Founders Should Use Predictive Modeling To Fund Raise Smarter – TechCrunch

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More and more capital is pouring in in growth capital at earlier stages, and it’s happening faster than ever. But even with the widespread enthusiasm for handing out bigger capital checks to startups, founders now find themselves in a unique place in time where they can think differently about how to capitalize their businesses.

Much like our personal lives, where most services have become highly personalized thanks to the data generated by our business, startups that operate online create data depletion from their operations. In short, data has become an asset to every business, diversifying the types of capital that were previously only available to late-stage startups.

Data can separate the healthy and experimental parts of all businesses, making it easier to use revenue, marketing ROI, and inventory to make predictions or get credit for future revenue streams.

So how should companies today leverage their own data analytics for fundraising?

Separate the low and high risk parts of your business early

Founders should think of their business as four distinct parts.

There is R&D, which is high risk but pays high reward and is appropriate for equity to be funded at the seed stage. You invest capital in product market fit with the expectation that your business will reach an inflection point. You can make assumptions at the start, but it’s unclear exactly what your R&D will produce.

Then you have marketing and acquisitions. You should have a more predictable ROI for these, which means every dollar spent can be measured and should generate a positive ROI (whether it’s an increase in brand awareness of brand, lead generation or conversion activities).

There is inventory, where you make purchases in the hope that you will sell them at some future date at a certain value. And then there’s the equipment, for which you have an upfront cost to build a product, store, or service with a strong idea of ​​how profitable that investment will be.

Know the value of each segment, in order to understand which parts of your business are more risky (like R&D, where you’re not yet sure of the outcome) and which are more predictable (like marketing and acquisitions).

Adapt your financing plan instead of financing everything


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