The Lowdown #16

👋🏾 Hi friends!

And here we go, one last edition from me before I sign off completely for the rest of the year.

Whatever you are doing during the festive period, I hope you are able to get some down time and spend the holidays with people that give you energy – be they loved ones, family, friends or someone else altogether!

I will be sipping a 0 alcohol beer and enjoying some traditional Tuscan fare on Monday and I’ll be toasting what has been a rollercoaster of a year for me – from running out of cash in the startup I launched in 2021 to doubling down on my CFO consultancy, meeting great people along the way and working with some amazing startups, 2023 is definitely a year I won’t be forgetting anytime soon.

Wishing you all the best for the New Year, and for now, thanks for having signed up and tuned in to this ever evolving newsletter that has kept me just a little bit… Off Balance 💪 🙏 

(ignore the beard, I don’t think I’m going to be fooling anyone as Santa this year 😂 )

This week on Nothing Ventured, I spoke to Matthew Stafford, Co-Founder of 9Others and early stage investor.

Here’s what you can expect:

➡️ Why founders and entrepreneurs need a safe place to share.

➡️ Purposefully building a business that doesn’t scale.

➡️ Why Matthew doesn’t invest in first time pitches from founders he is meeting for the first time.

➡️ Building relationships with no expectations.

Check it out!

Last year I wrote a series of posts listing 100 lessons I’ve learned from almost 20 years as a CEO, CFO and more recently founder, it was one of those things I just wanted to get out there and I posted it as I was about to get on a plane and head off to Zanzibar with 40 odd of my nearest and dearest.

Little was I to know that it would go absolutely crazy hitting a combined 1m impressions and thousands of likes and hundreds of comments and shares.

Next year I will be reskinning the format of Off Balance to dig into those lessons in more detail and am excited to get writing.

So I thought it would be fitting this year to write another bunch of lessons one year on, so in today’s Lowdown, you’re going to get…

🧑‍🏫 50 lessons from 12 more months as a CEO, Founder and CFO

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Lowdown” and, more importantly, tell me why you’d like to connect 💪🏾)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale 🚀

The Lowdown

1. Raise capital because you need it, not because you can.

2. All the modelling in the world won’t save a flawed idea.

3. Go out and talk to your g-d d-med customers.

4. Leadership is showing, not telling.

5. The first time I feel nothing letting someone go is the last time I’ll do it.

6. Just because I can work from anywhere doesn’t mean I should.

7. But work where you get energy.

8. Find investors that understand you, not just your business.

9. 1% a day isn’t the way, but consistency is.

10. Have skin in the game.

11. Building a funded startup is getting paid to learn.

12. Often it’s learning what doesn’t work.

13. Bootstrapping means you have to learn what does.

14. Treasury management is suddenly ‘a thing’ (it always was).

15. Radical candour != being abrasive, empathy wins.

16. Do what you’re amazing at doing, passion emerges.

17. Success is different for everyone.

18. There’s never been a better time to leverage technology.

19. Ask and you shall receive. Don’t ask and you don’t get.

20. Helping others is a great way to understand your own thinking.

21. Leverage capital, people, tech and media but don’t abuse them.

22. You have to work at everything. All the time.

23. Remove negativity from your life.

24. Abundance comes when you realise you don’t need everything.

25. We stand on the shoulders of giants.

26. But it’s all relative.

27. When you know you’re onto a winner, ride it till the end.

28. Focus everything you do back on to one singular goal.

29. Doing everything means you’ll end up with nothing.

30. Cash, still, trumps everything.

31. You don’t have a business unless you have processes.

32. Trust is the most valuable coin in the world.

33. Never accept mediocrity, from yourself or those around you.

34. A players lift everyone up, B players lift themselves, C players drag down.

35. Be open to every possibility, that doesn’t mean you have to try them all.

36. Bad customers suck time and energy and kill your business.

37. Quitting drinking was transformational for me, it might not be for you.

38. Therapy was transformational for me, it will be for you.

39. Growth only begins when you start getting uncomfortable.

40. Every day you’re still alive is another day to make a difference.

41. A team is more than a group of people, it’s a machine, keep it tuned.

42. Wealth is not something you should only measure with money.

43. Zero interest rates were an abherration, let the normal times roll.

44. A career is for other people.

45. Expect things to go wrong, that way they’ll go less wrong than you thought.

46. Write for yourself first, there will always be an audience somewhere.

47. If you have to shut down, don’t drag it out.

48. 0 risk = 0 reward.

49. Fractional isn’t the future for everyone – but it is for us.

50. Control your emotions, building a business requires strength.

Bring on 2024 🚀

And finally, as we get into the last hours and minutes before most of the west signs off for Christmas, I thought this summed it up pretty well 😂 

That Friday feeling

— Wall Street Memes (@wallstmemes)
Dec 22, 2023

🚀And that’s a wrap for this edition of The Lowdown – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

📨 And if you think someone else might love this, please forward it on to them,

🎧 Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

Off Balance #24

👋🏾 Hi friends!

Hello again from cold but sunny Tuscany 😀 

As promised, this week’s Off Balance is going to be a little (ok, a lot) shorter than normal as I unwind and reflect on the last year as well as plan for the year ahead.

Not that it hasn’t been a pretty busy December all in all, but sometimes you just need to stop being ‘productive’ and start getting strategic in your thinking.

So as you get the turkey in the oven and take that extra glug of wine to deal with your in-laws / sibling / cranky uncle, take a step back and give yourself a pat on the back for everything you’ve managed to get done this year which – at least in startup land – has been a pretty crazy one all in all.

Now let’s get down to business…

In this weeks Off Balance, I’ll be chatting about:

❓️ Planning a strategy as a first time solopreneur
❌ 10 things CFOs see founders doing that they REALLY shouldn’t be

Also, in this week’s Nothing Ventured, I spoke to Matthew Stafford, Co-Founder of 9Others, an offline social club hosting small, intimate dinners where entrepreneurs can – over a good meal and no doubt a bit of liquid courage – ask each other the answers to the questions that have been keeping them up at night.

Matthew also invests in early stage businesses and has a golden rule not to invest if it’s the first time he’s meeting the founder who is pitching.

As always, our Primer episode gives you a bit of background on how he got to where he is today – pheasant beating and all 🦃 

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect 💪🏾)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale 🚀

How can did I add value?

This week I decided to try and add some value to someone who’s business has been transformational in my life.

Me.

Yes, I decided to sit myself down and give myself a bit of purposeful direction 😂 

There is an old saying, “physician, heal thyself” that comes from the Bible (Luke 4:23) and is one of those sayings that rings very true to me.

I spend a lot of time helping others out with their businesses or giving advice on their personal situations, but rarely take the time to do the same for myself.

It’s also true that it’s much easier to give advice than to take it, and even easier to second guess one’s own advice.

That’s why having mentors and coaches in your life can be a game changer.

Whilst I have lots of people whose wisdom I am able to draw upon, I’ve always defaulted to reading as a way to ingest the learnings of others – after all, we stand on the shoulders of giants.

At the moment, I am reading The Go To Market Handbook for B2B SaaS Leaders written by Richard Blundell, Paul Watson and Chris Tottman. I have known Chris, founding partner of Notion Capital, for a while, but had my first conversation with Richard only recently with a view to getting the three of them on the pod.

They’ve scaled and exited, failed and restarted multiple times and have really learned what works in the world of B2B SaaS – even if the term didn’t exist when they were doing it.

Now, my business isn’t actually a SaaS business, it’s a services business and as a result, I’ve always found it difficult to really hone in on our value proposition.

After all, the sort of things CFOs do is many and varied (just read all the posts I’ve written on them!)

But whilst I was reading the book, I had a bit of a mini-epiphany…

What if I flipped my thinking.

What if I thought of the business as a software business and our CFOs as a product solving a pain point for our customers.

You may ask why that’s necessary, after all, I could probably come up with a value proposition without going through a contorted thought process. But as I mentioned, service led businesses often get into all sorts of projects, but software solutions (at least the really great software solutions) tend to solve one problem (initially at any rate) incredibly well.

So I started thinking about all the issues that our customers face and what it is that we do to solve them.

That’s everything from managing cash flow and burn, to dealing with investors and financiers, navigating the board, setting up KPIs and metrics, regular reporting, dealing with EMI schemes, R&D claims and a plethora of other things.

And I tried to narrow those down into the essence of what it is that we are solving.

Then I tried to think about our customers – founders – and what intrinsic pain they face that we are there to solve for.

Now let’s face it. Founders face multiple pain points on multiple fronts, but ultimately the one that keeps them up at night (at least in the earlier stages of their business) is whether they can keep the lights on. Do they have enough fuel to keep the furnace burning and, more prosaically, are they going to make payroll this month.

The pain that they have is, simply put, will they have enough cash tomorrow to keep the business running.

So I went through a couple of iterations and then (because I’m that sort of a guy) plonked it on LinkedIn to try and get some feedback.

And here’s what I ended up with after to’ing and fro’ing with helpful folk online as well as my own team:

I’d love to get your thoughts on whether this makes sense, if it speaks to you about something you’ve been or are going through and can relate to viscerally?

I’m going to keep on working on it and narrowing it down further until I have the gotten to the pure essence of what it is we do – watch this space!

As always, my office hours are open, if you’d like to chat about this or anything else, just grab some time 😊.

Created by AI using DreamStudio

Off Balance

As we had into the uncharted territory of 2024, I thought it might be worth taking a look at a few of the things that startups really need to be focussed on over the coming twelve months to give them the best chance of success.

So here are my top five issues startups are going to have to deal with in 2024.

5 Things Startups Need to Think About in the New Year

Economic Uncertainty and Market Volatility
As the global economy continues to see volatility, bouncing around like a kid on a trampoline, startups have to prepare themselves for some pretty unpredictable market conditions.

Not least the end of the zero interest rate period and an expectation that high(er) interest rates are here to stay.

This means they are going to need to ensure they really nail their financial planning and forecast as well as possible so that they will be able to navigate this shifting landscape and changing economic scenarios.

They will need to ensure they reserve sufficient capital to make sure they can weather downturns and keep an eye out on how inflation and interest rates might impact their own businesses internally as well as their customer base externally.

Cash Flow Management
It goes without saying, therefore, that tight control over cash flow remains a critical challenge for all startups. They are going to need to ensure they optimise their burn rates such that they are able to grow efficiently and without wasting capital.

This means planning to make sure that spending is focussed on delivery of their strategic goals and milestones whilst maintaining enough reserves to see them through the longer fundraising cycles we’ve been seeing for more than a year now.

