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The Modern CFO
The Modern CFO episodes
- Modernizing The Capital Raising Process With DealMaker’s Mat Goldstein
Raising capital can be a tedious process, even after investors have agreed to commit capital.
This realization was the catalyst for experienced Bay Street lawyers Mat Goldstein and Rebecca Kacaba launching DealMaker—a digital transaction management platform that provides a seamless, headache-free investor experience. Since the platform’s inception in 2018, companies of all sizes have used DealMaker to launch and market their offerings to investors across the globe.
In this episode of The Modern CFO, Mat talks with host Andrew Seski about the future of digital capital formation and what sets DealMaker apart from other cloud-based platforms offering capital raising solutions.
Show Links
- Check out DealMaker
- Connect with Mat Goldstein on LinkedIn
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
Transcript
Please note that the transcript is AI-generated and may contain errors. The content in the podcast is not intended as investment advice, and is meant for informational and entertainment purposes only.
[00:00:00] Andrew Seski: Hello everyone and welcome back to The Modern CFO Podcast. As always, I'm your host, Andrew Seski. Today, we're joined by Mat Goldstein, co-founder of DealMaker. Mat, thanks so much for being here.
[00:00:20] Mat Goldstein: I'm delighted to be here. Thanks, Andrew.
[00:00:22] Andrew Seski: So before we kick off, let's talk about DealMaker and what it is. What does it mean to turn a simple capital raise into e-commerce?
[00:00:30] Mat Goldstein: Yeah. DealMaker, first and foremost, is a technology company. Our platform is used by issuers. You know, think, when I say "issuers," think "founders." You know, companies who are raising capital, who are looking to solve an age problem of how to engage with prospective investors and turn them into a source of capital. Using our software, an entrepreneur can start an online store and run a full e-commerce campaign, identify leads, create a relationship with a community, engage with that community to turn it into a source of capital, and rely on the analytics, payment processing, and full set of functionalities you'd expect in a Shopify store. You can leverage that for a capital raise campaign. So that's what we mean by turning raising capital into e-commerce. It means using the internet as your medium of sale and using the tools of e-commerce to identify an audience, engage with it, and turn that into a source of capital.
[00:01:38] Andrew Seski: So let's talk about how you identified the need for DealMaker and what actually catalyzed the entrepreneurial spirit in yourself to go start something new. You were a lawyer in your previous life. So now, are there no efficiencies when it comes to the legal frameworks of startups? Because I'm sure between all of the different types of offerings, whether you're doing Reg CF, Reg A, Reg A+, and having all of these actually change a bit probably over the last 10 to 20 years between the US and Canada, did you notice any major inefficiencies that catalyzed your, you know, desire to go try to solve some with technology?
[00:02:16] Mat Goldstein: Well, Andrew, that's what we lawyers would call a leading question. You're right. So look, you know, Rebecca and I started this company back in, you know, back when we were still practicing law early kind of 2017. We did our beta in 2017. We started planning the company earlier in 2016. We were both partners at an international law firm. And in our daily practice, we dealt with technology companies and we came to understand that kind of lean startup mentality of how to solve a problem using technology by build-measure-learn. And we, you know, one day, we sat down with a whiteboard and we mapped out what the steps were in a capital markets transaction.
[00:02:58] And when I say "capital markets transaction," I really just mean a company selling shares, right? And it's crazy. I mean, you have to identify, there are eligibility requirements when you're selling chairs in the exempt markets. I can get into all that. It's like, you know, you've got public companies who are listed on stock exchanges. They have a whole infrastructure to raise capital, and it's automated, and it's built on, you know, brokerage houses where you go into your Robinhood account and you press "buy" or "sell." And, you know, technology takes over. The private markets have nothing like that. Just nothing. If you and your co-founders were raising capital, which, you know, you've done so you can talk about, then you're in the exempt markets. You're not a public company. You don't have access to that infrastructure. So you need a lawyer to draft a subscription agreement. The investors have to be eligible to buy exempt market securities, which means they need to be accredited in some way or the offering needs to be qualified in a different way. They'll need to fill in the certificate, they'll need to send in the money, the money they send in has to match the order on the form. And there's a whole nine depth, you know, kabuki dance to get to a closing, which just costs everybody time, money, and headaches.
[00:04:15] And so, we looked at that and said, "Well, isn't raising capital really just sales?" Right? And that's something you and I have chatted about before. Isn't it just sales? How is it different? You're identifying somebody who, you know, likes what you have. You've got an ideal profile in mind and you wanna eliminate any friction in between them liking what you have and, you know, you making the transaction. And so, there's a playbook for this. It's called the internet. And if you think back to the early days of e-commerce, you had shoe stores who would go to like Accenture and custom-build a website to sell shoes online. And along came Shopify and said, "You don't have to do that anymore. We built a platform. You can license an online store and it has everything you need to run a campaign on the internet and you have to find the buyers." That's the Shopify model. And that's our model as well.
