startup cfo basics
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A presentation on CFO basics for tech startupsTRANSCRIPT
Montreal StartupWorkshop DayDec. 6, 2008
Startup CFO Basics
www.startupcfo.ca
AGENDAWho the heck is this guy?The role of finance in a startupRaising moneySpending moneyGetting money without giving up equityMeasuring your business – financial & non-financialFinancial planning – the budgetLinks & resources
Copyright © 2008 - Mark MacLeod
Who the heck is this guy???
Copyright © 2008 - Mark MacLeod
A history (in progress)…1990 – 96: Audit & Corporate finance96 -98: Snowboarding‘99 Startup land: 2002: Downturn 2004: Another startup:2006: Terrascale: A nice exit…2007: Mobivox Today: TUNGLE!
Copyright © 2008 - Mark MacLeod
The role of finance…
Copyright © 2008 - Mark MacLeod
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
Finance – Command & Control
Image courtesy of Valhalla PartnersCopyright © 2008 - Mark MacLeod
The role of a Startup CFO…
THIS… NOT THIS…
Copyright © 2008 - Mark MacLeod
The role of a Startup CFO…Financier: Keep the bank flushTechnician: Controls, reportingCloser: Help bring in the big dealsOperator: Process, metrics, disciplineLawyer: Check everything with words & a
signatureSys Admin: Systems, information, data dudeCheapskate: Say “NO” a lotConsigliere: Any Godfather fans out there
know what I’m talking about…
Copyright © 2008 - Mark MacLeod
When do you need a CFO?Advisor: From day 1 (opportunity
assessment)Part time: Early (help with 1st funding,
etc.)Full time: “B” round
Copyright © 2008 - Mark MacLeod
Raising Money
Copyright © 2008 - Mark MacLeod
The fundraising journey…Friends & Family / Seed: Small & easyA round: Local, relatively easyB round: The hardest..C & up: All about traction…
Image courtesy of Healy Jones @ www.startable.com /www.atlasventures.comCopyright © 2008 - Mark MacLeod
The ProcessKnow your
Business – what makes you unique? Industry – key factors, motivations for
buying your stuffNumbers – metrics, financials, cash burnComparables – competition, relevant exitsStrengths & weaknesses – Don’t hide themStrategy – 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
The Process (cont.)A sample timeline:Weeks -4,- 2: Prep your deck, exec summ, pro
formas. Assemble your hit listWeek -1: PracticeWeek 1: Launch your attack – parallel, not serial.
Send out your teaser. Book 1st meetings.Week 2, 3: 1st meetingsWeek 4, 5: 2nd meetings – in person. > 1 partner Weeks 6 – 8: Early diligenceWeek 9: ALL PARTNERS MEETINGWeek 10: Term sheetWeeks 11 – 15: Docs & closingWeek 16: Sleep!
Copyright © 2008 - Mark MacLeod
Fundraising tips & truismsLove at 1st sightGo for the “no”Local firstBe prepared!Time is not on your side - Create urgencyTime around something that generates
momentum / buzzGet good advisorsYou will be rejected – a lot!6 months – maybe more these daysNo agents!Copyright © 2008 - Mark MacLeod
Fundraising in a downturn…Will take longerFlat is the new up. Down is the new flatVC alphabet: B level traction to raise an A
roundSmaller amountsAngels are your friendGet to revenue faster
Copyright © 2008 - Mark MacLeod
Spending Money…
Copyright © 2008 - Mark MacLeod
Where to spend…Team! Engineers, Product ManagementProduct & usabilityGood lawyers
Copyright © 2008 - Mark MacLeod
Where NOT to spend…Big management teamsMarketing & advertisingBig outsourcing projectsBonuses (with some exceptions…)Travel (again, with some exceptions…)Outside sales forces
Copyright © 2008 - Mark MacLeod
Common spending pitfallsHiring too many peopleHiring the wrong peopleDoing too many thingsGoldplatingNot getting short-term, hard returnsGiving a % of your R & D refund to a
consultant
Copyright © 2008 - Mark MacLeod
Getting money for free (sort of…)
Copyright © 2008 - Mark MacLeod
Non-dilutive financing sources
R & D tax credit loans: See your bankInvestissement Quebec guarantee ***Not cheap - Private sources may be better
IRAP: http://irap-pari.nrc-cnrc.gc.ca/Grants for researchCurrently out of cash till next year
Investissement Quebec *** or Canada Economic Development:Commercialization loans
