Your investors and board members are people

Managing the board and investors is a critical part of the CFO job description. They are a group of people with diverse incentives, and (ideally) diverse skills and perspectives. They also have a dual role of control and support, similar to finance. Board members are in turn subject to control by the shareholders. They typically have many other things in their professional lives to worry about besides your company. One of the biggest trade-offs they are always making is where to spend their time and energy. 

You and the CEO should spend a seemingly inordinate amount of time communicating to board members (and any major/influential shareholders). The division of this job between you and the CEO should be clear, and you must be aligned in your communication and transparent between each other. You and the CEO should understand each of their personal motivations, incentives and strengths and weaknesses as if they were an employee. I find one critical step is to always spend extra time considering things from their perspective before presenting.  What pressures do they face? What context are they lacking? What judgments are they trying to make? How am I helping them do their job better?  If you aren’t sure of the answers, discuss with the CEO. Or one of you should ask the board member directly.  

95% of the time, the effort spent communicating with board members and investors may appear wasted.  The 5% of the time when you really need support or extra investment, it will pay off.

Note, also beware of keeping clear boundaries with board members.  Some will gravitate towards wanting to make decisions on your behalf, or otherwise influencing operating decisions. You should greatly respect the input that a board member gives on operating matters, particularly if they have invested lots of time to understand your business. But you and the CEO must decide on your own.

There are many good articles on boards.  Here is a good place to start https://bothsidesofthetable.com/startup-boards-ee3ad0389040

Fundraising is the future

There is a lot on the internet on this topic, and I don’t have extensive experience here relative to many investors and advisors.  My overarching learning through fundraising and M&A is that everything presented to investors in a process is information that they are using to predict the future.  They only care about the present as context to predicting the future, particularly in a growth company.  Understanding and using this context to your advantage in every discussion (not just in discussions about forecasts) can help a lot.  If you see your job in a sales or fundraising process as helping investors understand how things can evolve in the future, you will help the investors and yourself. If you find yourself describing the past or current situation without direct reference to how the past gives context to the future, you are getting caught in a trap. This can be in a discussion related to HR, business metrics, competition, technology or anything. For example, a discussion of the quality of the current team is simply context for (1) their ability to deliver going forward and (2) your ability to hire great people as you scale.

Note that the past provides “context” to the future, and past trends, positive or negative, should only be presented as predictive of the future carefully. And because the future is inherently uncertain, you must also respect that fact in your communications and have opinions about how you might adapt to certain changes. 

Preparation just saves time

Having seen both very well organized and disorganized companies have excellent fundraising outcomes, I do not believe that the degree to which you have all your stuff in order is an important predictor of success.  Most investors understand that great businesses can afford time to clean things up. But being more organized will certainly save you some sleep and stress.

Here are soome practicalities in fundraising from a finance perspective. First, keep all your corporate governance documentation in an easy to find place with final, signed copies.  This includes board documents, audit and tax statements, any inquiries from the authorities, and disputes.  Start this early if it isn’t already in place when you join. Second, the earlier you have a good three to five year model the better.  Any more advanced business should have some components of their business that feel more predictable and more subject to modelling. Of course, newer businesses are much less predictable in excel models, but nonetheless they need a rough view on the future for cash needs.

There is always a buyer and a seller

In any sales or fundraising process, there is always a buyer and a seller.  No matter what the situation, it is almost impossible to have perfect alignment between these two parties.  So it is important to understand who the buyers are, who the sellers are, and where the potential conflicts lie. Employees and the CEO and CFO will inevitably be part of this conflict, likely as sellers.  Conflicts around money rarely bring out the best in people. Don’t ignore this but rather openly discuss with the CEO (and possibly the board) the potential areas of conflict early, and how you might resolve them. Never do anything that you couldn’t defend to the employees or to the potential new buyers/investors, who will be your long term partners. If you see a potential investor/acquirer trying to do things that you would struggle to defend to the employees, be wary.

Equity and employees

Equity compensation should be a meaningful portion of all employees compensation.  There are several obvious reasons for this, but the most unobvious reason is that it can create positive selection in the hiring process. In the early stages of a company, it is important that most employees are comfortable with the risks of being in a start-up/growth environment. By putting more compensation into equity, you select people who are motivated to take risks and are able to live with more uncertainty and risk. Over time, this may be less important and you may want to move to a more Netflix approach where employees determine their equity.

By the time a CFO is hired in a growth company, there is likely some kind of program in place.  But it is possible that it hasn’t been designed to scale.  If you have joined around the time of a capital raise, there may also be a new program attached to that process. Equity programs are inevitably complex because there are big tax and governance implications. It’s worth investing in experienced legal advice and a good platform to manage it (eg. Carta). If you have employees in many jurisdictions, it can be even more complex.  You will likely need to make trade-offs that don’t satisfy every country’s tax system.

There are some good primers on how to build a scalable and fair equity compensation system.  Starting with this article by Fred Wilson doesn’t hurt.

https://avc.com/2019/08/employee-equity-how-much-2/