Startup Cfo Basics
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  • 1. Montreal Startup Workshop Day Dec. 6, 2008 Startup CFO Basics www.startupcfo.ca
  • 2. 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
    Copyright © 2008 - Mark MacLeod
  • 3. Who the heck is this guy??? Copyright © 2008 - Mark MacLeod
  • 4. 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!
    Copyright © 2008 - Mark MacLeod
  • 5. The role of finance… Copyright © 2008 - Mark MacLeod
  • 6. Why do companies fail?
    • MANY reasons, but ultimately…
    • BECAUSE THEY RUN OUT OF CASH!
    My job? Make sure this does not happen! Copyright © 2008 - Mark MacLeod
  • 7. Finance – Command & Control Image courtesy of Valhalla Partners Copyright © 2008 - Mark MacLeod
  • 8. The role of a Startup CFO… THIS… NOT THIS… Copyright © 2008 - Mark MacLeod
  • 9. 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…
    Copyright © 2008 - Mark MacLeod
  • 10. 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
    Copyright © 2008 - Mark MacLeod
  • 11. Raising Money Copyright © 2008 - Mark MacLeod
  • 12. The fundraising journey…
    • Friends & Family / Seed: Small & easy
    • A round: Local, relatively easy
    • B round : The hardest..
    • C & up : All about traction…
    Image courtesy of Healy Jones @ www.startable.com /www.atlasventures.com Copyright © 2008 - Mark MacLeod
  • 13. 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?
    Copyright © 2008 - Mark MacLeod
  • 14. 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!
    Copyright © 2008 - Mark MacLeod
  • 15. 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!
    Copyright © 2008 - Mark MacLeod
  • 16. 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
    Copyright © 2008 - Mark MacLeod
  • 17. Spending Money… Copyright © 2008 - Mark MacLeod
  • 18. Where to spend…
    • Team! Engineers, Product Management
    • Product & usability
    • Good lawyers
    Copyright © 2008 - Mark MacLeod
  • 19. Where NOT to spend…
    • Big management teams
    • Marketing & advertising
    • Big outsourcing projects
    • Bonuses (with some exceptions…)
    • Travel (again, with some exceptions…)
    • Outside sales forces
    Copyright © 2008 - Mark MacLeod
  • 20. 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
    Copyright © 2008 - Mark MacLeod
  • 21. Getting money for free (sort of…) Copyright © 2008 - Mark MacLeod
  • 22. 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
    Note: *** This is for Quebec-based companies only Copyright © 2008 - Mark MacLeod
  • 23. Measuring your business Copyright © 2008 - Mark MacLeod
  • 24. 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
    Copyright © 2008 - Mark MacLeod
  • 25. 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
    Copyright © 2008 - Mark MacLeod
  • 26. Sample Balance Sheet Copyright © 2008 - Mark MacLeod
  • 27. Sample Operating Statement Copyright © 2008 - Mark MacLeod
  • 28. Sample Cashflow Statement Copyright © 2008 - Mark MacLeod
  • 29. Sample Dashboard Show at least 3 months Key metrics Usage trends Copyright © 2008 - Mark MacLeod
  • 30. 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
    Copyright © 2008 - Mark MacLeod
  • 31. Financial Planning
    • The Budget or Pro Formas…
    Copyright © 2008 - Mark MacLeod
  • 32. Pro Formas
    • Typical Contents
    • Assumptions – document ALL key assumptions
    • Core financials – Balance, Ops, Cashflow
    • Hiring plan
    • Department plans
    • Capex plan
    Copyright © 2008 - Mark MacLeod
  • 33. Pro Formas
    • Bonus Contents
    • Per user economics + when do they become positive?
    • Break-even point for your business
    • Key metrics
    Copyright © 2008 - Mark MacLeod
  • 34. 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
    Copyright © 2008 - Mark MacLeod
  • 35. 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)
    Copyright © 2008 - Mark MacLeod
  • 36. Links and resources Copyright © 2008 - Mark MacLeod
  • 37. 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
    Copyright © 2008 - Mark MacLeod
  • 38. THANK YOU! Copyright © 2008 - Mark MacLeod