In turn, it means they are going to need to pay more attention to their finance operations, ensuring that they manage working capital tightly controlling both their receivables as well as payables to avoid unexpected cash shortfalls in the event that targets aren’t met.

Regulatory Compliance and Tax Changes
It’s dry, I know, but as we’ve just seen with the aborted Adobe/Figma acquisition, regulators (especially here in Europe) are keen to put their stamp on how tech progresses.

Further regulation on AI is another key area where governments will be sure to be looking and startups in this space need to be conscious of what these changes might mean for their services.

As startups scale, they’ll also need to be conscious of shifting tax requirements. We’ve seen some of those issues arise as a result of Brexit in the UK, but as well as this, I would not be surprised if we see further tightening of tax rules in general – again, the changes to the R&D Credit scheme in the UK are a good example of this – many startups found themselves short of cash at a critical point in their cash cycle having planned for receipt of these credits only to have had them challenged by HMRC (or denied altogether). I’ve taken to advising the startups we work with to remove them from their projections altogether and to treat them as a bonus if they are ultimately paid out.

Fundraising and Capital Structure 
The VC and general investment landscape is continuing to evolve. As I flagged in last week’s Lowdown, there is currently $4 trillion of dry powder waiting to be deployed, but this does not mean it’s going to necessarily find its way down into the majority of startups.

VCs whom I talk to on a weekly basis are all becoming massively more selective around the sorts of businesses they’ll back and even starting to bet on businesses they think will be able to survive and thrive without the need for multiple financings throughout their life cycle.

The changing environment also means that founders and CFOs alike are starting to look at their capital stack differently, taking on debt in some instances where it’s appropriate and reducing dilution where possible.

Term sheets are also becoming more protective to investors with liquidation preferences and enhanced control provisions (I recently had one seed stage founder tell me an investor was asking for quarterly audited numbers – I am hoping they had misunderstood but in this market? Who knows!).

Technology Integration in Finance
It goes without saying that startups will need to start thinking about how to leverage more software tools into their finance stack. These tools will have a number of roles to play.

Firstly improving efficiency and reducing costs from the need for manual intervention through automation and more connected process flows.

Secondly ensuring better real time data analysis and reporting so that the business can course correct as data dictates rather than waiting until the monthly numbers are other before making a decision.

All in all, it’s a brave new world out there for startups and I’m excited for the sort of innovation we’re likely to see as well as the path that founders and startups will take in this changed funding landscape sat amidst broader changes in the ecosystem and global markets.

Whatever else it’s going to be, 2024 is going to be an interesting year in the venture ecosystem and I can’t wait to see what it brings.

Gif by theoffice on Giphy

I hope you found Off Balance #24 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at hello@emergeone.co.uk and let me know 😊

🚀And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

📨 And if you think someone else might love this, please forward it on to them,

🎧 Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

The Lowdown #15

👋🏾 Hi friends!

Well that was an experience.

One and a half days driving the Tesla down from the UK to Italy, I’m not entirely sure I’d do it this way again 😂 

The highlight of the journey was entering Italy and being faced with fog for the next 100km or so – in the dark… It took me a good hour before I was able to untense every muscle in my body.

For anyone who has driven on an Italian motorway, you know how ‘fun’ that can be as the guys in the car behind you come up almost bumper to bumper and start flashing their beams at you to get out of the way – well that + fog = a waking nightmare!

Somewhere south of Milan

This week on Nothing Ventured, I spoke to Josh Bell founding and General Partner of Dawn Capital.

Here’s what you can expect:

➡️ There’s still capital out there for emerging managers.

➡️ Why diversity leads to better investment decisions and how Dawn baked it into their hiring strategy.

➡️ The S/EIS trap, what it means for founders looking to raise Venture Capital.

➡️ Dawn’s story and the journey to raising their latest $700m fund.

Check it out!

This week will be a bit of a reduced edition as I wind down a little for the festive season and there was one bit of news that sums up everything I’ve been thinking for the last year – that we’re going to see a massive shift in the private markets over the coming year(s).

🤑 4 trillion dollars waiting on the sidelines

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Lowdown” and, more importantly, tell me why you’d like to connect 💪🏾)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale 🚀

The Lowdown

There’s no lack of cash, so why is fundraising so tough?
This article from the FT says it all. There is currently $4 trillion of ‘dry powder’ (undeployed capital) in the market and that’s a pretty big number – and big deal.

Clearly there are a few things at play here, not least the fact that with rising interest rates, when your risk free return is no longer 0% (or near as damn it), you maybe think twice about pumping your money into much riskier assets (like startups).

What I think is likely to happen is a bit of a rebalancing. Sure we’re still going to see some crazy deals being done (because venture gonna venture), but I think we’re going to see some of those LPs and GPs getting more strategic and nuanced about where they deploy their capital.

My bet is that we’re going to see a lot of M&A and secondary activity as VCs try to exit some of their positions whilst startups simultaneously find it ‘harder’ to raise (the caveat here is always that breakout businesses will always find funding – it’s the ones that aren’t quite able to reach escape velocity that will be rolled up).

However the dice land, it’s good to know that there remains this level of capital awaiting a home and it will be interesting to see how it changes the attitudes, and allocations, of VC managers.

Check out the full report by BlackRock here.

And finally, as companies scramble to figure out how to keep going, this little meme caught my eye!

SME penny company getting ready for its IPO 😂

— Finance Memes (@Qid_Memez)
Dec 11, 2023

🚀And that’s a wrap for this edition of The Lowdown – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

📨 And if you think someone else might love this, please forward it on to them,

🎧 Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

Off Balance #23

???????? Hi friends!

Well would you look at that? Another year pretty much done and dusted, where the heck does that time go ???? .

I’m about to head off to Italy to spend a quiet couple of weeks with the in-laws, so for the rest of the month, I’ll be sending out a bare bones Off Balance and kicking things off in the new year with a new format based around the post I wrote this time last year covering the 100 lessons I’d learned from 2 decades operating.

I hope that whatever you’re doing over the holiday period, you get to spend it with people you love and 2023 ends as well as 2024 begins ???? 

Now let’s get down to business…

In this weeks Off Balance, I’ll be chatting about:

❓️ Planning a strategy as a first time solopreneur
❌ 10 things CFOs see founders doing that they REALLY shouldn’t be

Also, in this week’s Nothing Ventured, I spoke to Josh Bell, one of the founders of and General Partners at Dawn Capital which, over the summer raised a phenomenal $700m new fund.

As always, our Primer episode gives you a bit of background on how he got to where he is today ???? 

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

How can did I add value?

This week I spoke to an old friend who has (relatively) recently taken the plunge to move out of employment into a brave new world consulting.

For me, what was even more interesting was that he was moving out of a career in education as a leader to take the plunge into carving out his own path.

You may be wondering what value I could add to any problem he might have been having but, having worked in the edtech sector with a number of educators (including Eton College) as well as the fact that the problems you face as a solopreneur are agnostic to the industry you’re applying your skills to, there were a number of ways I could help him think through the most sensible approach.

Here are some of the issues we touched upon.

Purpose
I don’t mean purpose in the slightly nebulous way that thought leaders talk about when they tell you to ‘find your purpose’ – if anything I have for some time now subscribed to the fact that this (along with ‘passion’) are the wrong ways of approaching a problem. Instead, you should find what you’re great at doing and you’ll often find that purpose and passion arise.

With that out of the way, the purpose I was talking about was what purpose he felt his consultancy was going to ultimately fulfil.

Did he want to be a consultant because of the flexibility it gave him? Or was the ultimate goal to create a business with all the complexity that entails (hiring staff, building processes, moving out of delivering services to (mainly) finding customers to pitch those services to?

It’s not essential to know the answer immediately or have a plan to execute immediately because, as was the case for me, you may well develop the plan organically as you continue to deliver the services as a solo consultant.

This gives you the ability to test out assumptions and not only see what services customers are actually looking for, but which of those can be packaged up and delivered by a team, rather than you personally.

But having an idea of which way you are likely to go helps you make sure that you have those assumptions at the back of your mind as you build.

One Thing
It turned out, that on top of the consultancy, he had also built out a small but growing digital community off the back of content that he and others were creating.

The immediate question I had for him was whether that was a business in its own right, and hence should he be focussed on one or the other.

Let’s not beat about the bush, building a business is not simple, especially when you are doing it on your own, and, making the mistake on trying to do too many things often results in you not being able to truly succeed in any of them.

This is something I have struggled with throughout my career – whether running a couple of manufacturing operations in Papua New Guinea or, more recently, trying to build both EmergeOne (a service based consultancy) and Projected (a tech product).

Being that deep in a businesses, especially a young one, means you have to give it all your attention. Once you have grown to the extent that you have a team under you and the ability to step away from the day to day, that may be the time to try and build something new, but for most of us that is either going to be a long way in the future or not at all.

The other way to frame it is whether all the activities you’re doing are focussed on the same goals or objectives.

For example, I actively decided to continue with the podcast and launch this newsletter, not because I thought either would be revenue generative channels in their own right (through sponsorship or advertising), but because they both actively helped drive my core activity (EmergeOne) forward, whether through developing my and the business’ brand or as active lead generation for the business. I stopped thinking of them as separate activities, but as core to the business itself.

As it happens, he hadn’t thought too deeply about this, but knew that some of the work he had won had actively come from the community. From my perspective this is the ‘lead magnet’ to drive business to the consultancy. Therefore focussing on building it out from a content perspective should be his first objective, monetisation might be a secondary goal, but I suggested that trying to both monetise the community whilst building the consultancy would end up with neither achieving what he needed in the mid term.

Where’s the Money
Finally, I suggested that he mapped out who the ideal customers are for the business and to concentrate on building relationships with them, even if that doesn’t lead to immediate business, as you want to keep them warm for when a need arises.

This is imperative when you’re building a service business as you have to balance the need to deliver the services (and hence drive revenue) with the need to be in the market pitching for new business.

It’s the biggest challenge most consultants have given the irregular nature of business activity and, let’s face it, many people are not great at business development and sales preferring to concentrate on delivery but it’s imperative to be active on both sides to build out a sustainable business – whether that’s as a soloprenuer or in a more structured situation (where it’s likely that the focus shifts further towards the business development).

As always, these were just my perspectives, it’s hard to be definitive over a short call on a business where you only have a superficial understanding of the complexities involved. I’m pretty sure he found it useful though, if for no other reason than it raised questions for himself that he can take away and resolve in his own time!

As always, my office hours are open, if you’d like to chat about this or anything else, just grab some time ????.

