Startups facing fundraising challenges in the US

The startup landscape in the US has always been thriving, with approximately 5 million new businesses established in 2022*. Thanks to the ease of starting a business in the US, which only takes six days to set up a company*, 30.2 million small businesses were operating in the country in 2022. 

However, the meltdown of Silicon Valley Bank earlier in 2023 and venture capital funds tightening their funding have had a ripple effect. Fundraising has become more complex, and there is now greater emphasis on business fundamentals, operating metrics, and financial due diligence.

Has CFO advice become critical for a startup's success?

In the current business landscape, the role of a CFO has become essential for the success of a startup business. It goes beyond the traditional role of accounting, reporting, and creating standard MIS for understanding and managing the founders' objectives on the one hand and the demands of the investors/potential investors on the other. 

The CFOs of startups need to understand the business environment, create meaningful operating plans, and provide the necessary financial due diligence to help keep the business afloat, keep current investors satisfied, and attract potential investors.

Why do most startups fail?

Despite the ease of starting a business in the US and a very vibrant landscape, the failure rates of the startups are very high. About 90% of startups fail, of which 10% fail within the first year and 70% during years two through five*. 

While the main reason for startup failure is misreading market demand, the other significant reasons are running out of funds, poor cap table management, poor cash flow management, poor financial management, pricing, and cost issues. 

Can Partnering with a Virtual CFO Help Navigate Financial Challenges for a Startup?

• • Some of the significant financial challenges that startups need to deal with can be resolved with the help of an expert CFO team
  • Cap table management
    Cap or capitalization table management involves keeping track of the equity ownership, market capitalization, and the market value of a company. The cap table includes details on funding sources for a startup or an early-stage business.
  • Working capital management
    Working capital management is effectively managing a company's current assets and liabilities.
  • Cash flow management
    Managing cash inflows and outflows is an integral part of the financial management of a startup. It shows the promise of the financial stability of the company.
  • Meaningful business operating plan
    Preparing an operating business plan helps managers make better-informed decisions and prepare for contingencies.
  • Correct pricing strategy
    Choosing the correct pricing strategy can considerably impact capturing the market demand, especially if introducing a product/ service innovation. A CFO can help you select the most suitable product pricing strategy.
  • Cost control
    An expert CFO’s inputs to optimize costs for maximizing profits justify their fees!
  • Robust data and the right MIS to keep business true to the operating plan
    CFO services facilitate data handling to help management decision-making. Using an IT system for managing MIS is also beneficial for businesses.
  • Detailed pitch decks for potential investors
    Founders need expert advice to maximize the chances of raising funds from potential investors. An experienced CFO is the best person to work with the founders of startups, preparing the right pitch to attract investment.
  • Accurate valuation for both investors and founders
    Getting a business valuation for a startup can be complicated since startups have small or no revenue, uncertain demand, and no profits. However, getting funding or equity investment requires a proper valuation. A CFO can help startup businesses bring the correct valuation

  Most founders will have the essential financial intelligence but need help with the financial expertise or the time to take away from the core of the business: the product, market, and customer. 

  Coupled with the fact that most startups cannot afford an experienced full-time CFO, the situation becomes critical. The need of the hour is for startups to partner with the CFOs with the right industry and finance expertise and experience. 

What is a virtual CFO service?

A virtual CFO is an organization such as CFO Bridge that offers financial expertise on-demand to startups and small and medium-sized businesses. They typically employ expert CA, CPA, and CFOs who are experts in their field of specialization. Small and pre-revenue companies that cannot afford to hire an in-house CFO benefit immensely by outsourcing their finance function to such virtual CFO services.

Virtual CFO offers the best advice to startups at an affordable price!

Partnering with the right virtual CFO and getting the proper guidance at the right time can make a significant difference to not just the operational viability of the business but also to the access or lack thereof to the ever-tightening funds. 

Reach out to CFO Bridge Partners to understand how to improve the financial performance of your startup.

Contact the Author :  Nisha Bansal