[00:05:20] And at the end of the day, there's just some stuff you can't outsource or automate. If you are a founder, it's you that people are investing in. You have to be front and center of your store. But we built a technology platform that puts the issuer front and center, puts the founder front and center, and going out to raise capital then becomes an exercise in, you know, e-commerce, right? Identifying the prospects, engaging with them in a way that, you know, speaks with them, that they connect with, using analytics to see who's likely to close, right? All of the tools of the modern kind of sales funnel management — the CRM, the prospecting, the elimination of friction in getting an order form signed, elimination of friction in taking payments online using credit card — we built all of that.
[00:06:10] And over time, it became, you know, something that, I think it's true whenever you introduce innovation into a market, there's a dynamic, right? The market response, the innovation, and it unlocked people's minds. So in the very early days, right, there were, you know, people who were raising capital from friends and family and from kind of pre-IPO rounds and following the same steps that traditional capital raising would follow. But over time, as people came to really und...
40 min - The Product Manager CFO with Marcum LLP’s Jack Boyles
Financial management can make or break a business. Any business undertaking attempted without taking cost drivers, growth prospects, and value realization goals, among other critical factors, into account is leaving a big, wide door open to problems.
Jack Boyles, Managing Director at Marcum LLP, understands this perfectly well. With his extensive experience in financial planning and modeling, valuations, and funding strategies, Jack keeps a trained eye on both the micro and macro factors that influence today’s rapidly evolving financial services sector.
In this episode of The Modern CFO, Jack talks with host Andrew Seski about critical factors to consider for growing companies, how he deals with the unexpected, and the valuable lessons he learned over his 25-year-long career as founder, investor, and CFO of several companies.
Show Links
- Check out Marcum LLP
- Connect with Jack Boyles on LinkedIn or via email
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
Transcript
Please note that the transcript is AI-generated and may contain errors. The content in the podcast is not intended as investment advice, and is meant for informational and entertainment purposes only.
[00:00:00] Andrew Seski: Hello everyone and welcome back to The Modern CFO podcast. As always, I'm your host, Andrew Seski. Today, we're joined by Jack Boyles. Jack, thank you so much for being here.
[00:00:19] Jack Boyles: Thank you. I'm looking forward to our conversation. I reviewed a number of your other podcasts. They're all great and I learned something in each one.
[00:00:25] Andrew Seski: So today, Jack serves as CFO at Marcum. Jack's based in Boston and has been a CFO across a number of industries and is insatiable when it comes to learning new things, trying new industries.
[00:00:38] But one of the things that we've been talking about, maybe ad nauseam, but between us is the idea that maybe there is a certain time and place where CFOs can have their biggest impact at, you know, either a type of financing, an industry, and maybe CFOs shouldn't necessarily grow across all stages and all different types of industries. Maybe they should be specialized and maybe there is a time and place for that CFO who can drive the most value.
[00:01:05] So this is a topic I really want to dive into and really dig our teeth into because Jack has such a unique vantage point, serving his entire career really honing in on this idea. So Jack, I got to turn it over to you to tease out some of the value and insights here on sort of that topic and whatever else we can foray into across all of the experiences you had as a CFO.
[00:01:26] Jack Boyles: Thanks for the great introduction. Yeah, I'm not CFO of Marcum — number one. Marcum has a group of consulting CFOs and so I now work with roughly a half-dozen small and medium-sized companies as a fractional CFO. Prior to that, I've been CFO of a number of companies in which I was founder, investor, angel, and always had a CFO title in a wide variety of verticals — distribution and logistics, software manufacturing, IT services, natural resources.
[00:01:57] And right now my portfolio includes a SaaS company — a company working on carbon credits with blockchain — and another marketplace for health services. So, you know, it's a pretty broad spectrum and I've enjoyed it because there has been a number of learning opportunities.
[00:02:14] But returning to your theme, I found I'm really good at the five million to 50 million-dollar service orientation companies. And I've realized that that's where I can add the most value. I'm not somebody who can take a company public, although I've sold a number of companies to Fortune 500 companies. But it's really recognizing there are different skill sets for those by both vertical and by size of company, if you will, the capital intensity and sort of the economic structure underlying the business.
[00:02:45] So I can break down those and, you know, they're all interesting problems, but it's really a different skill set for each one of them. And you need to manage differently as that, you know, financially-oriented team member.
