Storytelling by the Numbers

Episode 25 Storytelling by the Numbers

Great fundraising stories require robust financial models. Founders looking to raise the capital need to be able to effectively articulate performance and future activities by defending their numbers. Investors want to understand your overall business strategy and the ‘how’ and the ‘why’ behind your performance and your projected financials.

Your ability to answer questions at the macro and micro level of your business is crucial to obtaining stakeholders’ confidence as your business grows. A good financial strategy will be the key to making critical decisions over time and allows you to articulate your business strategy and growth plans.

We are excited to welcome Yanky Li CPA, CMA, CPA (Aus), PMP, an advisor to technology start-ups who has previously co-founded an AI/real estate company and helped a fintech unicorn get to where it is today. He is also a CPA in both Canada and Australia and a PMP. By having a founder mindset, he has helped those who want to change the world in their own way. Yanky will help breakdown the importance of not only building a robust financial model, but also how it interplays with all aspects of your business. We will delve into how it can be leveraged for resource allocation, strategic planning and for risk management. For startup founders, a comprehensive financial provides transparency, evidence of financial viability and a roadmap for a company’s growth.

Transcript
Hessie Jones

So today we’re talking about financial storytelling. And this is the practice of actually presenting financial information and data in a narrative form that’s engaging, it’s relatable, and it’s easily understood by your stakeholders and even your investors. But this requires a robust financial model. So how to use a founder, tell your story in a way that effectively translates some of this complex financial concepts, some of the financial trends that you’ve been looking at, and the analysis of your business in a way that actually resonates with investors and or decision makers? I’m Hessie Jones, and welcome to Tech Uncensored. For a startup founder, the goal of financial storytelling is really about going beyond presenting some of the raw numbers and statistics, which can be overwhelming and difficult to grasp, especially for individuals who are not well-versed in finance. So your ability to answer some of these questions at a micro and a macro level of your business is really important to obtaining stakeholder confidence as your business grows. It also means that a good financial strategy will be key for you as a founder to make critical decisions over time and articulate your story as your business grows. So, I’d like to welcome Yanky Li. He is an advisor to tech startups today, and he previously co-founded sorry, an AI real estate company. And he’s also helped a fintech unicorn get to where it is today. He is both a CPA in Canada as well as Australia. And by having a founder mindset, he has helped those who want to change the world in their own way. I think that’s amazing. And I want to welcome Yanky today. He’s going to help us break down the importance of not only building a robust financial model, but how it actually plays with all aspects of your business. So welcome, Yanky.

 

Yanky Li

Hey, Hessie. Happy to be here.

 

Hessie Jones

Thank you. Okay, so let’s start with you as an individual. You have a finance background. I know that. You know that you went to University of Western and you have a CPA, but you’ve leveraged this as a startup founder. And what has been your experience as a founder and actually leveraging the importance of these financial models, especially as it relates not only to the day to day business, but fundraising?

 

Yanky Li

Yeah, so I do have that finance and accounting background, and I’ve done financial modeling for big corporations and past work experience. But what I found when you’re trying to build a startup is there’s got to be some relearning in a way to put it into a startup context, almost. And there’s things that you learn are new, but because you kind of have that foundation, it becomes easier for myself to grasp, but not necessarily someone who is a founder that has a technical background or a medical background, for example.

Hessie Jones

So that kind of leads us into the next question because you have that advantage over a lot of people who have started businesses. But let’s say they know so much about sales, they know so much about being developing a product, or they know so much about a certain sector for the solution that they’re building, but they find finance in and of itself daunting. So what are some of the common scenarios that you’ve seen when you’ve tried to help founders who are like that?

 

Yanky Li

Yeah, so typically when I’m helping founders, they come to me like, oh, BDC needs our projections to release the loan, or an investor wants to see our data room now, and we need some projections. It’s a very reactive approach to things, and it’s not good because you’re kind of scrambling to put this together. So what I would like to encourage is to have founders kind of think about this beforehand. Now, typically they don’t, and that’s understandable because you’re trying to get your product out there fixing bugs, you’re taking care of customers, right? Finance is kind of like the last thing on your mind, but when you do have a little bit of time, start thinking about that. And you just don’t want to be like the type of founder that when they open up your spreadsheet, it’s someone that just put big numbers there right, or a sliding slope that increases, right?That’s kind of like the typical scenario. And so you just want to empower yourself, equip yourself to have these kind of investor conversations and be as prepared as you can. And you have assumptions in there, and you have your plans in there, but it doesn’t always work the way that it should. And so what you want to do is empower yourself, be able to say quick answers quickly to investors, and then be able to back that up with your spreadsheets.

