Financial planning during a fundraise

‍

We’re often asked, “did you use your own platform to help with the fundraising process?” We typically respond with an easy going chuckle followed by “if we didn’t, we shouldn’t have raised any money”. In fact, proving that we understood how our business model translates to financial results was an important reason we were able to successfully raise. 

‍

It’s been the same experience for us as it has been for many of our own clients that benefit from frictionless financial planning. Fundraising can be a lengthy process, and oftentimes it can feel like it’s out of your control as a founder. The never ending outreach, meetings, diligence responses, and legal prep can easily get in the way of actual business progress. Keeping your numbers clean, up to date, and forecasts accurate can require significant time and effort. Especially when staffing, hiring plans (and abilities), current business, revenue pipelines, pricing models, etc. are constantly changing. 

‍

In order to keep up with it all, it’s really important to properly build out assumptions, which only needs to be done upfront, and will make your life so much easier to update on the fly as time passes. However, what’s been the most interesting thing along the way is the purpose of it. 

Have a plan for every outcome

The financial planning process is arguably equally as important pre and post fundraise, but for different reasons. For early stage SaaS startups in particular, the pre-raise company strategy is fundamentally different from the post-raise company strategy. Some companies are fortunate enough to raise a pre-seed round to get the business off the ground, some are fortunate enough to have friends & family support, and some are fortunate enough to bootstrap the business themselves. 

‍

It’s clearly difficult to build a company without one of the three, absent of course technical founders(s) and a product led growth motion. But one thing remains constant in this stage, and it is prudent cash management to ensure the company stays in the game long enough to make it to the next level, while searching for product market fit. 

‍

Prior to our seed round funding, we maintained two primary financial models. The first was the status quo. It can be dangerous to assume a certain funding date and amount, because until the money is in the door, you need to have contingencies in place:

  • Identify every lever of cash preservation at your disposal, and keep track of expenses tied to growth vs. nice to haves. 
  • Look for opportunities to work with your best clients to convert monthly paying contracts to longer term contracts, which will accelerate cash collection but always offer a compelling discount.
  • Consider working with employees on restructuring employment & compensation agreements if push comes to shove (consistently meeting payroll on time can feel like a luxury)
  • If you are generating revenue, look to the Lighter Capital’s, Pipe’s, and Clearcos of the world for non-dilutive capital solutions.

Ask the tough questions

The most difficult question we’d constantly ask ourselves is how could we preserve cash while needing to invest in growth? This is the reason so many startups fail unfortunately, and solving this often requires lots of creativity. And you learn a lot about what your company, employees and customers are made of by being in a vulnerable financial position. Having a sandbox to play in was key to sparking our team’s creativity in finding solutions to cash flow challenges. 

The end is just the beginning

Becoming one of the tiny fraction of companies to receive venture financing is without a doubt a massive relief, but it’s just the beginning in becoming a serious company. The vibe turns from survival to “we actually need a plan”, and having to execute on it. Understanding how your sales efficiency, unit economics, customer acquisition costs, average contract values, gross margins, cash burn/ runway, team structure, etc., translate to financial milestones and goal setting become mission critical. To no surprise, these are all things your investors will undoubtedly expect you to be on top of. Clockwork just makes it easy for those companies fortunate enough to be in this position. 

‍

So yes, we practice what we preach. And it’s our mission to help others along the way. 

Conclusion

We’re often asked, “did you use your own platform to help with the fundraising process?” We typically respond with an easy going chuckle followed by “if we didn’t, we shouldn’t have raised any money”. In fact, proving that we understood how our business model translates to financial results was an important reason we were able to successfully raise.