Image generated by AI using DreamStudio

Off Balance

One of the things we come across as CFOs working with early stage businesses is the bat shit crazy things some founders ask us to do – or often have already done before we even touched the ground – here are ten of the sort of things we’ve come across over the years – and remember, doing any of these will get you in SERIOUS TROUBLE with the law so these are things that you should avoid at all costs ????

Founders – Don’t do these things

Conflate cash with revenue – Accounting is a bit of a dark art, we get it, but a lot of founders assume that they can report cash flow as revenue. Obviously this is a big no no because the whole point of accounting is to match revenues and costs in the period they arise. What this means is that if you win a 12 month contract with an upfront payment, it may look great to juice your numbers, but the reality is that from a revenue perspective, that contract has to be spread over the twelve months.

Include VAT in your revenue numbers – Similarly, including VAT in your sales numbers is completely flawed. VAT is a working capital element that goes on your balance sheet. The cash you receiving from charging VAT to your customers has to be repaid to HMRC so it goes in and out of the business and should never be included in sales reporting (unless explicitly stated).

Adjust your EBITDA – We’ve all by now heard of the famous WeWork ‘Community Adjusted EBITDA’ number. But whilst this was an egregious manipulation of the numbers, founders try to get away with doing this from time to time – I’ve seen requests to exclude a legal fee from the numbers because it’s not ‘in the normal course of business’, the problem is that really is in the normal course of business. The only exception to this is you have a one of restructuring cost (redundancies etc.) where there is a significant impact to the business that is not likely to ever occur.

Take your family to Disneyland on the company credit card – I’ve come across this in a previous life and it beggars belief. There is an assumption amongst many people that you can pretty much put whatever you want through the business, in this particular instance an employee had tried to claim this as a bonus related expense. Clearly not the case. It’s really important to understand what is legitimate and what isn’t.

Report future revenue in ‘current’ terms – It’s obviously good to keep investors and your board appraised as to what is in the pipeline, but some of my CFOs have seen founders try and report the net present value of future sales when sending out updates. Apart from just being transparently manipulative, it’s also just down right wrong!

Throw stuff on the Balance Sheet – Sometimes a cost is bigger than you would like it to be and the solution some founders think is sensible is to capitalise the cost (take it to the balance sheet) and amortise it over time. Now there are times when it is fairly legitimate to do this (a cost that relates to services or work to be provided over a period of time), but for the most part, costs are costs in the period they are incurred, they shouldn’t be taken to the balance sheet to make your P&L look smoother.

Expect your CFO to do your bookkeeping – OK this isn’t exactly in the same vein as this other stuff, but let’s face it, it’s something that comes up again and again. CFOs should be involved in the strategic stuff with oversight of the operational, rarely should they be doing the actual operational work. This comes back to a misunderstanding of what the various roles in finance are and how they break down.

Overstating inventory – Whilst all of the above could be seen as understandable due to a lack of understanding (though still not something anyone should do), this one is a different level of behaviour – intentional and fraudulent on many levels. I came across this when I was out in Papua New Guinea, a few years before my arrival, the management had colluded to do just this. Inflate the inventory to increase the profit of the business and hence try to hoodwink shareholders. It all came to a head when a) it was clear that the levels of inventory in the books didn’t match those on the warehouse floor and b) when despite seemingly great profitability, the business had no cash. As you can imagine, there was a lot of stuff that had to be unravelled to get to the bottom of what had happened.

Kite flying – This is another one I saw a customer of ours do in Papua New Guinea. To hide cash flow problems, a supermarket chain would write cheques from one store into another to pay for goods with none of the sotres actually having enough cash to cover the purchases. Because this was all done with physical cheques that required physical clearing at a bank, it would take a few days to catch up with itself and all the while they would be continuing to send cheques on a merry-go-round between their businesses. Again, as you can imagine, when this all came crashing down, there were a lot of businesses that were left picking up the pieces.

Cherry picking what goes into the KPIs – Because KPIs don’t always have a standardised definition, founders and management teams may try to massage them to make performance look better than it is. A really common one here is manipulating customer acquisition costs in order to look the unit economics look better than they are. Maybe they exclude some of the business development costs, or marketing spend or even shift attribution from one campaign to another (especially where it’s not incredibly clear what spend acquired the customer in the first place. Don’t do this, apart from being deceptive, it actually doesn’t help you out anyway as you need to make decisions based on those KPIs.

I get founders’ need to present the business in the best possible light. So much can depend on what the numbers show – whether that’s raising investment, getting a line of credit or convincing your team what the best strategy is.

But ultimately any form of manipulation not only takes a huge amount of energy that should be focussed on actually growing your business, but also hampers your ability to grow the business because you’re working off bad numbers.

There is ultimately however, no argument for engaging in an activity that even looks like it might be fraudulent – just as SBF and FTX how it worked out for them…

I hope you found Off Balance #23 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at hello@emergeone.co.uk and let me know ????

????And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

The Lowdown #14

???????? Hi friends!

Can someone burn some sage for me because this has been another painful week! We finally got our Tesla back hopefully in tip top condition as I’ll be driving it down to Italy next week – send your thoughts and prayers that we make it all the way without the car falling to bits ???? but, I also got hit with a bunch of fraudulent transactions when my Hostgator account got hacked with someone acquiring domains like billionairehacks and lord knows what else.

So sadly I’ve been spending the last couple of days on a series of increasingly frustrating calls with both Hostgator as well as HSBC whilst I try to get this all resolved.

Anyone else longing for the days of cold, hard cash?

Anyone?

In other news, I was super excited to receive this recently. Pumped me up to keep putting out great podcasts with incredible guests ???? 

This week on Nothing Ventured Antonio Avitabile, MD Europe for Sony Ventures Corporation.

Here’s what you can expect:

➡️ Moving from off balance sheet investing to raising a fund.

➡️ Launching a fund and training school in Africa and investing in African creativity.

➡️ The cultural barriers that hinder Italian and European startups from truly scaling.

➡️ The high risk and high reward stakes that come from investing in deeptech.

Check it out!

This week there have been a few things that have caught my eye in the tech and venture ecosystem and what we’ll be talking about this evening, namely:

???? AutogenAI raises ~$40 from Salesforce Ventures and others
???? OpenView Venture Partners changes its view
☠️ Founders who have decided not to raise from VC

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Lowdown” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

The Lowdown

Autogen Goes from Strength To Strength
Another amazing result for one of our portfolio client, Autogen AI, who, after having raised >$20m over the summer have closed just under $40m from Salesforce Ventures and other investors further cementing their place in the AI driven bid and proposal sector.

It’s been incredible watching their progress over the last year and being part of their journey ???? 

The View from OpenView

After some swift departures amidst the senior leadership, OpenView has laid off 50% of their team and suspended new investments.

The reality is that I think we will see more of this sort of upheaval into the new year as firms either shut down or rethink their strategies in the new (old) world where interest rates matter and capital as a weapon is no longer assumed to be the way to build generational businesses.

Bootstrapping is Back
Similarly, founders are also starting to clock on to the fact that they don’t need to go through the venture factory model of raising round after round to build their businesses as this article from Sifted highlights.

I think we are going to see more founders pursuing capital efficient growth and maintaining ‘healthy’ cap tables where they don’t have to take significant dilution to get the outcomes they are looking for.

Does this mean that VC is dead?

No, but I think it will be re-imagined and maybe, just maybe, we’ll see a return of venture backing businesses that really need the capital to innovate in sectors such as hardware, bio and deeptech.

And finally, with all the turmoil in venture right now, thoughts and prayers to all those analysts trying to hit their numbers…

Junior VCs trying to ramp up the CRM statistics before Christmas

— Said A. Haschemi (@SaidHaschemi)
Dec 7, 2023

????And that’s a wrap for this edition of The Lowdown – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

Off Balance #22

???????? Hi friends!

I’ve been taking a bit of time over the last few weeks to hone my (pretty basic!) sketching skills in preparation for the shift in focus for Off Balance from the New Year.

As with everything in life, writing this newsletter has taught me a bunch of things, not least that there is not easy route to building an audience!

It’s always difficult to see all the ‘success’ stories on social media without feeling a bit like whatever I’m doing isn’t hitting the mark. But then I just remind myself that all we see on socials is the outcome, never the journey ???? 

(p.s. anyone who wants to give me some lessons in sketching, I would be very open to it ???? ).

Now let’s get down to business…

In this weeks Off Balance, I’ll be chatting about:

????‍⚕️ Mentorship vs Coaching
???? Down rounds and recapitalisations

Also, in this week’s Nothing Ventured, I spoke to Antonio Avitabile, MD of Sony Corporation Ventures for Europe ???? We talked about Sony’s move from building it’s own tech to investing off balance sheet into interesting companies to finally setting up its own fund investing in entertainment, fintech, image sensors and other forms of deeptech ????️ 

As always, our Primer episode gives you a bit of background on how he got to where he is today ???? 

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

How can did I add value?

Last week I took another step to further my desire to add value to the tech and venture ecosystem by applying to be a mentor at Techstars.

As well as this, I had a long conversation with a coach last week at the 9Others Winter Party and I thought it would be valuable to explore the value, and difference, between the two.

Firstly, I think it’s worth saying that I have been fortunate enough to benefit from a lot of informal mentoring throughout my life.

This has come from a variety of places; from those I’ve worked with, industry leaders and people within my wider network – investors, founders and subject matter experts.

One could argue that a lot of the conversations I have on the podcast borders on informal mentoring – the topics we discuss and the strategies many of my guests talk about helps me inform what I may (or may not) do in the future.

I’ve only really had a coach once in my life, in the uncertain period when I moved from Melbourne back to the UK, and had some great results.

So let’s understand a bit more about mentorship and coaching, shall we?

Mentoring
A mentor is someone that uses their experiences and knowledge to guide someone (the mentee) through their journey.

They provide advice, share expierences and assist their mentee to navigate them through their career or business challenges and goals.

As I mentioned earlier, I’ve benefitted from informal mentorship – a less structured and defined process but I have also mentored in a more formal way – specifically as part of the Virgin Startup programme where loan recipients have to commit to a period of mentoring as part of the terms of receiving the loan.

In a formal mentorship relationship, the mentor and mentee will often set up a broad framework to follow, discussing what it is that the mentee wants to achieve and then going through a process to help them get to where they want to get to. Even then, the way the relationship works is still quite loose and rarely follows any strict protocol.

Coaching

Coaching, on the other hand, is a much more structured process where the coach helps an individual achieve specific personal or professional goals.

Typically, coaching is far more focussed on specific issues and is more often than not time-bound with coaches employing a variety of techniques and methodologies to help an individual unlock their own potential.

It tends to be much more formal and goal oriented and often revolves around developing a particular skill or overcoming a specific challenge.

