In today’s show, you’ll hear investor perspectives on the COVID-19 impact on the cannabis market.

This is Investor Perspectives, I’m the host of Investor Connect, Hall T Martin, where we connect startups and investors for funding. 

It’s the time of COVID-19. Cannabis is currently gaining regulatory approval across the U.S. and is gaining rapid adoption. The lockdown has declared certain sectors, including cannabis, to be an essential service. Cannabis investors and startup founders describe COVID-19-proofing the cannabis market.

Tiby Erdely - 00:43 - https://in/tiby-erdely-iii-ba4ab332/
Kim Rael - 5:57 - https://company/azuca/ 
Scott Greiper - 8:52 - https://in/scott-greiper-12614014/ 
Ryan Dean Hoggan - 15:20 - www.motaventuresco.com/   
Ford Smith - 18:28 - https://in/ford-smith-6b4ba6132/  

I hope you enjoy this episode.
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Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Financial projections also called the pro forma, is a key document you’ll need for your fundraise. 

Investors will want to see detailed, five-year financial projections as it shows you’ve thought through the financial side of the business. 

Financial projections are not about predicting the future with great accuracy, instead it shows the causality and interdependencies of your business. It answers questions such as:

If sales increase by 2X, what is the impact on costs?

If sales drop by 50%, what happens to cash flow?

A quality financial projection shows investors you know your business and have a good idea about what things cost and what customers will pay.

Investors also glean from the financials how you are going to use the funds.

Financial projections typically go out 3 to 5 years and contain substantial detail on the spreadsheet portion.

It’s not a good idea to copy and paste the spreadsheet into your pitchdeck as it comes out unreadable.

Instead, show a graph of revenue, costs, and profits and call out 3 key metrics such as time to cash flow positive, gross margins, and growth rates.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

There are two approaches to financial forecasting for startups.

The first is top-down forecasting. The second is bottom-up forecasting.

Bottom-up forecasting uses the company’s historical data for cost and sales. It takes a micro view and focuses on the core drivers in the business. 

Through experimentation, the startup learns the cost of sales and marketing through various channels.  

Having sold some units of the product will guide the revenue forecast based on the sales funnel and the sales resources available. 

The bottom-up approach may generate a forecast that looks weak to an investor. 

You may add your growth initiatives in to show what will drive the growth upwards past the organic growth rate.  

The initial growth (say 1-2 years out), comes from the current state of the business, while the future growth (say 3-5 years out), comes from your growth initiatives.

Make clear your assumptions in the spreadsheet. 

Your thought process and approach will weigh more heavily than the numbers themselves. 

Include attributions for market research such as websites, news articles, and market reports. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

There are two approaches to financial forecasting for startups.

The first is top-down forecasting.

Top down takes a macro perspective by using the overall market sizes and industry estimates for your type of business. 

The top-down approach uses market share. Market share is divided into three segments:

Total Available Market -- anyone you can sell to.

Serviceable market -- your target market.

Beachhead market -- your initial segment to pursue.

Base your financials as a percent of market share.

Look at similar companies in the space to identify the COGS, gross margin, and operating expenses.

Give yourself three years to ramp to profitability.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

A financial model provides three outputs.

Key financial statements, an operational cash-flow forecast, and key metrics for the business.

Key financial statements include the profit and loss statement (called P&L), the balance sheet (BS), and the cash-flow statement (CF).

The P&L shows revenue matched with costs and indicates whether or not you are profitable over a period of time.

It can be used to compare different time periods such as this year versus last year or this quarter versus last quarter.  

It’s often used to compare the actual results with the budget. 

The balance sheet shows the company’s assets -- what it owns and liabilities -- what it owes.  This is a snapshot in time. 

The balance sheet must always be in balance so the difference between assets and liabilities is shareholder equity (assets = liabilities + equity).

The cash-flow statement shows cash inflows and outflows over a period of time. 

Key metrics include gross margin, profit margin, cash runway, and more. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

The most important financial statement is the cash flow statement because cash is the most important financial metric for the business.

If you run out of cash then you most likely will have to put the business on hold or shut it down entirely.

There are two ways to account for cash: cash-based accounting and accrual-based accounting.

As a startup, you’ll want to focus on cash-based accounting as it matches expenses with cash more tightly.

The cash flow statement will give a runway number of months of operation.

Run what-if scenarios based on different outcomes of the sales funnel.

If your runway falls to six months or less, you must take steps such as launching a round of fundraising.

It’s also helpful to understand your costs -- you have variable and fixed expenses.

Variable expenses rise and fall with sales activity, while fixed expenses stay the same regardless of activity.

In the early days of the startup you want to push as many expenses into the variable side as you can. As you grow larger, you’ll want to move from variable to fixed expenses as the overall cost will be lower. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Check out our other podcasts here: https://investorconnect.org/
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Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

After completing the financial projections, you may want to create various scenarios of your financial model. 

Startups are often optimistic, while investors are pessimistic.

You may want to create a best-case scenario and a worst-case scenario.

For the worst-case scenario, keep your revenue at the current level or only with small increases.

Check your cash position and runway and adjust the expenses and fundraise plan accordingly.

For the best-case scenario, use the revenue targets you have in mind.

Check your cash position and runway and adjust the expenses and fundraise plan accordingly.

Here are several common errors:

1. As sales grow, so do sales costs - in particular commissions. Make sure these costs are included with the revenue ramp.
2. Fundraises typically take longer than expected. For every $1M of funding you seek, it will take you one calendar year to raise it.
3. Include your working capital needs for your fundraise planning and its impact on cash position.
4. Founders typically work long hours for little to no pay. This is not true with non-founders. Make sure you include reasonable salaries for the work you expect from others.

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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For more episodes from Investor Connect, please visit the site at: http://investorconnect.org

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For Investors check out: https://tencapital.group/investor-landing/
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