Posted on July 12, 2019
Constantin Salameh – Berytech’s Senior Coach and Investment Advisor, shares with us the key learnings of the investment readiness and valuation session, part of our #FinanceFridays series. During the session, he went through why we value a company, when we value a company, who values the company and what are the different valuation methods. He also covered the different sources of funds available in Lebanon for startups and SMEs and the related terms and conditions that you can get given the tight liquidity situation for MSMEs.
Here are the top seven tips shared with us by Constantin from his session:
1. The fundraising and valuation process is always longer than what is planned initially.
People expect the fundraising process to be closed in three months while the most likely scenario is 6 to 12 months. This means that the company needs to bootstrap for at least a period of 6 to 9 months to be able to go through the phase and prepare themselves for the funding round. Bootstrapping – building your company without outside investment money, becomes an essential dimension in the art of survival in a difficult environment.
2. Nobody will believe your financial forecasts unless these forecasts are validated.
The financial forecasts are validated through either customer focus groups, market surveys, one-on-one interviews and ideally, with a letter of intent or with potential orders that will be placed in the near future. So, it is critical is to get the validation of your forecasts as they will prove to be an important factor in the valuation of your company. The stronger is the market validation of your forecasts, the higher will be your company valuation.
3. You need to plan for several funding rounds.
The most likely situation is that your company will go through 3 to 4 funding rounds with each round bringing a potential dilution for existing shareholders including the founder(s). Hence, it is highly recommended to plan for the future funding rounds today and protect the interests and motivation of the founders so that they will not find themselves with a very small percentage of the equity capital of the company following 3 or 4 funding rounds. This dilution process will also impact the valuation of the company today and in future rounds in an effort to keep the founders highly motivated.
4. You need to always have the right financial advisor working with you and your team.
Valuing a company, deciding on the funding gap, selecting the right investor, negotiating a win-win term sheet and finalizing the shareholders agreement, are time-consuming and complex tasks that will require you to have the right financial advisor with you all along the journey.
Berytech is here to help you in this investment readiness journey with its business and financial advisors and solid track record in assisting companies raise grants, debt and equity capital over the past years
5. You need to be open to release sweat equity.
Sweat equity is a form of equity that you may provide to entities or to individuals who you believe will provide substantial value in the transformation of your company, but you don’t have the cash to pay for. Hence, you release a small amount of “sweat” equity (typically 1% to 3%) to cover their services. These services could be in accessing funds, accessing new markets, accessing innovative technology or accessing top talents.
6. You need to launch the right advisory board.
Identify your main pain points and major challenges that you are facing and then look for experienced professionals who are best positioned to address these pain points and challenges. They will become members of your advisory board and work with you and your team in scaling and creating value to your stakeholders. Berytech can also help you accessing the right members of your advisory board as we are working with dozens of coaches, advisors and mentors across several functions and several sectors.
7. You live and die by the quality of your cashflow forecasts.
Make sure that you understand how to put a cashflow forecast together and understand the key assumptions, make sure that you monitor it on an ongoing basis, make sure that you know what are your future cash gaps, and make sure that you are clear about the most effective ways to be able to fund these gaps. Very few companies master the discipline of proper cash-flow forecasting and management.
About the author
Constantin Salameh is Senior Coach and Investment Advisor with Berytech, providing financial and management advisory services to several companies in Lebanon. He has a 35-year track record in funding, developing and transforming corporations, SMEs and startups across the world.
He was previously CEO of HP Financial Services in EMEA and Asia Pacific and the CEO of global investment groups such as Safinvest, AMS Group and Al-Ghurair Investments. He joined Stanford’s Graduate School of Business SEED Program in 2015 and provides advisory services to social SMEs in both East and West Africa.
He has invested in several high potential and high social impact startups and SMEs in Africa, Lebanon and Europe, while providing them with mentoring, advisory and coaching services to scale effectively with a solid governance foundation. He sits on the board of more than 15 companies – active in the EMEA region in the healthcare, technology, renewable energy, FMCG, pharmaceuticals and FinTech sectors.
Constantin holds engineering degrees from King’s College London and MIT, together with an MBA from Stanford’s Graduate School of Business with a focus on international finance.
Berytech organizes monthly #FinanceFridays – a program which aims to offer an opportunity to startups and SMEs for getting investment-ready, identifying the right channels of funding, and raising funds.