How RevOps Can Be a Better Business Partner During Fundraising

Amotz Segal, Managing Director at Altum Strategy Group, shares his experience as an executive raising capital throughout his career, the state of today’s market, the differences between raising equity and credit, and the role of RevOps when preparing the executive team to present to investors.

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We live in an era where great ideas and solutions quickly turn into large profitable organizations, especially in the tech industry. However, economic crises are cyclical, and eventually, they will affect most of us. That’s why it’s important for companies to learn and adapt to raising capital in a variety of ways–and to recognize when to delay raising capital, if possible. 

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Historically, tech companies experience low to moderate growth and a high cash burn rate, which signals how important is to think through delaying raising capital early and knowing how to prepare the organization to raise capital when necessary. According to Amotz Segal:

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“The hyper-growth era is over, giving way to a concept we haven't seen in at least 15 years. Investors are now looking for profitable growth”.

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But what does that mean to a company? He explains:

1. Capital raise is no longer just about valuation. Employee engagement, talent retention, and people strategy are at the core of any financial transaction. This is specifically true in an M&A transaction and early-stage equity raise. Still, we see more and more evidence for that type of assessment in the later stage equity round and, in the last 6-12 months, in credit facilities and other debt-type financial transactions. The reason being is that payroll is typically the largest expense sustained by a tech company. 
2. Cashflow management, data analysis, and research about all financing options available for your specific product, service, growth model, and current condition can significantly improve the company's position, whether the decision is to go out and raise capital or not. 

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Equity Fundraising vs Credit

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According to Segal, the main differences between equity and credit are the cost of capital and control. An equity investor will likely seek the greatest control at the lowest valuation. Expectations go well beyond having a board seat and what should be presented is much in line  with Revenue Operations’ purview. Equity investors, for the most part, understand growth trajectory from an operational model perspective and can apply similar KPIs across their portfolio companies. 

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Credit investors, on the other hand, are much more interested in the underlying asset, be it inventory, hard assets, or A/R, and they look for insights into the level of security on their investment and the ability to handle repayments for the duration of the agreement. 

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Due to market conditions, we've seen more and more credit providers focus on operational due diligence, IT assessment, and employee capabilities as metrics to evaluate organizations' health. 

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“Healthy operations, a data-driven decision-making process, and a talented team can improve the advance rate and, as a by-product, create more opportunities for the business”

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Raising and Delaying Funds in an Economic Downturn

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As we all have been watching predictions about a big recession, interest rates at their highest since 2003, and tech companies continuing mass layoffs; many executives are delaying fundraising. It may sound counter-intuitive, but it’s a new and necessary approach leaders are adopting to mitigate the chance of an even bigger crisis in the future. 

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Below are 4 strategies to delay raising funds and maintain cash flow:

1. Increase cash flow by bringing revenue forward. It could be invoicing customers early, even at a discount, segmenting customers by their ability to pay, managing missed payments and collections more effectively, and more. We also see, specifically in the SaaS model, a push toward the annual subscription model vs. the monthly one. That includes incentivizing salespeople and customers, who are sometimes offered up to 90% discount to keep their membership.

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2. Reduce expenses and defer costs. The range goes from a complete stop on some expenditures (hiring freezes, cuts to technology spend, etc.) to contract rollover with service providers. Payroll is typically the largest expense in tech companies, and we are seeing now the application of the "people-first" concept, where companies really try to avoid layoffs at any cost. It's an encouraging observation for a few reasons. One, people recognize the cost of hiring a new employee in six to twelve months is higher than keeping someone now. Second, a valued employee who knows they are being kept despite a downturn will likely perform better in the long run. 

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3. Prioritization and utilization. Organizations are becoming very effective in measuring and analyzing the correct data. How many people are coming to the office space? Is it worth the number of square footage the organization is renting? What is the CRM or ERP utilization rate at any given intersection? These are the questions we see executives and leaders ask themselves, and the decision-making process is effective and powerful.

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4. Trading salary for equity. More common in small companies, this is the riskiest move for a CEO and can hurt morale more than expected. It's the last resort before layoffs. Generally, we've seen up to 30% of salary traded for equity. 

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The Investors’ Perspective

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Before presenting your company’s data to an investor, it’s a best practice to understand their perspective to better prepare your team. Investors usually want to know:

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• How sustainable is the business? 
• Is the managing team experienced? 
• Is the company generating revenue? 
• What is the growth rate? 
• Are they profitable? 
• What’s the company's stance on ESG (environmental, social, and corporate governance)?

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The Role of RevOps in Raising Funds

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If you are a RevOps professional, you are very aware of your company’s customer journey, which is a major asset to support your executives when talking to investors. RevOps people have the data to empower CEOs and CFOs to tell a great story, bringing visibility to their most effective marketing tools and sales techniques.

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“RevOps teams must remember their main objective - to increase the organization's value through predictable revenue. Capital raising can take time, and if the RevOps team continues to improve along the process, there's a higher probability that revenue will also increase, and so will the company's total value.” 

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If the funds are being raised, whether through equity or credit, the RevOps team can play an important role in providing reliable revenue data and speaking about the processes used to enable marketing, sales, and CS teams.

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About the Interviewee

Amotz is an operational and strategic advisor, and an innovative thought leader with demonstrated success in building, managing, and scalingRev Ops teams. As an entrepreneur, he founded a startup that resulted in a successful exit.

His diverse skillset and experience include process design and implementation, digital transformation and systems integration, change management, revenue operations, capital structure, investor relations, corporate governance, and team alignment and enablement. For over 12 years, he worked and advised organizations of all sizes, from pre-revenue startups to public companies.

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