Late Stage Financing CFO Roundtable

July 12, 2019

Kranz & Associates was proud to co-host two productive CFO Roundtables to discuss “Late Stage Financing and Exit: Trends in the Current Marketplace” with our partners KPMG, Morgan Stanley Whitfield Group, and Heffernan Insurance. A special thank you to our expert panelists: Mihir Jobalia, Managing Director, Technology Investment Banking, KPMG; Suzy Taherian, CFO, Kinetic Systems; Jeff Klemens, Partner, Sageview Capital; Bernard Huger, CFO, OneLogin; Roman Glukhovsky, Partner, Andra Global.

Event Summary: “Late Stage Financing CFO Roundtable” Discussion- June 18th and 20th, 2019.  Sponsored by Kranz & Associates, KPMG, Heffernan Insurance, and Morgan Stanley Whitfield Group

Market Environment

  •  Interest rates very low, strong M&A market, record deals in tech… average size $158M.
  •  $1 trillion dry powder on the sidelines.
  •  3,600 deals last year, $35B venture capital investment.
  •  P.E. firms competitive and outbidding strategics.
  •  Strategics paying more for good assets.
  • 70% of acquisitions are for add-on P.E.
  •  Record strong M&A capital raise market and we don’t see it slowing down anytime soon.
  •  Shareholders are saying that if you don’t invest, give it back.
  •  Fundraise NOW, don’t wait until next year.
  •  Consolidation, market compression, plenty of financing options.

What investors are looking for in companies they invest in?

  • What are underlying unit cost of your business?
  • What are your metrics for customer acquisition?
  • What drives your sales revenue?
  • Have a compelling story… Know your competitors and your challenges in the market
  • What are you selling, what is great about your company?
  • Management team is more important when it is earlier stage, need track record of management team
  • Present company through the lens of investor or banker, EASY to understand!
  • Keep the story simple, easy understand, like talking to a toddler
  • They can understand what you do in 15 minutes or less.
  • Don’t fudge the numbers, don’t lose credibility.
  • Team presentation (not just the CFO and CEO talking). Well-coordinated team!

Know your options for financing

  • Options: Shareholder loan, sale lease back, asset sales, convertible notes.
  • Know the different bankers and lenders out there: venture debt, bank, capital providers, alternative investors.
  • Everyone wants to give you money.
  • Startup financing criteria: profit, asset, guaranty.

M&A versus IPO

  • IPO harder; requires factors of execution; are you able to scale so that the public market is excited about it.
  • Preparing for M&A: clean up the books, look at reducing the corporate cost structure, change the culture, hire/train folks, etc. Bring in Heffernan Insurance to do risk assessment to help manage risk and potentially realize insurance savings.
  • Acquisition usually comes from competition, partner, portfolio company from the same investor.
  • Get to know and build relationship with your potential acquirers early, pre-seed strategic direction.
  • Get more than one term sheet.
  • Get your financials straight, show ramp/growth trajectory, get business in a good place.
  • Live out of the data room and decide on challenges to immediately tackle in advance.
  • Operate as if you are getting ready to go public, 12-18 months before going public.
  • Process – cast a wide net for at least 5 – 10 interested buyers, get name out, get to know investment bankers.

Which stage is most challenging for capital raise?

  • If overcapitalized early on and you burn all of your cash and them come back for more down the road. This is when it is most difficult.
  • Post-merger integration and execution after the deal.

What are factors that companies are not ready for when they go for financing?

  •  Not getting their books in order, revenue recognition.
  •  Under-staffed finance team.
  •  Building product but no plans to scale.
  •  IP is an after thought.
  •  Security – does not pass the test.

Characteristics of how to be the “Best CFOs”

  • Revenue and A/R lumpy, unpredictable… Need consistent cashflow and standardization, ROI, track numbers.
  • Reputable, scalable offer that translate from customer-to-customer.
  • Have plan and strategy that you are going to execute on, understand what’s working and what’s not.
  • Best CFOs figure out on the fly and use outside resources to guide you and get up to speed.
  • Have great relationship and provide transparency to CEOs and Investors.
  • Hire the right people… get yourself an awesome controller.
  • Have conviction of your viewpoint and numbers.
  • Be proactive and report monthly to management team and board members.
  • Stay focused and say “NO” to large customers when you know your team can’t handle it.

How to find the right investor

  • Are they a good fit? Are they people that you’d want on your board?
  • What kind of network and support environment do they provide for their portfolio company?
  • Are they aligned with your strategy?
  • Can they stomach losing money for a while?