How to Update Your Board in the Midst of the Coronavirus Crisis
Our software community requires new strategies to stay ahead of the curve in this rapidly changing business environment caused by Covid-19. So, we created a virtual Sage Intacct Modern SaaS Finance Summit to help you navigate managing cash, churn, expenses, and forecasting. In this session, a panel of experienced investors from private equity and venture capital shared tips for preserving cash, fundraising, and updating your board of directors in a tough business environment. You can access all content, including upcoming and previous sessions, from the summit online here.
Our investor panel included:
- Haley Beck, Vice President, Alpine Investors, a private equity investor in software companies
- Mark Terbeek, Partner at Greycroft, an early-stage venture capital firm investing in consumer and enterprise technology companies
- Dan Fletcher, Vice President at Vector Capital, a private equity investor in technology companies, and CFO of Planful, a cloud-based FP&A platform
1. Pull the right levers to preserve cash, but don’t delay
First and foremost, act now and prepare for “ruthless prioritization,” according to Haley Beck from Alpine Investors. Delaying action is the worst possible choice and will limit your options. How much cash do you need? Experts recommend 18-24 months.
Today’s CFOs have many options available across the four levers of OPEX, CAPEX, working capital, and finally outside funding. Let’s take a close look at the two that have the biggest immediate impact on cash preservation.
OPEX: This is the largest cash preservation opportunity of the four buckets. There are baked-in savings in travel, marketing events, and event sponsorships since no one is traveling right now. Discretionary spending is now “luxury” spending and should be reviewed closely, including outside contractors, projects with longer-term payoffs, and demand generation activities that were more relevant to a different business environment. People are a huge part of this structure, so salary reductions, hiring freezes, trading salary reductions for equity, or reducing headcount should be considered.
Outside funding: Find out if you qualify for the CARES Act stimulus packages designed to help businesses survive. Further, max those revolving lines and be proactive in discussions with investors and lenders. Remember, the worst strategy will be waiting too long to act.
2. Yes, you can still raise money in these uncertain times
Make sure to communicate how your company is mission-critical. Any “nice to have” solutions are unlikely to get funding in this environment, according to Mark Terbeek, Partner at Greycroft. Second, be able to tell the story of the expense levers you are pulling at this time and show potential investors you can navigate through these turbulent times. Many private equity firms are preparing to ramp up acquisitions during this time, according to Dan Fletcher from Vector Capital.
Now, the good news—private equity and venture capital are sitting on record amounts of dry powder, according to The Financial Times. This means it’s buying season for most institutional investors in the middle market. How can you, as a CFO, leverage this to raise capital in the near term? How will this process change during a downward market and health panic?
3. Avoid the two most common mistakes when fundraising
Total addressable market (TAM) creep: this happens when your TAM grows too much when you pitch to investors—often by including adjacent products or adjacent markets where there is less potential fit for your product or service. Be prepared to defend this and ensure your defined TAM is defensible. All three of our panelists have seen this frequently.
Get smarter with your competitive due diligence. Don’t fake it till you make it. Ensure you’re realistic about your company’s competitive differentiation. Why do you win and lose in the market where you compete? Don’t be nervous about addressing this. It will come up in the fundraising process every time. Our investors find acceptable competitive analysis in less than half of the companies they evaluate as a potential investment. Expect potential investors to contact your current customers, lost or churned customers, and even former prospects who went with another solution or the status quo. Have a great story for all three scenarios.
We hope these tips help you in planning and communicating with investors. Great operator and investor teams work together through the unknowns, making experiments and taking risks to build great cultures, products, and outcomes.
The virtual Modern SaaS Finance Summit will continue every Tuesday and Thursday at 11 am PT/2 pm ET from April 2 – 28. You can see the upcoming sessions, previous recordings, and accompanying blogs sharing the key takeaways online: sageintacct.com/events/modern-saas-finance-summit-2020.