9 Do's and Don'ts of Raising Capital

founders what's going on you guys know i love in-person events and they are back the recording you're about to hear is from our most recent event where we had hundreds of founders come together share intimate details templates kpis okrs about their business and it was something special something special we'd love to meet you in person if you want to see the next live events we have coming up via our schedule the link will be down below in the description if you're listening on itunes check this out on youtube you'll see the links in the description or you can just google

founder path or latka next event we'd love to see you in person in the meantime though enjoy this recording it's a good one great to be here uh let's see here so again my name is ben murray i've founder of the sas cfo.com a little bit about myself before we dive into tips and tricks do's and don'ts with fundraising also applies to the exit process if you're ready to pull the cord uh of course cfo by trade been in finance accounting my entire career

little known fact about myself actually spent a year outside of finance accounting as a programmer in the late 90s anyone guess what programming language was in high demand in the late 90s i think y2k cobalt ben can you hold the mic closer oh sure thank you uh cobalt programmer for about a year before going back to grad school so eventually got into software back in

the on-premise days perpetual license we charged 15 to 20 percent as maintenance and then morphed into asp and then now what we have sas today i still remember my boss came to me when i was working for a healthcare healthcare tech company and he said hey ben create subscription pricing for our on-premise emr product you know and just look at how far we've come today so talk today about tips and tricks to increase your odds of

funding and the first thing of course i'm a cfo going to talk numbers the second thing is story and then finally being prepared so first know your numbers i love this quote this is a quote from a founder i talked to a couple months ago who said hey ben to be honest the numbers are a little fuzzy right now you know and that's okay we just have to build upon that foundation so we can speak the language of sas

so the first thing that is one of my biggest fears of course my biggest fear is running out of cash but is being in a board meeting investor meeting potential investor meeting and i get a number wrong or i botch the forecast or i misinterpret the data so same thing for sas founders that you also have to understand your financial profile what's working what's not working and in my next slide i'll get into the

sas p l but we need to understand our business and sas is math and i didn't come up with that quote but i love that quote because there's so much data that's locked up in our business so a lot of metrics today have you know yesterday we've probably heard ndr about a hundred times but we need to understand the metrics that drive our business and it's also the right stage at the right time for these metrics when i talk to a lot of founders

you know early stage pre-revenue they're like hey ben i need to calculate payback cac sas magic number all that stuff it's like just wait a second you know it depends on the volume of data in your business to make these accurates are to make these metrics measurable and accurate but we have to understand the right metrics at the right stage for our business you know some of the common ones the popular ones of course growth is battling with net dollar retention as a top valuation metric

you know best in class you see 115 120 and above sas keck ratio or the cost of ar and actually pascal mentioned that yesterday is the dollars that you put into your sales and marketing engine what do you get out from that so what's the cost of arr so does it cost you if you put a dollar into your sales and marketing engine do you get a dollar out that's the sas cac ratio dollar for dollar is a good goal or less and then your payback period

i have here 12 months but it just depends on your asp your go to market motion your sales cycle is 12 months good six months one month and i talk to a lot of founders who in a due diligence process they throw their data over the fence to the investors and the investors come back to them and tell them how their business is operating you know say hey founder we crunched your data here's your margins here your metrics

but i want it to be the other way around that you can speak that language with your potential investors and the second thing here is your sas p l i've looked at hundreds of sas p ls in the past 12 months and i'd say 80 percent of those are wrong so the p l here is what i consider you know there are not many standards in sas but the accepted sas p l

you know and 80 that i've seen are wrong 10 are kind of close and 10 are actually spot on so run through quickly you know this this form of the sas p l so the first at the top of course your revenue streams having those distinct and clear that recurring is separate from one time separate from other i was coaching a founder and his finance team who was going through a series b or series c for 50 or 75 million and pitching potential investors

and he actually had all his revenue was in subscriptions but he actually had a subscriptions and usage model so when he started talking about pricing to potential investors they said wait a second you're showing all your revenue and subscriptions but you actually have a usage model too and so they made him go back re-read all his contracts and break out his revenue between subscriptions and usage so really important to have clear revenue streams

the second is cogs cost of goods sold so what does it take to support your revenue do you have tech support do you have onboarding through services customer success i put it up in cogs if they don't sell and then devops so you're hosting architecture that takes us down to gross profit or gross margin and then our opex profile so r d sales marketing g a what does that look like where are you investing there so three common mistakes that i always

