Even in a down market, 2022 has the potential to be a solid year for fundraising for startups with a sizable market opportunity, proven product-market fit, and solid metrics.
As a fractional CFO firm for startups, Burkland has taken an active role in fundraising for hundreds of early-stage startups. A startup CFO’s role in fundraising begins during the planning and preparation phases and continues throughout the entire process, including after a round is successfully closed.
This article examines the key roles a startup CFO should play in fundraising before, during, and after a round.
1. Before Fundraising
Targeting the Right VCs
Your VCs aren’t just sources of capital; they’re also key strategic partners for your startup. Beyond providing financing, the right VCs can also provide guidance, expand your network, and add credibility to your company. So it’s crucial to target the right VCs for your fundraising round. Different VCs specialize in supporting startups in different stages, sectors, and industries, and culture and values also differ between firms. A big value your startup’s CFO should bring to the table in the early stages of planning a funding round is helping to identify the very best VCs and even the right partner at that firm to target.
A big value your startup’s CFO should bring to the table in the early stages of planning a funding round is helping to identify the very best VCs and even the right partner at that firm to target.
Timing the Round
Timing is critical when raising a round of venture capital. Attempt to raise funds too early, and you won’t have strong enough metrics to fully demonstrate market opportunity, product-market fit, and growth — all of which can impact valuation. You risk increased dilution, or worse yet, burning your credibility and not raising any funds. On the other hand, if you wait too long to raise funds, you’ll start to run out of runway, jeopardizing your startup and reducing your negotiating power. A good CFO can pinpoint the right time to start raising funds based on the strength of your KPIs and the length of your cash runway.
For a related read, see When Should My Startup Raise Series A Funding?
Determining Round Size
Along with helping determine when to raise funds, a startup CFO’s role in fundraising also includes helping determine how much to raise. Our general advice to clients is to raise enough money to cover 18-24 months of runway based on growth plans after the round, while preserving as much equity as possible. A CFO will project your future revenue and expense growth and develop the related financial model, including a 2-3 year financial forecast to zero in on the optimal amount of money to raise. They’ll also help articulate how the new capital will result in faster growth, increased market share, etc.
Another important variable to consider is the impact this and future raises will have on the founder’s equity position. Your startup CFO can do scenario modeling to understand the impact different size raises and valuations will have on your ownership share, as well as model future round impact. They can also model the impact of various future financing terms and scenarios on your CAP table structure.
For a related read, see How Much Money Should My Startup Raise at Series A?
Performing Internal Reviews
Any startup looking to raise venture capital should expect thorough due diligence on the part of the VCs. If you’re asking for millions of dollars to fund your startup’s growth, investors will want to take a long hard look “under the hood”. A good startup CFO knows what investors will look at and what they’ll want to see. They’ll help you prepare for the process with rigorous internal analysis that scrutinizes things like financial processes, records and systems, financial controls, cash flow projections, Total Addressable Market (TAM), cap table, contracts, and more. Working with a Burkland CFO gives our clients the added benefits and peace of mind of involving our tax, accounting, and people operations teams in the internal audit process.
A good startup CFO knows what investors will look at and what they’ll want to see.
Concurrent to the internal reviews, and a byproduct of the work being done to prepare for due diligence is the creation of a data room to organize company records for review by multiple VCs. Your startup CFO should be able to provide a proven data room folder structure that VCs are used to navigating, and oversee the loading of all appropriate documents into the data room. The process of creating and filling the data room will also highlight gaps in your record-keeping and financial processes that need to be addressed.
For related reads, see our due diligence articles.
2. During Fundraising
Supporting the Pitch
From explaining the model to helping to prepare the pitch deck and supporting presentations to VCs, the CFO plays a key role in pitching a startup to potential investors. A winning VC pitch marries rock-solid metrics with powerful storytelling. Working together with the CEO and the rest of the management team, the CFO prepares the numbers that VCs will need to see and helps ensure they’re presented in the context of a meaningful and compelling story.
For a related read, see Pitch Deck Math: Telling Your Startup’s Story with Metrics
Internal Point Person
The CEO is often the external point person during a fundraising round. They’re the main point of contact for potential investors and the person to whom VCs look to understand the company’s story and vision. Meanwhile, the CFO often assumes the role of the internal point person. They’re the point of contact for the CEO and the rest of the management team to collect KPIs, prepare presentations and paperwork, submit financial reports, and other related project management responsibilities. By ensuring things run smoothly internally, the CFO keeps the CEO free to focus on external communications while paving the way for a smooth closing of the round.
By ensuring things run smoothly internally, the CFO keeps the CEO free to focus on external communications while paving the way for a smooth closing of the round.
Selecting the Best Offer
As we saw in the first section of this article, VCs are a key strategic partner for a startup. There’s an immense value in partnering with investors who specialize in your startup’s industry, understand your vision, and share your values. A great CFO knows the different players in the venture capital world and can identify which would be the best fit for your startup. If you’re fortunate enough to end up with competing offers on the table, your CFO should be able to help you choose the best offer based on the terms as well as the firms.
When it comes time to set final deal terms, the CFO is usually a startup’s internal point person, working with outside legal counsel to negotiate with investors. Your CFO and attorneys will negotiate on your company’s behalf to ensure your needs are addressed, your valuation is accurate, and the deal is fair. A good CFO should also be able to anticipate future concerns and help ensure a deal isn’t short-sighted. For example, you don’t agree to something for your Series A round that could come back to bite you when it’s time to raise Series B.
3. After Fundraising
Cash / Runway Management
A startup CFO’s role in fundraising doesn’t end when the round is closed. Far from it, investors will want to know that an experienced finance professional is actively working with the startup to ensure the funds are being effectively managed and deployed. Your CFO will help you track your burn rate and identify when to slow things down and operate more efficiently vs. putting the “pedal to the metal” to accelerate growth. Your CFO should also help you determine when to prepare to raise the next round (usually when 6-12 months of runway remains) to avoid running out of cash between rounds.
For a related read, see My Startup Got Our First Big VC Check. What Should I Do with It?
Your CFO will help you track your burn rate and identify when to slow things down and operate more efficiently vs. putting the “pedal to the metal” to accelerate growth.
With increased investment comes increased scrutiny and demand for investor relations, such as board meetings and financial reporting. After funds have been raised, a startup’s CFO often steps in as a point person with investors. The CFO can take the lead on monitoring the financial dashboards, preparing KPIs, and delivering updates and presentations to the board and to investors. This keeps the CEO and other managers free to focus on developing the best product, providing excellent customer service, growing a winning team, and fostering the ideal company culture and values.
In a down economy, it’s especially important for startups to have professional financial guidance and support throughout the fundraising process. Burkland’s CFOs have helped support hundreds of fundraising rounds from Seed through Series D and cultivated a network of dozens of today’s top venture capital firms. We help our startup clients by making introductions to the right VCs at the right time and supporting them before, during, and after the fundraising process. Contact us to request more information on how we can help your startup.