The 10 Must-Haves for Small-Cap Companies Raising Capital

Traditional methods of raising capital—relying on warm introductions and referrals—are becoming increasingly outdated. Many institutional investors in VC and PE still view themselves as innovators, yet their reliance on old-school networking strategies suggests otherwise.

Imagine a major tech company relying solely on connections and warm intros to grow—it’s unthinkable! In today’s fast-paced market, small-cap companies must equip themselves with the right tools and strategies to stand out based on quantitative merit, not merely who they know.

At the end of the day, two things matter most to institutional investors evaluating small-cap or lower-market companies:

1. A realistic, EBITDA-positive financial model, supported by a clear and attainable exit strategy, ideally within five years or less, through either private sale or a public market exit.

2. Trust, honesty, professionalism, and maturity in the company’s leadership. Investors need to look into the eyes of the executive and non-executive team and feel confident that they are trustworthy and capable of delivering results.

Below are the 10 must-haves that will help small-cap and lower-market companies succeed in raising capital.

1. Comprehensive, Data-Driven Business Plan with Unit Economics

A well-structured business plan goes beyond vision and strategy—it must delve into the hard numbers. Investors expect a data-rich, actionable document that integrates critical business metrics. Incorporating unit economics allows investors to understand the profitability of scaling your business. Essential metrics include:

• Customer Acquisition Cost (CAC)

• Lifetime Value (LTV)

• ARPU (Average Revenue Per User)

• Churn Rate

• LTV/CAC Ratio

• Payback Period

• Monthly Recurring Revenue (MRR)

• Gross and Net Margins

Investors will assess these metrics to gauge the efficiency of your operations and the sustainability of growth. This, combined with clear market size calculations (TAM, SAM, SOM), will demonstrate the scalability of your business model.

Use both Traditional Canvas Models and Lean Canvas Models to illustrate your value proposition and customer segmentation. Additionally, include tools such as the SWOT analysis, RICE matrix for product prioritization, and Porter's Five Forces to explain competitive advantages and market positioning.

2. 3-Statement Financial Modeling

Having a strong 3-Statement Financial Model is non-negotiable. This model provides investors with an integrated view of your company's financial health, forecasting the income statement, balance sheet, and cash flow statement over a minimum of five years.

The 3-statement model should show:

• Revenue growth projections, broken down by product or service lines.

• Cost of goods sold (COGS) and detailed expense modeling, allowing for gross margin and operating profit calculations.

• Capital expenditure plans, working capital management, and debt schedules.

• Free cash flow (FCF) projections, which are critical in valuing your company using discounted cash flow (DCF) analysis.

By running sensitivity analyses on different growth, cost, and margin assumptions, investors can understand the potential upsides and risks. They want to see how changing key inputs—like churn rate, acquisition cost, or operational efficiency—affects the overall value and return potential of their investment.

3. Capitalization Table with Dilution Scenarios

A capitalization table (cap table) is a detailed breakdown of ownership stakes in the company. It should show founders, early employees, investors, and option pools. More importantly, you need to provide dilution scenarios—detailing how future funding rounds will impact existing shareholders.

Investors are concerned about dilution risk, especially in later rounds, so ensure your cap table includes:

• Equity classes and conversion rights.

• Options and convertible notes.

• Dilution analysis showing how multiple funding rounds could affect shareholder stakes.

Transparency in your cap table helps investors clearly see the long-term value of their ownership and how potential dilution might affect their stake.

4. Detailed Financial Statements and Key Financial Ratios

Investors want to dive deep into your company’s financial health, which means your financial statements—balance sheet, income statement, and cash flow statement—must be up to date and thoroughly audited for at least the last five years. These statements need to be supported by detailed ratio analysis, including:

• Solvency Ratios: Debt Ratio, Long-Term Debt Ratio, Short-Term Debt Ratio, and Solvency Ratio.

• Liquidity Ratios: Working Capital Ratio, Acid Test (Quick Ratio), and Treasury Ratio.

• Activity Ratios: Asset Turnover and Stock Rotation.

• Profitability Ratios: Gross Margin, EBITDA Margin, Net Margin, and EBIT Margin.

Benchmark your ratios against industry peers to give investors a clearer sense of how your company performs relative to competitors.

