This guest blog by Consero was originally posted on Shoobx
A Series A financing is usually a company’s first round of significant outside investment, and with it comes increased accountability for having organizational and governance processes in place. There are four major processes that should be implemented as a starting point: equity management, data room maintenance, HR administration, and tracking company finances and spend.
Accurate equity management is critical post-Series A to make sure that everyone understands who owns the value being created in your company, whether for purposes of preparing for another financing or preparing to sell. This includes having your capitalization table up to date at all times. Having an up-to-date cap table helps keep your equity accounting straight, which is critical because when you take investment and issue options and warrants your equity accounting will become more complex than it was before you had institutional investors—there’s more to track, and more people who will be looking for accurate information.
How do you keep your cap table up to date? Theoretically, this could be done in Excel or you could have your lawyer do it, and while these methods will hopefully result in an accurate cap table, you have to determine what’s the most efficient way to manage it given that many constituents need it (for instance, your board, your lawyers, and your management team). The way you choose to maintain an accurate cap table should be efficient and cost effective, and automated solutions will help you stay on top of your cap table while also being less error-prone. Whatever solution you select should be capable of keeping it up to date and accurate in one place, whether you’re using a technology tool like Shoobx or managing it manually.
Data Room and Document Management
If your company doesn’t already keep all of its documents organized in a single location, you have a great opportunity to institute that practice following your Series A financing. You’ve just collected all of your documents for the financing and can easily get them organized in one place so that you’re ready for the next time. Historically, different buckets of information were kept in different places: legal documents were held by the lawyer, accounting and financial statements by finance professionals, and customer contracts with the company. The state of document management could fairly be compared to the Wild West.
With modern tools like Shoobx or other data room solutions, your company has the ability to have a single source of truth for all of its documents. All the key stakeholders know where the company information is, and you’re always ready for a financing or an audit or whatever else comes along (as opposed to scrambling to create document history on demand!). A technology-enabled data room allows your company to be more virtual and decentralized by taking advantage of cloud services as well as third party service providers. Technology has made having a data room and being organized easy, and there’s no excuse for not doing that!
After a Series A round, your company should be standardizing employment and consulting arrangements if they have not done so already. Reviewing and assessing consulting and employment relationships is a large part of investor diligence, and agreements you can expect to have reviewed include offer letters, employment contracts for executives, proprietary information assignment agreements, non-disclosure agreements (NDAs), a standard termination document, option agreements, and possibly non-compete covenants.
If HR administration has not been done correctly, it can elevate the perceived level of risk during future financings. To reduce risk and ensure adherence to good practices, companies should use standard templates vetted by their attorney, and should have a uniform onboarding process for every employee to demonstrate that all information has been collected.
Tracking Spend and Company Finances
After a financing, tracking where your company is spending money and how it’s growing should be a high priority. Now is the time to ensure that your company has implemented Generally Accepted Accounting Principles (GAAP). In short, GAAP are a combination of authoritative accounting standards that have been set by policy boards and generally accepted best practices related to how accounting information is recorded and reported. Post-Series A is also a good time to implement and maintain a financial forecast. A financial forecast is a financial planning tool, typically managed by your company’s CFO, that will help define budget as well as revenue opportunities and expenses. Flexible financial models, often enabled by service providers such as Consero, can yield improved agility and insight over traditionally rigid financial forecast models. Your first financing may also be the right time to consider having an audit done by a reputable accounting firm to confirm that your financial statements are accurate.
Don’t have a CFO yet? Post-Series A is often the right time for your company to take the founder out of the accounting and bring in a financial professional or consider Finance as a Service to gain clarity and scalability in the finance function. CFOs can also provide critical data and financial information to company management and the Board of Directors that is essential to budgeting, forecasting, and strategic decision-making. Establishing professional finance roles at your company will also be helpful in terms of establishing good accounting habits, such as implementing a basic system of internal controls to ensure compliance with regulations and laws as well as consistent and accurate financial reporting. Closing and reconciling your company’s books monthly is another valuable process to establish!
Don’t Snooze on Back Office Best Practices
The months following your company’s Series A financing are a great time to implement dependable organizational and back office processes, and putting it off will only make cleaning up ad hoc or disorganized practices more difficult down the road. Technology-enabled service providers such as Consero and Shoobx can help get your company on the rails and keep it there as you pursue new milestones.
About the Author
With more than 32 years of combined management and consulting experience, Mike Dansby, Consero’s VP of CFO Services has successfully raised over $100M in debt and equity capital, conducted successful M&A transactions, and served as CFO at several tech companies. He is a CPA and earned his MBA from the Wharton School of Business.