[00:02:58] Andrew Seski: In terms of where some of this interest comes from from my end is the fundraising environment over the last few years dramatically changing in the last few months. So what may have been, you know, a company doing five to 10 million then that could have been valued, and maybe in the software land, maybe even at a hundred X multiples at one point, just an absolute crazy valuation and fundraising environment to, you know, a very, very immediate, almost shift in going from, you know, pure growth orientation to conservative cost cutting, you know, headcount reduction. And I think the question there stems not only just from where the CFO can be the most valuable in their niche and their competency, but also how to weather the volatility of different market cycles.
[00:03:42] And there are a lot of variables to play with here so I really like your answer that the CFO can be really valuable by identifying their impact in a niche due to all of the other market environments and volatility in the markets that could, you know, shift strategy and financial strategies that a company may pursue.
[00:03:58] Jack Boyles: Well, you're shining a spotlight on, you know, certainly what is the most critical thing for growing companies, which is, do they have access to capital? And is it the right capital on the right terms and in the right timing? You know, obviously, you progress from family and friends to seed rounds, to Series A and up.
[00:04:17] But it's really more important, or the starting point for that analysis is really, what's driving the need for cash? Is it building your organization? Is it financing working capital? Is it plant and equipment expansion? Is it building relationships that you need to invest in? So really understanding from a, what I would call a fairly granular level, what are the cost and capital drivers in your business and really internalizing that, that economic, that, you know, the calculus of the business, because that's gonna tell you what kind of capital you need and where to go knocking on the door. It's seldom the case that you're gonna be the first guy knocking on that door, but making sure that they understand your economic model is critical.
[00:04:59] And so to narrow your field down on who you're focusing on and what you're offering and making sure, I mean, whether you look at PitchBook or anything else, it's fairly easy to qualify those people and what their investment criteria are. Most firms are very upfront about what they invest in and there's nothing wrong with reaching. But there's also economy and wisdom and finding people who've done your deal before with like competitors because they understand it. They get it. Whether you consider that investor a bank or a venture capital or a family office, find people who have done it before. They're gonna bring more knowledge to the deal — in the one they do because they are always seeking to be better. Their due diligence will be a lot more efficient and helpful...
37 min - Centralizing Software Solutions for CFOs with Sudozi's Rose Punkunus
Finance and accounting processes are vital elements of any business. In many cases, business leaders expect the finance and accounting department to run as smoothly as possible to ensure that payments are processed swiftly and reports are made on time to gather insights and inform decision-making.
But what if there was a way to improve the efficiency of these vital business processes? That’s exactly what Rose Punkunus set out to do with her seed stage startup, Sudozi — a software platform designed to help finance and accounting teams automate workflows, keep track of vendors and budgets, and improve financial decisions.
In this episode of The Modern CFO, Sudozi Founder, CEO, and CFO Rose Punkunus talks with host Andrew Seski about her experience starting her own firm—a software platform designed to help finance and accounting teams automate workflows, keep track of vendors and budgets, and improve financial decisions.
Show Links
- Check out Sudozi
- Connect with Rose Punkunus on LinkedIn
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
40 min - The Business of Sports with Rachel Pearcy of the WNBA Dallas Wings
There’s more to your average sports game than meets the eye. It takes a dedicated team working off the court to prepare for each game and ensure fans show up and players are paid their due.
These and more are matters in which Rachel Pearcy, Senior Vice President and Chief Financial Officer of the WNBA's Dallas Wings, is an expert. Drawing from her college athletics experience and history working in the power sports industry, Rachel works tirelessly behind the scenes to ensure strategic growth for Dallas Wings season after season.
In this episode of The Modern CFO, Rachel talks with host Andrew Seski about what it’s really like managing a professional sports team as well as how she keeps herself and the organization grounded in pursuit of success.
Show Links
- Check out Dallas Wings
- Connect with Rachel Pearcy on LinkedIn
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
30 min - Evolving Against Sea Change with CFO Lee Westerfield
The challenge of a CFO’s role is more than just being the pillar of confidence and stability in any organization: their hands are on the financial tiller. They must be the cornerstone that a CEO can draw confidence.
Whether navigating downturn conditions, balancing your company’s runway with its growth, or keeping your team strong despite the competitive hurdles, they must always be on deck.
These and more are matters in which Lee Westerfield - Chief Financial Officer, strategic financial advisor, and Columbia alumnus - is intimately experienced. With his depth of insight and his passion for knowledge, he keeps both eyes on the ever-shifting horizon of success in today’s economy.
