When Should an Early-Stage Company Hire a CFO?

About SecureDocs, Inc.

• SecureDocs is a virtual data room for sharing and storing sensitive documents both internally and with outside parties.

Company Basics:

• Developed by the team that created and launched GoToMyPC and GoToMeeting

• Web-based business software for financial and legal professionals

• Distinguished through it’s ease-of-use, industry-leading security, and flat-fee pricing

Background - Walter Tendlerwtendler@gmail.com

• Audit Manager with Ernst & Young• CFO of Early Stage Public & Private companies

– Infrasonics (medical device) – sold to Puritan Bennett– PersonaLogic (web based decision guides) sold to AOL– Figure 8 Wireless (ZigBee chip) sold to Chipcon (Norway) 12 mo.

later Chipcon was acquired by Texas Instruments– Amira Pharmaceuticals (asthma drug) signed $100M+ drug

development & licensing deal with GlaxoSmithKline and later acquired by Bristol-Myers Squibb

• CFO / Admin. Partner Avalon Ventures (La Jolla)• Financial Consultant for Early Stage Companies

Polling Question

When Should an Early Stage Company Hire a Chief Financial Officer (CFO)?

Outline of Today’s Discussion Early Stage Company Financing, Administration & Accounting

Role of an Early Stage Company CFO

Qualities of an Experienced Early Stage CFO

Examples of a CFO Making a Difference

When to Hire a CFO

How to Find an Experienced CFO for Your Company

Q&A

Early Stage Company Financing, Administration & Accounting

• Equity Fundraising – Initial & Subsequent (Angel, Pref. Series A)• Debt & Equipment Financing• General Business Strategy – Decisions w/ Long Term Impact• Negotiation of Key Contracts and Agreements (Technology, Leases,

Consultants, etc.)• Hiring & Managing Bankers, Attorneys, Auditors & Insurance Brokers• Management of Human Resources:

Offer letters; hiring process; terminations; benefits (PTO, health ins., 401K, stock option plan); company culture; outsourcing HR?

• Financial Forecasting & Modeling• Accounting System & Procedures (QuickBooks)• Board Presentations & Communication

Role of an Early Stage Company CFO

Understand Business Details and Strategy & Work as Key Member of the Management Team

Manage Fundraising and assist CEO with Key Investor & Board of Director Communication

Support CEO and Team; Organize and Manage all Administrative Functions so Founding Employees are Free to Create:Cash Flow Contracts, Leases, HR, ITAccounting, Legal, Insurance

Qualities of an Experienced Early Stage CFO

• Extensive CFO operating background and experience in Fundraising and M&A

• Capable of managing daily actives using a limited staff and working with Executive Team to develop and successfully execute Key goals and strategies

• Developed network in your industry or with other CEO’s or CFO’s in your industry

• Prior success / experience with Venture backed companies and their Boards

Examples of a CFO Making a Difference

• PersonaLogic – Planned company move to new 12,000 sq’ offices 1 month after

joining; (16 employees, no down time)– Negotiated $1M venture loan (Phoenix Leasing) used to the last

$25,000 one month before company was acquired– Maintained financial statements, contracts, personnel files & was

told by AOL this acquisition had the cleanest due diligence they had seen (AOL acquired many companies)

• Figure 8 Wireless (F8W)– Flew with founder to Oslo to perform due diligence on private

company (Chipcon) that offered to acquire F8W; deal closed in four weeks and one year later Texas Instruments acquired Chipcon ($200M).

Examples of a CFO Making a Difference

• Amira Pharmaceuticals– 15 scientists left Merck San Diego to form new company (Amira)

initially financed equally by Avalon Ventures, Versant & Prospect – Used my credit card for founders to buy $105,000 worth of

equipment auctioned by Merck on short notice (value est. to be $500K+ and this team knew each piece of equipment in auction)

– Rushed to get O-1 Visa for senior scientist on team and two H1B visas for a scientist and Chief Business Officer (CBO)

– Worked as part of team led by CBO to negotiate $100M+ licensing deal w/ GlaxoSmithKline (GSK) < 2 years after founding

– Invested initial $24 million from GSK and avoided Auction Rate Securities market freeze

Troubling Story of Auction-Rate Securities

“In the toughest jam are investors who purchased auction-rate securities sold by a student-loan trust or a collateralized debt obligation -- about a third of the $330 billion market. Many are receiving little or no interest, and might not get their money back for years.” March 2008

When to Hire a CFO

A part time CFO can be used effectively very early in the process – generally after raising $250K+

A full time CFO will generally come on board after raising a larger Series A or Series B of $5 to $10+ million

How to Find an Experienced CFO

• Network, network, networkEarly stage lawyers (Mintz Levin, Cooley, Wilson

Sonsini and many others) Early stage banks (Silicon Valley Bank, Square 1

Bank, Comerica)Venture Capital FirmsLinkedIn & TwitterAsk Founders & CEO’s of successful companies in

your space or those financed by the same Angels or VC’s

Q & A