Startup Cfo Basics

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A presentation on CFO basics for tech startups

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Startup Cfo Basics

  1. Montreal Startup Workshop Day Dec. 6, 2008 Startup CFO Basics www.startupcfo.ca
  2. AGENDA <ul><li>Who the heck is this guy? </li></ul><ul><li>The role of finance in a startup </li></ul><ul><li>Raising money </li></ul><ul><li>Spending money </li></ul><ul><li>Getting money without giving up equity </li></ul><ul><li>Measuring your business – financial & non-financial </li></ul><ul><li>Financial planning – the budget </li></ul><ul><li>Links & resources </li></ul>Copyright © 2008 - Mark MacLeod
  3. Who the heck is this guy??? Copyright © 2008 - Mark MacLeod
  4. A history (in progress)… <ul><li>1990 – 96: Audit & Corporate finance </li></ul><ul><li>96 -98: Snowboarding </li></ul><ul><li>‘ 99 Startup land: </li></ul><ul><li>2002: Downturn </li></ul><ul><li>2004: Another startup: </li></ul><ul><li>2006: Terrascale: A nice exit… </li></ul><ul><li>2007: Mobivox </li></ul><ul><li>Today: TUNGLE! </li></ul>Copyright © 2008 - Mark MacLeod
  5. The role of finance… Copyright © 2008 - Mark MacLeod
  6. Why do companies fail? <ul><li>MANY reasons, but ultimately… </li></ul><ul><li>BECAUSE THEY RUN OUT OF CASH! </li></ul>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… <ul><li>Financier : Keep the bank flush </li></ul><ul><li>Technician : Controls, reporting </li></ul><ul><li>Closer : Help bring in the big deals </li></ul><ul><li>Operator : Process, metrics, discipline </li></ul><ul><li>Lawyer : Check everything with words & a signature </li></ul><ul><li>Sys Admin : Systems, information, data dude </li></ul><ul><li>Cheapskate: Say “NO” a lot </li></ul><ul><li>Consigliere : Any Godfather fans out there know what I’m talking about… </li></ul>Copyright © 2008 - Mark MacLeod
  10. When do you need a CFO? <ul><li>Advisor: From day 1 (opportunity assessment) </li></ul><ul><li>Part time: Early (help with 1 st funding, etc.) </li></ul><ul><li>Full time : “B” round </li></ul>Copyright © 2008 - Mark MacLeod
  11. Raising Money Copyright © 2008 - Mark MacLeod
  12. The fundraising journey… <ul><li>Friends & Family / Seed: Small & easy </li></ul><ul><li>A round: Local, relatively easy </li></ul><ul><li>B round : The hardest.. </li></ul><ul><li>C & up : All about traction… </li></ul>Image courtesy of Healy Jones @ www.startable.com /www.atlasventures.com Copyright © 2008 - Mark MacLeod
  13. The Process <ul><li>Know your </li></ul><ul><ul><li>Business – what makes you unique? </li></ul></ul><ul><ul><li>Industry – key factors, motivations for buying your stuff </li></ul></ul><ul><ul><li>Numbers – metrics, financials, cash burn </li></ul></ul><ul><ul><li>Comparables – competition, relevant exits </li></ul></ul><ul><ul><li>Strengths & weaknesses – Don’t hide them </li></ul></ul><ul><ul><li>Strategy – how will you build a big, valuable business quickly? </li></ul></ul><ul><ul><li>Audience – why are you pitching me? </li></ul></ul><ul><ul><li>Needs – how much money till exit? </li></ul></ul>Copyright © 2008 - Mark MacLeod
  14. The Process (cont.) <ul><li>A sample timeline: </li></ul><ul><li>Weeks -4,- 2: Prep your deck, exec summ, pro formas. Assemble your hit list </li></ul><ul><li>Week -1: Practice </li></ul><ul><li>Week 1: Launch your attack – parallel, not serial. Send out your teaser. Book 1 st meetings. </li></ul><ul><li>Week 2, 3: 1 st meetings </li></ul><ul><li>Week 4, 5: 2 nd meetings – in person. > 1 partner </li></ul><ul><li>Weeks 6 – 8: Early diligence </li></ul><ul><li>Week 9: ALL PARTNERS MEETING </li></ul><ul><li>Week 10: Term sheet </li></ul><ul><li>Weeks 11 – 15: Docs & closing </li></ul><ul><li>Week 16: Sleep! </li></ul>Copyright © 2008 - Mark MacLeod
  15. Fundraising tips & truisms <ul><li>Love at 1 st sight </li></ul><ul><li>Go for the “no” </li></ul><ul><li>Local first </li></ul><ul><li>Be prepared! </li></ul><ul><li>Time is not on your side - Create urgency </li></ul><ul><li>Time around something that generates momentum / buzz </li></ul><ul><li>Get good advisors </li></ul><ul><li>You will be rejected – a lot! </li></ul><ul><li>6 months – maybe more these days </li></ul><ul><li>No agents! </li></ul>Copyright © 2008 - Mark MacLeod
  16. Fundraising in a downturn… <ul><li>Will take longer </li></ul><ul><li>Flat is the new up. Down is the new flat </li></ul><ul><li>VC alphabet: B level traction to raise an A round </li></ul><ul><li>Smaller amounts </li></ul><ul><li>Angels are your friend </li></ul><ul><li>Get to revenue faster </li></ul>Copyright © 2008 - Mark MacLeod
  17. Spending Money… Copyright © 2008 - Mark MacLeod
  18. Where to spend… <ul><li>Team! Engineers, Product Management </li></ul><ul><li>Product & usability </li></ul><ul><li>Good lawyers </li></ul>Copyright © 2008 - Mark MacLeod
  19. Where NOT to spend… <ul><li>Big management teams </li></ul><ul><li>Marketing & advertising </li></ul><ul><li>Big outsourcing projects </li></ul><ul><li>Bonuses (with some exceptions…) </li></ul><ul><li>Travel (again, with some exceptions…) </li></ul><ul><li>Outside sales forces </li></ul>Copyright © 2008 - Mark MacLeod
  20. Common spending pitfalls <ul><li>Hiring too many people </li></ul><ul><li>Hiring the wrong people </li></ul><ul><li>Doing too many things </li></ul><ul><li>Goldplating </li></ul><ul><li>Not getting short-term, hard returns </li></ul><ul><li>Giving a % of your R & D refund to a consultant </li></ul>Copyright © 2008 - Mark MacLeod
  21. Getting money for free (sort of…) Copyright © 2008 - Mark MacLeod
  22. Non-dilutive financing sources <ul><li>R & D tax credit loans : </li></ul><ul><ul><li>See your bank </li></ul></ul><ul><ul><li>Investissement Quebec guarantee *** </li></ul></ul><ul><ul><li>Not cheap - Private sources may be better </li></ul></ul><ul><li>IRAP : http://irap-pari.nrc-cnrc.gc.ca/ </li></ul><ul><ul><li>Grants for research </li></ul></ul><ul><ul><li>Currently out of cash till next year </li></ul></ul><ul><li>Investissement Quebec *** or Canada Economic Development: </li></ul><ul><ul><li>Commercialization loans </li></ul></ul>Note: *** This is for Quebec-based companies only Copyright © 2008 - Mark MacLeod
  23. Measuring your business Copyright © 2008 - Mark MacLeod
  24. Financial measurement <ul><li>The basic financial reporting package </li></ul><ul><li>Balance Sheet : Assets, liabilities, equity </li></ul><ul><li>Operating Statement : Revenues, expenses </li></ul><ul><li>Cashflow : Sources and uses of cash </li></ul><ul><li>Dashboard : Key financial and non-financial metrics </li></ul>Copyright © 2008 - Mark MacLeod
  25. My tips for good reporting <ul><li>Summary format : Don’t send your whole GL </li></ul><ul><li>Round up : $000s of $ </li></ul><ul><li>Narrative : Tell your stakeholders what’s going on </li></ul><ul><li>Dashboard : Give people a quick pulse of your </li></ul><ul><ul><li>Operating metrics </li></ul></ul><ul><ul><li>User and revenue trends </li></ul></ul><ul><ul><li>Hiring </li></ul></ul><ul><ul><li>Cash burn & runway </li></ul></ul><ul><li>Don’t spend a lot of time on this early on </li></ul>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 <ul><li>All web businesses should be data-driven! </li></ul><ul><li>Know your </li></ul><ul><ul><li>Waterfall & conversion rates – visitors to register to active to paid </li></ul></ul><ul><ul><li>Sources of best users </li></ul></ul><ul><ul><li>Usage patterns </li></ul></ul><ul><ul><li>Virality drivers </li></ul></ul><ul><ul><li>Customer acquisition cost by source </li></ul></ul><ul><ul><li>Churn </li></ul></ul><ul><ul><li>Advance screening for low usage users who may churn and high usage folks who might pay </li></ul></ul>Copyright © 2008 - Mark MacLeod
  31. Financial Planning <ul><li>The Budget or Pro Formas… </li></ul>Copyright © 2008 - Mark MacLeod
  32. Pro Formas <ul><li>Typical Contents </li></ul><ul><li>Assumptions – document ALL key assumptions </li></ul><ul><li>Core financials – Balance, Ops, Cashflow </li></ul><ul><li>Hiring plan </li></ul><ul><li>Department plans </li></ul><ul><li>Capex plan </li></ul>Copyright © 2008 - Mark MacLeod
  33. Pro Formas <ul><li>Bonus Contents </li></ul><ul><li>Per user economics + when do they become positive? </li></ul><ul><li>Break-even point for your business </li></ul><ul><li>Key metrics </li></ul>Copyright © 2008 - Mark MacLeod
  34. Pro Formas <ul><li>Tips for great budgets </li></ul><ul><li>Enable the reader to test different scenarios just by changing assumptions </li></ul><ul><li>Include sensitivity on revenue </li></ul><ul><li>Involve all key people in the process </li></ul><ul><li>Make people accountable </li></ul>Copyright © 2008 - Mark MacLeod
  35. Pro Formas <ul><li>Getting budgets approved </li></ul><ul><li>Don’t surprise investors – give them time to understand </li></ul><ul><li>Remember – once they have invested, budget approval is the biggest control your investors have. They will use it </li></ul><ul><li>Get 1 on 1 buy-off, then ask for official approval </li></ul><ul><li>Final thoughts… </li></ul><ul><li>Not a big fan of multiple versions…(1 for VCs, 1 for running the business) </li></ul>Copyright © 2008 - Mark MacLeod
  36. Links and resources Copyright © 2008 - Mark MacLeod
  37. Smart people (oh and me too…) <ul><li>http://cracking-the-code.blogspot.com/ (SaaS thoughts) </li></ul><ul><li>http://onstartups.com/ </li></ul><ul><li>http://bostonvcblog.typepad.com/vc/ (great VC blog) </li></ul><ul><li>http://www.startable.com/ (ditto) </li></ul><ul><li>http://startups.alltop.com/ </li></ul><ul><li>Http://www.startupcfo.ca </li></ul>Copyright © 2008 - Mark MacLeod
  38. THANK YOU! Copyright © 2008 - Mark MacLeod

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