Tuesday, April 28, 2009

Valuation in Young Companies / Commercial Readiness

A current job we are doing entails advising a 'green' company with raising capital.  The financial projections are seeing revenue increasing rapidly.  We have been working with the company to ensure that the financial model can be defended in a commercially sensible fashion.

To this end we have the client focussing on 2 specific things :

Firstly, explaining how the maturing of the business and its products are in turn leading to an increased volume of inquiry.  That is, the company is positioned to meet customer demand (which it wasn't a year ago).  Constraints of supply have been overcome.  The message is out there.  Commercial model 'attachment' is taking place.

Secondly, the development of a distribution strategy using channels and offshore alliance partners.  The important thing here is not so much the projection of sales, but the establishment of the fact that the company is casting its net wider and therefore better positioning itself to effect sales.

This approach focusses on building credibility into the business model - as opposed to just throwing numbers out there.  When dialoging with an investor the financial model becomes part of the conversation as opposed to all of it.  The majority of the conversation can be directed to the verification of the commercial readiness of the organisation - without which the financial projections are most probably just academic.