Comparing and Contrasting
People often conflate the two, assuming that coaches are mentors and vice versa. In reality, coaching is a much more formal, business like relationship whilst mentorship is far less formal and structured.

I have often had the difference described to me as follows:

Mentors tell you what you should do based on their experience, whilst a coach will help you to figure out what you should do yourself, essentially holding a mirror up to yourself.

From that perspective, coaches don’t necessarily need domain expertise in the area you’re trying to resolve, as they use their tools and knowledge to draw the answers out of yourself, whilst mentors almost always will have had specific experience in the problem space that allows them to give you the benefit of that experience to navigate the problem.

Essentially mentorship is a more organic relationship whilst coaching is far more structured albeit that broadly speaking they attempt to achieve similar outcomes – the furthering of someone’s progress towards achieving a desired outcome.

You may be asking yourselves why I’m talking about this given it’s a general discussion about the two disciplines rather than a specific example, but in reality, this is a distillation of many conversations I’ve had with people struggling how to take things forward.

In some instances, I can help them directly because of the specific experience I’ve had (i.e. mentoring), whilst in others, they would benefit greatly from someone that can guide them through a process and unlock their own abilities along the way (coaching).

One thing is for sure, I have rarely met a single person that couldn’t benefit from either a coach or a mentor (or both) at various points of their life and journey – whether personal or business – and if you’ve never experienced how useful they can be, I highly recommend you find one!

As always, my office hours are open, if you’d like to chat about this or anything else, just grab some time ????.

Created with AI using DreamStudio

Off Balance

Let’s face it, we’re entering a pretty rocky period in the venture backed ecosystem.

Funding at later stages is drying out as oversized valuations come back to bite and founders (and investors) are finding themselves in a position where they are having to make pretty difficult decisions on the future of their companies and portfolios.

The most desirable outcome for founders is obviously finding an investor that will continue to fund their growth, or if this is not possible, restructuring the business so that they can grow without external capital, driving towards profitable expansion.

But the reality for many is that, absent investment or an acquisition approach, they are going to have to make a decision between three equally tough outcomes: at best taking on capital at a discount to their last round, navigating the famous ‘down round’, going through a full recapitalisation, essentially wiping out existing shareholders or, at worst, shutting down the business altogether.

Down Rounds and Recapitalisations

Introduction
As previously discussed, a down round is a financing event when incoming investors invest at a lower valuation than the last round.

This has the net effect of diluting existing shareholders more significantly than they would have if the investment had happened at a higher valuation than the last round.

For example:

Let’s say existing investors had all invested $20m at a $100m valuation, they would have owned 20% of the company.

In a normal situation, the next round of investors may have invested $30m at say, $150m, leading to 25% dilution (i.e. existing investors would own 15% of the company).

But let’s say the business isn’t able to raise an up round, and have to take in capital at a lower valuation, new investors may only invest their $30m at a $80m valuation

This dilutes existing investors by 37.5%, meaning their shareholding drops down to 12.5%.

Not only that, but as investors revalue their portfolios against the new valuation, it will show a significant drop in performance.

For founders and employees, having to suffer through a down round can be massively painful, the reputation of the company might suffer as it suggests that they weren’t able to perform strongly enough to warrant a higher valuation.

For employees, it is possible that their stock options are now worthless (i.e. the strike price per share is higher than the current price per share of the venture meaning they would actually be taking a loss if they were to exercise them).

A recapitalisation, on the other hand, is a more existential event where new investors essentially invest as if the business was worth zero, wiping out existing shareholders altogether.

This typically happens when the business is facing the risk of closure and no-one is willing to invest further capital into the business even close to previous valuations.

In these instances, some investors may step in, fund the business but only on the basis that the pre-money valuation (the value of the business before the new investment) is reset to nil.

As part of the process, they may carve out a substantial share pool so that founders and employees continue to be incentivised. But based on the fact that existing investors aren’t willing to put their hands in their pockets, they will either be pushed far down the capital stack or removed altogether.

Recapitalisations often go hand in hand with a restructuring of the capital stack with debt being introduced into the mix as well (hence reducing risk to the new investors whilst pushing the business to optimise its processes) and often require a different kind of approach by the incoming investors.

I’ll try to explore the implications from the viewpoint of various stakeholders in more detail below whether that’s founders, employees, existing or new investors.

New Investors
For new investors, there is clearly an opportunity to enter a business’ capital structure on preferred terms and at a lower price than the company and its existing investors would like.

But there are clearly a number of risks with this strategy, the main one being that there is no guarantee that despite having invested at a lower valuation, the business can actually get to a successful position.

They run the risk of further down rounds and dilution themselves (though are more likely to put in defensive anti-dilution provisions to protect their positions) because they are ultimately taking a bet on a business that no-one else wants to in the moment.

Investing at these lower valuations means that the approach to investment almost always needs to change as compared to the more ‘traditional’ hands-off approach VC funds are famous for.

They may need to restructure the management team, push for and execute lay-offs whilst still ensuring that remaining team members are motivated enough to push forward.

This tightrope of making the business efficient whilst maintaining momentum is a tough one to tread and incoming investors need to hold a high level of conviction in the investment to take it forward, otherwise it would be ‘easier’ to not invest at all.

Existing Investors
As already discussed, the impact on existing investors of either a down round or a recapitalisation can be quite substantial.

The immediate effect is, of course, the enhanced dilution (or absolute removal) of their ownership stake in the business, but the implications go much further.

The first is on the overall valuation of the investors’ porfolio, whilst unlikely, but if a significant enough number of the portfolio are valued downwards, they could find that they the overall value of the portfolio is less than the amount of capital deployed.

Whilst, until their investments are realised (turned to cash), these remain paper valuations, given that funds are constantly raising investment into new funds, presents a large problem for them as LPs (limited partners) will look at existing fund performance to understand whether they want to invest into this particular fund or fund manager again.

Given how much of the venture ecosystem is built around reputation and ‘signalling’, it isn’t just the company going through the down round or recapitalisation whose image gets tarnished.

Larger, more established funds are more likely to be able to weather this storm, but for emerging managers or smaller funds this presents a large challenge for their survival.

Founders
For founders, the most significant impact, which should not be brushed aside, is the impact these events can have on their morale and mental health. They are essentially going to have to juggle and manage the competing interests of the various stakeholders in their business whilst still trying to keep the business itself running.

This means dealing with existing investors who don’t want to take the significant dilution a down round or recapitalisation entails – in fact in certain instances, some investors may prefer to see the business wound up. This is more likely to happen where they have made a tax incentivised investment and allowing the business to fold can help them recover some of those tax benefits versus allowing the business to continue operating where they don’t.

It means dealing with employees who may be uncertain about the future of their roles or the value of their stock based compensation, dealing with clients who may have become aware of the uncertainty facing the business as well as suppliers who equally may be concerned about the company’s ability to pay off their debts.

At the same time they are having to navigate the new investment, balancing the need for investment with the sort of punative terms that may start cropping up in a down round or recapitalisation scenario.

With this said, more specifically, one of the most substantial impacts these events have on founders is the impact on their ownership of and control over the business. Incoming investors may stipulate that founders’ shares must vest over time locking them in farther for the journey which, in lockstep with the enhanced dilution they will have taken might be a bitter pill to swallow.

The incoming investors are more likely to exert more significant control over the board and hence the direction of the company and in extreme circumstances may remove the founders altogether.

For some founders, it may make more sense to wind up the business and go again rather than trying to raise the phoenix from the flames.

Employees
The obvious problem for employees when they realise that the company is going to go through a down round or a recapitalisation is the uncertainty that this entails and the impact it has on morale.

Employees conscious that the business is going through pain may well feel that their jobs are at risk and this leads to a compounding effect of talent leaving the business when maintaining a level of retention might be critical for the ongoing viability of the business.

Beyond that, they may well find, as previously mentioned, that their stock options no longer have any significant value. As, in most startups, stock based compensation forms a significant part of the overall package of an employee (who will often have taken a lower salary based on the upside potential of the stock), employees may well find themselves significantly out of pocket compared to where they assumed they may be.

Again, there are ways of resolving this by reissuing or repricing stock options but that can be a tough sell when an employee has seen the business so significantly impaired.

Navigating a down round or a recapitalisation is not a simple task for anyone involved.

For founders, they must balance the consequences of taking in capital at a lower valuation not only for the business, but for themselves and other stakeholders, they need to make the incredibly difficult decision of taking the pain and continuing the journey versus deciding to strategically shut down.

For incoming investors, they have to consider whether the investment makes sense given the business hasn’t performed well enough to continue to grow and raise further capital on good terms and, importantly, whether they will be able to influence performance enough that they can push the business back onto a positive trajectory.

Existing investors will have to consider the impact on their reputations and their portfolios of having had one of their investments have a less than desirable outcome and, for those that are tax incentivised, whether they would prefer to allow the business to close altogether.

Finally, employees need to consider whether they still buy into the mission of the business under the new structure and whether they should consider looking at other options in terms of employment. They will need to understand the impact on their stock options and whether they are in a position to negotiate for more options or better terms.

The reality is that resilience and adaptability are always going to be required in the ever-changing venture capital landscape, and as we enter this next period of difficulty, it is that resilience which will no doubt separate the ventures that survive, versus those that die.

I hope you found Off Balance #22 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at hello@emergeone.co.uk and let me know ????

????And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

The Lowdown #13

???????? Hi friends!

As a tech enthusiast, I’m always left incredibly disappointed when tech fails.

Well today, I was reminded that even the richest (and possibly one of the smartest) people in the world can build products that don’t work as you expect them to.

In this instance, I’m talking about the Tesla.

Only a year in and a pretty significant failure which means I’m going to be spending most of my day today at the service centre. Sigh.

But on a more uplifting note, this week on Nothing Ventured I spoke to Fatou Diagne and Stephanie Heller. They’re the founders of Bootstrap Europe, a fund providing growth debt to high growth scale ups.

Here’s what you can expect:

➡️ Fatou and Stephanie discussed their ‘origin’ story: From boarding school in France > travelling across the dessert in Africa > ultimately founding Bootstrap Europe

➡️ We discussed how startups can use venture debt alongside equity investment to scale

➡️ How, despite being massive underdogs, Bootstrap Europe was able to acquire SVBs European venture debt portfolio (at a discount no less!) and continue to support great ventures in Europe.

Check it out!

This week there have been a few things that have caught my eye in the tech and venture ecosystem and what we’ll be talking about this evening, namely:

???? Friend of the podcast, Hussein Kanji, joins the Midas List Europe
???? Venture funding in Europe slashed in half this year
???? ChatGPT one year on

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Lowdown” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

The Lowdown

Midas Touch
Given the state of venture at the moment (which I’ll discuss below), I thought it would be worth taking a moment to celebrate friend of the podcast, Hussein Kanji’s ascension to the Midas List Europe ???? 