5. SWOT Analysis and Market Positioning with Quantitative Insights

A comprehensive SWOT analysis (Strengths, Weaknesses, Opportunities, Threats) remains an essential tool but needs to be coupled with quantitative data. Investors will want to see hard metrics supporting the analysis, such as:

• Market Size: Quantify your TAM (Total Addressable Market), SAM (Serviceable Available Market), and SOM (Serviceable Obtainable Market). Use concrete data points from industry reports and market research.

• Porter’s Five Forces: Illustrate key competitive dynamics—bargaining power of suppliers, threat of new entrants, competitive rivalry, etc.—and back them up with quantitative insights on pricing, margins, and market share.

• Ansoff Matrix: Show your focus, whether it’s market penetration, product development, market expansion, or diversification, along with quantitative support for each strategy.

By presenting your SWOT analysis through a data-rich lens, investors can better assess the risks and opportunities associated with your business.

6. Valuation Report with Comprehensive Methodologies

The process of valuing a company is complex, and investors will expect to see a detailed valuation report that considers various methods, including:

• Discounted Cash Flow (DCF) analysis to model future cash flows.

• Comparable company analysis (Comps), where you benchmark your company against industry peers.

• Precedent transactions, which compare your company to recent acquisitions or funding rounds in similar markets.

To calculate Net Present Value (NPV), use realistic assumptions for growth rates, capital expenditures, and costs of capital. Include sensitivity analysis to show the impact of changing market conditions on valuation.

7. Financial Metrics and Benchmarks

To further illustrate your company’s growth and efficiency, present a set of key performance indicators (KPIs) that can be benchmarked against industry standards. These include:

• MRR (Monthly Recurring Revenue): Helps project consistent revenue streams.

• Churn Rate: Shows customer retention and the stability of your business model.

• Customer Lifetime Value (CLTV): Demonstrates the long-term profitability of your customer base.

• Customer Acquisition Cost (CAC): Essential to understanding the efficiency of your marketing and sales efforts.

• Net Promoter Score (NPS): Measures customer satisfaction and growth potential.

• WACC (Weighted Average Cost of Capital) and Internal Rate of Return (IRR): Investors rely on these metrics to understand the return they can expect on their investment.

By benchmarking these KPIs, you can clearly show where your company stands in relation to competitors and identify potential areas for improvement.

8. Marketing and Operational Plan with Measurable Outcomes

A detailed marketing plan is essential for raising capital, but it must be data-driven. Use models like 4P (Product, Price, Promotion, Place) and 4C (Customer, Cost, Community, Convenience) to show how your product meets market needs and how you plan to reach your target audience. Include quantitative outcomes for marketing initiatives, such as:

• Conversion rates at each stage of the FEBE Funnel (Front-End, Middle-End, Back-End) to track customer journey from lead generation to purchase.

• Cost Per Acquisition (CPA) and Cost Per Lead (CPL) to show marketing efficiency.

Operational efficiency is equally critical. Implement methodologies such as Scrum and Agile for product development, while tracking performance metrics like time to market and automation rate. Ensure your operational plans include systematic processes, measurable KPIs, and accountability across departments—HR systematization, lead generation, and financial controls.

9. Due Diligence on Stakeholders

Investors look beyond the financials; they want to know about the people behind the business. A robust due diligence package on stakeholders should cover:

• Track records of founders and key executives.

• Industry experience, including previous exits or relevant leadership roles.

• Personal network size and strength, which will influence future business development.

This analysis should quantify the alignment between stakeholders' skills, the company's growth strategy, and the capital required to reach the next stage.

10. Long-Term Calendar and Roadmap

Present a detailed quarterly roadmap that outlines your company’s growth trajectory over the next 3-5 years. Investors want to see:

• Product development milestones and launch schedules.

• Market entry timelines, with specific dates and goals.

• Sales forecasts by quarter, with associated marketing and operational strategies.

By aligning your financial projections with a realistic timeline, you give investors a clearer picture of your long-term plan.

While many investors continue to rely on outdated practices, the future of capital raising demands a data-driven, merit-based approach. By addressing these 10 must-haves, small-cap companies can raise capital based on the strength of their financials, operations, and leadership—rather than who they know.

At Orgon Bank, we provide all of this documentation and access to a curated investor network—with no upfront costs. Our goal is to ensure that your company is fully prepared to raise capital efficiently and effectively, without the burden of retainers or exclusivity agreements.