Here are the financial reports and metrics VCs need to see

Your startup could also be the next breakthrough product or service to hit the market, but you will not get very far if you’ll be able to’t persuade enterprise capitalists (VCs) or investors that it has the financial foundation to succeed.

Providing comprehensive financial reports to VCs is a key early-stage process that an entrepreneur looking for financing must undertake. Investors want detailed knowledge of your organization’s economic health, growth potential, operational efficiency and more. They need clear, data-driven information that helps them accurately assess the potential risks and advantages of an investment.

As CEO of Dale Ventures Groups of Companies, I hear a lot of suggestions for great ideas that might make a splash in the marketplace. However, I won’t make any decision until I read several financial reports that may either confirm my assumptions or give me food for thought.

So what financial information do entrepreneurs need to share to persuade me and other VCs to work with them? I’ll share some reports that your startup should include when presenting its marketing strategy.

Declaration of income

Also called a profit and loss statement, this report provides a comprehensive overview of each critical financial element:

• Income
• Cost of Goods Sold (COGS)
• Gross profit
• Operation costs
• Net income
• Earnings per share (EPS)

This document clearly demonstrates your organization’s ability to manage costs and generate revenue, in addition to its financial performance and potential to turn sales into profit. In their research, investors want to see trends in revenue, gross margin and net income to assess your current profitability and sustainable growth potential. VCs use this report to assess business efficiency and operational health.

The numbers in this statement help them understand how well the company is currently run, how effectively it allocates resources, and its ability to pursue recent market opportunities. The profit and loss statement is a key indicator of the decision to invest in a company.

Balance sheets

Although the income statement presents a 30,000-foot view, balance sheets help investors see the financial situation over a specific time frame. Here we are looking for three things:

1. Assets: Everything a company has, similar to money, accounts receivable, and physical property.
2. Debt: Liabilities, including debts and liabilities.
3. Right: The owner’s remaining interest, which helps determine the net value of the business.

The financial condition of your organization conveniently comes down to a easy mathematical equation: Assets = Liabilities + Equity. Balance sheets help investors understand a company’s liquidity, solvency, and financial stability. VCs like me will analyze asset and liability allocation to fully understand risk exposure and leverage.

A robust balance sheet gives us confidence that your startup has the financial strength to face potential challenges and seize opportunities. A transparent, well-organized balance sheet signals to investors that your organization has what it takes to go the distance.

Cash flow statement

This necessary financial document tracks the flow of money flowing in and out of your enterprise over time and covers three major sections: operating, investing and financing activities.

This is where the microscope comes into play for potential investors and VCs. Here we are able to analyze the sustainability of day by day operations. It is a way of assessing your organization’s ability to generate and manage money, and in particular the way it allocates capital. This may occur through asset investment, debt repayment or financial activities.

A solid money flow statement provides detailed information about money generated or used by core business activities and other financial ventures. This provides a clear picture of your organization’s money flow, providing deeper insight into your liquidity, operational efficiency and ability to meet financial obligations. This statement tells investors how well you manage your money and whether your organization is prepared to deal with financial difficulties in the future.

Gross margin

The following two topics do not concern complete financial documents, but indicators obligatory for the proper functioning of your organization.

Gross margin is a key piece of knowledge that shows what percentage of revenue exceeds COGS. This insightful information tells investors how effectively you produce and sell your products or services.

Here’s one other equation for you: Gross Margin = Net Sales – Cost of Goods Sold (COGS). This percentage tells investors that your startup can cover its operating costs while retaining a significant slice of revenue as profit. Investors will look at gross revenue trends to assess sustainability and scalability.

Burning rate

The rate at which your organization uses its money reserves or capital is crucial to investors. Your negative monthly net money flow is a timeline that indicates how long your startup can operate normally before your available funds run out. This shows investors how much runway you have before additional financing becomes obligatory.

Reflecting financial discipline and strategic planning, a sustainable burn rate shows VCs how well their investment would contribute to long-term success.

The numbers tell the real story

These reports and financial metrics are a part of your startup’s narrative. They tell VCs and investors the comprehensive economic story of your organization: where it began, where it is and where it is going.

When you look for capital to support your ventures, keep this in mind. Transparent, insightful financial reporting will provide trust and credibility to potential investors and give them insight into your organization’s true potential. A compelling financial narrative attracts investors, creating the basis for long-term partnerships, building sustainable growth and success in a competitive market.