According to Forbes, the Midas List Europe is:

With VCs being scored on a number of KPIs including deals done, valuations and exits, it’s one of the gongs that many VCs aspire towards.

For anyone paying attention, you may well see glimpses of the podcast throughout the article (though they did interview Hussein too!) – glad to have played a teeny tiny part in the article, if not the achievement!

Congrats to Hussein ???? 

Market go up, market go down
Now for the bad news.

Venture funding in Europe has dropped dramatically this year against a backdrop of tight markets, high interest rates, US investors exiting the continent (funding from US investors has dropped 14 percentage points).

There’s also been a general realisation that many businesses probably shouldn’t have raised venture in the first place.

Funding into AI has remained – unsurprisingly – the bright spot whilst a number of scale-ups have had to suffer through the pain of down rounds (raising at a lower valuation).

The article below suggests that funding at seed remains strong.

This is unsurprising because at seed you are not necessarily investing on stable metrics, it’s much more of a punt on the potential of the business.

But once you start getting into Series A, B and beyond, investors are much more brutal in their assessments of performance, requiring solid metrics and ongoing growth for them to continue to pour capital into these companies.

ChatGPT One Year On
Now that the dust has settled on the crazy happenings at OpenAI last week, it’s worth noting that yesterday (November 30th) marked the one year anniversary of the launch of ChatGPT.

It feels incredible that it is only one year in given how ubiquitous generative AI feels within the tech ecosystem and how pervasive the use of ChatGPT has become over the last 12 months from students to employees to startups and beyond.

ChatGPT had 1m users within the first 5 days post launch and is now up to 100m users according to the company and is visited almost 1.5 BILLION times every month ????

It’s launching brought the terms Generative AI and LLMs into the general lexicon and it is pretty hard to imagine a world without ChatGPT (or it’s challengers) moving forward.

The pace of change in this space has been incredible and, I’m excited to see what the next 12 months bring us ???? 

And finally, this meme has been doing the rounds and, I gotta say, it had me giggling out loud (yes I know I’m a geek!) ???? 

Tech company profitability

— BuccoCapital Guy (@buccocapital)
Nov 30, 2023

????And that’s a wrap for this edition of The Lowdown – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

Off Balance #21

???????? Hi friends!

The end of November is always a bittersweet for me. It is the period when I am excited by the advent of a new year, whilst also being really conscious of what I have achieved – or failed to achieve – over the course of the last year.

It’s also the time of year that there are waaaaaaay too many events on, so many so that I inevitably have to turn a bunch of them down even if I would love to attend.

On a separate note, I recorded a live show with Eghosa Omoigui and Jonathan Sun last week. We dived into what we thought the real story behind the OpenAI craziness was and what we thought was in store for the venture ecosystem over the next 12 – 24 months (spoiler alert, it’s not great news).

It was super fun to have done and I’m planning on doing a lot more of them in the future ???? 

Now let’s get down to business…

In this weeks Off Balance, I’ll be chatting about:

⚔️ Non Dilution Shares and why they’re a No No
????‍???? The CFO Tech Stack – my take on what’s in the market and what’s to come

Also, in this week’s Nothing Ventured, I spoke to Fatou Diagne and Stephanie Heller, founders of Bootstrap Europe. We talk about how they built their relationship taking road trips in the dessert and how they ultimately came to found Bootstrap Europe and, as underdogs, manage to buy out SVB’s Western European venture debt portfolio.

As always, our Primer episode gives you a bit of background on how they got to where they are today ???? 

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

How can did I add value?

Times are a changing people. The startup and venture market look like they’re going to go through a fair amount of turmoil over the course of the next few months (and beyond) and what this may well mean is the return to founder unfriendly terms.

I got my first glimpse of this when a founder I had been speaking to pinged me to ask a question.

He had managed to secure a decent (close to 7 figure) investment from an angel (so not an institutional investor) but, almost as an afterthought, the angel had asked if the founder would, on top of the investment, consider non-dilution shares.

It was a good job the founder reached out to me, because it would have been a very bad idea for him to have considered offering this type of shareholding to the angel – and here’s why.

Non-Dilution Shares are a class of shares that don’t get diluted in any future funding round.

Let’s slow down and think this through for a second. Let’s say you as a founder own 100 shares and offer 20 non dilution shares to an investor. This means on the face of it, you own 83.3% of the business whilst the new investor owns 16.7%.

No problems so far.

But let’s say you then raise an additional round and issue a further 30 shares to the incoming investor. In a “normal” funding event, this would mean that you now own 66.7%, the original investor owns 13.3% and the new investor would own 20%. That feels ok right?

But because of the non-dilution provision, the new investor would essentially end up buying shares for the existing investor so that they can maintain their shareholding (i.e. they would invest the same amount but get less equity for that same investment).

So what the shareholding would end up looking like would be 100 shares owned by you, 25 shares to the original investor and a further 25 to the new investor meaning you own 66.7% but each investor now owns 16.7% but critically the new investor has invested the same amount as they would have to have achieved their 20% share under normal circumstances.

Now imagine you want to create an employee option pool… ???? 

This really has a couple of main effects:

You (and any other investor without non-dilution shares) take all the dilution.

Incoming investors are essentially paying for the existing shareholder’s shareholding which would be a huge red flag for most investors.

In effect, it penalises future investors making raising new capital harder for the startup.

If I were to be a little considerate to that initial investor, I would say that their request for non-dilution shares might be ‘fair’ compensation for the risk they are taking at the very early stages, but as it has the net effect of making subsequent fundraising much more difficult, it would be pretty shortsided for an investor to demand this type of share structure (unless they are going to commit to fund the business on an ongoing basis).

The other (arguably more common) form of protection that investors might ask for is anti-dilution.

This is much more common when taking on VC investment, and essentially structures shareholding such that in the event that a future round is at a lower valuation than the valuation at which they originally invested, their shareholding will be maintained.

This would seem like a more palatable situation as most businesses would anticipate an increase in valuation on each subsequent round, however, especially in the current market where many ventures raised capital at inflated valuations over the last several years, it’s much more likely that some will have to go through the pain of a down round as they seek out capital to keep the lights on.

The good news (for what it is worth), is that if the investment is substantial enough and critical for the survival of the business, investors can be negotiated with to waive their non-dilution / anti-dilution rights taking the view that a smaller percentage of something is better than a larger percentage of nothing.

What all of this means is that as founders in this environment, you are likely to come up against all kinds of unfriendly terms in term sheets as the balance of power shifts back towards investors (having been pretty founder friendly for the last several years) and you need to be prepared for it.

The same advice I gave the founder is what I’d give here:

Take the time to familiarise yourself with investment terms – obviously by reading this newsletter but also by reading books like Venture Deals by Brad Feld and Jason Mendelson (this book is the gold standard for understanding the various types of terms around economics and control in venture fundraising).

If you’re not sure, don’t bluff. Tell the investor you’ll come back to them once you have understood the implications more fully.

Talk to a CFO or a lawyer – do not fall into the trap of false economy. A bit of money (or none for that matter if you’ve got someone friendly like me in your network ????) today, may save you a huge amount of time, energy and money in the future ???? .

Generated with AI using DreamStudio

Off Balance

As we run (crawl?) into the back end of 2023, I’ve been thinking about the future format of this newsletter – I’m pretty sure of the direction I’m going to be taking it in (less dense, more personal and potentially less frequent ???? ) but for now, I thought it would be good to give you a bit of a guide to the CFO Tech stack as we move into a world where there is a ubiquity of tools out there and it can be quite confusing to know what to use – and when.

If you’ve got a tool in your CFO or finance tech stack that you couldn’t live without, I’d love to hear back from you and add it to my list to explore ????.

The CFO Tech Stack

I am frequently asked whether there’s a product out there for some part of the CFO tech stack but, whilst there often is, that doesn’t mean you should actually be using it.

I tend to see a lot of the tools out there that have ‘democratised’ access to operational (and to some extent strategic) finance as being quite useful for non financially minded founders or teams, but they often fall short when a finance pro gets their hands on them.

First of all, it’s worth understanding how finance moves from the transactional to the strategic layer. This is something I thought about quite deeply when I was building Projected and continue to think about at EmergeOne now that Projected is pretty much done and dusted, but drawing from one of the slides in our deck you can see what are the broad layers within finance:

Transacting – This is about ‘doing stuff’, making and receiving payments, issuing documents and pretty much BAU activities.

Record Keeping – This is everything from accounting records to purchase orders, recording and reconciling ledgers and more.

Reporting and Compliance – Getting management reports out, getting financial statements and tax returns out of the door, ensuring that you have adequate insurance and other compliance activities.

Financial Planning – Normally financial planning and analyis, this is about forecasting, scenario planning and using data to better understand the business.

Strategic Finance – This was the holy grail from my perspective and what is currently entirely done by CFOs like me. It’s taking all that information and tying it together to help the business make better long term decisions.

From my perspective, most of the bottom half of this stack has been productised in various ways, whilst the upper half is still being figured out.

From a market perspective, the bottom half is high volume and low value (from the perspective of decision makers inside the business, for investors in that transaction layer of the stack it’s valuable because there is such a large market!), the upper half is lower volume but, in theory is where the value lies.

Let’s put it this way, no business failed because someone didn’t automate how invoices are processed, they did fail because someone didn’t understand the impact not processing an (or several) invoices might have on cash flow and business sustainability.

With all of this said, I don’t think anyone could argue with how much ‘easier’ existing tools have made the lives of small finance teams in small and growing businesses so it is worth understanding the landscape.

Payment Processing Solutions

These were some of the first tools to have been developed (naturally given the volume of transactions processed on a daily basis) and have become for most of us an integral part of our experience either as consumers or customers and as finance teams building out payment infrastructure fit for the businesses we work with.

Examples: Stripe, PayPal, Square, GoCardless, neobanking.

Pros: These products facilitate seamless online transactions, support multiple currencies and offer robust security features. With the explosion of open banking, payment processing has become seamless in some jurisdictions and the ability to take payments via Stripe or GoCardless, for example, mean that business are no longer reliant on chasing customers for their payments, freeing up their time for other value add activities. (And let’s not forget in the US you still have companies ‘cutting checks’ – that’s writing cheques for us Brits – so there is a huge amount of opportunity yet to be disrupted in one of the biggest markets in the world). But it would be hard to argue against how much positive impact these products have had on streamlining revenue operations and opening up the opportunity for a cambrian explosion of online propositions all able to take payment over the internet.

