The Situation
Most founders preparing to raise capital assume the hard part is finding investors. It isn't. An Australian software company with real contracts, real revenue, and strong regulatory backing came to me ready to raise. Then I looked at their financials. The P&L had two definitions of gross profit. Before we could talk to a single investor, we had to rebuild the foundation entirely.
Fixing the Foundation
Before a single investor saw a number, the historical financials had to be rebuilt from scratch.
The P&L had two definitions of gross profit. Revenue was not split between recurring and non-recurring streams. Cost of goods sold was poorly defined and inconsistently applied across both versions. Shareholder equity conflated shareholder loans and convertible instruments. These were not rounding errors or presentation preferences. They were the kind of issues that cause sophisticated investors to stop reading and start asking very uncomfortable questions.
We restated the financials into a proper SaaS P&L format with clean recurring revenue separation, a single coherent gross profit definition, correctly allocated COGS, and a shareholder equity structure that actually reflected the company's capital position. Only then could we build forward.
Building the Model
The three-way financial model covered two revenue streams: the existing product supported by contracted revenue, and the new platform with projections built entirely from first principles.
The new product had no local comparables. Nothing like it had been built in Australia. But equivalent products existed in Europe, particularly in the UK and the Netherlands, where we could observe real adoption curves. Australia was actually better placed than those markets in terms of existing infrastructure, but we modelled a significantly more conservative adoption ramp than the European data would have supported. Conservative by design. Investors push back on blue sky projections. They push back less when the assumptions are demonstrably cautious.
The headcount plan required its own conversation. The original build assumed a large product development team. We pushed back. For this raise, the product did not need every planned feature — it needed enough to prove the concept and justify the capital. We trimmed the headcount accordingly, which tightened the cash burn profile and made the raise more credible.
The Outcome
The raise closed at the full $2m in approximately three months. A mixed group of angels, institutions and VCs, all new investors. The data room, CIM and pitch materials supported investor conversations led by the chairman and CEO. My role was to ensure everything said in those rooms was backed by numbers that held up under pressure.
They did.
What This Means for Founders
A capital raise is not a sales process. It is a diligence process that happens to involve pitching. Investors will find the weaknesses in your financial foundation. The question is whether you find them first, and fix them before anyone is watching.
If you are planning to raise capital in the next twelve months, the financial health of your business will determine whether investors take you seriously or ask you to come back when the numbers are cleaner.
The Financial Health Diagnostic is a structured assessment of where your business actually stands across seven dimensions, including the ones investors look at first.