Note: *** This is for Quebec-based companies onlyCopyright © 2008 - Mark MacLeod
Measuring your business
Copyright © 2008 - Mark MacLeod
Financial measurementThe basic financial reporting packageBalance Sheet: Assets, liabilities, equityOperating Statement: Revenues,
expensesCashflow: Sources and uses of cashDashboard: Key financial and non-
financial metrics
Copyright © 2008 - Mark MacLeod
My tips for good reportingSummary format: Don’t send your whole GLRound up: $000s of $Narrative: Tell your stakeholders what’s
going onDashboard: Give people a quick pulse of your
Operating metricsUser and revenue trendsHiringCash burn & runway
Don’t spend a lot of time on this early on
Copyright © 2008 - Mark MacLeod
Sample Balance Sheet
ASSETS
Current
Cash & equivalents
Accounts receivable
Other receivables
Prepaid expenses
Long-Term
Capital assets, net
Intellectual property
TOTAL ASSETS
LIABILITIES & DEFICIT
Current
Accounts payable & accrued liabilities
Bank loan
Deferred revenue
TOTAL LIABILITIES
SHAREHOLDERS' EQUITY
Common Shares
Preferred 'A' Shares
Preferred 'B' Shares
Accumulated deficit
Share issuance costs
Contributed surplus
ACME STARTUP
BALANCE SHEET
January 31, 2000
(All amounts in 000s CAD$)
Copyright © 2008 - Mark MacLeod
Sample Operating StatementACME STARTUPSTATEMENT OF OPERATIONSFor the year ended Jan. 31, 2009
(All amounts in 000s CAD$)
REVENUES
COST OF DELIVERYHostingCustomer Acquisition (partners)
GROSS MARGIN
OPERATING EXPENSES
Sales & Marketing Personnel Customer Acquisition Marketing programs Travel & other
Research & Development + QA Personnel Equipment, Licensing & Other
Operations Personnel Equipment, Licensing & Other
Corporate Personnel Recruiting Facilities, Insurance & Office Travel & other Communications & IT Professional fees
Total Expenses
EBITDA
AmortizationSRED, GrantsForeign exchangeFinancial
NET LOSS
Copyright © 2008 - Mark MacLeod
Sample Cashflow StatementACME STARTUP
STATEMENT OF CASHFLOW
For the year ended Jan. 31, 2009
(All amounts in $ 000s CAD)
CASHFLOWS FROM OPERATING ACTIVITIES
Income (Loss) for the period
Other non-cash items
Change in non-cash operating working capital items
CASHFLOWS FROM FINANCING ACTIVITIES
Issuance of Shares (net of issuance costs)
Loans
CASHFLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment
Increase in intangible assets
DECREASE IN CASH AND EQUIVALENTS
CASH AND EQUIVALENTS - BEGINNING OF PERIOD
CASH AND EQUIVALENTS - END OF PERIOD
Copyright © 2008 - Mark MacLeod
Sample DashboardWATERFALL
Acquisition
For every 100 visitors (not including usage)
Registration
Activation
Retention
USERS
New
Total
USAGE
Stat 1
Stat 2
Stat 3
EMPLOYEES
Net change
S & M
R & D
Ops
G & A
Budgeted hires
Actual hires
LIQUIDITY
Cash & Equivalents
Working Capital
Number of months' pure burn on hand
Show at least 3 monthsKey metricsUsage trends
Copyright © 2008 - Mark MacLeod
Non-Financial measurementAll web businesses should be data-driven!Know your
Waterfall & conversion rates – visitors to register to active to paid
Sources of best usersUsage patternsVirality driversCustomer acquisition cost by sourceChurnAdvance screening for low usage users who
may churn and high usage folks who might pay
Copyright © 2008 - Mark MacLeod
Financial Planning
The Budget or Pro Formas…
Copyright © 2008 - Mark MacLeod
Pro FormasTypical ContentsAssumptions – document ALL key
assumptionsCore financials – Balance, Ops, CashflowHiring planDepartment plansCapex plan
Copyright © 2008 - Mark MacLeod
Pro FormasBonus ContentsPer user economics + when do they
become positive?Break-even point for your businessKey metrics
Copyright © 2008 - Mark MacLeod
Pro FormasTips for great budgetsEnable the reader to test different
scenarios just by changing assumptionsInclude sensitivity on revenueInvolve all key people in the processMake people accountable
Copyright © 2008 - Mark MacLeod
Pro FormasGetting budgets approvedDon’t surprise investors – give them time to
understandRemember – 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
Links and resources
Copyright © 2008 - Mark MacLeod
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
THANK YOU!
Copyright © 2008 - Mark MacLeod