Cons: But in order to take advantage of the payment infrastructure, companies are hit with transaction fees which can be substantial and, depending on how your product is placed, may eat into already thin margins. Coupled with this, you have the potential for chargebacks and the costs that those can imply along with compliance with varying international regulations as you operate across borders.

Advancement: We have seen various attempts at the integration of blockchain for enhanced security – though with limited breakthrough thusfar (and let’s not forget that one of the biggest use cases for Bitcoin is the creation of infrastructure that allows for the seamless transfer of funds cross border), AI for fraud detection (I still recall someone in the space telling me that in the past, one of the major credit card issuers used to use ‘charge attempted in Canada’ to flag fraudulent use of a UK credit card – we’ve come a long way), and expansion into banking services as we have seen with the (ongoing) explosion of neobanks in various jurisdictions.

Accounting and Bookkeeping Software

It would be hard to argue how impactful cloud based accounting and bookkeeping software products have been on early stage businesses. They have allowed non-financial founders to start taking control of their accounting in a way that simply wasn’t possible in the past. Whilst I would never recommend doing your own accounting (I’ve seen it go wrong too often), it remains possible, and even more importantly means that founders, CFOs and decision makers have instant access to their numbers.

Examples: QuickBooks, Xero, FreshBooks.

Pros: The biggest unlock brought by these tools is the automation of routine tasks such as invoice and expense processing, increased accuracy and, as mentioned above, cloud-based access. Previously, this all remained within the domain of ‘the accountant’ with your business’ numbers being gatekept by the people who booked them – often not the same people as those that need to make decisions about the future of the business. Let’s not also forget that these tools can be quite ‘cheap’ based on their SaaS pricing so don’t require a large upfront cost to implement.

Cons: Most CFOs who use Xero and similar tools will tell you that there is limited customisation available, you often have to build from within the constraints of the product – for example if you run a manufacturing or stock holding business Xero can be quite painful to use and you may find yourself having to use any number of plugins to solve for your specific needs. Scalability can become an issue quite soon though, I have seen tools like Xero stretched way past breaking point – mainly because the jump to a more sophisticated tool can be incredibly costly.

Advancement: As the space evolves, it is likely we will see greater AI and ML integration allowing for smarter categorisation and reconciliation which means there will less need for human input (and hence human error) in these essential processes. I don’t think we’re at the point where there will only be need for minimal intervention from a human, but I for one would be incredibly happy if there was a tool that raised invoices, recorded bills and reconciled itself in real time and flagged any inconsistencies or potential gaps in the data (ok, I appreciate that’s a sad thing for someone to be happy about!).

Expense Management Systems

Just as how Xero has opened up access to accounting to non finance types, so have tools in the expense management space to the wider employee base. Rather than having to seek approval on spend manually, these tools allow companies to set limits, issue virtual cards and submit expenses easily. My first job out of university was in a shared service centre running Accounts Payable and, more importantly here, Employee Expenses for a multinational company across the whole of EMEA. To put it bluntly, we would receive paper claims with paper receipts attached to them and have to run them manually through the system ???? 

Examples: Expensify, Concur, Zoho Expense, Spendesk.

Pros: These tools allow for streamlined expense reporting, policy compliance and mobile accessibility allowing for closer and better reporting and approval mechanisms.

Cons: Some of these tools can be a little complex which is a deterrent to user adoption challenges and, importantly, can lead to challenges when trying to integrate with existing systems.

Advancement: As OCR and AI improve, there is more opportunity for automated receipt scanning technology as well as real-time policy violation alerts allowing teams to flag and deal with issues as they arise rather than (often) well after the abuse has occurred.

Payroll and HR Management Solutions

As companies scale, ensuring that employees are paid accurately and on time can be quite challenging. Until recently, ensuring that tax codes were updated and that bank details were maintained accurately was often a highly manual process, but as automated payroll software solutions have come to market, they have greatly reduced this large pain point for growing organisations.

Examples: Gusto, ADP, Paychex, Pento.

Pros: The obvious benefits of these systems are simplified payroll processing, enhanced tax compliance and employee self-service portals. In theory, they also reduce the likelihood for error in payroll calculation (which, if you’ve ever been at the wrong end of an incorrect pay cheque can be quite upsetting).

Cons: These can be relatively easy to work in a smaller organisation, however they can quite quickly become costly and complex in larger scale multi-jurisdictional operations – even in the US, state tax laws can be quite different, but imagine you had staff in the US, Europe and the UK, it can be quite hard to find a one size fits all solution.

Advancement: Over time, we are likely to see further automation to assist with things like tax filing alonside more integrations with HR systems to give a seamless end to end experience for employees and HR teams alike.

Financial Planning and Analysis (FP&A) Tools

This is where we start getting into the more strategic part of the CFO Tech Stack, but also where the tools are less widely adopted and often harder to solve. Having tried to build in this space myself, there are numerous challenges, not least of which is the fact that every organisation is incredibly different, and the minute you try to productise something as complex as forecasting, you naturally constrain some of the nuance in any given operation. Think about it this way, how you record invoices, run payroll or make payments will largely remain quite consistent across most businesses, but how you forecast revenue or plan headcount will be vastly different even in two businesses that ostensibly do the same thing.

Examples: Anaplan, Adaptive Insights, Vena Solutions, Casual, Abacum,

Pros: When the tools manage to solve some of the obvious problems associated with FP&A, they can be incredibly powerful providing real-time data analysis vastly improving forecasting accuracy and can handle quite complex scenario planning. Given that most of these tools are collaborative, it means that you can bring different team members into the forecasting process on platform meaning you can update and challenge changes in real time from key budget holders from within the company.

Cons: There are several issues with these tools, however, that can mean adoption is limited. Firstly, it’s whether or not they are able to integrate with existing systems – ensuring that data is clean and consistent all the time. As finance pros are wont to say: ‘garbage in = garbage out’. There is also, often a high level of complexity in setup making onboarding a challenge for finance teams as well as wider users and, finally, these tools can be quite expensive making them cost prohibitive for most startups meaning they are only valuable for mid cap businesses and beyond.

Advancement: The obvious opportunity here is for further integration of these tools with AI to provide predictive analytics. Essentially this means that the tools will learn from the real time data being fed in and update the model in real time in turn. This will give businesses a huge opportunity to course correct as new data surfaces on the go rather than waiting to see results after the fact before changing tack.

Business Intelligence (BI) Tools

Business Intelligence tools are essential for CFOs, especially when navigating scale. These tools help leaders make data-driven decisions by transforming raw data into actionable insights. These tools are used in conjunction with FP&A tools to give decision makers an ability to look deeper into the data, spot trends and inform business strategy on an ongoing basis. Tools like Tableau and Power BI offer powerful data visualization capabilities, allowing CFOs to create interactive dashboards and reports. And because BI tools can integrate data from various sources, including accounting software, CRM systems, and market data, they can provide a comprehensive view of the business.

Examples: Tableau, Microsoft Power BI, Looker.

Pros: By providing real-time data insights, BI tools help CFOs make more informed decisions about financial strategies integrated with business growth. Automated reporting and analysis reduce manual workloads (ever spent hours trying to run analysis on an Excel workbook?!), allowing CFOs to focus on the strategic initiatives that are critical for growth.

Cons: Similar to FP&A software, some BI tools can be complex, requiring significant time to learn and implement effectively, though this gives an advantage for those that can get their heads around them. I’ve seen businesses hire in data scientists and analysts to try and ensure they are able to really get to the bottom of the data and what’s happening in the business. Advanced features and scalability can come at a high cost, which is (as always) a huge consideration for startups.

Advancement: Modern BI tools are increasingly incorporating AI and ML for predictive analytics, offering forecasts and trend analysis meaning that they will become further integrated into other FP&A tools over time.

Treasury and Cash Management Tools

It is interesting that many startups did not even think about how they needed to manage where their cash sat until earlier this year when SVB went under. Most founders had their cash sat in one or two bank accounts and hadn’t thought about the risk that this could entail (and also the opportunity to take advantage of higher interest rates). But as people were once again reminded of the fragility of some of the financial system and the fact that there was now an opportunity to earn yield on their cash, we see increased interest in and adoption of treasury and cash management tools.

Examples: Kyriba, TreasuryXpress, CashAnalytics, TreasurySpring.

Pros: These tools allow for enhanced liquidity management, risk assessment and management as well as real-time cash visibility. Some of these products allow you to spread cash across a variety of products yielding different returns over different periods rather than having to settle on one fixed term deposit as would have been the case in the past.

Cons: Again, for smaller companies, there is a challenge that arises due to complexity of integration and there can be a high learning curve as teams have to reorient themselves in a world where cash not only comes at a cost, but can earn a return. Some of these products also require you to have a minimum amount of cash on the balance sheet (or raised) and a minimum amount of cash deployed into the products.

Advancement: At the risk of repeating myself, the main opportunity here is to integrate AI into the products to provide predictive cash flow forecasting so that CFOs and others can manage runway much more closely.

For me, the pinnacle will come when we see the next generation of CFO Co-Pilots driven by generative learning with fine tuned LLMs.

I’ve been playing around with some things in this vein and I’ll be sure to share my findings as I continue to dive into what is possible.

This landscape is going to keep evolving as more pain points are identified and solved and, critically, as we see machine learning and AI continue to add opportunity and differentiation in the way we think about and handle finance within organisations.

One thing is for sure, many finance pros who have lived in a world of ‘just’ excel are finding themselves having to understand the value that technology can bring to their business and allow them to increase their efficiency and value to the organisation.

I hope you found Off Balance #21 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at hello@emergeone.co.uk and let me know ????

????And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

The Lowdown #12

???????? Hi friends!

Well it’s been quite the week for the tech and venture ecosystem this week and in the UK’s answer to the All In Pod (OK, sans besties and billions) I’ll be exploring LIVE all sorts of things that are happening in the venture ecosystem with friends of the pod Eghosa Omoigui and Jonathan Sun ???? 

Join us at 6pm UK time today with a glass of something nice and some popcorn and feel free to send us your spiciest takes and questions in the chat ???? 

Here’s the link to join – hope to see you there!

This week on Nothing Ventured I spoke to Sam Beni. If you want to hear a real hero’s journey, you definitely want to check this out.

From arriving in the UK as an asylum seeker and not being able to work, to co-founding a business he couldn’t take a salary in, or hold shares in and where he lived on the office sofa for years to founding and exiting multiple startups all culminating in his role as Head of Innovation at Tech Nation, Sam’s story is absolutely incredible. Check it out!

