How Can a Fractional CFO Help Startups in Fundraising
In an era where technological skills and tools open unexplored avenues for entrepreneurs and innovators, one age-old problem remains the same – raising capital for their startups. Be it initial capital raising for seed funding or funds for scaling up a business painstakingly built in the garage, founders and entrepreneurs still find it challenging to support their dreams with proper financial planning and investor confidence. Sustaining the business becomes challenging due to a lack of strategic financial guidance and leadership from a seasoned Chief Financial Officer (CFO). While unaffordability prevents most startups from hiring a full-time CFO, it is precisely at this stage that they need one. And a solution does exist for this problem: a fractional CFO! With the perks of a full-time CFO available at only a fraction of the cost and with specific, specialized services wherever required, a fractional CFO could well prove to be the pivot your startup needs to go big.
How a Fractional CFO Can Help Startups Raise Funds
First and foremost, a Fractional CFO can guide you on the right time to raise funds, depending on the overall market and industry situation. Timing a fundraising round right is vital to the success of any startup’s fundraising and growth efforts. From contacting angel investors who might be interested in supporting young innovators to pitching your startup to venture capitalists that can catapult it into the big league, or even helping you navigate your way through how crowdfunding, bank loans, and grant applications work, a CFO can use their experience and contacts in the industry to keep your business moving.
A fractional CFO works in a structured manner to increase your chances of raising funds with the best financial deals.
1. Financial Strategizing: The act of fundraising begins with a financial strategy. Your business vision, why you need the funds, and how you plan to use them are questions your financial strategy will answer. It also includes the various sources of funding you can use, at what stages, and how you will give returns or pay interest to investors. A fractional CFO can help you chart out a complete financial strategy, right from raising funds to giving returns to investors.
2. Financial Reporting: A strategy without factual data to give it direction and perspective is a formula to disaster. To avoid this, an experienced CFO ensures all your financial records are up to date and accurate, and compiles them into detailed financial reports that answer anticipated investor queries and outline the startup’s overall financial health, value proposition, and short- and long-term roadmaps.
3. Preparing Financial Projections: Investors, be it angel investors, banks, or venture capitalists, are interested in knowing how you will use their funds to earn money and give returns. This is best understood through revenue and profits. A fractional CFO will help you prepare practical financial projections, taking into consideration various scenarios of growth and downturn. These projections will help investors assess the risk-return balance, giving them confidence to invest.
4. Determining Valuation: Every investor wants to know the worth or valuation of your startup. Most new entrepreneurs make the mistake of undervaluing their company and giving a significant equity stake, thereby diluting their stake. A fractional CFO is good with numbers and has a strong business acumen. They can value your company realistically, ensuring you get the best price for your equity stake in a fundraising round.
5. Negotiating Investment Terms: While the fractional CFO safeguards the investors’ interests through correct valuations, they also help you safeguard your interests and negotiate funding terms that are beneficial for you. By preparing a detailed term sheet that fairly analyzes and sets forth the best possible terms that benefit both the startup and the investors, the CFO can help you avoid bowing to pressure and diluting your stake.
6. Due Diligence and Compliance: With the terms agreed upon, the next step for the fractional CFO is to make sure all due diligence and compliance terms of the Canada Revenue Agency (CRA) are met satisfactorily. All necessary financial documents required for this must be accurate, regularly updated, and made available to investors upon request. This step actually works in the startup’s favour, as it not only ensures your business is legally compliant but also prepares you for potential queries or audits from the CRA.
7. Post-Funding Financial Management: You’ve made the perfect pitches and secured the best funding possible, but this is just the beginning. Without proper financial planning, effective fund allocation, and efficient budget control, your startup could end up losing out on lucrative opportunities. This is where you can extend the services of a fractional CFO. Not only can the CFO design a financial model that caters to all your financial objectives, but they can do so in a disciplined and compliant way, saving you from mismanagement of investor funds. They can also help maintain strong investor relations through regular financial reporting.
Fundraising requires you, as a startup, to improve your financial discipline, as you will be answerable to investors. A well-thought-out capital structure and risk management strategy in the early rounds of fundraising can save you millions if your business prospers. Hiring a fractional CFO at such a critical juncture can make fundraising smooth and efficient.
Contact KSSP Partners LLP in Markham to Help You With for Your Startup
Talk to a fractional CFO to understand the fundraising process and the kind of services they can offer to improve your fundraising probability. At KSSP Partners LLP, our accountants and fractional CFOs can provide services including financial reporting, forecasting, valuations, and due diligence. To learn more about how KSSP Partners LLP can provide you with the best advisory and fractional CFO services, contact us online or by telephone at 289-554-5997.
