eFundraising issuers have to rely on OMDI (Offer Memo, Pitch-Deck, Investor-Relations Website) to do the explanation and persuasion on why one should invest to take up shares or debts of a company. Many issuers start off with the wrong documents in their eFunding process. Many prepare and use their pitch deck as the principal tool. Very often, the deck consists of a description of the issuer’s business, products and services but very little on matters that are important to the investors. They want to know what’s in it for me, “WIIFM”.

The issuer needs to have clear and concise answers to these questions:

1. Core – what pain points the business is solving and how big is the market?

This is the very core of any venture – that is the capability and capacity to address the pain points of the target market. Here the issuer needs to describe in precise terms what problems, issues, challenges that the target customer is suffering from and what are the products, services, solutions this venture has in both capability and capacity to satisfy the customer.

It is vital to show evidence how big the market is and quote authoritative data sources. List who are the current players that are not satisfying the customers and show the gaps that are available. Most important of all, why this venture can bridge this gap and how many customers are needed to make money.

The issuer must capture the investor’s attention here. One must be able to see a huge unserved or badly-served market and it is easy to capture a small slice of it, without humongous effort, to make good money.

2. Customer: what is the growth rate?

As the Wall Street adage says, “When the winds are strong, even turkeys fly”. Thus investors go for firms that can grow exponentially so that they can get better returns for their investments. ChatGPT grew to 100 million users in just 2 months. Meta’s Thread got 100 million users in less than a week. Tik Tok grew to 1 billion users in less than 4 years.

For a start-up to have a 36% annual customer growth rate means doubling of the customer base every two years. Put it simply – the investor can see and feel that the investment value has gone up twice. Thus growth is important.

If the business cannot grow in number of customers, then the growth can come from the current customer base with the FVV strategy by increasing the;

1. Frequency of consumption and buying;
2. Volume of consumption and purchases;
3. Variety of consumption and purchases.

If you up 30% for each FVV, (1.3 frequency X 1.3 volume X 1.3 variety) the increase is 1.2x

3. Cost: what is the return on sales “ROS”?

For every $100 you buy from Apple, they make $25 net profit after tax. Many may calculate it to say they control their cost well to deliver such a high profit. Or you can say, they charge a higher selling price and thus make the cost seem to be low.

Many firms have two damning drivers – high fixed operating costs and low selling price – these cause low or no profits. And of course, those who are operating in regimes where there are high sales tax and corporate income tax are not making their earnings enticing.

Plan and state carefully your premium pricing strategy with a value-added product package may be a way to start small (low fixed operating expenses) and profitable. Should the business want and have the financial muscle and production capacity to occupy a mega market size, then the fixed operating expenses could become low, in relative terms.

Do not look at cost per se. Look at it in relation to the top line. Apple has set the standard of 25% ROS to benchmark and investors use that as a basis.

4. Capital: what is the return on investment “ROI”?

In the fast changing business landscape driven by the plethora of innovations, product developments and idea proliferation, no product or solution can have a long product life cycle. Each year a new version of an iPhone is launched and many consumers are expecting “fresh and new” versions as a norm.

Thus a company must be able to recoup the investments they put in to develop new or improved products within a very short time. If something is going to be obsolete within 2 years, your ROI needs to be at least 36% per year. Failing which, you lose your capital.

Many tax regimes allow accelerated depreciation of 20% of the asset value – which means the asset is deemed to be worthless after 5 years. Which means, companies need to earn a return that is higher than this to recoup the capital. This resulted in issuers adopting the “asset light” strategy whereby they have very little PPE (property, plant and equipment) assets in their balance sheet and most important of all, they do not have liabilities like loans, interests and amortisation. Investors like this because if you can use $10 to make a $10 of profit is a 100% return. But if you use a $100 asset to earn that same $10 profit, it is only 10% ROI.

5. Cashflow: how cashflow positive is the business?

The business model of paying first for parts and production to supply to customers on a deferred 30 or 60 credit term operates like a bank except it does not earn an interest on the funds used by the customer. The firm is literally financing the customer with funds they do not have and at most times pay dearly for it in interests or equities (shareholding of firms).

Investors like the cash flow positive business model. That is the firm gets the cash first from the customers so that they have enough to pay the suppliers, operating expenses and make money first before delivering the goods. Most e-commerce players get shoppers to pay first and then pay the drop-shipper for goods delivered.

Many firms use gift cards, top-up cards, loyalty programs, package deals to get customers to pay up first and take their time to use up its value.

For example, a cafe chain has almost $200 million “contingent liability” because their 2 million members have an average of $100 cash float in their cafe-card unused. Please imagine what you can do with that kind of money.      

6. Cutting edge: what’s so special about your business?

To compete and survive in this competitive marketplace, firms must have a certain competitive edge or unique selling point “USP” to stand out from the pack. You can be bigger, smaller, better, cheaper, faster or easier. Whatever edge you have must be sustainable – that is that USP must be able to outlast itself and the competitors.

You say your lithium battery can last 300 km and tomorrow someone will be able to outperform you to 400 km and so on. Firms that use psychological positioning USP tend to be more sustainable and profitable. Apple is the classic example using their innovation, design and customer experience as the core elements of their competitive edge. Apple’s branding says it all.

Or do you have any unfair advantages such as being the only firm that can get that resource, location, customer, intellectual property or support. Or you have the first mover advantage and have ingrown market penetration. Or you have a captive customer base that will not go anywhere but to you. Think.