More money is pouring into growth equity at an earlier stage than ever before, and it is occurring quicker than before. Founders are now in a rare position to think differently about how to capitalization their firms, notwithstanding the widespread excitement for putting larger equity checks into startups.
Startups that operate online produce data exhaust, much like our everyday life, where most services have become more tailored owing to the data our activities generate. In summary, data has become a valuable asset for all businesses, expanding the types of finance previously exclusively available to later-stage entrepreneurs.
Data can help firms distinguish between the healthy and experimental elements of their operations, making it simpler to use earnings, marketing ROI, and inventories to forecast or credit future income streams, So, how could companies use their own data analytics for fundraising today?
Founders should think of their company as a four-part system. There is R&D, which carries a high risk but high reward profile and is a good fit for equity funding at the early level. You invest money in product-market fit in the hopes that your company will reach a tipping point. You can make assumptions at the beginning, but it is unclear what your R&D will produce.
Then there is marketing and acquisitions to consider. For these, you should have a more predictable return on investment (ROI), which means that every dollar spent can be tracked and anticipated to provide a positive ROI (whether it’s through increased brand recognition, lead generation, or conversion activities).
There is inventory, which is when you buy something with the intention of selling it at a later period for a set price. Then there is equipment, where you have an upfront expense to develop a product, shop, or service with a clear idea of how quickly that money will be repaid. Know how much each sector is worth so you can figure out which parts of your firm are more risky (like R&D, where you’re not sure what will happen) and which are more predictable (like marketing and acquisitions). Instead of financing everything, tailor your financial strategy.