What Coconut Software CFO Matt Petro learned while farming a Series B.

Founders need a good fundraising cause. And a good partner.

When founders raise a Series B round, the stakes are higher than in previous fundraisers — and investors want to see metrics. But Matt Pietro, Chief Financial Officer of Coconut Software, said it’s about more than just knowing your numbers and having the best terms paper available.

In the first episode of Float’s Retained Learnings podcast, on the heels of Coconut Software’s $28 million Series B funding campaign, Pietro shares his philosophy on fundraising and business metrics.

Fundraising for a cause

Originally founded as meeting-booking software for small businesses, Coconut Software has evolved to focus on financial services companies, organizations whose founder Kathryn Regnier knew they needed a solution like hers the most. Pietro joined the team in 2019 just as Regner and other executives finalized the company’s new three-year plan, which Regner calls a “33 and 3” strategy: generating $33 million in revenue in three years.

When the metrics are right and the vision is compelling, startups are likely to receive two different bids from investors. But that doesn’t mean every offer is the right one.

In order to achieve its goal, Pietro said the company will need to expand aggressively in the United States, where the vast majority of North American financial services activity occurs. To achieve this, Coconut Software needed market growth from its sales and marketing team, product growth from engineering efforts, and senior leaders who could advise the company during its next phase. Not only will this doubling down effort help close new customers, but it will also help build more solutions to offer to existing Coconut Software customers.

“The two full growth pillars behind the plan were to accelerate our growth and penetration of the US financial markets,” Petro said. “And the other side was bringing more products to our platform, expanding our product line, and enabling our team to sell more to our existing customers.”

The huge expansion required fundraising, and the original plan was to close the tour in 2022. However, Petro said the company saw the writing on the wall about the potential downturn and decided to close the tour in late 2021 instead.

“More is planned for the first quarter of 2022,” Pietro said. But looking ahead, [we] He saw that the market was right. There is likely to be a correction coming in the pipeline as there has been a lot of speculation around interest rate hikes. And so we actually decided to pull it six months early, which in hindsight ended up being a really good decision.”

Accuracy is key

During the Coconut Software fundraiser, Petrow wanted to tell a story about revenue growth, customer success, market-access efficiency, and the company’s overall efficiency. To do this, he shared the recurring revenue and revenue growth rate over time, which told the story of money. Customer trends came from measures of net and gross dollar retention. Go-to-market efficiency came from customer acquisition cost (CAC), cap ratio, CAC payback ratio, and lifetime value (LTV). The overall efficiency of the company came from the total margin return on investment and return on cash.

“All of this really sets you apart as a responsible team that understands the growth levers in your business model,” Petro said.

Pietro cautioned founders looking to fundraise that there are more reliable ways to calculate metrics. For example, if your business is only five years old, it’s hard to believe calculating LTV based on a customer’s age of 15 to 20. However, you could theoretically hit this account depending on the short-term rate of change – if very few customers swing from year to year, you might assume they’ll stick around for a while. But you need to take into account the realities of your business, not just mathematical calculations.

“This is an example of knowing where to cap your metrics, and connecting it back to your business model is really important,” Pietro added. “You kind of build this subtlety before the process: As you get your data together, you can ask these questions and talk to your team. [about] What makes the most sense.”

Getting ready for marriage

When the metrics are right and the vision is compelling, startups are likely to receive two different bids from investors. But that doesn’t mean every offer is the right one. From Pietro’s point of view, the right investment partner has three attributes:

1. Experience in their space: For Coconut Software, it’s a SaaS for a B2B enterprise, mainly selling to financial services.

2. Customer Contact: Whether the investor has a network (or direct experience with) the types of clients you’re selling to.

3. Added value: Things that characterize a particular company, such as contacts with advisors, a group of portfolio company leaders to support each other, or internal recruitment.

Above all, Petro said you should choose an investment partner that you love spending time with.

“The most important thing — and this is probably easy to overlook because offers fly fast and furious — is to make sure it’s someone you’re going to enjoy spending time with, because it’s like marriage, really,” Pietro said. “Finding someone you’re going to spend lots of time with, lots of calls, work with Through a lot of ups and downs.” “And so you have to be someone that you will partner with, that you will enjoy throughout the adventure. There is value in that. ”


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Image courtesy of PxHere.

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