In this episode of The Modern CFO, Lee talks with Andrew about how things never really change, and why staying committed has kept him both competitive and successful.
Show Links
- Connect with Lee Westerfield on LinkedIn or via email
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
37 min - The Dynamics of Scaling with David Magerman
In this special episode of The Modern CFO, Andrew Seski sits down with David Magerman, renowned computer scientist, investor, and current co-founder of Differential Ventures.
During the mid-90s, David was at the precipice of quantitative investing—parlaying his revolutionary research at IBM into joining mathematician Jim Simons at Renaissance Technologies.
David’s story is fascinating. For this episode, you can watch the full conversation on Vimeo and YouTube, or listen to the audio version as usual.Enjoy!
45 min - Revenue Leadership Strategy in a Digital World with P. Cory Hogan of Lob
Navigating today’s digital world is daunting, especially for businesses. There’s no shortage of tactics to leverage–emails, blogs, videos, webinars, podcasts, ads–and a seemingly endless supply of apps and platforms to execute those initiatives. So, how do you break through the noise and get your company noticed?
For Cory Hogan, CRO of Lob, the key is revenue leadership. Whether you’re helping build a community for your employees or offering potential customers a personalized ad experience, your job as a leader is to meet people where they are. And taking a unique approach might just help push your brand over the top.
In this episode of The Modern CFO, Cory explains how Lob is connecting the digital world with the physical one, what it takes to provide the right environment for hybrid employees, and the strategy of today’s CROs.
Show Links
- Check out Lob
- Connect with P. Cory Hogan on LinkedIn
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
Key Takeaways
7:15 – Cultivating an entrepreneurial, organizational spirit
“I can't take too much credit again for any of that success. Right place, right time is definitely a theme in my career. I think there's a lot of people who are both harder working and smarter than I am and have, or have not, had those types of events and exits in their own past. I am, to your point though, risk-loving. For better or for worse, I think that appetite and even that desire to go and find increasingly risky but exciting opportunities has just always driven me. Whether that was like, ‘Hey, I'm going to start this little company. I don't know the first thing about what I'm doing here, but this sounds like a really exciting opportunity.’ The ambition that comes with it; the motivation has always just been part of my DNA. I can tell you childhood stories of going around town and picking up rocks, throwing them in my wagon, and selling them door to door believing that somebody would buy them. That level of entrepreneurship and ownership and accountability that comes with the risk side has just always been part of who I am.”
The ambition and motivation that comes with being an entrepreneur have been a part of Cory’s DNA since childhood.
“Our mission, at the highest level, is to connect the world one mailbox at a time. The premise is in the digital world the most powerful connections can be found human to human or on the physical side, even within the mailbox. Both modern marketers and their audiences, are getting saturated with the ubiquitous, expensive digital ads that are out there. Our phones, our searches, our inboxes, they're all full of ads to which most of us are increasingly numb and oblivious in spite of some really serious and significant investments behind them. I think all of these modern marketing methods will continue to evolve, but Lob is finding surprising success as we bring in this tech-first, digital approach to the direct mail category, which is a $75 billion [industry] that is not going to go away anytime soon, in spite of what might happen in the macro-environment. Effectively, we're replacing what we call junk mail with intelligent mail. Think of highly-personalized content arriving at your home at the perfect moment. You have no choice but to actually open the mailbox, whether you want to or not, and look at all of those pieces and give them at least a couple seconds of thought, which is more than a lot of the messages that come in our inbox.”
9:17 – Making the most of your ad spend
At Lob, the goal is to connect the digital world with the physical one through a tech-first approach to marketing.10:45 – Personalize your marketing
“We work with a large, leading retailer on what we would consider an ‘abandoned cart’ campaign, similar to what you might see, or not see, in your inbox–Leave an item unpurchased in your e-commerce shopping cart, then tomorrow, here's this beautiful, personalized piece [of mail] in your mailbox. ‘Hey Andrew, we see you were interested in this particular patio set yesterday. There are three others just like it.’ You scan this QR code, go hit a personalized landing page with the discount and some other options available we've curated just for you. And that level of a personalized, timely, extremely relevant message, it really gets attention. It gets results. And without technology and the Lob approach, it would have been aspirational but extremely difficult to pull off when you think about all of the content and the fulfillment that's required for that type of a use case, but it works. So customers are seeing on average 19x better returns than some of these other digital-only marketing methods. And today, Lob reaches one in two households.”