work with founders on and usually around i'd say around three million ar is when you have to get serious about your accounting so common errors rev wreck so if you invoice in terms longer than a month you have to apply revenue recognition to your revenue so that's pretty common early stage you're not doing that but i'd say around 3 million it's time to get serious about your accounting and the next thing is your department structure to produce a p l like this you have to code expenses to the department level you can't have just a

big bucket of expenses and if you exported your quickbooks or zero p l right now would it show that structure or are wages just posted to one account so you don't know is that r d sales marketing g a and finally the chart of accounts under underneath your p l the accounts we work on the structure which is called the chart of accounts to set this up so we can produce the sas p l

and then produce the downline metrics and then the forecast playback so don't start from scratch i've got tons of models forecast models templates pitch templates that everyone will get here today and i'll work with nathan to get that out the door to you but building upon the sas p l is the forecast and my templates alone have raised i'd say at least over a hundred million dollars when founders come to me and say hey ben i use your

templates because you could download download those for free from my site and so key areas that i look at to create a believable forecast because i don't know at this point i've done thousands of forecasts is your top of funnel so do you have self-service sign up website visitors to trial to paid do you speak the bookings language through your crm system so what's driving your revenue in each revenue stream what's your pricing do you know customer count asp the layers of your mrr expansion

downgrade churn so you can create an accurate forecast next is delivery of your revenue so whether it's your fifth customer 100th you know what does it take to support that revenue stream do you need tech support services customer success devops to support revenue and how is that scaling with revenue and then finally your opex profile a lot of people look at your opex profile as a percent of revenue i like that for r d and g a but

not sales and marketing i use metrics for that and then overlaying that is people so your head count roster who's on your head count roster who are your contractors and who do you expect to hire over the next 12 months and if you think about your business model you'll be able to put together a believable forecast and of course you know i love talking numbers but we also have to talk about our story and i'm a guest host on a

podcast just interviewed a assassin fo at 100 million dollar plus a ar company and one of his tips he said whether you're early stage 1 million or 100 million plus you still have to tell your compelling story and your metrics will back up your story so hard for me to say but of course don't just talk numbers so it's your job to craft a compelling story so your team and experience how's that unique in your market what's the problem that you're solving

not just features and functions how are others trying to solve it maybe they're using excel and there's no technology in the space and also with this last bullet i think competition is a little bit good i know we get freaked out when we see other players in the space but that shows that there's actually spend in your addressable market you could have a 50 billion dollar addressable market maybe but maybe they're not spending any money in that space so again i've got some sas pitch deck templates that you can use that will get

out to you so you can make this job a little bit easier and then tam so total addressable market so this last bullet please don't say we're gonna capture x percent of some fifty hundred billion dollar market let's think about this from a bottoms up perspective i really like looking at your pricing model times the number of total customers in your space to figure out is that a billion dollar market 5 billion 10 billion 50 billion

and then also i think armando mentioned yesterday that balance between your go to market model pricing and icp super important not just in pitch decks but i work with founders on this all the time that if you're pushing out a 2000 acv product right you're probably not going to hire an enterprise sales rep to sell that so there's got to be balance between gtm pricing and your icp and investors also look at your revenue forecast to see you know is it growing slowly that shows maybe there is an

addressable market or is it growing nicely that's supportable that shows hey there could be potential here so a tam your analysis is in the hot seat how you're thinking about your product how does it apply to the market and your icp and i think this was mentioned today know how you use those funds be specific come prepared to discuss details on how you're going to invest those funds in your business so think about the sas p l and where you're investing do you have

to support the cogs infrastructure are you going from founder led sales to sales and marketing so where are you investing and then finally i know as sas founders you can spend a lot of money but what milestones are you going to hit so yeah i know you can spend a million bucks but is that to get your first 10 customers your first billion of ar is it to move into an ancillary market a different geography so with that money what milestones will

you hit oh you sure uh how you're projecting budget and how you're going to spend your money there's so many ways to do that excel spread do you do that in the p l because like the p l often doesn't match up with the reality of how i'm thinking about investing in things so i'm curious how you navigate that reality to how the investors think about it yeah i mean one thing i help founders within the forecast it helps us size the investments that's needed you know so

how much cash do we have to go in and get you know to go where we run out of cash to to to fund the next stage of the business so part of it is forecasting i think andre when andre showed his p l or his slide he showed the buckets all right i'm spending on r d sales marketing whatever so very specific on where he wanted to spend but when i work with founders it's through the forecast exercise process to see all right where do we run out of cash how much cash do we need to get to that

next milestone but they you know the founder you have to tell me where you want to i can't make that up all the time you have to tell me like hey these are the next things we got to work on in our business you know is it to go from founder led sales to sales marketing or do we have to continue to invest in the product roadmap so with that input then i can forecast and then figure out all right does that get us you know to that next date you know where we can

