- It's once again time to get gutsy with Liz Hall
and her expert guests on the Gutsy Babe Podcast.
- Hi. Welcome to the Gutsy Babe with Liz Hall.
Today's topic is fundraising for entrepreneurs,
and we have our guest Stanoff Zinc off.
Welcome. Stanislau.
If you don't mind, I'd like
to just di give a little bio on you.
- Excellent. Thank you, Liz, for having me.
Uh, glad to be here. A little bit about myself.
I am, um, a practical CFO Chief Financial Officer
and, uh, what that means is that I work
with companies on part-time basis, basis
and, uh, I partner up with executive teams
to help 'em scale companies with the ultimate goal
of creating sustainable
and transferable business value
while at the same time throughout the whole process, keeping
companies in a state of readiness and attractiveness.
- It's very impressive. Stanis.
Love - . Thank you. Thank you. Yes.
I, uh, I feel fortunate to be one of those, uh, few people
who knew who, whether that he wanted to be when he grows up
and, uh, back dating back to when I was 12.
So at 12 I knew I wanted to be in finance
and I've carried that love for well over 30 years.
- Wow. That's beautiful. That is also impressive
because I still feel like sometimes
I'm still finding myself .
- Mm-Hmm. . I believe that.
Well, we're all trying to find it, your version
of ourselves throughout their lives.
Right? Correct.
- So true. So your official title is fractional CFO. Yes.
Can you describe what that is and what services you offer?
You did mention a little, but if you could go into
- Yes.
So a traditional CFO is somebody who is working
with the executive team, whether it's COO, the HR
and innovations officer, technology officer,
the c-suite working with the board.
Um, they work on full-time basis as a sitting CFO Mm-Hmm. .
There are a lot of companies that don't have a need
for full-time, CFO and
or they may not be able to afford a full-time, CFO I'm in
that space where they need exists,
but, uh, it's not big enough
to warrant a full-time employee.
- I've heard of fractional CFO in the past.
I feel that it's becoming more
and more popular in the west coast.
Now that term fractional CFO is very popular in the East
coast for many years.
Okay. And now it's becoming more, um, mainstream, um,
throughout the nation
and more, more accessible for people
to even understand what that is.
- I have worked with companies that are at the inception
and all the way to companies
that are third generation owned 50 years, uh, in the making.
And, uh, so I've covered the full spectrum,
but to circle back to the fractional concept Mm-Hmm. ,
I first came across it
and when I was doing internship at a small business
development center during my graduate studies studies
and, um, I volunteered at the community
and made myself available to
business owners in the community who would come in
and have questions regarding finances
that they had no other resource to turn to.
And it became apparent to me back in 2010
that there's a need in the market, uh, that is underserved.
And there's a thought in my heart for business owners
who are trying to build their dream,
but that they have this knowledge
gap that they need to overcome.
- That's beautiful. You did mention a little,
but how did you get involved in finance
and becoming a fractional CFO?
If you wanna go even more so in detail.
- So going back to finance, I was always good in math,
but I did not wanna be a scientist.
Mm-Hmm. and I come from a family of accountants,
but I didn't wanna be an archeologist.
And, uh, so for me, I was looking for something
where I can take the math component and,
and then have a future forward looking theme to it.
And finance fit the bill.
It's, uh, it's forward looking, uh, trying to
create a future, whether it's trying to build a company
and then articulate the path
or the financial blueprint for the growth,
or whether it's raising capital, um,
or working with operations
to really scale on an organization.
Mm-Hmm. . And, uh, I majored in finance
and I initially went to work at Morgan Stanley
as a financial advisor,
but, um, very quickly I've, uh, discovered that I
didn't wanna manage people's portfolios
and you really not managing people's portfolios,
you're managing people's relationship with their money more
so than you're managing a portfolio.
And I realized it wasn't my cup of tea,
I was more of an operator.
Yeah. And, uh, and I transitioned to business
and, uh, held a number of finance positions in, uh,
between 2000 and 2010, went to graduate school
and went back to finance.
And then, uh, my first
full-time CFO role was at a medical device company.
We had four companies. I managed six departments.
We had a public company in Australia, one in Japan,
and two in the, in the United States.
During my tenure, we tripled the headcount,
10 x the revenues,
and, um, also raised $35 million from none other than KKR
in Silicon Valley.
Um, I left, uh, then, uh, I was, uh, hired to take a,
to position a f portfolio of companies for, um,
an two PE firm.