Personalized, timely, and physical marketing tools get your customers’ attention, and Lob’s clients have seen on average 19-times better returns than some other digital-only marketing methods.13:18 – The strategy of a modern CRO
“The modern CRO, to your point, is more than just a glorified VP of Sales. The modern revenue team includes all of those customer-facing motions, both sales, service, marketing–the entirety of the customer experience. That's where a lot of my background has been in that customer experience space. So, it's really about revenue leadership. That includes things like customer segmentation, the value proposition, engagement motions, channels coverage, direct versus indirect, organizational and job designs, sizing, deployment, talent and enablement, something we're talking a lot about here recently, metrics, quota, performance rewards like revenue operations, all of that. So I think today the modern CRO needs to master both the art and the science of a revenue system. Strategically and tactically, you have to develop that three-plus-year go-to-market vision and strategy. And then simultaneously jump in the trenches, send that email to close the deal this month or this quarter.”
The modern CRO must learn how to master both the art and the science of a revenue system in order to get the best results.
“When we talk about the cultural aspect of that, particularly the modern remote/hybrid environment or whatever this is we're all going through right now. I think one theme I'm seeing consistently is that the boundaries–really between professional and personal or work and home–have forever been softened, if not entirely eliminated, destroyed, obliterated, for better or for worse. And I think as leaders, our responsibility is obviously to provide a safe environment, but also one that is collaborative and creative, and of course one that promotes productive work. Zoom has its limits. We've all experienced that just as the office does, too. So I don't think it's one or the other, and the future might even be the metaverse, but I don't think that’s today. I think for the next few years, a lot of our success will be found around the edges, like in the hotel lobbies and the coffee shops and the basement offices, occasionally in the corporate office, sometimes on the balcony or the back deck–not to mention the co-working spaces and the conference rooms. I think it's a very shared and flexible and distributed model ve...
14:30 – Provide the right environment
The remote/hybrid work model of today makes it difficult to create a cohesive workplace. Leaders must work extra hard to create a safe, creative, and productive environment.39 min - Web3: Exploring the Blockchain-Backed Frontier with Alchemy’s Head of Finance, Gabe Avins
Built on the back of blockchain technology, token-based economics is creating a new kind of environment. This internet evolution–Web3–is being spearheaded by new technologies, NFTs and cryptocurrencies for example, and the people that design these new applications.
Gabe Avins, Head of Finance at Alchemy, is helping to enable this shift by empowering developers to build power blockchain applications. In this episode of The Modern CFO, Gabe dives into the future of blockchain development, how startup CFOs can thrive, and how to build a winning team.
Show Links- Check out Alchemy
- Connect with Gabe Avins on LinkedIn or Twitter
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
Key Takeaways
2:56 – Determine long-term value
Understanding risk and reward is an intangible skill. You have to be able to make decisions based on what provides long-term value to the company.
“Coming out of undergrad, Bain was a great place to develop some of the most core, underlying business frameworks and ways to think about business growth. I went from there to a private equity fund called TSG Consumer Partners, [which was a] really valuable learning experience where I think one of the skills that I picked up there was the ability to understand value. What drives value for companies, why companies are valued the way they are. That lens is how I approach many decisions on a to-the-minute and daily basis where I'm always trying to think big picture. Is what I'm doing today impactful to the business’s long-term value? And if it's not, and that’s somewhere where I find that I'm spending a lot of time working on something, it’s probably a good candidate to be on the chopping block and to spend less time there.”6:18 –The best teams are flexible
You have to be flexible when you’re working in a small team because there are a lot of gaps. Everyone has to be willing to roll up their sleeves to get the job done.
“As I was interviewing with Alchemy, it was kind of funny, reflecting on it recently that I would show up to an interview and someone would say, ‘Hey, what we really need help with is X.’ And I'd show up to the next interview and someone would say, ‘Oh, what we really need help with is Y.’ And then Z, and then A and B and C. Startup life, when you're that few people, it really requires a mindset of, ‘I'm going to roll up my sleeves and do whatever I can to help the team.’ Because teams that are that small can be fragile. If there's infighting, if not everyone's carrying their weight, that can slow the team down a lot. Two people not being on the same page, when that's almost 10 percent of the company not being on the same page, that has some real efficiency loss there.”7:07 – Learn to work collaboratively
As a finance leader, you have to learn how to appreciate different job functions in order to help people do their jobs better.
“When I was at Homebound, I spent my second year as general manager of a new line of business that we were launching. I think that mindset of building something from scratch, or at least getting something off the ground and having to work collaboratively with pretty much every other function within the company, is really instrumental. To me, seeing from the financial operator's seat how decisions and policies can be set can really enhance or take away from others’ abilities to do their job. And so I think that appreciation of what lots of different job functions look like has been really helpful to me as I've tried to help folks at Alchemy use their time best and move as fast as possible.”