 

Hessie Jones

Okay. So I’ve actually experienced for myself, and I’ve seen this of other founders as well, who need real help in developing the financial model. And this is a daunting task for them. And they’ve come out of, let’s say, finance advisor meetings more confused than when they went in. And I think there is a little bit of an embarrassment because they’ve never done this before and they don’t know the right questions to ask, and they’re not really sure that the meeting that they came out of, actually. The advisor himself was not able to articulate in a way that the founder was able to make sense of it for himself or herself.

 

Yanky Li

Yeah, it’s a very common scenario because people tend to be in the world and they speak different languages, right? So if you’re a programmer using queries and servers, that kind of terminology is second nature to yourself. And then the finest person, if you’re working with them and they never worked in a startup kind of environment, then they’re talking like debits and credits and all these accounting terms, right? So sometimes there needs to be that bridge that bridges both sides. And so it’s the same with legal if you’re a startup and you need a lawyer, you want a lawyer that’s worked in a startup world as opposed to just any lawyer. It’s the same with finance. You want someone that has that kind of background in building a company from zero and how to go about doing that. So it is a different experience. It’s important for founders to be in an environment where they can ask anything. And then the founder should also be receptive of learning themselves, right? You don’t have to learn every single thing about it, but you should learn high level how your model works to be able to answer those investor questions.

 

Hessie Jones

Now, you said to me that once some of these founders get into it, they actually start to enjoy the process of leveraging the model towards all aspects of their business.

 

Yanky Li

Yeah, they do. And you’re right, the task itself is daunting. At least it appears that way. Because what’s a founder’s reaction for when they want to build a financial model? They go ask out and say, hey, can I borrow yours? I’ll use it as a template, right? They’ll borrow others. And then you open this up and it’s this like 20 tab monster. Like, where do you start, right? Companies work differently, so not all models there’s some overlap, but not all models will work for everyone. So when I turn to work with founders, I break it apart. And when you put it together brick by brick and you’re working together to come up with the model together, at the end it looks like a 20 tab monster, but the founder understands it because we built it together and you know, all the moving parts and that’s what makes them comfortable. And then they can then do these what if scenarios that they were never able to do before.

 

Hessie Jones

Okay, we’ll get into a little bit of that later. You have actually said that when you’re actually talking about your company, the numbers have to also tell you the how and the why behind your financials. So what does it really mean for the business itself? What impact does this financial have on your operations?

 

Yanky Li

Yeah, so having a financial is very handy. For example, it gets your team to be on the same page. You’re too small to have siloed teams, so having everyone operate on a well-oiled machine going the same way, right? So it’s super important. So, for example, if your projections say that you’re going to triple your sales next year, but you didn’t give sales any additional resources, people will push back on that, right? So you’re not on the same page, right? So you come to a point in which there’s an agreement, okay, I get to hire two more people, I get to use this, I get to go to this conference, et cetera. Then it makes sense where you’re going to get these sales from, right? So last thing an investor wants to see is like tremendous sales, but then no resources put into doing that. So how does that make sense, right, in terms of your story?

 

Hessie Jones

Okay, the one thing that I think we talked about in the break was the fact that this can be used throughout your company’s process, because now you don’t have to really silo marketing efforts versus product efforts versus sales efforts. Now finance can be kind of integrated into all your numbers so that there is an implication on sales. How many customers did I grow this week? What marketing campaigns did I do? Did I execute to actually grow those numbers? And so it goes beyond, I would say, click through rates, engagement rates. And now you could actually see the implications on traction from the perspective of new customers and revenue, right?