hey this is where i'm this is where i'm expecting to in this s m this is what i'm going to be putting in str is this this that the other yeah it's almost like an a la carte menu i'd have you know a slide that shows all right we're going to invest in 10 sales reps we're going to invest in a couple software engineers it's going to cost x

and then finally be prepared so due diligence is a lot of work exiting is a lot of work so are you prepared so when you go through a due diligence process if you've done that it takes a lot of work and it's be going to become your second full-time job so it's hard to casually raise so are you in are you out with this because you've got to build momentum you've got to respond quickly to investors and then also i just reviewed a pitch deck this week of a early stage founder and we got to

the pitch deck and there was no ask so what are you asking for is it 500 000 is it 2 million you know so put that in there and then also we talk about product market fit we talk about go to market fit but what about founder investorfit because with this you know i've been a lot of meetings that a lot of sas investors can speak that language speech you know speak the sas language but do they know your niche

you know if you're in healthcare tech gov tech do they know the landscape do they know the competitors where they can help you out because i've heard this their business model then becomes your business model you know so there's going to be some little creep down into your operations so founder investor is very important just like hiring a play do you want to work with that person for the next couple years and then also the due diligence playbook i've got some checklists that you can download to see what you're getting into when you go through a fundraiser and

exit process usually the preliminary due diligence checklist runs say seven to ten items of course your historical financial statements but your revenue by and customer data so a common request is revenue by customer by month and what investors will look at with that is what's your gdr ndr and local retention and then they want to know about your go to market performance so how does your pipeline look how's your sales team doing are your reps hitting their quotas and then finally of course they always

want financial projections so download my checklist because the preliminary due diligence checklist maybe about 10 items but if you go through an exit process it's probably going to be 50 to 60 items so be prepared about what they're going to ask you know so you're not kind of blindsided when you when you get to that point ben are any of these playbooks on your website yeah all of these playbooks are on my website you can download my forecast model you can download preliminary url uh it's the so

t-h-e says cfo.com vsasscfo.com yeah and we'll try to get all these templates out too but yeah all this can be downloaded for free and then finally the final piece here is you need a team it takes a lot of work so pulling data is a lot of work so who on your internal team is kind of under the tent you know who's going to help you with this fundraiser exit and then finally line up your legal and corp your corporate attorney and tax accountant because cfo's kind of dabble

in this we can be dangerous but we're not the experts so have a good corporate attorney have a good tax account lined up ahead of time and then also don't contact me mid-raise and i have a lot of founders reach out two weeks out there hey ben i'm i'm talking to investors in two weeks i need a forecast model i need metrics and it's just too quick you know whether that's reaching out to me any of your advisors you know it takes time and i tell founders like hey i want at least three months

of runway here to work out the forecast to figure out the data that we need to calculate the metrics so we can talk intelligently to investors and also we feel confident in these numbers so three months is three closed cycles three forecast cycles so that i have enough intuitive feeling about the numbers that we can calculate the metrics and feel good about those numbers so have a little time runway i love when founders reach out to me and they say hey i'm thinking about a raise in six to twelve months perfect we've

got time to put the financial discipline in place the financial reporting the date of the metrics that's going to drive your story so in summary talked about numbers knowing your numbers make it easy for investors to consume your data with a nice sas p l you know just yesterday going through the revenue growth charts with the the sas shark tank there's confusion well is that recurring revenue growth is that one-time revenue growth you know so we

don't want to get into these meetings and take up time trying to interpret the numbers let's make it really clear so we can talk about the numbers and move on and then your story again talking to a sas cfo 100 million air plus company who had a vc in corporate background it's still about the story whether a million or 100 million and the story is actually backed up by the numbers and then preparation

and then finally with the forecast i forgot to mention that you know romney mentioned pumping the brakes yesterday which is so great because just operationally you know mention hey we keep pulling the forecast down we keep pulling the forecast down and that's just like say that creeping delay with your flight they delay 15 minutes 15 then 30 and you get so pissed off we should feel the same way if our forecast keeps coming coming down and that's the importance of a budget it holds us accountable because i know

there are a lot of budget haters but if you compare it to a budget if if we had a budget and we keep pulling it down it's like all right why why are we off how are we going to recover but if you never set the benchmarks then you don't really know how you're performing so just one last thing there and then of course being prepared it's a lot of work to go through due diligence so make sure you have the data in place ahead of time your forecast your metrics so you're not surprised by any of this

so that's uh it for tips and tricks do's and don'ts guys give it up for ben murray [Applause]