Startup Cfo Basics

Montreal Startup Workshop Day Dec. 6, 2008 Startup CFO Basics www.startupcfo.ca

AGENDA

Who the heck is this guy?

The role of finance in a startup

Raising money

Spending money

Getting money without giving up equity

Measuring your business – financial & non-financial

Financial planning – the budget

Links & resources

A history (in progress)…

1990 – 96: Audit & Corporate finance

96 -98: Snowboarding

‘ 99 Startup land:

2002: Downturn

2004: Another startup:

2006: Terrascale: A nice exit…

2007: Mobivox

Today: TUNGLE!

Why do companies fail?

MANY reasons, but ultimately…

BECAUSE THEY RUN OUT OF CASH!

The role of a Startup CFO…

Financier : Keep the bank flush

Technician : Controls, reporting

Closer : Help bring in the big deals

Operator : Process, metrics, discipline

Lawyer : Check everything with words & a signature

Sys Admin : Systems, information, data dude

Cheapskate: Say “NO” a lot

Consigliere : Any Godfather fans out there know what I’m talking about…

When do you need a CFO?

Advisor: From day 1 (opportunity assessment)

Part time: Early (help with 1 st funding, etc.)

Full time : “B” round

The fundraising journey…

Friends & Family / Seed: Small & easy

A round: Local, relatively easy

B round : The hardest..

C & up : All about traction…

The Process

Know your

Business – what makes you unique?

Industry – key factors, motivations for buying your stuff

Numbers – metrics, financials, cash burn

Comparables – competition, relevant exits

Strengths & weaknesses – Don’t hide them

Strategy – how will you build a big, valuable business quickly?

Audience – why are you pitching me?

Needs – how much money till exit?

The Process (cont.)

A sample timeline:

Weeks -4,- 2: Prep your deck, exec summ, pro formas. Assemble your hit list

Week -1: Practice

Week 1: Launch your attack – parallel, not serial. Send out your teaser. Book 1 st meetings.

Week 2, 3: 1 st meetings

Week 4, 5: 2 nd meetings – in person. > 1 partner

Weeks 6 – 8: Early diligence

Week 9: ALL PARTNERS MEETING

Week 10: Term sheet

Weeks 11 – 15: Docs & closing

Week 16: Sleep!

Fundraising tips & truisms

Love at 1 st sight

Go for the “no”

Local first

Be prepared!

Time is not on your side - Create urgency

Time around something that generates momentum / buzz

Get good advisors

You will be rejected – a lot!

6 months – maybe more these days

No agents!

Fundraising in a downturn…

Will take longer

Flat is the new up. Down is the new flat

VC alphabet: B level traction to raise an A round

Smaller amounts

Angels are your friend

Get to revenue faster

Where to spend…

Team! Engineers, Product Management

Product & usability

Good lawyers

Where NOT to spend…

Big management teams

Marketing & advertising

Big outsourcing projects

Bonuses (with some exceptions…)

Travel (again, with some exceptions…)

Outside sales forces

Common spending pitfalls

Hiring too many people

Hiring the wrong people

Doing too many things

Goldplating

Not getting short-term, hard returns

Giving a % of your R & D refund to a consultant

Non-dilutive financing sources

R & D tax credit loans :

See your bank

Investissement Quebec guarantee ***

Not cheap - Private sources may be better

IRAP : http://irap-pari.nrc-cnrc.gc.ca/

Grants for research

Currently out of cash till next year

Investissement Quebec *** or Canada Economic Development:

Commercialization loans

Financial measurement

The basic financial reporting package

Balance Sheet : Assets, liabilities, equity

Operating Statement : Revenues, expenses

Cashflow : Sources and uses of cash

Dashboard : Key financial and non-financial metrics

My tips for good reporting

Summary format : Don’t send your whole GL

Round up : $000s of $

Narrative : Tell your stakeholders what’s going on

Dashboard : Give people a quick pulse of your

Operating metrics

User and revenue trends

Hiring

Cash burn & runway

Don’t spend a lot of time on this early on

Non-Financial measurement

All web businesses should be data-driven!

Know your

Waterfall & conversion rates – visitors to register to active to paid

Sources of best users

Usage patterns

Virality drivers

Customer acquisition cost by source

Churn

Advance screening for low usage users who may churn and high usage folks who might pay

Financial Planning

The Budget or Pro Formas…

Pro Formas

Typical Contents

Assumptions – document ALL key assumptions

Core financials – Balance, Ops, Cashflow

Hiring plan

Department plans

Capex plan

Pro Formas

Bonus Contents

Per user economics + when do they become positive?

Break-even point for your business

Key metrics

Pro Formas

Tips for great budgets

Enable the reader to test different scenarios just by changing assumptions

Include sensitivity on revenue

Involve all key people in the process

Make people accountable

Pro Formas

Getting budgets approved

Don’t surprise investors – give them time to understand

Remember – once they have invested, budget approval is the biggest control your investors have. They will use it

Get 1 on 1 buy-off, then ask for official approval

Final thoughts…

Not a big fan of multiple versions…(1 for VCs, 1 for running the business)

Smart people (oh and me too…)

http://cracking-the-code.blogspot.com/ (SaaS thoughts)

http://onstartups.com/

http://bostonvcblog.typepad.com/vc/ (great VC blog)

http://www.startable.com/ (ditto)

http://startups.alltop.com/

Http://www.startupcfo.ca

Startup Cfo Basics

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