This document summarizes a panel discussion on preparing for a capital raise. It discusses establishing strong financial infrastructure with systems for cash management, financial reporting, controls and KPIs. It also covers creating clean financial records, building pro forma financial models with revenue forecasts and expenses, managing capitalization tables, assembling corporate documents, and outlining the fundraising process.

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How To Prepare For A Capital Raise
Panel Discussion for NY Tech Alliance
July 9, 2020
®

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Panelists
John Pennett – Partner-in-
Charge, Life Sciences &
Technology Group,
EisnerAmper
William Lieberman -
Founder & Managing
Partner, The CEO’s
Right Hand
Eric Meisner –
Partner & COO, The
CEO’s Right Hand

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We are a Strategic Finance & Accounting Firm that Partners with CEOs /
Management to Drive Financial Results Together.
Founded in 2015Cross-Functional
Team of 18 people
including Finance,
Accounting, FP&A and
Sales / Income Tax
Financial Business
Partners to
Founder/CEO’s Looking
to Grow & Scale
Metro NY-based with
National Coverage
WHO WHENWHAT WHERE
TCRH

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About EisnerAmper

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Agenda
• Financial Infrastructure
• Clean Data
• Pro Forma Financials
• Cap Table Management
• Corporate Documentation
• Fundraising Process

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Financial Infrastructure
6
Systems & Processes To Scale

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Key Components of a Proper Financial Infrastructure
• Cash Management
• Monthly Financial Reporting
• Internal Financial Controls
• Key Performance Indicators (KPIs)
• General Ledger & Chart of Accounts

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Cash Management
• Cash Forecasts
• Streamline Payments
• Monthly Bank Reconciliations
• Financial Cushion
• Be Strategic About Growth

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Monthly Financial Reporting
• Monthly P&L Trend for Past 6 Months
• Monthly & YTD P&L vs. Prior Year
• Monthly & YTD P&L vs. Budget/Forecast
• Monthly Balance Sheet Trend for Past 6 Months
• KPI Report – Operational & Financial
• Statement of Cash Flows
• Revenues & Margins by Product Line, SKU, Segment, etc.

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Internal Financial Controls
Accuracy &
Completeness
of Accounting
Records
Prevention &
Detection of
Frauds and
Errors
Safeguarding
of Assets
Policies and
Procedures to
Ensure
Orderly
Operations
Timely
Preparation
of Reliable
Financial
Information

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Key Performance Indicators
1. Ensure your team understands KPI’s.
2. Determine what indicators are important.
3. Assess which data elements can be collected easily.
4. Express the KPI as a formula.
5. Create a simple “dashboard” (use Google Sheets or Excel)
6. Discuss the results every month with your team and adjust as needed.
7. Dig down to analyze the KPI’s for your planning efforts.

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Chart Of Accounts
• Decide on Managerial vs. Financial Reporting
• Define gross margin
• Pay attention to indirect costs
• Organize operating expenses to reflect owner preferences and match
budgeting level of detail
• Use account numbers
• Consider separate accounts for key month-end entries
• Maximize functionality of the accounting software

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Ensure Data Is Clean
Are Your Books In Good Order?

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• Match retained earnings with tax returns
• Reconcile cash accounts
• Capitalize fixed assets
• Verify inventory levels
• Account for other assets
• Reconcile credit card statements
• Track inter-business loans
Perform An Audit

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Next Steps
• Don’t delay, it will only make matters worse!
• Use outside help – don’t rely on employees
• Assess / remediate

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Pro Forma Financials

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Pro Forma Financials
• Comprehensive model needed to answer the detailed questions from
prospective, sophisticated, investors
• Informs the decision as to how much, and when, to raise
• Leverage the financial model into an operational / management model ongoing

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Financial Model Components
• Key Assumptions
• Revenue Model
• Operating Expenses
• Hiring Plan / Compensation
• Income Statement
• Working Capital Drivers
• Balance Sheet
• Summary Results for Presentation

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Top-Down Forecasting
“Total Addressable
Market” = Total
demand for your
product
“Serviceable
Available Market” =
Your niche based on
current business
model
“Serviceable
Obtainable Market”
= What can you
realistically capture
given existing
competition
TAM
SAM
SOM
Costs to
deliver the
product or
services to
your “SOM”
Forecast based
on the market
share you can
achieve within
a reasonable
timeframe

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Bottom-Up Forecasting
• Begin with a “micro” view and build out to a macro result
• Use internal data as opposed to external information (e.g. TAM)
• Typically good for short-term portion of the model (1-2 years)
SaaS
Subscription /
ecommerce
Example:
Facebook
Ad Spend =
$10,000
CPM = $50
Impressions
= 200,000
CTR = 1.0%
Clicks =
2,000
Conversion
= 5%
Sales = 100
AOV = $50
Revenues =
$5,000

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Pro Forma Revenue Model

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Cap Table Management
Accurate Records Of All Equity Owners

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• List of all owners of a company’s shares (common, preferred, options) and the
prices paid by each investor
• Includes percentage ownership for each
• Shows dilution over time as subsequent financing rounds occur
• Pro forma cap tables help inform pricing decisions for new fundraise efforts
• New investors need to understand the impact of their investment on the
existing shareholders
• Waterfall analysis is critical to new investors so they can determine where they
sit in a liquidity scenario
Cap Table Overview

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Cap Table Example

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Corporate Documentation
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Corporate Documents
• Articles of Incorporation & Bylaws (Corp)
• Operating Agreement (LLC, Partnership)
• Share / Unit Certificates
• Board of Directors / Partner Annual Meeting Minutes
• Board Resolutions
• Ledger of Shareholders / Investors
• Shareholder Purchase Agreements
• Promissory Notes (Lenders)

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Corporate Documents (Cont’d)
• Employment Agreements (especially Executives)
• Major Customer Contracts
• Channel Partner Agreements
• Major Vendor Contracts
• Leases (Real Estate, PP&E)

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Fundraising Process
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Process Roadmap
• Create Financial Model
• Decide on Terms of Offering
• Create Pitch Deck and 2-Page “Teaser”
• Create Lead Tracking System
• Generate List of Prospective Investors (Angels/HNW, VC, PE)
• Test Pitch on “Friendlies”, e.g. Advisors
• Refine Pitch & Go to Market
• Select Lead Investor
• Negotiate Terms & Execute Term Sheet
• Draft, Negotiate and Execute Legal Agreements

31. Copyright 2020 The CEO’s Right Hand®
William Lieberman, Managing Partner
william@tcrh.co
(646) 277-8728 ext. 701
31
www.theceosrighthand.co
John Pennett, Partner
John.Pennett@eisneramper.com
(732) 243-7140
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