When Seeking Venture Capital, Information Is Money
Lebowitz, Stephen M., The CPA Journal
The prevailing opinion is that now is not an opportune time to solicit venture capital funds or private equity investment. The fundamental objective of a venture capital fund is to make quality investments that will yield a good return.
The accurate and clear presentation of financial information is a vital part of that process. Also extremely helpful is for business-owners and their CPA or other advisors to put themselves in the place of the prospective investor. Wherever information is not direct and forthcoming, it strains credibility and quickly diminishes the presentation's value.
There are several ways venture capital investors can be convinced and even impressed by a presentation and its presenter. First, the presenter must demonstrate complete familiarity with the business and be able to answer any and all questions about the scope of the operation. Venture capitalists recognize that a business owner's CPA or other financial advisor may understand the finances of the business better than the owner does.
Red flags include proper data on the quality and verification of receivables. The presenter should demonstrate disclosure by setting aside proper reserves up front, and drop any receivables that are probably uncollectible despite the possibly disadvantageous appearance of such information. Although most small business owners use cash-basis accounting, most investors want to see accrual-based financial statements that demonstrate the integrity of the inventory and receivables. …