And, um, and that happened during the covid.
I was head of HR
and A CFO had six 60 employees report to me.
And it was a heavy lift, a big undertaking,
but, uh, we were successful
and I finally decided that I will be a fractional CFO, um,
for this season of my life or in perpetuity.
And, uh, I've done quite a bit of that type
of work leading up to this.
So it's been a joy and a challenge as well.
- Oh, that's very impressive.
Since the subject is on this episode is raising money
for entrepreneurs Mm-Hmm. ,
can you talk about a few of the most successful ways
that entrepreneurs and startups can go about doing that?
- Mm-Hmm. . So the first question I would ask
is, do you need the money?
Mm-Hmm. , uh,
because when, when you take money from
anyone, it changes the dynamic.
Your business changes the single best description
that I've come across of what it's like to raise money.
It's equivalent to lighting a fuse. And, um, yes.
So, and, uh, the challenge is you have
to be accountable for that money
and you have to return the capital back to the investor.
So if you, if you're, uh, building a company, they,
you effectively have to have some sort of an exit for them
to, um, get their money back.
So you, some people build, companies build to hold,
but, uh, in that case, as you, as soon
as you take the money you, you're building to sell.
So that's something to recognize that.
Um, so if it's a traditional startup, um,
- That's a great point.
And I like that question though. You have to ask yourself,
- Yeah, well, do you need money?
And how much money do you need?
Because too little is, uh, will put you in a disadvantage
and too much will dilute you.
And, um, and you have, you have a hundred percent
of the company, and if you think of, um, the journey
that, uh, like if we take an average, for example,
from inception to X exit, usually it takes seven years.
So, uh, for seven years, you will continue to raise capital
and continue to dilute yourself.
So you have to be strategic
and, uh, smart with, uh, the a hundred percent that you have
to allocate to, uh, to incentivize, uh, the board,
the advisory board, the investor community,
and, uh, employees and other talent as as well.
And then have something left for yourself. Of course. Yeah.
So with that in mind, it depends
where your company is currently in, in its cycle.
So if you're at the idea stage, you,
you'll have a different process versus if you are
a 5-year-old company that has $50 million in revenue and,
and wanna scale to a billion dollars in revenue Mm-Hmm. .
So I, I, there, there, depending on the stage, um,
of the round, that will determine
how you approach the fundraising.
- Mm-Hmm. , I always find it fascinating when you have
startups where they're just in the idea phase Mm-Hmm.
and how much revenue someone could, uh,
potentially get and receive.
Mm-Hmm. with just an idea.
I mean, I understand with technology,
but when there's a product in hand, I think it's Mm-Hmm.
amazing. So that always blows my mind where like, wow,
you are able to raise that much capital
with just an idea. It's impressive. Mm-Hmm. ,
- Yes. Well, it's a little bit more complicated.
Um, as far as,
because investors, uh, if we think of venture capitalists,
for example, they have certain, like a lead investor,
they will wanna have a certain portion of your company.
Mm-Hmm. . So in many instances, their goal is to,
they will lead, uh,
around they will wanna have 20% of your company.
And, um, you may, um, raise more money than you need to just
for them to meet the 20%.
But that, that was more custom,
more customary prior to covid.
Uh, the valuations have been depressed,
um, somewhat since then.
So if you can raise money, great.
But I will say this, as glamorous as it can be
to have raised capital, it doesn't,
that in itself doesn't build the business or the product.
So it's almost like you have to do this to do,
to actually build the company,
but it, that in itself doesn't build the company.
- You had said your analogy of lighting a fuse.
Can you explain that a little?
- Yes. And it depends on, uh, the investor, for example.
Mm-Hmm. . So we can say that we can, um,
decouple them into two categories, smart money
and not smart money.
And then each one have their own, um, proclivities
and their own limitations.
And an institutional investor will be much more rigorous
and that they will have, uh, certain expectations
of you when it comes to growth, governance, uh, strategy
and, uh, traction and results.
That's one category of investors to deal with.
The not sophisticated investors may be micromanagers
or trying to influence the company without really being
subject matter experts.
But in the end, people give you money only when they have
some level of confidence
that you'll return that money back to them.
So time is money.
So they have expectations as to when they,
when they will receive that money
and what milestones you have
to hit throughout the lifecycle.
- Can you share a success story in
helping companies raise funds?
- Yes. I think if we go back to the idea stage, um, so
if, if we compare idea stage to like a, a company
that has revenue already Mm-Hmm. ,
um, the emphasis would be when you go
to investors is more at the idea stage would be on the team.
