Raising institutional funding is a pivotal milestone for any growing business, but few CEOs fully appreciate the preparation required. While securing funds from friends, family, or angel investors is often an informal process, institutional investors demand a rigorous, data-backed approach that tests every assumption you’ve made about your business.
As a CFO with over 20 years of experience across industries—including raising $1.6B+ in capital and navigating six successful M&A deals—I’ve seen firsthand what separates successful funding rounds from missed opportunities. In this guide, I’ll share practical steps to help you prepare your financial model for institutional investors and position your company for success.
Understanding the Funding Landscape
The expectations of investors vary significantly depending on their type. Here’s a breakdown of what you can expect:
Friends, Family, and Individual Angels
- Process: Informal and based largely on personal connections. Investments are often made after a pitch deck presentation and some follow-up questions.
- Focus: Team credibility, early traction, and a promising business model.
Angel Groups and Small VCs
- Process: Formalized but reliant on personal networks. Due diligence is more structured.
- Focus: Market validation, team interviews, and financial projections.
Institutional Investors
- Process: Highly formal, involving dedicated teams of subject-matter experts. These investors conduct deep due diligence and often build their own financial models.
- Focus: Detailed financial projections, market research, and alignment between your strategy and financials.
While it’s intuitive that larger investments demand more rigor, many CEOs struggle with the transition from smaller funding rounds to institutional-level preparation. Below are the steps I recommend to bridge that gap.
9 Key Steps to Build Investor Confidence
1. Back Every Number with Data
Institutional investors will scrutinize every figure in your financial model. Ensure that every number is supported by detailed documentation, whether it’s historical performance, market benchmarks, or operational plans.
2. Align Your Presentation and Financial Model
Your investor presentation and financial model must tell the same story. If your deck projects achieving $20M in sales by year three, your financial model must reflect the infrastructure—staffing, marketing spend, and operational costs—needed to reach that milestone. Gaps will erode investor confidence.
3. Quantify and Integrate Risks
Identify key risks—market fluctuations, supply chain disruptions, or regulatory hurdles—and incorporate them into your model. For example, if you estimate a 50% likelihood of a delay, include a cost or schedule buffer in your projections. This proactive approach builds trust and shows you’ve thought through contingencies.
4. Prepare for Scenario Analysis
Investors will run “what if” scenarios to test your resilience. For instance, they may ask, “What happens if revenue is 20% lower than forecast?” Anticipate these questions, model potential impacts, and outline mitigation strategies to demonstrate preparedness.
5. Ground Projections in Market Research
Every assumption about your market—target customers, competition, and pricing—must be validated by credible data. For example, if your market opportunity is estimated at $500M, but your financials suggest capturing $600M, you’ll face a credibility issue.
6. Stress-Test Your Model
Before sharing your model, attempt to “break” it by challenging every assumption and formula. Identify and correct weaknesses to ensure it can withstand investor scrutiny.
7. Maintain Strategic Alignment
Your financial model should reflect your strategic priorities. For instance, if your business strategy emphasizes being a low-cost provider, your model should avoid including high-end office leases or premium salaries that contradict this positioning.
8. Highlight Key Performance Indicators (KPIs)
Your financial model should clearly reflect KPIs tied to your business’s success. These could include customer acquisition costs, lifetime value, or gross margin targets. KPIs provide investors with measurable indicators of your progress.
9. Model the Business Post-Investment
Investors want to see what their money will achieve. Your financial model should clearly show how the proposed funding will be deployed and the returns it will generate. For example, outline how a $10M raise will fund new hires, marketing campaigns, or R&D initiatives.
Why Your Model Matters
Your financial model will inevitably be wrong—forecasting the future always involves uncertainty. However, the quality of your model demonstrates how well you understand your business and its potential. A logical, cohesive model reflects a capable, thoughtful leadership team—exactly what institutional investors are looking for.
A Final Word of Advice
Preparing for institutional funding is a marathon, not a sprint. In my experience, it takes up to 6 months of rigorous preparation before you’re ready to engage with investors. The effort is well worth it. A polished financial model, backed by thoughtful preparation, significantly increases your chances of raising the capital your business needs to thrive.
At Avenir Insight, we specialize in helping businesses align their financial models with their strategic vision to secure funding and drive growth. If you’re ready to take your business to the next level, let’s start a conversation.