What Investors Look for in Your Financials

Scene: Radha and Krishna gear up for their Series A pitch. Meera arrives with printed financial statements to guide them.

Radha (nervous): Their term sheet looks promising, but I’m anxious about our financials. What exactly will investors examine?
Meera (calmly): Investors dig deep into five key areas: cleanliness of books, revenue growth, cash flow, unit economics, and clarity of use of funds. Let’s review each.

1. Clean, Reconciled Records

Meera: Investors first check if your books are in order.

• Are bank statements reconciled monthly?
• Do invoices match revenues?
• Are expenses backed by receipts?

Krishna: Our accountant sends me reconciliations every quarter.
Meera: Good—quarterly is fine for early-stage. Annual audits should close within three months of year-end.

2. Revenue Growth & Trends

Meera: They look for consistent growth. A single spike or dip needs explanation.

• Monthly Recurring Revenue (MRR) for SaaS.
• Quarter-on-Quarter (QoQ) or Year-on-Year (YoY) growth rates.

Radha: Our MRR grew 20% QoQ last three quarters.
Meera: That’s a strong signal for scalability, if you can sustain it.

3. Cash Flow & Runway

Meera: Cash burn is more critical than profit.

• Burn rate = Net cash outflow per month.
• Runway = Cash on hand ÷ Burn rate.

Krishna: We have ₹60 lakhs cash and burn ₹20 lakhs a month—three months’ runway.
Meera: Investors want 6–12 months runway post-funding. Plan accordingly.

4. Unit Economics

Meera: This shows profit per customer. Key metrics:

• CAC (Customer Acquisition Cost)
• LTV (Lifetime Value)
• Gross margin per unit

Radha: Our CAC is ₹1,000 while LTV is ₹4,000.
Meera: A 4:1 ratio is healthy—investors love that.

5. Use of Funds & Forecast

Meera: Finally, they scrutinize fund allocation:

• Marketing 40%
• Product R&D 30%
• Hiring 20%
• Buffer 10%

They’ll ask for milestones tied to each spend—e.g., “₹20 lakhs on marketing to drive MRR to ₹10 lakhs in six months.”

6. Compliance & Cap Table

Meera: Investors also check:

• Statutory compliance (IT filings, GST returns, ROC filings)
• Clean cap table with accurate shareholdings and ESOP pool details

Krishna: We maintain our cap table in Carta.
Meera: Great—clarity prevents last-minute surprises.

Real-World Example

Radha: Did this advice help past clients?
Meera: A Pune fintech startup improved their CAC:LTV from 0.8:1 to 3:1 before pitching. They closed ₹5 crores Series A within 45 days. Strong unit economics sealed the deal.
Radha (confident): Now I know what to polish before our pitch.
Krishna: Let’s update our investor deck with these numbers.
Meera: Exactly. Remember, investors look for strong fundamentals more than flashy slides. Solidify your financial story, and you’ll win their confidence.