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
- 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?