CFOs play a crucial role not only in large companies but also in early-stage startups backed by venture capital. An experienced, part-time CFO can provide much needed expertise and guidance in a variety of areas including the critical process of raising capital.
There are a large number of variables and trade-offs to consider during the fundraising process. Some of the more important variables include (but are not limited to):
Valuation
Deal structure (liquidation preferences, preferred vs. common, ratchets, etc.)
Dilution
Board structure
Voting rights
A good CFO is more than an accountant providing financial reporting. A good CFO is a crucial business partner in helping the Founder / CEO to navigate this complex process.
This recent post by Andreesen Horowitz has some excellent advice for founders to consider:
“So what should founders optimize for when raising capital?
Because each company and every stage is different, different founders face a different set of circumstances and challenges. They should therefore choose to optimize for different things. The challenge is that not all the available criteria are quantifiable or objective. In fact, some of the most important criteria, such as boardroom chemistry, may be very subjective.
Some founders may feel tempted to aim for the highest short-term valuation, and that may be the optimal strategy in some situations. However, in other situations, founders may have to prioritize other considerations — such as choosing a partner with a very specific and highly relevant skill set that can help the company execute on their strategy.
Ultimately, the key is to optimize for the full relationship over time by focusing on partners whose goals are aligned with the founder’s and whose investment will enable the startup to realize — not hinder — its potential.
This decision is especially important for younger companies still in the formative stages. Why? Because having a high valuation hurdle too early, restrictive terms imposed by investors, or a problematic deal structure can inhibit the ability to raise more money just when you need it the most.”
Read the full post: