That's Why Your starting Pitch Needs Sensitivity Analysis and Research

Ensuring the financial success of your startup takes more than an all-star team, product launches, and marketing juggernauts. With thousands of ideas flooding investors' inboxes every year and venture capitalists facing an uncertain future, it's important to demonstrate your passion for impact that even small changes can impact performance. The important thing is to include sentiment analysis in your voice.

As an FP&A professional who has supported many successful eight- and nine-figure fundraising campaigns through financial modeling and product development, I know what it takes to make money that is different from traveler-generated money. empty hands. To be trusted, designers must carefully evaluate risk and liability by demonstrating that they have analyzed the consequences of each decision.

When it becomes clear that the founders want to make a good impression to investors, ignoring the problems can destroy the trust they have created with the potential budget. Investment companies can quickly lose interest due to excessive financial forecast expectations, such as excessive market forecasts or unrealistic market conditions. What they want to see are tried-and-true thought patterns.

This is especially important when the budget is limited. Funding for startups has become particularly difficult in 2023, according to Crunchbase data; global financing fell 53% to $76 billion in the first quarter, from $162 billion in the same quarter of 2022. Moreover, during the same period, there was a decrease of approximately 44% to 54% at all financial levels. These figures show that venture capitalists are increasingly risk averse. The best response to this inconsistency is to demonstrate robustness and provide evidence of feasibility through sensitivity analysis.

What is sensitivity analysis?

Sensitivity analysis, also known as what-if analysis, evaluates the impact of changes in inputs to mathematical models. Needs analysis in financial models can uncover the ideas that have the greatest impact on the business and help managers create KPIs and strategies to track and respond to these changes in those businesses. For example, if a variable such as market size, housing prices, prices or sales changes, how will this affect financial performance? Which has the biggest impact?

In my experience, developers can sometimes confuse analysis with situational assessment. Neither approach is the same when measuring the impact of changes in business models.

Sensitivity analysis generally focuses on one or two of the most important aspects of the business model, namely changes affecting the business model. It often makes the biggest change depending on the job and how the model is designed. For example, you may want to make sense of the sales price per square meter in the architectural model, the loss rate in the model-based model, or the product mix in the created model.

Scenario analysis is used to evaluate the performance of the business when macro factors affecting the entire organization or the entire business change. Scenario analysis is necessary to evaluate the impact of economic downturns or changes in business policies, both of which could affect the company's performance even if some fundamental changes and views remain unchanged.

Sensitivity analysis is one of the best ways for developers to delight marketers because it allows them to understand the margin of security impact with their resources. For example, if an investor uses the minimum rate of return (IRR) as one of the investment evaluation criteria, the analysis can easily show how much performance needs to change before investing below the minimum IRR.

For example, from an investor's perspective, know that even given a 10% loss in sales for the design, model and management team, the investment will achieve the lowest IRR over its life. results in doubt. . In this case, potential investors can know that the investment is still valid even if they disagree with some of the growth expectations and think sales are only 95% of the forecast.

Now – let's take a look at how sentiment analysis can be done to help you attract potential investors and benefit your company.

Understand that a small change in opinion can lead to a big change in price

When you repeat long-term forecasts, such as five for ten years, small changes in the financial model's assumptions drive cash flow and measurement changes magnify. In the first table we can see how small changes in the sales unit's sales growth and revenue per sale will affect the company's profit and cash flow.

Create a Strategy-Focused Strategy

Once you clarify your needs and identify the biggest obstacles, you will have the information you need to develop strategies to track and execute your business's better position. In this example, key drivers of unit sales growth include customer acquisition cost (CAC), customer return, return rate, and cost of sales and sales of goods. Hypothetically, after sensitizing the growth rate of apartment sales to variables (as we did for annual rent), you can determine that the rate of return and CAC are important. Your team can determine the specific performance levels needed for the unit to achieve sales growth goals. These performance levels will become key performance indicators (KPIs) monitored and controlled by leadership.

From here you can define preliminary measures for daily monitoring that will alert management if the KPI reaches a high level or falls below the received target plan. For example, a leading indicator of returns could be customer satisfaction or Net Promoter Score.

This informative analysis enables the entire management team to better understand and prepare for the best opportunities and threats. Not only will this be beneficial for your business, but it will also help you improve recommendations and answers to sellers' questions.

Prove to investors they can trust you

If there's one thing the business world has learned from the 2007-2008 financial crisis and the economic shock of the Covid-19 pandemic, it's to expect the unexpected. In this environment, sentiment analysis is a powerful tool. The ability to highlight any differences in the business model enables easy analysis and can highlight opportunities and threats.

Lack of money and time for adequate financing issues can hinder a new venture's growth and ability to take advantage. New business funding has been in decline since 2021, meaning competition is fierce. By adding precision to your presentations and forecasts, you can respond to potential investors' concerns, prove your point, and gain control over respecting risk. In times of increased investor awareness, this agreement and plan can help you and your company succeed.