 

Yanky Li

Yeah, for sure. And it allows you to kind of run these different scenarios. So say, for example, your financial model should tell you what your runway is like, how much life is left in terms of cash flow that your company has. Now, what if you bumped into someone and you thought that they would be a good addition to the team, either as a founder or whatever? Okay, so we got to hire this person. What do we pay them? Well, if we bring them on, how much does it shorten our life? And you can get those kind of answers right there in the model. You just put that person in there, then it maybe goes from eight months to six months. Are we okay with that? Are we going to raise? So it allows you to plan financially, kind of prepare yourself for dealing with the runway if it’s adjusting, right? So the model also gives you an answer to a very common investor question, which is like, how much money do you need? Well, let’s not pick a number out of thin air, right? So if you have a plan, let’s say it’s a three-year plan, and you intend to take these initiatives and sales are going to increase here, and that’s your story. And in order to do that, how much money you need is derived through a financial model as opposed to you picking numbers, right? So you don’t want to be an investor, says one and a half million. Where did it come from? I’m not sure, but maybe $500k. You just don’t want to be wishy-washy in that way.

 

Hessie Jones

I can see this spreadsheet growing ever more vastly from, say, one tab to ten tabs, especially when you start doing the testing right from your perspective. So we talked about now the importance for you and your business for communicating it in a way that’s effective for also your stakeholders and investors. What are some of the techniques to actually communicate this story?

 

Yanky Li

Yeah, so as a founder, founders, when they pitch, they’re used to telling their story in the past, right? So in essence, your financial projections is trying to tell the story that’s coming up, right? And so people often ask me, like, how many years do you need to go? Well, the answer is as long as you need to tell that story, right? And it might be different company to company. If you’re a SaaS-based company and your products are in the market, it might be three years that you can tell your story. If you’re a med-tech company that’s just starting and you need to do a lot of research and FDA approvals and things like that, you tell the story of four years of high cost and just cost, and then what’s the plan to get the product to market, right?So that’s a totally different story, and it should reflect in those numbers.

 

Hessie Jones

There’s also, I guess, when you talked about doing scenarios, a new company has come into the horizon and they have a similar product to you. So you want to understand, I guess, the implications of them potentially stealing share from you. And what does that mean in terms of, let’s say, how it’s going to impact your revenue or the kind of customers that you’re going to get and whether or not they’re going to encroach on your business. Can that be effectively done through your modeling?

 

Yanky Li

Yeah, you can definitely incorporate market share into it. Everyone has competitors, even if it’s an innovative product on the market, right? So you have to be measuring the rate in which you’re grabbing that market from others, right? So that’s something that’s important for founders to reflect on is, is there a solution when, let’s say it’s B2B sales? Is it a new line item of cost for them, or does it replace a line item that’s already there? So someone needs to cancel someone else to be with you, right? So that’s important. Something to keep in mind when you’re doing sales and everything. So that competitive landscape, see where you are, how do you position yourself relative to this competitor? How are you different? And if you can carve your own space, it’s a lot safer if you’re direct competitors, then sometimes it’s about speed. Who’s going to get there first?

 

Hessie Jones

Okay, that’s cool. I think the one thing that I’m starting to realize is that all these if then scenarios will also allow you to actually model what happens when something goes bad. Right. It’s almost historical in a way, too, because if you executed a campaign and it actually had less than stellar results, then it provides a transparency to investors, but it also allows you to learn from that and determine what particularly were the I said variables that led to that specific outcome.

 

Yanky Li

Yeah. Super important to reflect on what happened if things went wrong, why or how. Learn from that. And in your next round of investor talks, it’s important to say, hey, this is what we tried. This didn’t work, but we found that this worked. And that’s why it’s exciting, and then you move forward that way. So it’s important to be able to communicate something like that.

 

Hessie Jones

Okay, so let’s go into some of your best practices or some areas that you think that founders should be aware of when they’re building something like this.