This week there have been a few things that have caught my eye in the tech and venture ecosystem and what we’ll be talking about this evening, namely:

???? What the hell is going on at OpenAI?
???? Softbank and Tiger Global’s fall from grace
????️ What’s the future for venture according to Sam Lessin

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Lowdown” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

The Lowdown

Revolving Door at OpenAI
Unless you’ve been hiding under a rock, you will have come across the news that Sam Altman was sacked from OpenAI, hired by Microsoft, returned to OpenAI and sacked half the board.

This evening we’ll be talking about what might have been the story behind the story and what this all means for the future of not only OpenAI, but the pace of development in the whole space.

first and last time i ever wear one of these

— Sam Altman (@sama)
Nov 19, 2023

Softbank and Tiger Global say goodbye to the good times
These two behemoths became a byword for excess in the private markets, with Tiger Global at one stage sending out one termsheet every single day.

But as the chickens have come home to roost with Softbank having had to deal with the fall out from WeWork, the sale of ARM and all sorts of other problems and Tiger Global having just lost Scott Shleifer, the head of the PE business and seen a $30bn drop in the value of their assets – what happens next for these two investors that at one point were the most courted in the ecosystem.

Sam Lessin’s view on the Future of Venture
Sam’s deck on his view on the future of venture is a must read, Eghosa, Jonathan and I are going to be digging into some of the nuggets that came out of it and what this means for startups and VCs alike.

And finally, back to memes from our favourite meme master, unsurprisingly around the OpenAI shenanigans again!

Ilya Sutskever be like

— Dr. Parik Patel, BA, CFA, ACCA Esq. (@ParikPatelCFA)
Nov 20, 2023

????And that’s a wrap for this edition of The Lowdown – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

???? And if you think someone else might love this, please forward it on to them,

???? Finally, if you’re a fan of the Nothing Ventured podcast, please don’t forget to like, rate and subscribe wherever you get your pods – it really helps us spread the word.

That’s it from me so until next time…

Stay liquid 🙂

Aarish

Off Balance #20

???????? Hi friends!

OK, 20 editions in, how the heck did we get here!?

I have to be honest, I wasn’t sure where I would get to with this newsletter, but am enjoying putting it out there and seeing where it goes.

As with so much of my life, it’s about overriding my ADHD to get to consistency and building ‘muscle’ around writing regularly and trying to improve a little more every time ???? 

Now let’s get down to business…

In this weeks Off Balance, I’ll be chatting about:

???? What it takes to be a startup CFO
???? Startup boards – what you need to know.

Also, in this week’s Nothing Ventured, I spoke to Sam Beni; Sam was the Head of Innovation at Tech Nation where he continues, post acquisition by Founders Forum, as Strategic Advisor and has just dived into his umpteenth startup Platin. We talk about coming to the UK as a refugee, not being able to take a salary and having his shares held by a cofounder in trust and much more besides.

As always, our Primer episode gives you a bit of background on how he got to where he is today ???? 

Also, if you have any feedback, or if there’s something you’re desperate to see me include, just reply to this mail or ping me online – I’m very open to conversations.

If you like what I’m putting out, do give me a follow on LinkedIn, Twitter and Instagram.

(If you are trying to connect with me on LinkedIn, maybe read this post I wrote and make sure to start your request with “Off Balance” and, more importantly, tell me why you’d like to connect ????????)

Don’t forget to like, rate and subscribe to Nothing Ventured on Apple, Spotify or YouTube, it really helps more people see what we’re doing – you can find links to these (and more including my Office Hours) right here!

Now let’s get into it.

This edition of Nothing Ventured is brought to you by EmergeOne.

EmergeOne provides fractional CFO support to venture backed tech startups from Seed to Series B and beyond.

Join companies backed by Hoxton, Stride, Octopus, Founders Factory, Outlier, a16z and more, who trust us to help them get the most out of their capital, streamline financials, and manage investor relations so they can focus on scaling.

If you’re a CFO working with venture backed startups and want to join a team of incredible fractional talent, drop us your details here.

If you’re a growing startup that knows it needs that strategic financial knowhow, drop your details here to see how we can support you as you scale ????

How can did I add value?

I had some unexpected and really great feedback on last week’s section where I discussed small cheque investing, it turns out there are other people out there facing a similar conundrum who found the ‘advice’ really useful in terms of getting off the ground as an angel.

One of the other things I am consistently asked about is how to get into CFO’ing at startups, most recently by someone who has been in large corporates and PE backed businesses in FP&A roles before launching a couple of startups of his own.

The problem is that whatever role you’ve held in a larger business, the likelihood is that you will have been one of a team of several people delivering a specific outcome for your division.

However, a startup CFO is a leadership role. One where you are expected to have the answers, and it’s unlikely that you’re going to be able to rely on someone else to give you the answer (because let’s face it, the most likely scenario is that it’s just you in finance.

So I started thinking about codifying what it means to be a startup CFO, not only so people can use it as a checklist to see if they’re ready, but one that I can use myself as I continue to grow my team of fractional VC backed CFOs too.

I am fond of saying that becoming a CFO is not something that you qualify towards, rather it is built from the experience you have built up. So this is not just a list of knowledge you need to have, but skills you have acquired over the course of (probably) one to two decades working in finance and startups – and I would argue whatever you might have done outside a startup counts very little once you get into one!

???? Strong understanding of capital flows from revenue, investment, debt, working capital and impact on business.
This is the essence of being a CFO. If you don’t understand how cash flows and feeds the venture you’re working in, and how movements in cash can drive outcomes in your business, then you are unlikely to be ready for the CFO slot.

???? Ability to identify, define and set KPIs / leading metrics to track and course correct.
Knowing what drives the business (outside of pure financial metrics) is a critical role of the CFO. You are the person that founders (and leadership teams) come to to help them understand how the business is performing and how they can scale further.

???? Ability to build out data and metrics driven financial models and scenario plans.
Lots of CFOs who have come out of larger organisations tell me that it’s been several years since they spent any time in an excel model, they have FP&A teams for that. Sadly this is one of the primary things a startup CFO is asked to do – I think I would have spent more time messing about with models than in any other area of any of the ventures I have worked with. Again, it goes back to the fact that you likely won’t have a (large) team, so you need to be able to do the work.

???? Strong understanding of growth playbooks – market, product, geographical, acquisition etc.
Your role as CFO is to help build the systems, processes and financial strategy that allow the business to scale. In order to understand that, you need to understand other areas of the business, the playbooks they use, or, will use to scale so that you can feed that back into your cash planning – all of which impacts runway, burn, capital needs and hiring plans.

???? Experience raising capital both equity and debt.
You can be a CFO if you don’t have an accounting qualification, but you can’t really be one if you don’t have experience raising capital. This doesn’t mean that you need to have personally found the investor / debt provider and closed the deal (in a startup it’s always the founder / CEO that is responsible for ‘selling’ the vision); what it means is having experience raising large amounts, understanding term sheets, looking at economic and control factors and more.

???? Experience of M&A.
Whilst not essential in my opinion, having an understanding of mergers and acquisitions is incredibly valuable as a startup CFO. You will likely be involved in discussions around acquisitions at various stages of the company’s life (heck, I just spoke to founders of a seed stage venture who have already completed one strategic acquisition!), again, understanding how to review and assess other businesses and their fit as an acquisition is really valuable.

???? Experience of exits to a strategic acquirer.
This and IPO experience are not pre-requisites as a startup CFO at the earlier stages (pre late growth, i.e. Series C and beyond), but obviously having that experience and understanding how the process works will be really useful to the leadership team if they get to the stage where a strategic exit is on the table.

???? Experience of IPOs valuable.
Obviously this is the pinnacle of a CFO’s journey, getting to ring the bell at a significant stock exchange having navigated the successful listing of the startup. But let’s face it, again, not only is it less neccessary at the earlier stages, but there is only a narrow cohort of CFOs that are likely to have had this experience at all.

???? Good network of liquidity providers (VCs, angels, debt etc.).
Whilst I said that it wasn’t necessary to be able to close the funding, you definitely want to be seen as someone that knows where to go to get funded. Whether you have networks of investors or financiers able to provide debt financing, this is something that most founders will look for in a great CFO.

????????‍???? Strong board management and governance skills.
As we’re about to see below, navigating boards can be tough (Open AI anyone?). CFOs are often critical in the provision of information to directors and more often than not may sit on the board themselves, even if only as an observor. Understanding how to manage a board as well as understanding the duties of a director so that you can provide guidance to founders is a huge part of being a good CFO.

???? Strong investor management skills. 
Having raised the capital, you need to know how to manage investors (and debt providers). This is about regular communication, providing the right information without necessarily providing too much and balancing ensuring that investors have full knowledge of progress without necessarily opening the door to a tonne of questions, remembering all the time that you may be back at their door soon enough looking for additional funds…

???? Data / BI knowledge.
The office of the CFO has moved beyond ‘just’ finance. CFOs are often the custodians of the business’ data operations. Therefore having a good understanding of how to find, clean, use, process and present data are essential skills for modern CFOs. Which means that there are some up and coming finance folk that have the edge on some of us slightly more ‘advanced in years’ ???? 

???? Understanding of accounting + policies around revenue recognition etc.
As I said at the top, you don’t need to be a qualified accountant per se, but you do need to understand key policies as, more likely than not, you’re going to have to ensure you are on solid ground when talking to auditors, investors and even internal stakeholders – many of whom won’t understand why accounting is so quirky – because any shocks to the system could have dramatic consequences.

???? Strong communication skills across all stakeholders, ability to translate Numbers into Narrative and guide strategy.
If you’ve followed me for any length of time, you will know that I am a strong believer that being a CFO is strongly skewed towards your ability to communicate, not just be numerate. Why is this? Because CFOs are part of the exec team. Collectively the exec team is responsible for selling, whether to investors, to employees, to clients or to any other stakeholder that may land on the doorstep. It would not be particularly useful to have a CFO who could do the numbers but couldn’t sit in front of an investor and explain not only what the numbers are telling us today, but where they could go tomorrow.

⚒️ Systems and Tech.
Let’s face it, in today’s environment – and especially when working in a tech venture – a critical skill is understanding what tools are out there that can make your business more efficient. Whether that’s at the transactional level looking at cloud based ERPs, payment gateways, spend management platforms or at the more strategic end of the scale looking at FP&A, forecasting, cash planning, cap table management or even building internal tools to help the business grow.

So there you have it, my attempt to codify what it is to be a great startup CFO operating in the venture ecosystem. Do you think I’ve missed anything? Just hit reply and let me know!

Off Balance

There has only really been one piece of news that everyone in the tech ecosystem has been talking about since last Friday.

