[Anonymous]

I am looking for someone that has experience with a tech start up, i.e. cap tables, angel investors, and runway. This kind of thing. I really need some advice, because the client is my son and I seriously don’t want to screw this up for him.

The site is interest driven and not people driven so it’s not like anything else we’ve seen. He’s still in beta testing but I want to be prepared for whatever is coming next.

Thanks!

[Anonymous]

You aren't going to find investors on the internet or forums..that's something you have to do F2F and be able to sell people on..hes going to have to show sales growth and positive cash flows to finance through equity otherwise find a bank to finance him..

I worked for a software startup in sales for several years.. have him hire a few low paid business development reps to cold call whoever his demographic is..buy a database and then when they find leads have him do the actual presentation to close.

I would think you could just make an excel worksheet to track ownership in equity..I mean having options or warrants or things that are trickier doesnt make sense for a young startup..

[Anonymous]

i dont think hes looking for investors on here…

@amohr23 wtf are you talking about? positive cash flows for equity investors. my bet would be that 99% of angel round enterprises do NOT show positive cash flows. instead, they are currently losing money but with a huge potential of making it in a few years. hence, they need the funding. its the growth models that are scrutinized. in the discounted future cash flows valuation model for example, why did you pick growth rate g=8% instead of 5 or 6 or etc.

source: numerous case studies and entrepreneur presentations during my MBA program. i do not have much finance experience though.

[Missy]

How exciting for him!!!

I am sure there is someone here with experience that can give you some pointers. Despite not wanting to mix mom & cpa duties you are savvy enough to know if the advice you're getting is good or not.

Old timer,  A71'er since 2010.

Finance manager/HR manager

 

 

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Anonymous]

Thank you eesti!!

You are correct in that we are not looking for investors on a CPA exam forum. I don't want to make a stupid mistake that will end up hurting my son in the long run. He has an Angel investor interested in his site, but I don't have a clue what she is going to want from me as far as what he has spent so far. He has been using AWS so his server costs are minimal. For the most part his only source of income is the Bank of Mom and some webdesign. I have zero experience in forecasting revenue. If you can think of any resources or books that you think will help me to not destroy my son's hard work, I would really appreciate a heads up.

[Skynet]

Wow! Kricket the long time Legend of A71 is back : )

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[taxgeek83]

^^^ My thoughts exactly – welcome back! Is this the same kiddo with a penchant for web development that you have mentioned in the past? I always had thought he was still in high school – impressive! And good on you raising such a talented kid!

[Anonymous]

He graduated from high school last November, the day before his 18th birthday. He was homeschooled so he took the HighSet test. It's like the GED but a little more difficult. He needed a 45 to pass. He got an 89. We talked about college, but he said he didn't want to do it right now. My choice was to help him live his dream or set fire to $40K. I opted to invest my money in him. I'm thinking I made the right choice.

I knew if there were people who could help me out, I would find the experts here! It's good to see y'all! This whole being the boss thing really cuts into my social life. I'm serious about needing help, if anyone has any advice, hit me up kricket.mitchell @ gmail dot com.

After all of his hard work, the last thing I want to do is screw up some serious funding.

[startupcfo]

Head of Finance at a tech/SaaS startup here, about to finish a $6M Series A round, +$30M valuation. Part of my job is to explain to stakeholders what our forecasted P and L is, our contracted commitments, our runway, and the dilution calculations.

To put things in perspective, we have 80 investors (friends, angels, VC, PE included), and our cap table was interpreted 3 different ways by our lawyer, the investor's lawyer, and a vendor. So I don't agree that cap tables are something that can be easily managed over Excel long-term.

I also don't agree with the guy who said “positive cashflow”. If the company has positive cashflow and is marketing itself as a startup, it means you're doing something wrong.

You are welcome to try a DCF, but understand that any investor is going to discount the numbers heavily because there is a 70%-80% chance your startup is going to croak even after being funded

Are you looking for advice on how to manage the finances and compliance issues of a new start-up, or are you asking more for advice on how the start-up should grow?