 

Yanky Li

Yeah, so some of the best practices in your financial model, like I said, it should be in monthly numbers. I’ve seen companies try to get away with a quarterly number, but that’s not enough detail. I would say monthly for as long as you can tell your story. And your story should also incorporate what your plan is in terms of go-to-market. Like, what’s the go-to-market strategy? So for, you know, your strategy is regional based. You’re going to start in Ontario, and then you’re going to go to Quebec, and then you’re going to go to the US after that. Intentionally, for example. That should reflect in your financials and what costs would be involved in doing a strategy like that. So incorporate the story in there. If you see sales ramping up, I should expect to see extra resources in sales, whether it be headcount or just money resources, right? So that’s what makes sense. So make sure the story aligns with everything else.

 

Hessie Jones

Okay. So the next one is organizing a roll-up structure. What do you mean by that?

 

Yanky Li

Yeah, so in your financial model, make it easy to read for the reader, right?And I tend to like to put on the very left tabs your assumptions and then your high level reporting. So maybe yearly summary, right? And then as you go to the right, it gets more granular, so you can answer questions at any level. So monthly might turn into sorry, quarterly might turn into monthly numbers. And then monthly numbers in terms of an income statement is your complete statement, but then the tabs to the right of that break down everything. So maybe different lines of revenue, different pricing, your different cost centers, sales, who’s being hired there marketing, GNA, R&D development. These are kind of departmental tabs to have as well that eventually roll up to your monthly profit loss or income statement, right? So I like that structure, and it allows the person to easily be able to what we call like drill up or drill down. Come up or come down. High level, low level. And when you’re organized that way, people are actually quite impressed with your model. Along those same lines, make it friendly to read in terms of color coding, right? So it makes it easier for you, too, if it’s a calculated field, let’s say it’s white, meaning you don’t overwrite that cell because what you don’t want to do is get into kind of like Excel maintenance, right? So if that line is white, don’t touch it. If the line is yellow, they’re for inputs. Yes. You can edit those and do what if scenarios with it, right? Or if color-coded blue, for example, if it’s a line that’s taken from another tab, right? So if you organize yourself that way, people know where the source of your assumptions come from and how your numbers derive, right? And it’s easy for you. You open up a financial model, especially if you haven’t seen it in for a while, then you know, immediately, I can touch the yellow cells, I don’t touch the other cells, right. Kind of thing. So it’s very important to organize yourself that way. And in terms of other best practices, I would say for startups to kind of have two scenarios. One scenario that says if I keep going, I’ll grow slowly, and that’s fine, we’re still doing well, and we’ll just grow slower. But if we get that cash ingestion, if we get that million dollars, this is what our plan is, and that’s why you should invest with us, right? So what does that scenario look like? And that could involve more aggressive sales, more headcount, more everything.

 

Hessie Jones

That’s actually interesting because what you’re basically doing is you’re taking the two scenarios and you’re making an assumption about how that’s actually going to play out over time. And you can make, I guess, a quick determination about which path that’s more reasonable to follow because you’ve done that, right?

 

Yanky Li

Yeah, for sure. And what the model also lays out very nicely to someone looking at it for the first time is all your assumptions. For example, if your assumption is we’re going to do business in the US. And we’re going to assume in the next three years that the exchange rate is what it is today, fair assumption. But let’s say midway through that scenario, a year and a half later, the US dollar tanks, then you can actually change those inputs in your assumptions tab and have that ripple through the model. Now, what does it look like? Did it change the life of our runway? Did it change how much money we need now so you can run through those kind of scenarios?

 

Hessie Jones

Okay, so let’s talk about building the model. So how long does it take and how do you get started?

 

Yanky Li

Yeah, so I want to remind people that kind of don’t have that finance background. It’s not something you can lock yourself up in a room and do within a few hours or a day, right? It’s something that evolves and it takes some reflection. Usually when I work with founders, typically six to eight weeks, we’ll get this up and running. Not full time, obviously, but meetings here and there, passing back and forth, hey, does this make sense? Hey, does this work? Is this a realistic scenario? And then, so you go back and forth and it takes place about six to eight weeks. Then you get some pretty robust financials by that point. And you won’t realize it, but you’re actually learning as you’re building. So you’re going to be very equipped to go into those investor conversations. And typically, that journey of creating that financial model is broken down into two parts. One is to set up the actual structure of the model, like the different tabs we talked about, and the formulas, the right formulas and the roll up structure. And then the second part is to really go through critiquing it, right? Critiquing the story. Critiquing if it makes sense, like I said, in that scenario, I see sales tripling, but no more salespeople. How does that work, right? So almost poke holes in it, get an external pair of eyes even, to critique it. Like, does this make sense, right? So there’s that part of it as well. And so I think I do that for founders as well. I question them. If these are your assumptions and this is what your plan is, how does this make sense here? And if their explanation isn’t so good, that’s actually kind of practice for them in those investment questions. I kind of put on my investment hat on and kind of grill them on that a little bit.