10:03 – Making Alchemy the best place in the world to workWhen companies have different departments, that doesn’t mean they are siloed. The strongest leaders bridge the gap and have them working in unison.
“I think for a lot of companies, there are teams that are creating products to solve timely issues–that's largely going to be your engineers and your product managers. There are teams that are selling the product and educating the world on the product–sales, marketing, customer success, customer support...And then there are teams that are supporting those functions, allowing the company to maximize its potential.That's where I view my role: How do we make Alchemy the best place in the world to work overall? And, how do we set up all functions–whether you're making the product, selling the product, or supporting those who are–as successful as possible?"
11:01 – Startup CFOs wear multiple hatsIf you’re part of a growing organization, you have to don the hat of a recruiter and always look for talent you can add to your team.
“With any growing organization, basically in any function, you've got to be a recruiter. You’ve got to be hiring. If you're not able to build your team, then as the company scales it's going to become unwieldy and then impossible, in many ways, to support them as effectively as possible.”11:47 – Resource allocation as a startup means constantly reprioritizing
A CFO needs to be able to support different departments by helping them budget appropriately.
“I think through a scaling organization, one of the most critical things for a CFO to do, besides the very basics of making sure that an operating model exists, is that the company can budget appropriately. The challenge we're having at Alchemy right now, more so than, ‘how do we rein in spending’ is ‘how do we pour gas…pour fuel on the fire?’ We have some functions who don't know exactly how much they should be spending. And when we as a finance team could give guidance that, ‘Hey, these activities are being really successful for us; really high ROI. We should be investing deeper here.’ That both gives them some positivity and inspiration to go build and also greater clarity that what they're doing is valuable and that they're really doing a good job in doing their part to help us succeed.”
“I get a lot of inbound from folks saying, ‘Hey, I want to move into the Web3 space. How do I do that?’ One thing that we look for often is we really like people who are deep in the Web3 space, who know the recent developments that have happened, and know who the major players are. Anyone can get deep in the Web3 space pretty quickly because of how fast it changes. If you took a month-long nap and woke up, you'd be surprised by what the Web3 space looks like when you wake up. And so for those who are interested in making a move into this space, get on crypto Twitter, listen to the podcasts, the YouTube tutorials, etc.--you can get up to speed pretty quickly.”
15:57 – Get up to speed on Web3 development vs. Web3 investments
The Web3 space is constantly changing. If you want to stay abreast of what’s going on, you have to be actively engaged in the Web3 community.17:05 – The future of Web3 development
Fueled by the increase in the number of developers moving to Web3, the future of the Web3 environment looks promising.
“One of our North Star metrics here is the number of developers that are developing on Alc...26 min - Venture Debt: The Alternative to Equity with James Turner of 5th Line Capital
Many early-stage companies leverage equity when fundraising after considering certain risk profiles and limited liability to the founders. Though, in unique and more regularly-occurring situations, there are other options to consider. If you’re looking for capital but don’t want to raise equity, James Turner of 5th Line Capital recommends looking to venture debt instead.
Venture debt is a type of debt financing for venture-backed companies that helps them fund their businesses without diluting capital through an equity raise. While some venture debt has a higher interest rate than a bank like SVB, it likely won't be as expensive as the equity. In this episode of The Modern CFO, James explains the mechanics of venture debt, when to use it, and how to be more strategic overall with your capital.
Show Links
- Check out 5th Line Capital
- Connect with James Turner on LinkedIn
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
Key Takeaways
5:54 – The best time to raise venture debt
“If you're a CFO and you're not one hundred percent well versed in a venture debt market, or this isn't something that you've done very recently, that can mean 30-40 names you have to shoot a ton of emails to. You have to disclose all your documentation, [and] make a bunch of phone calls to handle preliminary diligence processes. A good chance for them all to come back and say, “No.” So, I'd say the opportunity that we've identified as a result is that we know who fits where. It used to be, if you were a SaaS company, and you raised money from a big name VC or any VC really, you knew who your options were. But that was the only time you could really go raise venture debt. So where we actually see the greatest opportunity in the clients we work with is they’re most of the time in between major equity events.”
Knowing when to raise venture debt can be a challenge. The best opportunity for companies is when they’re in between major equity events.
“If you're a traditional business-to-business SaaS company–you've hit all the metrics, and have a decent retention margin. You can still be cash burning, but annual contracts, things like that, the bread and butter stats–At the earliest stages, at maybe $500,000 a year or so, if you don't have a robust capital need, there are early-stage SaaS financing options that have popped up. A lot of them are platform-based like a Pipe or Capchase. (consider linking) But once you hit around the $2 million ARR mark, that's when true venture debt options start opening up to you. You can look at taking on maybe a million-dollar term loan or a lot of credit at that point, and that can continue scaling with you as you grow.”