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[Anonymous]

Startupcfo – You are the answer to my prayers!!! We are nowhere near where you are at this point, but I would love to see him get there. I know that the accounting for this is going to require someone with specialist knowledge when he gets to where you are, and it will not be me. Right now, we have one possible investor, cash flow is definitely negative and I'm not about to attempt to create or reconcile a cap table in Excel! That notion is frankly hilarious. I keep a QB file for him just to track his web design income and how much he is paying AWS. Other than that, he has no income or expenses. He is using an office in my building. He pays no rent or utilities. He has no employees. He does have a couple of people that helped him to get started and they have stuck with him throughout all of this. Those two would absolutely get shares later but they don't get paid now. I figure he has about 6 months of runway before I have to start paying the AWS bill, which I absolutely will if I have to. He is still in Beta and is working like crazy to get the apps ready. iPhone is about 70% done and Android is closer to 90%. Understand that he is the only one who has written any code for all of this and he is 18 years old. He is brilliant! And I'm not just saying that because he's my kid.

My question for you, since you know how all of this works, is what do I need to have ready when my son meets with the investor or do I just need to stay out of it?

[startupcfo]

Your son needs to prove that he's thinking about this strategically and has the strength to pivot when the time comes

Startups dont fail because of poor finances and inability to raise money as much as they do because an idiot founder put the cart before the horse when it came to product design.

Most engineers think “let me show the world how smart I am by making a gadget”. That's ass-backwards, and it's why having an idea is worth nothing. A good startup founder looks for a pain point in the market and assess whether he can come up with a competitive, feasible, and scalable solution to solve the problem.

My concern is that you have committed money to him before he has passed the necessary tests to show his idea and his abilities are worth anything. If I met him, I would ask him to explain

1. what his product does
2. who is going to buy it
3. what benefit will it provide for the consumer
4. what guarantee is there that this is the consumer's best option
5. what evidence is there that consumers would actually pay for a solution?

An example of #5 is caller ID services. Everyone wants it, but nobody is willing to pay for it. Economics 101 – that means there's no DEMAND.

Until your son can answer those 5 questions intelligently, DON'T GIVE HIM A CENT

As for having no official paperwork for his advisors, I would suggest he puts his money where his mouth is and grant “advisor shares” to those outsiders with a vesting schedule so they have skin in the game. It costs very little to

1. incorporate a company to segregate business finances from personal finances
2. set up some paperwork to state the board members, # of authorized shares, and who the shares go to

If you guys end up blowing $3,000 and this idea tanks in the next 6 months (which is statistically likely), consider that the best money ever spent. 3,000 is tuition you would pay for a 3-credit course at a lackluster university with lackluster classmates. Your son might have to do 3 or 4 startups before one of them actually exits, whether in an acquisition or acqui-hire. And that's fine, just make sure he's mentally prepared to fail fast and fail cheap. Do not let him drag out a dead idea and blow your $40K in some misguided attempt to show “persistence”

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[Anonymous]

Those are some very good questions and I assume these are the kinds of questions the investor is probably going to ask. And he has very good answers to all of them. Believe me, he hasn't spent any where near $3,000 yet. What he has spent, he's earned himself. The only cash I've put into this, other than office space, which costs me nothing because I own the building, and utilities, which I was going to have to pay anyway, were the costs of incorporation. Since he was 16 when we incorporated, the state required an adult to be an equal partner. That was more than likely because of some stupid Louisiana law. As of right now, there are 1,000 shares. He owns half and I own half. My half will probably go to him, now that he's not a minor, because I really don't do anything for the company. I'm assuming it would be hard to sell a potential investor on why I would need to keep my shares. I'm more than willing to sign them over to him.

Thanks for your help! You have really given me some insight into how this is going to work. I would love to tell you more about this project but I'm not about to post it on a public forum. I know you are studying but if you get a chance, I would love to run it by you. MY

[Anonymous]

Those are some very good questions and I assume these are the kinds of questions the investor is probably going to ask. And he has very good answers to all of them. Believe me, he hasn't spent any where near $3,000 yet. What he has spent, he's earned himself. The only cash I've put into this, other than office space, which costs me nothing because I own the building, and utilities, which I was going to have to pay anyway, were the costs of incorporation. Since he was 16 when we incorporated, the state required an adult to be an equal partner. That was more than likely because of some stupid Louisiana law. As of right now, there are 1,000 shares. He owns half and I own half. My half will probably go to him, now that he's not a minor, because I really don't do anything for the company. I'm assuming it would be hard to sell a potential investor on why I would need to keep my shares. I'm more than willing to sign them over to him.

Thanks for your help! You have really given me some insight into how this is going to work. I would love to tell you more about this project but I'm not about to post it on a public forum. I know you are studying but if you get a chance, I would love to run it by you. My email is kricket.mitchell @ gmail dot com.

[Author]

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