- Creating a ‘cap table’, or share register, is crucial in attracting investors
- Chartered Accountant’s forecasts set the basis of expectations for both entrepreneurs and investors
- The skills of a Chartered Accountant and CFOs can be invaluable
At the CA Catalyst Small Firm Big Impact event held at Fishburners Brisbane, the audience heard the firsthand accounts heard from a panel comprising a CFO from a start-up, a private equity analyst and the director of start-ups at a mid-sized accounting firm.
The focus was on how Chartered Accountants can advise start-ups in securing the right kind of investors and the right terms for all parties.
One of the crucial areas in which the skills of a Chartered Accountant are invaluable is in forecasting and valuation and understanding investor expectations on returns.
Forecasting and valuation
Marc Orchard, the Director of Start-ups at BDO Australia, said Chartered Accountant forecasts set the basis of expectations for both entrepreneurs and investors, and were critical in then understanding current and projected valuations of young companies in cases where "you are often picking a number from the air".
"I think it really starts with forecasts, because your forecast is tied to your valuation," said Orchard.
"You're pitching to investors who see financials as opposed to something that is just through the roof, and forecasts are really important as they validate a certain valuation."
"Especially with seed investments, I think this is where Chartered Accountants can be super helpful."
Orchard said it often made a big difference in meetings to have a Chartered Accountant, who was often a CFO, who was able to speak to the financial forecasts.
"At the end of the day, investors are investing on the return and I think that if they can point to one thing, they look at your financials."
Marc Orchard, Director of Start-ups at BDO Australia. A CFO who could answer these questions was critical, and they could often be the difference between winning or losing investors.
A clean 'cap table'
A second key area for Chartered Accountants is in building a rigorous shareholder register.
Eden Lawrence, a private equity analyst at QIC, told the event that not getting this right could hold up investment and cost the start-up valuable time.
"Early on, you can get a lot of seed investment from mums and dads and friends and family, and you really need to clean that all up," she said.
It all came down to a "clean cap table" that clarified equity and equity compensation plans, and in this Chartered Accountants were crucial to the funding process.
Co-ordinating the moving parts
A third area is in co-ordination, and while some of this work was the responsibility of lawyers, Chartered Accountants and CFOs were also invaluable.
Natalia Florez has direct experience of start-up funding in her role as CFO of Red Eye Apps, and she said the journey involved "a lot of negotiations back and forth" that drew on the softer skills of the Chartered Accountant as well as technical knowledge.
"Even after we agreed on a term sheet there's a lot of coordinating of the parties involved," she said.
"How do we coordinate four different law firms? And then meetings and follow-up phone calls. It was super demanding."
In this phase, there were demands for additional information and security to reassure all parties and get funding deals across the line.
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