 

Hessie Jones

In this model, do you see an integration somehow among the spreadsheets when it comes to, let’s say, marketing performance versus sales performance versus, let’s say, new registrations, et cetera? So they’re all part of this?

 

Yanky Li

They’re all part of it because your sales goals, your revenue numbers will break down into number of deal sizes, deals, right? Number of deals. And that should, if you do the math, work backwards using your conversion rate, how many leads do you need, how much awareness do you need? So it’s a whole funnel. And that’s why we talk about the importance of your team being on board. If marketing is expected to deliver 10,000 leads this year, is that reasonable? With what resources and sales? Based on this conversion rate, which we’ve proven in the past, you should be able to get the sales dollar, yes or no, right? So get people on the same page, and then you measure everything all the time. And that’s kind of how you get that operations running like a well-oiled machine.

 

Hessie Jones

Okay, so what else, though, outside of this model? What should we be prepared to deliver alongside of it?

 

Yanky Li

Yeah. So along with your financial model, you should definitely have cash flows. A cash flow model. So cash in and out, right? So cash is king, as most people heard. So at what point do you run out of cash? And if we do this, do we extend it? If we do this, do we shorten it? You can kind of play with that, right? So cash flow projections, projected balance sheet not every company needs this or uses this. But if let’s say you’re a product based business and you intend to have a lot of inventory, then it really matters because again, if you have high levels of inventory, takes up cash, high levels of receivables or payables, et cetera, you should also have as a nice to have is anything budget versus actual, right? So if you midway through the year, you had an initial budget or initial projection, then if you’re midway through the year, you see six months of actuals, and then you see your budget. Does it make sense, or do we need to adjust the rest of the year’s budget because of what happened in the first six months? Like a reforecasting? And as an early startup, you’ll also need, like, a proforma cap table. So where do you see your company going later and then being able to see how much are you willing to give up for the next investor to come in, and then how much does everyone have from the whole piece of the pie, right? So it’s important to project that as well.

 

Hessie Jones

That in itself is one session.

 

Yanky Li

That in itself is!

 

Hessie Jones

The proforma cap table, the minute you start determining how to divide up your company, among employees, among your founders, and even investors, that in itself is a learning experience. I’ll probably have you back for that. Okay. Any final thoughts, Yanky?

 

Yanky Li

My thoughts are, like, try to take a proactive approach. Think about this sooner than later. Ask for help when you need it, and I hope you’re in an environment where you can ask any questions you want, and there are experts out there that can help you get started. Yeah so I would say take the initiative.

 

Hessie Jones

Okay, perfect. Thank you. So you are on LinkedIn, I assume. Just in case anybody who has any kind of financial questions or seeking advice, I encourage you to find Yanky on LinkedIn. That’s all we have for today. Thank you so much. Yanky, I think you kind of changed my view on finance. We had this discussion. I’m going, I don’t know if I can do this. I don’t understand. Right. But now I do. Now I do, because I’m looking at it as almost like the foundation for everything that you do. Very cool. So thank you again. So that’s all for Tech Uncensored. You can also find us on podcasts, wherever you get your podcasts. I’m Hessie Jones, and I look forward to seeing you next time. Have fun and stay safe.

Host Information
Hessie Jones

Hessie Jones is an Author, Strategist, Investor and Data Privacy Practitioner, advocating for human-centred AI, education and the ethical distribution of AI in this era of transformation. 

She currently serves as the Innovations Manager at Altitude Accelerator. She provides the necessary support for Altitude Accelerator’s programs including Incubator and Investor Readiness. She will be the liaison among key stakeholders to provide operational support and ultimately drive founder success. 

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