9:40 – When to use venture debt
As your company grows, venture debt will be more available. Once you hit the $2 million ARR threshold, more venture debt opportunities open up.
“Most of the time, what we're doing on educating our clients is they'll tell us, ‘Hey, we're doing $10 million a year. We need $12 million or this won't be a fit.’ Okay, do you need $12 million now? Or do you need $12 million over the next two years? Because that's how they've always thought about equity. They're like, ‘Oh, well we actually need $12 million over the next two to two and a half years.’ We run through their plan with them, say, ‘Okay, let's model this out. Well, let's start with five to seven now. And that scales with you over time.’ And we've had a lot of clients come around to the idea as a result. A lot of entrepreneurs, especially, hear the word debt and they’re like, ‘No, we're not sure. How do we repay it? We're burning cash.’ Venture debt providers look at companies in a very similar way that the equity investors do in my personal experience, with the caveat that obviously as we don't need a 10x return on this, and we also need to be paid every month on our capital, but they are banking on the ability for the entrepreneur to grow. They are banking that there is validity in what they're offering and scalability and that eventually down the road, someone will come along and buy the company or provide another equity investment.”
10:24 – How 5th Line Advises Clients on Venture Debt Options
Companies don’t always need all of their capital upfront. Your venture debt can scale with you as you grow.
“I think one of the common misconceptions is that a lender's going to be meaner to you than an equity investor. At the end of the day, everyone's writing a check to you, and everyone's looking for a return. So, my theory personally, and this is my personal opinion, is you should never take on any capital equity or debt unless you know where it's going. Obviously, you want to have room for a rainy day or an off-plan scenario, but if you're raising, whether it's $5 million in equity or debt, you should have a good idea, in my opinion, on where at least $3 million of that is going. You should have a product roadmap, a hiring plan for sales, marketing–whatever it may be. What I've seen that works the most for companies is just that.”
12:58 – Know where your money is going
You shouldn’t take on capital equity or debt unless you know exactly where it’s going to go. Figure out a product roadmap before you borrow.
“We're actually working with a few companies now where they're profitable, or at least break even, which is rare in the growth stage market. They have a pretty extensive product development roadmap and they're trying to drive towards an acquisition in a couple of years. They may tell us, ‘Well, we can raise another venture round, but we're cash flow break even. We don't want to raise another venture round and sell off 10% of the company to get the same amount of capital.’ So we're in the process of securing them a loan that's going to allow them to go into a cash burn mode, but it's very strategic. They have a direct correlation, a proven strategy that scales their top line. When someone's buying a company, that's obviously what they look at: what is the top line? I think the best successes come from when you know you're going to spend the money, and you know how it's going to go out the door, and making sure that it's not just capital they're going to have sit on their balance sheet for no reason.”
13:37 – Be strategic with your capital
Don’t raise capital if you don’t need to. Venture debt can increase your cash flow without forcing you to sell a percentage of your business.
“The vast majority of companies who raised a Series B end up drastically underperforming, because they have to tell their VCs, whether it's current or prospective, certain targets to justify these massive valuations. And they're just not grounded in reality. They're not something that’s anything more than numbers on a spreadsheet that they build out. So they ended up laying off sales teams, missing quotas, and then they have flat or down rounds, whether they're inside or on a new round down the road. I always tell people I think it's a great opportunity for the debt markets. Like that CEO I told you about; I talked to right before Christmas, $12 milli...
16:08 – Repaying a loan may be a better route than justifying a valuation down the road
If you take on more equity than you need, chances are you’re going to underperform. You need to ground your ideas in reality.32 min - Navigating Life as a Startup CFO with Melinda Smith of ChaosSearch
The route to transitioning from “Big 4” accounting to early startups is not always a natural transition, but for that exact reason–and more–Melinda Smith is one of the most unique CFOs we’ve had on the podcast.
She demonstrates how to best leverage practical, financial, and technical skills into emerging firms like she has done in the past at now-massive companies like Venmo.
On this episode of The Modern CFO, Melinda shares her insights on driving culture, building a strong finance team, and what it means to be a custodian while raising venture dollars.
Show Links
- Check out ChaosSearch
- Connect with Melinda Smith on LinkedIn
- Check out Nth Round
- Connect with Andrew Seski on LinkedIn
Key Takeaways
5:21 – Your team is your foundation
“I think, from a leadership perspective, building the team is one of the most critical things in an early-stage business. It's also true of a finance team inside of an early-stage business. Rapidly realizing that the experience matters of people you bring onto your team, the training matters for building and growing your team. It's the energy as a leader that you put behind building the business–building something, partnering with the team, and providing those operational insights and the custodian of where that investment is going–that really helps motivate and drive and, ultimately, retain a great finance team.”
