Your dream may be to take your business public and retire rich. Or you may want to sell out to someone like Google or Microsoft and retire rich. Or you may have a great business idea and need money for growth and expansion. All these options require finding someone that knows something about money.
One person who can help is Mark Marshall, the “Virtual CFO” and managing partner of The Accend Group. What is a Virtual Chief Financial Officer? Let’s ask Marshall.
“A Virtual CFO does the same things as a regular CFO,” said Marshall from his Salt Lake City office. “We step in and plan cash flow and track budgets to actual spending like a regular CFO, or help get money from venture capital investors for research or ramping up or whatever you need. We come up with funding strategies, measure the right time to take on more funding, and the opportunities in the market. We advise the CEO and the rest of the team.”
Finding CFOs experienced in venture capital funding isn’t hard in Silicon Valley, but they’re expensive. Finding CFOs like this in other parts of the country is hard outside a few technology hot spots. Finding, and affording, a CFO with this type of experience is a difficult step for many companies.
It’s the old Catch 22: you can’t really afford a venture-experienced CFO unless you have money, and you don’t get that type of money without a venture-experienced CFO. Enter the Virtual CFO concept. You work with a Virtual CFO as much or little as you want or need, and the price scales accordingly.
If you’ve never heard of a Virtual CFO, neither had Marshall when he became one. When he started 13 years ago, he’d never met anyone else using this approach. “Now I keep meeting others doing this.” He believes the bursting of the Internet bubble in 2001 created this market, since companies needed to keep going but their funding dropped so much they couldn’t afford the typical full time CFO.
You don’t have to be a big company for this. Marshall says his clients run the gamut. “I have one person in a basement, and I have a 40 person company already through several rounds of funding.”
Do you have to be a technical company? He says absolutely not.
“I tend to go toward high tech or high growth companies,” said Marshall. “I don’t fit with a Mom and Pop business with 10 gas stations who want to expand to 11. Their local CPA can handle all their business. But if they want to grow to 150 stations, they’ll need more advanced funding and growth strategies.”
Marshall’s experience makes the difference, not the tools. He uses QuickBooks for his customers, but adds his own templates for funding and growth.
How do companies know when it’s time to look for venture capital money? “When they start asking questions about major growth and talking stock for investments,” said Marshall.
Marshall offered a few tips for readers thinking it may be time to step up. First of all, don’t wait too long. “Some push as far as they can on their own and mortgage their house and the like,” said Marshall. “They can’t be patient waiting for money for the next step.”
Venture funding takes longer than bank loans. A middle of the road deal with a good business plan takes about six months. Others struggle for a year or more trying to get angel funding (the earliest investment to help prove a concept) of a million dollars or less. This often happens with a new product area, since investors can’t compare the company to others in the same business.
Ask the investors if they’re fully funded right now, said Marshall. “Venture capital groups seem to work in one of two modes. Either they have funding and are writing checks, or they’re raising money and not investing.”
Pick venture groups in the right business. A wonderful consumer product won’t get funded by a VC firm specializing in enterprise technology products. You may talk to 20 groups until you find the one group that responds to your passion and your business plan.
The big question for many small business owners is how much of the company the investors will “steal” in exchange for funding. If you think that way, you may have trouble working with a VC group.
“By the time a deal is finished, a VC wants 30% to 40% of the company,” Marshall said. It may take several funding rounds to reach the goal of going public or being acquired, which are the typical ways investors get their money back.
Even more important than the money, believe it or not, can be the connections the VC provides your company. They stamp your company with their approval, which can mean up to 10 times more funding in the next step. They play matchmaker with other businesses they work with to help both groups.
If your Virtual CFO does the job correctly, you’ll grow and the venture capital groups may never know your CFO is virtual.