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Episode Date: February 11, 2021

https://youtu.be/AwDiCiqvccU

Jason Calacanis | TWiST | Twitter | LinkedIn

Top Insights

• Always take a little extra money. Don't be afraid of diluting a little bit more than you planned because that money could be the key to getting you to the next round of funding.

Intro

I have a little tradition I have been doing since 1995. I have whoever's in my operations team send me an email, and with it, they attach a screenshot of the cash in my bank account. Then they put AR, cash on hand, delinquent AR, etc. Just 5 or 6 numbers and they send it to me every week. It lowers everybody's anxiety. We have X amount of cash in the bank, we have X amount of receivables. It's like stepping on the scale every morning. If you want to lose weight, here's an idea, get a connected scale and force yourself to get on it every day. Not just on the days that you fasted, but on the days you had a double scoop of chocolate brownie ice cream. - Jason

Managing your cash & building a model

• You and your internal team:

  • You need to know exactly where you are every month, including a basic income statement. Use this information to calculate your runway. Critical to always know exactly how many months of cash you have left.

  • Jason looks at 3 things in his companies:

    1. The burn based on the month and the cash. For example, last month we burned $50k and we have $500k in the bank. $500k/$50k = 10 months of runway.

    2. What's the last 3 months' average. For example, broke even one month, lost 100k the second month, and lost 50k the third month. That would be $150k/3 = $50k. Now divide $50k into $500k and we get the same number (i.e. 10 months runway).

    3. What they made and lost during each of the last 3 quarters.

"You have to know cash. A company thought they had X amount of cash because their accounting firm and their internal finance person had said "this is where we're at." The founder didn't do her own diligence on what she thought was keeping up to date on cash. All of a sudden, she thought she had 3 months of cash — she had 3 days. She screwed it up. - Jason

• Your board and your investors:
  • When you're going into a board meeting, always take a screenshot of the cash balance in your account. CFOs have been fired for not knowing the number in the bank account.
  • Don't surprise your board. The quickest way to be removed from your own startup is to surprise the board with an unhappy cash burn surprise.
  • Founders should send monthly updates to investors within the first 10 days of the month. The first bullet point should be cash in the bank, then burn rate, then how many months of cash are available.
• For internal use, you do not need to start from scratch when building a financial model. There are templates you can use. This will save you a lot of time. This is usually all you need to raise a seed round.
• When building financial models for investors and board members, you may want to hire a finance professional to help you build it out. Investors look at things like revenue scalability, customer acquisition cost, LTV as a multiple of CAC, etc. This level of complexity is usually needed at series A fundraising and beyond.

Communicating strategy via financial models

• A good model is a proxy for your business strategy. You're telling the story of your startup and its potential.
• Don't negotiate against yourself. Give investors enough guidance but let them come back to you and tell you what the company is worth. You're going to see, in those numbers, how badly they want to invest.

You don't need every VC to give you a term sheet. You need 2 or 3 to have a competitive environment and 1 to say alive. You need to get to 75 of them to get 3. - Jason

• There is no shame in having only one investor who is willing to write a check. The companies raising the most money early on are often not the most successful.