While most CFOs are thought of as the public face of the finance team, they are also an extension of the firm's culture and mission. At startups, CFOs tackle some of the most important functions in the company, including hiring.
“In my experience, I've found that the CFO at an early-stage company has a lot of responsibility for some of the more traditional human resources functions. I have been in a role where I have some HR support, but I am also driving a lot around the culture. I think it's really important to be true to the founders and the CEO to some respect–maybe the founder/CEO and how they want to drive the culture of the business–but ultimately in a startup, you just have naturally that energy of a team and the passion of a founder that you can get behind.”
6:18 – Drive the culture of your startup
As CFO, you are a key driver of the company’s culture, especially in the early days. Make sure you are in alignment with what the founders and CEO want that culture to be.
“The experience that I have gives me a good perspective on where we can be looking to partner with certain organizations–to really build that value towards an exit, or just generally thinking about each business uniquely. I think each business has a different trajectory and there's honestly a little bit of luck and timing that goes into when a founder's coming to market. There are businesses that can be incredibly efficient with their funding. They are right on the timing to build that value and they perhaps grow very quickly, but I think in the normal and more usual case it is more of that longer timeframe to incremental progress, building value over time, taking 10 customers that you have when you first start, figuring out how to build that into a hundred customers, figuring out what that timeline is really going to look like uniquely to your business for the sales cycle and all the other metrics that go into determining how fast your company is ultimately going to grow and achieve that exit.”
12:42 – Timing is important
In a young organization, timing is everything. Each business has a different trajectory, so you can’t rush the growth process.16:16 – Becoming a custodian of your funding
Your role as CFO is to be a custodian over the company’s funding. You need to determine how much to bring in, and what to do with the funding once you’ve secured it.
“One of the interesting things I see in the environment we're in today is companies that are raising these gigantic rounds of funding. I do think that there is a role of a CFO to help the team determine how much is the right funding to bring on and balancing that with the dilution that you're taking on in the business. And how confident you are in what you see as the data points towards your growth rate, that supports that valuation at the end of the day. I think there's a propensity, potentially, to take this big amount of money and then have trouble being responsible, I guess, about where to invest that money. That ties back to my view of this custodian of the funding and how do you invest every dollar to drive at least a dollar of value, so that effectively you're turning that dilution that you took from selling equity in your business down to zero.”
18:53 – Women in technologyThe best way for a woman in technology to succeed is with the right support resources. As society shifts to a less traditional work culture, that support is easier to come by.
“I think that some of the quality of women in the workplace is fundamentally dependent on this concept of having the right resources to support them in that journey. Whether it means flexibility for a two-job family to split up everything that needs to be done in a day; whether it means splitting up childcare drop-offs in the morning or in the evening, or heading to the soccer field for a four o'clock varsity soccer game, then getting back to finishing up your email when you get home after dinner; spending time together as a family; cooking on Sunday afternoons so that you have food to reheat during the week for dinner. I think employers fundamentally need to realize that those old days of a single breadwinner dedicating nine to five in-person in an office are long gone. I think the interesting part about today's world is that COVID has accelerated this flexibility for families and for that two-career household where it’s a lot easier now when you're working from home, at least for people who have the opportunity to work from home, to really split up that flexibility. And I'm hopeful that that's going to drive more opportunity for women and that support structure that they need to accelerate their careers.”20:47 – Scaling for both company and investor value
“In the next 12 months, we are working towards our next fundraising, so it's all about building as much value in the business this year as we can leading up to that fundraising round. We're really laser-focused on identifying that repeatable business model where our ideal customer profile is focused and how we can also look towards building the right team, spending a lot of time on the hiring process, and this environment right now, especially for hiring engineers, I know lots of your listeners out there probably have the same challenges we have.”
As you lead up to a new round of fundraising, it’s important to build up as much value into the business as you can.21:44 – Building a diverse team in 2022
“I'm a big believer in building a diverse team. The best teams and the most effective teams come from a commitment to diversity, which is also increasingly hard in this COVID environment to find workers who are now dem...
The best and most effective teams are the ones that have a commitment to diversity, so be intentional about building a diverse team.31 min
About The Modern CFO
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The Modern CFO podcast is designed to illuminate the hard work that is behind the scenes in financing next-generation ideas and technologies, as well as acknowledging the developing role of senior…
financial professionals, and the tools they rely upon.