Mm-Hmm. . Um, and, and people, um, will invest in a team
because there's no traction when you,
when you're established company more or less,
and you have revenues, uh, the what, um,
what you're presenting to the investment community is the
attraction and the success.
Mm-Hmm. . So if you can say, a revenue is growing
20% month over month Mm-Hmm.
That's a healthy traction, uh, that you can,
um, showcase to investors.
You don't have that when you have an idea.
But what you can have is, uh, a robust team of co-founders
and, uh, possibly an advisory board.
- What challenges do entrepreneurs have
to overcome when raising funds in today's economic climate?
- That's a great question. I think, um, there's a lot
of uncertainty and, and stability in a financial market
and just the world overall.
And, uh, as a result, um,
some investors have been paralyzed,
some have been more selective.
And, um, I think 20 20, 20 21
or 2019 to 2021 were
remarkable years for fundraising.
And people with an idea would have crazy valuations.
Subsequently, uh, with interest rates rising
and, uh, inflation rising
and the cost of everything, uh, changing,
it's been more difficult and
there's a lot more unpredictability.
So, uh, one way to look at it is this way,
as you are raising, uh,
capital throughout company's life mm-Hmm, , um, you,
you're hitting different milestones.
And with those milestones, you're de-risking the business.
So, for example, you have an idea and you testing it,
and you raise a prese round to test an idea.
And then, and then you, you hear, you send a signal
to the market and you hear an echo back,
and it's, it's a positive echo.
And, and then you go, uh, raise a seed round
and then, uh, to build a product, uh,
and then figure out you go to market strategy, uh, uh,
and product market fit, and,
and, uh, you send a signal to the market
and you hear positive echo back.
And then you can come back to the investors
and say, I put it out and we have, uh, demand.
We, we have, um, minimal traction,
but there are signs of that.
And then you wanna scale, um, from, from c to, um,
to, uh, let's say a series A, it's a go-to market strategy,
and you wanna introduce a product, um, more mainstream.
Mm-Hmm. , um, you focus on that.
And then post series A, it's more scaling the company
and then later, um, B series C,
you're focusing on more efficiency
because the challenge is, up until not too long ago,
startups were cash incinerators.
And, uh, and I'm sure you've seen a lot of headlines,
companies burning through billions and billions of dollars
and, uh, investors just filing more cash and, uh,
and the company's just, uh, burning more cash.
It's not so any longer.
And, uh, there's lot more scrutiny
and, um, investors wanna see
a path to profitability.
- Yeah. Well - That makes sense.
That's, yeah, that's one of the things.
And then, uh, with depressed valuations, uh,
to raise the same amount of cash you have
to forego a greater portion of your company, which you,
which results in, um, uh, how much company you control.
And, um, rising costs from labor to materials,
if it's a product Mm-Hmm. ,
um, all of those, uh, factors play into the
challenging landscape, um, when it comes to raising capital.
- Alright. If you were to give an entrepreneur
who are listening today, um, two
or three pieces of advice when it comes
to getting an investor, what would they be?
- So when you go to an investor,
they'll ask you 50 questions about your product,
about your team, and total addressable market,
unique value proposition of your product, your go to go
to market strategy, how you plan
to make it to the next round.
But in reality, they're asking one question,
and that is, how will you return the capital document?
So the best answer you can give them
is, I've done it before.
Look at my last venture.
We had a successful exit and my investors made this return.
If you, if you have done that, that's, that's your answer.
If you haven't done that, then you have
to put together a team, uh, kind of all the pieces,
whether it's operations, technology, marketing, uh,
with a go-to product emphasis, uh, to be able
to have a, a team.
If you can't have a founding team, I would advise,
I'm a big advocate for advisory boards.
Mm-Hmm. . And I've sort of, I certain a number of those
where let's say three physicians wanna
start a medical tech technology startup,
but none of 'em know how to code a project, uh,
manage a project, and, um,
and they may not be able to find a technical co-founder,
or they're not interested in that.
But, uh, advisory board is where you make up that gap.
And, and then the idea is to, between the pounding
between the founders and advisory board
to have a well-rounded group of people who are able
to address all, all
of the components have grown and scaling a business.
And then I alluded this earlier during my introduction, is
that in a, what I do is as I work with companies,
it's important to maintain the company in a state
of readiness and attractiveness.
