Startup CXO. Matt Blumberg

startup‐focused HRIS do a good job helping ensure you have all of the right information and stay compliant so they are worth the early investment. Employee expense policy Documenting allowable expenses and the process to submit, approve, and categorize is best done as early as possible Option grant policy and budget You generally want to have a clear and transparent option grant policy before ramping up your hiring. The option plan documentation and details are discussed later in Part 2, and you also want to have almost an algorithm that determines the grant amount depending on role and market compensation. Federal and state registrations Once you set up your company, you should make sure to make all the proper filings in any state you have an employee. You should also understand each state's (and some municipalities') requirements for fees, sales, and use taxes. Sales tax This is a complicated area that has become increasingly important to start correctly. Most financial systems have easy integrations with sales tax software that should make this relatively painless if you start early. The tough part is to know if and where you have to charge sales tax.

      I go into greater detail on each one of these tasks later in the book, but all of them have the same two characteristics: They're easy to do quickly and they're easy to ignore. Don't ignore them or you'll put your company in a difficult situation sometime down the road and create a mountain of work for yourself and your team trying to fix and/or re‐create later. One that is particularly important for you, as CFO, is to make sure you have a deep understanding of the entire journey of a customer, from initial contact with your company to closed sale. Of course, your Sales and Marketing teams will have their own ideas and understanding of what that journey looks like, but your understanding—your model—needs to be far more detailed and needs to include costs, timelines, and return on investment.

Chapter 4 Fundraising

      At some point, unless you're incredibly fortunate and are able to bootstrap or already are very wealthy, you'll need to get a cash infusion into your business and there are several different ways to do that, typically based on your stage of growth.

      Seed equity is usually the first funding a company receives from outside investors. You could get seed funding on day one or at a later date if the founders bootstrap the startup. A generation ago, seed capital came almost entirely from friends and family and the amounts were relatively small—whatever they could scrape up. In recent years there are more and more professional seed investors, more sophistication, and higher expectations. The seed round can often have the valuation pushed to the next round, where the seed investors will end up having their shares valued at some discount to the next round.

Venture equity refers to money provided by venture capitalists and typically happens in the next few rounds. Venture capitalists take risks at this stage because companies are usually in a high growth phase and not that close to profitability—they could be losing tons of money. My perspective here is that at these stages getting a simple and straightforward preferred investment is worth giving up some valuation. For example, it is probably better to have a $15 million valuation on a simple preferred round with typical investor rights and protections than an $18 million valuation where the preferred comes with extra rights and participation. In this case, “participation” means that the preferred investor will receive their investment back (or even a multiple of their investment) AND participate as a common shareholder. There are many, many books and seminars that can help you figure out the right financing path as an early stage startup, including Venture Deals by Brad Feld and Jason Mendelson and Matt's chapter in Startup CEO. I'd suggest reading and learning as much as possible before you accept venture capital, and get yourself a good lawyer with specific experience in startup financing who will give you some clarity on cost.

      Growth equity is an investment in more mature companies with a clear economic model that are looking to make big investments to expand more quickly, go into new markets, or make acquisitions. The businesses pursuing growth equity will typically have clear product‐market fit and are looking to make a big change in their growth trajectory. This is also a time where they may be able to purchase existing shares (called “secondary investments”) that may enable founders and early investors to achieve some liquidity.

      Commercial debt is senior debt, typically from your primary operational banker. The closer to profitability you are, the better terms you can get. A simple term loan or a revolver loan based on some asset of the company provides liquidity and cash without having to negotiate and write up contracts each time you need cash. Commercial debt typically will have covenants that the company will need to meet in order for there to be uninterrupted lending.

      Venture debt is a bit of a hybrid of debt and equity that usually has a higher interest rate than simple commercial debt and usually includes an equity component in the form of warrants. It usually has less onerous covenants and longer terms.

Preparing for a Fundraising Event

Now that I've outlined some of the basic fundraising terms, what is the CFO's role in fundraising? How can you be an effective partner to the founders, the CEO, and the company? As CFO, you'll be responsible for collecting a wide range of information—far more than financial—and presenting it in a compelling, engaging, and truthful way. This could vary a lot depending on the CEO and the stage of the company. Early on, a CEO will take the bulk of the responsibilities but later on, and again depending on the CEO's interest/knowledge of the finance world, the CFO will need to be a more active and visible partner for the CEO. All the information you collect will be used to create the investment story, which is collated into the “pitch deck.”

The Pitch Deck

      Your pitch deck is used mainly as preliminary reading before an investor call or as a takeaway after the call and its purpose is to pique the interest of investors, provide information, or clarify your business—not to “sell” them on your company. Don't waste their time with a dictionary‐sized pitch deck. If you're invited to a conversation with investors, the pitch itself is usually done by the founder/CEO and is much more free‐flowing than simply following a deck. The best pitch decks usually have at least the following sections in roughly this order:

      1 The Opportunity: Clearly illustrate the business idea and the core value propositions.

      2 The Business: Description of the approach and the business model.

      3 The Product: Description of the product with relevant screenshots and roadmap.

      4 Size of Opportunity: Presentation of the Total Addressable Market (TAM).

      5 Current Business Status: Current clients and partners, high‐level KPIs and any other relevant information.

      6 Financials: Overview of current financials with appropriate projections.

      7 Senior Team: A slide on the Senior Team with their roles and key experiences.

      The pitch deck doesn't have to be a slide presentation or PDF of slides. Quality and clarity of thinking in discussing your opportunity, product, and results are the most important things, not the pitch deck format and not any bells and whistles that you include.

      As the company becomes more mature, the overall structure of the pitch deck will remain similar to what I've outlined above but the current business status will include more metrics, a product vision, and a supporting discussion around projections.

Chapter 5 Size of Opportunity

      Certainly, if you can use outside research or information to inform potential investors about the size of the opportunity, you should take advantage of that. It's very useful if there is an industry study that provides