. This includes not just historical data but also future projections. Be prepared to dissect figures like Annual Recurring Revenue (ARR) and one-time revenue with precision, especially for recent quarters. Investors gravitate towards founders who can fluently navigate discussions around revenue, expenses, profit margins, and growth trends.
• Unwavering Transparency: When discussing financials, be an open book. Share detailed and accurate information about actuals to date and future forecasts. For example, address revenue fluctuations and churn and make clear when you are communicating booked revenue vs. cash revenue. Transparency and honesty builds trust; evasion raises concerns.
• Well-Documented Financial Assumptions: Ensure your financial forecasts are rooted in clearly stated assumptions, tied to key business levers and performance indicators (e.g. new enterprise contracts are typically tied to an active pipeline and number of deals each salesperson is expected to close per month/quarter). Avoid relying on hard-coded projections, as these can obscure the rationale behind your forecasts and erode investor confidence. Regularly review and be ready to share these assumptions, demonstrating thorough planning and strategic foresight.
• Detail-Oriented Financial Tracking and Reporting: Start tracking and reporting your financials and KPIs early, with as much detail as possible. This practice aids in maintaining accuracy and allows for more informed decision-making. Regularly updated monthly, quarterly, and annual financial reports are not only vital for effective business management but also play a pivotal role in future investor interactions. We are always impressed by founders who can promptly provide comprehensive, up-to-date financial data upon request.

Understanding Revenue Streams: An Important Focus for Founders

In finance discussions, the spotlight often falls on revenue. We've distilled the various types of revenue that are most commonly evaluated by investors. These include model-specific metrics like Annual Recurring Revenue (ARR) for SaaS businesses and Gross Merchandise Value (GMV) for transaction-based enterprises. Here is a simplified breakdown of common revenue types:

• Gross Merchandise Volume (GMV): The total sales value of goods sold through a marketplace. For example, if Amazon sells $1 million worth of goods, that's its GMV. Note that this doesn't consider costs or Amazon’s take rate from these sales.
• Booked Revenue: Income expected from products or services already sold. It's recognized at the point of sale and is helpful for forecasting but does not reflect actual cash received yet. Using Amazon as an example, if they earn 50% from sellers, their booked revenue from $1 million in sales would be $500,000.
• Contracted Revenue: Income guaranteed from signed contracts, often seen in subscription-based models. It's predictable and aids in financial planning. This revenue becomes recognized as either ARR or One-Time Revenue based on the contract's terms and product delivery.
• Annual Recurring Revenue (ARR): Predictable annualized income from subscriptions, not including one-time fees. It's vital for businesses like SaaS (Software as a Service) where customers pay a regular subscription fee.
• One-Time Revenue: Income from unique sales or projects that don't recur. For SaaS companies, this might include setup fees or consulting services.
• Realized Revenue: Actual income earned and recorded when products or services are fully delivered. This aligns with accrual accounting and is often what's reported in tax documents.
• GAAP Revenue: Under U.S. accounting standards (Generally Accepted Accounting Principles), revenue is recognized when it's earned and can be reliably measured - goods/services are delivered and paid for. This ensures consistent and transparent financial reporting.
• IFRS Revenue: Typically used by non-U.S. companies, under International Financial Reporting Standards, revenue is recorded when the company commits to delivering services or goods, not necessarily when they are actually delivered.
• Cash Revenue: Income received and recorded when payment is made. For instance, when an invoice is paid or a product is sold and the payment is received immediately. It's crucial in cash accounting, reflecting immediate cash flow.

For early-stage startups, understanding, managing, and effectively communicating these revenue types is key to gaining investor confidence. Accurate financial tracking and clear communication of your company's financial health are essential to securing funding.
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More about Beth Devin, HearstLab Co-Lead
Prior to her current position at HearstLab, Beth held significant roles as a Chief Information Officer (CIO), CTO, and Managing Director at established enterprises such as Citi, Silicon Valley Bank, Charles Schwab, and Turner Broadcasting. She holds a BS in Computer Science from San Francisco State University and is an International Women's Forum (IWF) Leadership fellow. Beyond her day job, she serves as a board member and chairs the Program Committee of the IWF Northern California chapter.

More about Kriti Krishna, HearstLab Financial Analyst
After graduating with a B.A. in Business & Environmental Science from Franklin and Marshall College and prior to joining HearstLab, Kriti spent the majority of her career in leveraged finance. Her experience includes working on Fitch Ratings’ Technology, Media, and Telecommunications team and Berkeley Research Group's Corporate Finance & Restructuring team. Kriti supports with HearstLab’s investment due diligence process as well as our portfolio companies' finance and fundraising projects (e.g building financial models, M&A and valuation analysis, and investor pitch prep).