No, it’s not about the ex Klarna COO getting sacked from his new role as CEO as I tried to joke about on LinkedIn the other day; it is very much about OpenAI and the extraordinary drama that unfolded when four board members essentially engineered Sam Altman’s departure as CEO and resulted in the resignation of Greg Brockman as Chair.

Bearing in mind this is the company behind ChatGPT, the AI chat technology that has led to an explosion in generative AI startups, that was about to go into another financing round mooted at $80bn, that has probably led to the first true platform shift in technology since the proliferation of the smart phone, it is hard to see how this saga unfolded the way it did and how it is possible that the board got it so wrong. (Even the person they originally wanted to take over as interim CEO from Sam – Mira Murati – signed an open letter demanding his reinstatement).

So are we going to dig into everything that happened in this fast paced corporate drama?

No.

We’re going to talk about boards – because this issue was essentially triggered by the board which, is not the board of a traditional corporation but rather of the non profit that controls the corporation (aren’t you glad we looked at Corporate Structures last week?!).

Corporate governance is all yawns, until it’s not, so if you’re a founder, CFO or even an angel or investor, understanding how it all works is pretty essential.

Boards and Governance, what you need to know

As we have seen from the OpenAI debacle, the nature and composition of your board can have dramatic impact on both the founder as well as the business. In OpenAI’s case, it has not only ousted the CEO but has probably destroyed a huge amount of value in the business as employees, investors, partners, users and customers reacted in real time to the news.

As with much in the world of startups, the role of the board has evolved over time moving from purely governance to highly strategic imput into the growth and future of the business.

It goes without saying that your board will look different depending on the stage you’re at as well as the nature of your investors.

Who sits on a startup’s board?

There are normally two documents that will govern the makeup of your board of directors – your articles of association or incorporation and your shareholders’ agreement. Each of these are likely to get updated as your venture grows, but it is essential to understand what it means for who can sit on your board and what powers they have.

At the very early stages of a startups life, it is quite likely that there won’t be a formal board, rather the directors of the company are likely to be one or more of the founders of the business and there will probably be little formality around meetings with board matters being dealt with as they arise.

As the startup grows, founders may well bring in advisors though it is quite likely they will sit outside the formal board of directors. Occasionally, when one of them is hugely value additive (they have connections from within the industry or access to capital for example) they may be invited on to the board more formally.

But it’s normally only when a startup raises it’s first large institutional round (typically at seed and typically from an institutional investor) that the board starts getting more formal.

At this point, you will normally see a board composed of the founder(s), another senior executive from inside the business, an independent Chair (though not always), for every institutional investor you will likely have one board member or board observer (a board observer has no voting rights, cannot make decisions and is there to observe and input if necessary). It is also not a given that every institutional investor will have a board seat. This will depend on what has been agreed in the term sheets and what has previously been stipulated in the articles or shareholders’ agreement.

It is essential that there is a good balance at board level. You need enough people from within the business that understand what is happening in detail alongside members from outside the business who can probe or even challenge some executive decisions and acting in the best interests of the business and the shareholders.

If the board is skewed towards the executive, then it is likely going to be a weak board rubber stamping whatever the founder(s) or CEO put forward. If it is skewed too far the other way and non-executive board members have too much power, you may end up with indecision and / or the management team feeling like they don’t have the ability to execute meaningfully.

It feels like OpenAI fell foul of this latter situation.

What should your board be doing?

Strategic Guidance: The board should set or at least sign off on the strategic direction of the business. Non-executive board members (i.e. those not involved in the day to day running of the company) will likely have been through significant journeys in other businesses and will provide valuable insight into the strategic direction of the company. This may involve setting longer-term goals, understanding when it might be appropriate to hire new senior team members or when it might be sensible to raise additional capital.

The board will often act as an enabler of conversations with larger companies where they may have significant relationships, allowing a small startup to accelerate their sales process within these corporates, or even help identify the best talent to help the company get to its next milestones and beyond.

Financial Accountability and Planning: The board is ultimately responsible for overseeing the financial performance of the company which means they should be making sure that the business is being run responsibly. If a director doesn’t understand the numbers then they have no place sitting on the board at all. This does not mean they need to be able to give chapter and verse on every number (that’s the CFO and / or founders’ role), but they should have confidence in the numbers and be able to pick up on anything that looks untoward.

The board should also be involved in the setting and signing off of forecasts and budgets. They should hold management to account on hitting milestones and understanding why when they don’t. In fact, there are often board reserved matters such as setting founders’ remuneration, hiring senior staff, entering a contract or series of contracts that will cost over a certain threshold, entering into debt and, ultimately, whatever goes into the articles or more likely the shareholders’ agreement.

Fiduciary Duties: Directors’ fiduciary duties stem from the requirement to act in absolute good faith acting as responsible custodians of the company on behalf of others. This means acting in the best interests of both the company and its shareholders.

These duties (in the UK) form part of the law governing how Directors are expected to act and it is very important to understand that these apply to you whether you are formally recorded as a director at Companies House or not.

So what are these duties?

Duty to act within your powers, as set out in the articles, shareholders’ agreement, constitution or other corporate document.

Duty to promote the success of the business for the benefit of all shareholders and stakeholders.

Duty to show and exercise good and independent judgement.

Duty to exercise reasonable care, skill and diligence; to not take on the role if you’re not qualified or capable to do so.

Duty to avoid conflicts of interest.

Duty to not accept benefits from third parties.

Duty to declare an outside interest.

How these duties are defined in law will change from country to country (if they are defined at all) and the penalties for not upholding your fiduciary duties can be quite severe.

And of course, directors must always act within and comply with corporate laws and regulations – in the UK these are set out in the Companies Act.

The Board’s Role in Fundraising

Whilst it is not the board’s responsibility to raise capital per se, it obviously is part of their broader remit.

From a startup’s perspective this often involves the board leveraging their wider network, introducing potential investors as well as scrutinising or even assiting in the negotiation of new investment terms with incoming investors.

In fact, given how important fundraising is for startups and growth companies, one could argue that at the earlier stages, founders should index towards finding board members that can either open doors for investment or for revenue (especially important in enterprise solutions).

Building and Maintaining Effective Boards

OK, so you know the sort of things that board members have to do and where they may add value to your business, but how do you actually go about finding them?

There are two schools of thought on this, you can advertise the role and treat it very much as you would any other role you’re recruiting for but I think this is the wrong way. The better way is to not wait for inbound interest, but instead search yourself.

You will be looking for people with certain industry experience or professional skills (legal or finance), people with experience operating on boards at your stage and, importantly, people with networks that you can leverage – be that for investment, for recruitment or anything else. Go to LinkedIn, look at boards of similar businesses to yours, find equivalent people and reach out to them directly.

And as these board positions are not ‘output’ driven, but are about how people interact with each other, often the soft skills they bring to the table and how they are able to digest and synthesise information to make ‘the right’ strategic decisions, it is imperative that as part of your process you spend as much time as you can with prospective appointees so that you can really get to know them (and they you).

Of course, some of your board members will be appointed by your investors so you may not have much of a choice, but you should still speak to founders whose boards they already sit on and get a feel for how they operate.

You may wish to include specific terms into each directors’ contract so that you can rotate if necessary (and allow for changes in the growth profile of the company), but really great board members can stick with you for the whole journey.

Best Practices

There are some ways to ensure that your board works efficiently rather than being a bit of a free for all.

Figure out a cadence that makes sense for your board to meet. I would suggest that at early stages, quarterly is more than sufficient, as you progress you may require monthly board meetings – and certainly if the business is facing headwinds or has some large milestones it’s about to cross, more regular board meetings are going to be a necessity.

Ensure you have a board pack that goes out in relatively the same format every meeting – I like to include an executive summary, recent financials (often with a focus on cash), KPIs / progress against agreed milestones, specific (important) business updates, key personnel changes, any wins the company might have had and, importantly any recent or upcoming issues the board should be aware of. You should clearly state any matters you need the board to resolve (and provide any backup required).

This should be in the form of a deck or a doc if in long form and, most importantly, should be sent to the board at least 2 – 3 days prior to the actual board meeting (a week would be ideal but may be difficult to achieve).

During the meeting itself, stick to the agenda as far as possible. First going through minutes from the previous meeting and checking if there are any matters arising. Thereafter, don’t re-explain what is already in the deck, but ask if there are any questions that the board have on the information presented. Discuss those matters and wherever possible and necessary, make sure that you are clear about what actions need to be taken on any particular matter.

Bear in mind, professional non-executives and board members are likely to incredibly busy so it’s a good idea to try and stick to timings as far as possible – though allow for the fact that there may be some issues that you hadn’t expected to come up that require discussion.

After the meeting, get minutes out within the next couple of days so that matters are fresh in peoples’ minds and check if anything needs to be changed or updated.

Remember, the board has to act in the best interests of the company and all stakeholders, so make sure it’s operating on those principles.

Challenges and Common Pitfalls

One of the biggest challenges is having a board that is too big or is poorly composed. As discussed previously, getting the right balance of people on it is critical. Too many people often results in inaction or lots of talk without any outcomes so keeping numbers tight is really important.

If the board is too weighted towards the executive or to non-executives, it will not function as you need it to, so make sure there is a good balance.

Ensure that there are no conflicts of interest at a personal level (though of course, directors should disclose these upfront). Where they exist, if there are matters that would bring that conflict into light, it’s better for a director to recuse themselves.

Founders and the executive are often focussed on the short term and dealing with a multitude of operational pressures (are we going to make payroll on time every month this quarter, when can we reasonably make that critical hire we need to make, what happens if we don’t close this client in the next 30 days). The board, on the other hand, needs to be mindful of these operational challenges but also be focussed on the bigger picture and longer term strategic planing.

Wrapping it up

There are plenty of other issues to be mindful of when thinking about the purpose, composition and operation of your board, but what I have covered here should give you a good start in getting yours set up the right way.

Let’s face it, Sam Altman isn’t the first founder or CEO to get removed by their board (anyone remember Steve Jobs’ ousting in 1985?), but in the current market where traction and performance are imperative, I think we will see a lot more of these corporate reshuffles (though they are unlikely to be this public every time).

So if you’re a founder get to checking your articles and your shareholder agreements and know what your board can – and can’t – do.

I hope you found Off Balance #20 useful. As always, I’d love to get your feedback and understand the sort of topics you would love to hear about.

Just hit reply to this mail or drop me a line at hello@emergeone.co.uk and let me know ????

????And that’s a wrap for this edition of Off Balance – I’d appreciate your feedback so just reply to this email if you’ve got something you’d like to say.

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That’s it from me so until next time…

Stay liquid 🙂

Aarish