A lot of companies are not attracted to invest in,
and a lot of companies when they do need the money,
are not ready to be invested in.
Mm-Hmm. , um, I'll give you an example.
Simple example, uh, accounting books. Mm-Hmm.
From la uh, let's take last year, uh, from AI companies,
space propulsion companies, uh, pharmaceutical companies,
construction companies, service companies, you name it.
Uh, and not one company that, uh, uh, had their books
to the standard that I would say
a sophisticated investor would wanna see, not one.
Wow. So, yeah. So, and, and it goes back to, are you ready?
So if you need the capital, are you ready
to go solicit that capital?
Or are you gonna be scrambling for three months
to clean the books or position a company of for success?
Being able to succinctly articulate your value
proposition is important.
And, uh, I am always surprised
how many companies go in circles, in circles
for 10 minutes trying to describe what,
what their value proposition is.
And, uh, and they just lose their audiences
because you should be able to clearly state,
here's the massive problem I'm solving, uh, uh,
in, in, in the world.
Mm-Hmm. and regrettably, I, I've come across a lot
of companies that don't have it clearly articulated or, uh,
or they don't have it finalized where it's,
it's a moving target every three months
and, uh, three months.
So as they pivot
and shift from one value proposition to the next, all
of the supporting materials to go soliciting investors,
capital from investors has to change as well.
And then, um, if you, if the investors have a proof
of concept of some sort, if you don't have traction,
but you have a proof of concept that would be welcomed also,
there, there's a lot of VCs
and there's a lot of money out there.
There's a abundance of money out there,
but you have to get aligned with that money, right?
Mm-Hmm. . So you have to understand,
like if I'm a idea based company, I have to find a VC
or an angel investor
who would invest in early stage companies.
You're not gonna go, so let's say I'm a SaaS company at the
idea stage and I need a hundred thousand dollars.
You are not gonna go to medical device companies that
invest in late stage pharmaceutical drug trial companies.
Uh, and then they write checks at a minimum of $10 million.
Mm-Hmm. , uh, post series B.
So you have to get a line like, who are my target audiences?
Uh, and VCs who invest in early stage companies, check size,
they write, make sure that matches mine.
And also within the industry that I'm in, um,
those are the, the, the ones that come to, to my mind.
- Excellent advice. For someone who's listening
and doesn't know what VC is,
can you explain just vc, because
- They're venture capital firms?
Um, yes. Um, they are effectively,
effectively there firms that take money from, uh,
limited partners called LPs.
mm-hmm. . And whether it's institutional investors like, um,
let's say university or endowment fund or family office
or, uh, individual investors and they raise a, uh, a fund
and then they deploy that fund, uh, to invest into
companies over a period of time based on
their investment thesis.
So if they're companies that invest into, let's say ai,
uh, which is a hot topic today,
and let's say like medical device, uh, uh,
medical software, ai.
And so that's their emphasis
that they seek out com companies, um,
who are building products or services in that space.
And that's, um, and that's
how they deployed their, uh, capital.
So they've gained a lot
of popularity in the last few decades,
and, uh, they've, there's a lot
of them out there, uh, nowadays.
Mm-Hmm. and I have friends who are raising, uh, rounds, uh,
and study their own VC funds,
but, uh, they, they're kind of in the middle.
They take money from limited partners
and they give money to the companies.
So they, they're, I wouldn't say the middleman, it's, well,
it's over generalization,
but their emphasis is to channel money to startup companies.
- You're very well versed in educated,
and I've learned so much.
So thank you, Stanislaw.
- My pleasure. - If any of our listeners own companies
and would like to use your services,
how can they get in touch with you?
- The best way to find me is on LinkedIn, believe it or
not. - , it's a great resource. .
- That's right. Yes. Stan love Z
and I can't imagine there are many of us out there.
Um, and that's the best way to get ahold of me.
- Okay. You have a website?
- Yes. Um, austin fractional cfo com. Alright.
I'm based outta Austin, Texas. Yes.
- These days, it doesn't matter where you're located out.
Mm-Hmm, - . Mm-Hmm. . Yeah.
I only have one client in Texas right now,
so I'm all over the place.
Yeah, amazing.
- This was extremely educational and so helpful.
So thank you so much for your time.
I've learned a lot
and it was, uh, eyeopening, so I appreciate your time.
I'll be needing a fractional CFO in the near future,
so I'll be looking.
- There you go, . Excellent.
- So thank you. Thank you.
Signing off as your host on The Gutsy Babe
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