Investment Evaluation Summary – helping you successfully navigate the funding process
Are you ready? You’ve started a cannabis-related business. With a great idea and a solid team in place, it’s easy to assume you’re on the right path. But you’re still not raising enough capital and investors are questioning your Company valuation. While you may be 100% confident in your business model, market strategy, projections and capital requirements, are you truly “investment ready” in the minds of investors?
The Cost of Capital
Before you spend months working to secure a meeting with potential investors, make sure you’ve laid the proper groundwork including an investment-worthy valuation and presentation package. But what does it entail? Where do you start? How do you ensure that you’ve covered all of the bases? It can be a seemingly insurmountable task.
However, it’s a critical step in securing capital. Present an unsubstantiated sales forecast, a fragmented marketing plan or an incomplete business model and your investment prospects will end before they even begin. This lack of preparedness on your part can increase the cost of capital due to a low valuation in the mind of an investor – whether it’s offering less funding or requesting a larger share in your company. What’s more, it creates a negative ripple effect in other areas – resulting in being unable to attract top talent, having to downsize current staff, or requiring liquidation of certain assets to raise capital on your own. It also can impede your ability to raise your series A past the seed round, and that’s assuming you’re able to retain an ownership position. Very smart business people with solid ideas have encountered this scenario because they weren’t able to create a compelling and cohesive initial investment package. First impressions are often lasting. Why leave one of the most critical to chance?
Electrum Partners can facilitate the creation of your initial investment package. We are deliberate, forward thinking and methodical in our approach. We ensure that your corporate ownership, your team and initial investors are presented in the best light possible. We take a big picture view without missing the small details that showcase and play to your company’s strengths. Our years of experience have enabled us to anticipate the likely questions and challenges you will face from potential investors, and then impart the knowledge that will help you address them in your investment package. We’ll encourage you to seek honest, direct feedback. It will allow you to address areas you may have overlooked and ensure that no stone has been left unturned before you present your investment package. Not only will it pave the way for a well-prepared presentation but will convey your company’s thoughtful, efficient leadership to potential investors.
The Velocity of Capital
Many entrepreneurs feel a sense of urgency to raise capital. In an effort to eliminate financial and market pressures by securing funding, they rush the investment package creation process.
The speed at which a company completes a successful raise is known as the velocity of capital. The faster the required amount of money is flowing into your company, the faster it’s available as working capital to help meet forecasted financial projections and company milestones. Compare the following two capital raise approaches to securing $1 million:
In the first case, the start-up quickly completes their capital raise presentation. The CEO and CFO create a pitch deck, meeting with several prospective investors. After the first month, they secure three commitments of $50k each. Another six investors consider the opportunity. During the second month, the company follows up with the six prospects, securing another $100k from one of them. In the third month, the company realizes that none of the remaining prospects will invest in them. They now must come up with a list of new prospects to pitch. This cycle repeats itself for three more quarters, resulting in approximately $250k per quarter in additional capital. By the end of year one, they have raised $1 million. Their sporadic capital raise process forced them to allocate the piecemeal financing to make payroll, meet vendor obligations and pay for travel expenses to meet with other investors. In effect, they are back at square one in their capital raise efforts and a year behind their more successfully funded competitors—limiting their ability to attract more capital.
Rather than rushing through the capital raise process, the second company’s executive team bootstraps. They pitch family and friends, resulting in $100k used to pay their first two months’ overhead and operations. Simultaneously, they work diligently to create a fully comprehensive investment package. They complete the package at the end of month two and begin pitching a select group of investors that they vetted previously. Midway into month three, the CEO and CFO have pitched five different groups, with strong interest from two family offices. Concluding a week of negotiations, they raise the entire $1 million from one of the family offices. Unlike the previous company, this one is fully funded. They are now on track to implement their go-to-market strategy and reach their company milestones in year one. By working smarter, not harder, company two maximized the power of velocity of capital.
The Electrum Investment Evaluation Summary
The Electrum Investment Evaluation Summary (EIES) is a predictive methodology to determine a business’s success trajectory.The EIES provides in-depth analysis of your business to identify gaps in your plan. The 1,000 point scoring system measures and rates your key business metrics, forming the foundation for a package that will attract and convert seasoned investors.
The EIES score is not an arbitrary number. It is a highly useful indicator to discerning investors regarding the viability of your business based on the historical data from hundreds of companies. Evaluations that score 925 or above are deemed highly investable and treated as ‘AAA’ by global and US-based investor networks. Scores that fall between 600-925 historically have a higher risk of not successfully funding, receive pushback on valuations and often take 2x–3x longer to fully fund their capital requirements. Companies with scores below 500 are not considered capital ready.
Investors use the optics provided by the EIES to vet new opportunities and favor enterprises with a score of 925 or above because they have shown to consistently grow market share, stay profitable, and experience successful exits. For entrepreneurs, it provides a roadmap to a successful capital raise by reassuring investors that you have a clear path to great returns. Most importantly, the EIES helps you raise capital faster, allowing you to focus on growing your business without sacrificing precious time and equity due to a low company valuation.
How Does it Work?
The Score and Summary are based on an eight-year study of 324 companies in conjunction with the assessment of 307 individual data points, summarized into 100 categories. Those categories are then condensed to 10 sections with relevant point values, for a potential score of 1,000. The Sections, Categories and Data Points are broken down as follows:
Within each section of the EIES, clients receive recommendations on the steps needed to achieve the full point values in all 10 sections. At that point, you can either choose to implement those recommendations independently or work with Electrum Partners to assist you in reaching your goals. The evaluation and scoring process is a rigorous due-diligence project. On average, most companies complete three submissions before achieving a certified score.
For the first year after your EIES, we will create and host a secure repository of any of your updated information and new scores. Once you have attained a score of 925 or better, the repository can be made accessible to prospective investors including the Electrum Network.
The EIES Timeline
Once you have engaged Electrum, you can anticipate receiving your score in approximately eight weeks. However, many factors can influence the delivery timeline. These factors include client responsiveness, changes to the business model during the evaluation process, whether the business is regulated or non-regulated, etc.
We understand that raising capital is your top priority and that time is of the essence in securing it. We are committed to working to meet every need of our clients as they navigate the evaluation process. Clients are expected to provide all requested documentation in timely manner which allows our staff to complete the report as quickly as possible.
Once the initial evaluation is complete, Electrum Partners will schedule a conference call with the client to review the EIES and offer insight into the scoring and corresponding gap analysis. Clients who fall short of the recommended 925 threshold have two options to boost their score to become investment ready.
1. Fix gaps on their own: Clients that wish to remediate their identified gaps themselves can resubmit their updated documents for reevaluation up to three times in a one year period.
2. Capital Readiness Services: If you prefer additional guidance and support, we offer relevant business services including financial modeling, forecasting, document creation, market research and more.
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