Chapter 1: Why Financial Literacy and an Investor Readiness Program?Featured 

It’s the start of a new year, so what could be better than kicking it off with the first chapter of the upcoming book on financial literacy for founders? The only thing better than it would definitely be to get your thoughts on this new material, have you comment with thoughts and suggestions, and further share this material with others who might benefit from it, even in draft form.

Chapter One

Professor Josh Lerner of Harvard Business School is one of the most recognized and respected entrepreneurial finance professors of our generation. In 1994, I had the honor of taking his class and while I learned a lot in the course, the most important gem was in the first class in the first few minutes. “A financing strategy supports a business strategy; it is not the business strategy.”

Being an entrepreneur and working with thousands of entrepreneurs, I found myself continually coming back to this fundamental principle to ground discussions on strategy and execution. It seems obvious but in the heat of the battle, entrepreneurs (including myself) can get confused and think the goal is to raise money. It is not. It is simply an optional means to an end.

The goal is to build a new venture that serves a purpose (i.e., “raison d’etre”) and is economically sustainable. Success, if measured by how the business is able to have as much positive impact, aligned with the aforementioned purpose, as possible. The purpose is rarely singular and it is almost always multidimensional with multiple stakeholders.

While some people and media tend to get obsessed by it, the amount of money the company raised or the brand of the investors they raised it from is not the objective of a new venture nor a true measure of success. These factors are but supporting tactics that may, or may not, increase the odds of success of your business strategy and execution.

A company has never been successful because of a great fundraising strategy alone. On the other hand, I have seen many companies destroyed by poor fundraising strategy and execution.

When put in the proper context, a good fundraising strategy and execution could increase the odds of success and even, in rare instances when coupled with excellent business strategy and execution can become a significant competitive advantage.

So what is my point? Focus first on developing a great business and keep the fundraising in perspective. It is NOT the main thing. Ironically, the best way I have found to raise money is to focus on building a great business.

But wait, then why are we spending time on a “Financial Literacy and Investor Readiness Program”?

Let me explain. The number one job of a CEO in a startup company is to not run out of cash (attribution to my former teaching colleague, Howard Anderson). Think about that carefully, because it is why this book was written. A body that does not have oxygen will die. That is why on a plane they tell you first to put on your own oxygen mask before you start to help others. Likewise, for a business, cash is oxygen. Without it, the business dies and there is no purpose served, no strategy, no customers, no products, no employees, etc.

As such, the most fundamental scoreboard a business had to watch is the financial one. It might not be the most exciting but without it, you have nothing. In this program, we will not be turning you into a finance expert or teaching you tricks that will make your business successful. We will just teach you how not to lose in this area so that you can win with your core business strategy and execution. The parts where you can really distinguish yourself are innovation, creating a unique value proposition, culture, and team.

Because money is the oxygen for the company and financials are the oxygen monitor to keep it alive, everyone in the company should have basic financial literacy to understand key metrics. It should not just fall to the CEO and CFO. Everyone is invested in the venture surviving because if it does not, everyone is dramatically affected.

Key points of Chapter 1

• The financing strategy and execution support the business strategy and execution, it is NOT the business strategy and execution.
• The #1 job of the CEO in a new venture is to not run out of cash.
• Financials are an essential scoreboard for your business that everyone should understand.

We will teach you in this book:

1. Financial Literacy: What you need to know about finance to run your business
2. Financial Modeling: How to develop a financial model to generate projections of your business that provides insights, meaningful projections, a potential path to greatness, and a planning tool
3. Milestone Financing: The reason for milestone financing and what exactly it is.
4. Sources of Financing: We will discuss what are the various sources of capital for a business and what are the pros and cons of each.
5. Sourcing: How to generate leads, filter the leads to make a target list, and then how to sequence this list.
6. Investor Presentations: How to develop and customize an investor presentation.
7. Understanding Legal Dimension: We will provide a high-level overview of typical terms and conditions of financing and other legal considerations.
8. Setting Up the Meeting: How to get the meetings you want
9. Negotiation:  How to approach the funding process and negotiate with potential funders
10. Current Considerations:  We will also talk about what are the current considerations in fundraising.
11. Presenting: We will practice presenting to investors