Series A-Z : The role of a CFO during fundraising
As CFO of a growing company, raising money is one part exciting, one part terrifying. The energy and rigor you need to pull off the entire operation are daunting, to say the least.
We normally think of the charismatic CEO during fundraising. But the CFO plays a vital role - one that’s often overlooked or misunderstood. A great CFO needs to be organized and consistent, prepared and diligent. Most important, they’re called upon to tell a compelling company story through data.
To learn more about the CFO’s role during fundraising, we held another exclusive CFO Connect meetup in Paris on December 4, 2020. Two expert CFOs took us through their experiences and gave great tips for finance leaders going through this process for the first time.
Meet our experts
Chris Bourdeu, CFO Meero. Chris has a rich history in both corporate finance and M&A. At the end of 2018, after three years in the financial department of La Fourchette, he joined Meero as CFO. Over the past 12 months, the Meero team has grown from 160 to more than 700 internationally, in countries like the USA, Japan, India, Singapore, and Brazil. In 2019, Meero announced a massive $230m series C, in only its third year of existence.
Charles Tenot, CFO Botify. Charles built his knowledge in finance and operations while over five years at Ernst & Young, before accepting a strategic direction position at Allianz Group. In 2016, he joined Botify as CFO and Head of Strategic Projects, to support the company’s strong international growth. As a lead during Botify’s recent Series B, he played an active role in the roadshow with investors from both sides of the Atlantic.
How do you determine the right amount to raise?
This is the key issue for Charles. The "why" is often pretty obvious - the company needs money either to grow faster or simply to keep going. So the big question for the CFO becomes “how much do we ask for?”
“I wouldn’t say that the reasons to raise funds are always the same. But from my experience, when a company seeks to raise money, it’s to finance growth and create value - on a large scale - in order to generate ROI for the investors.
“At Botify, we were never looking to raise the maximum. In our case, the industry wasn’t going to let us come in and conquer. The SEO market is very mature, and it was already too late to become a pioneer and hope to win the largest piece of the cake. As a niche player with great traction, we decided to focus on our consolidation as well as our profitability. So we needed to think about the right amount to raise to reach these objectives."
For Meero, the urgency was real and it was time to strike.
“Even if photography has been around for a long time, the large-scale market is still very new. We were in a situation where we must not only create a market but also impose ourselves as its leader before competitors appeared with their own technological solutions.
“When we started meeting VCs, we knew immediately that we’d made the right choice. They had the ambition to propel us internationally and pushed us to raise the maximum as fast as possible."
Clearly, the growth stage of the company isn’t the only factor to take into account when determining the amount of a future fundraiser. The timing and context of the market are just as crucial, and shouldn’t be ignored.
What should a CFO prepare for potential investors?
To analyze and judge the growth potential of a startup, VCs refer to KPIs. Some KPIs are specific to business models such as SaaS or marketplace. And most funds will naturally try to categorize startups into these business models as a result.
Meero: a special case
Chris: “In June 2018, Meero raised $45m in a B series fundraising. By the following November, many VCs were approaching us to invest in the company and accelerate our growth. So we were already talking about C series. When we talked to them, we had very little data - our largest customers had barely been with us for six months.
“At first, VCs tried to analyze us through KPIs they knew well: cost of customer acquisition, churn rate, average basket, and more. But we knew ourselves that this wasn’t the best way to understand and judge Meero. We decided to play for time between February and March in order to finalize the analysis of our own business model and our market to better understand its subtleties.
“We ended up producing a 90-page pitch deck to help them realize that we couldn’t fit in their traditional categories - and in the end, these conversations were much more productive.”
Botify: a more traditional model
Charles: “Botify follows the classic SaaS model: our customers commit for a certain number of years, making recurring revenue pretty easy to monitor and predict. Plus, our market is very mature. So with our model and market being very standard in the world of SaaS, we fit perfectly into their categories. That is why VCs were easily able to compare our data to other companies with a similar model.”
So here we see two paths. If the business model is “classic,” it’s essential to work on the KPIs that funds expect to see, so they can quickly envision the company's potential. But for a new or uncommon business model, it will take extra effort to explain the subtlety.
What due diligence is expected of companies?
Due diligence is a key step in raising funds. Investors will analyze the accounting and legal aspects of the business, in order to assess its commercial and management potential.
Chris: "Having worked in M&A in the past, I was used to this step being formalized and often laborious - it usually takes about four weeks. In a venture, it was different because the biggest part of the work was mainly done upstream. We spent 40% of our time being challenged on the size of the market, 40% of our time proving that we had a healthy model with virtuous aspects, and only 20% was allocated to the due diligence itself "
“At Meero, I was fortunate to be accompanied by great legal and financial teams. They had done an excellent job of preparing the necessary documents! But that didn’t save us from pressure completely.
This is the last step in the process and all of the hard work done can potentially be ruined. It’s a bit like the extra-time of a football game - you’ve come this far and simply can’t give up a goal at the last minute! ”
Charles: “The stress of due diligence is natural. As CFO, you just don't want to be the first in the history of fundraising to fail due diligence due to a currency error, for instance. But if you can bring your level of attention up to the challenge, you’re doing well!”
What are the best reflexes to adopt after fundraising?
Renew contact with operational staff and their teams
Chris: “Yes, we have a lot of money after fundraising. But that doesn’t mean that we suddenly have a profitable business. The first reflex is therefore to tighten the screws in order for everyone to understand that there is still a lot of work to do"
Raising money isn’t the end goal, but a new beginning
Charles: "Naturally, after fundraising, teams will feel like they have crossed the finish line and it’s the end of the effort. At Botify, we immediately saw a drop in performance the following two or three months. Even though we had specifically addressed this issue with the whole company, it wasn’t enough. We had to give some big warnings and take drastic measures to restart the machine and reach our goals!” Remain rigorous about expenses
Chris: "Because there’s more money in the bank account, it’s easy to fall into the trap and loosen the purse strings. In fact, you need to do the opposite. Our notoriety exploded after the fundraising - in particular thanks to the press. We received a lot of applications, and while we used to negotiate on salary systematically in the past, we were able to attract amazing candidates without having to pay them above the market average.”
Overall, Charles and Chris agree on the role of the CFO. Whether it’s during the preparation of the pitch deck, during due diligence or after the closing, the Financial Director is strategically positioned between his founder and VCs.
As the gatekeeper of corporate data, your main goals are to support and advise the CEO while reassuring the investors as much as possible. Your numbers need to tell a story and prove to potential investors that your company is worth their money.
And perhaps more than ever, you need to be on top of your game. The future of the company depends on your sharp eye and attention to metrics.
When it’s all over, you’ll be glad you gave it everything you had.
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