AANZ May Expert Session with PWC | Financial Fundamentals

This podcast link and summary are from the AI Frontier Expert Session held online in February 2025.
Podcast: Mastering Financial Fundamentals: A Founder’s Guide Through the Startup Lifecycle

Strategic Financial Evolution for Sustainable Growth and Value Realisation

In an insightful session hosted by the Angel Association New Zealand, PwC experts Teresa Bibich, Daniel Hussein, and Kunal Chavan gave founders practical guidance on mastering financial fundamentals across the startup growth journey. The discussion, tailored to high-growth private businesses, particularly in the tech sector, emphasised that while no two startup journeys are identical, understanding the evolving financial landscape is crucial for making informed decisions, avoiding common pitfalls, and ultimately building and realising business value.

This executive summary outlines key insights from the session, highlighting how financial strategies, team structures, reporting, and investor expectations adapt from early-stage validation to significant exit events. The core message is that deliberate, stage-appropriate financial management is essential for extending runway, fostering growth, and earning investor confidence.

The Startup Growth Lifecycle: A Guiding Framework

PwC utilises a four-stage framework: Early Stage, Growth, Scale, and Exit, to help founders understand their progression and anticipate future challenges. This framework is an anchor for financial planning, emphasising that different stages demand distinct approaches to finance capability, reporting, and investor relations.

• Early Stage: Focus on validating a disruptive idea, securing initial angel or seed investors, and building a Minimum Viable Product (MVP).
• Growth: Characterised by pushing for product-market fit, scaling operations, and attracting first institutional capital, typically Series A.
• Scale: Marked by increasing business complexity, international expansion, larger funding rounds, and rising expectations for structure, governance, and team scaling (e.g., Series B and beyond).
• Exit: The culmination stage, focusing on liquidity or value realisation through a sale, acquisition, or Initial Public Offering (IPO), where a proven track record of growth, profitability, and robust internal processes is paramount.

Understanding future expectations at later stages allows founders to proactively question current financial needs and prioritise time, people, and capital investments.

Adapting Your Finance Function: Evolution of Team and Controls

The finance function evolves significantly across the startup lifecycle, shifting from a reactive, lean operation to a structured, strategic department.

• Leadership and Team Structure:
  • Early Stage: Primarily founder-led, often supported by a part-time external bookkeeper or accountant for basic reconciliations and tax filings. This lean approach prevents overbuilding and conserves cash for other critical areas.
  • Growth (Series A): Introduction of the first finance hire, typically a finance assistant, manager, or a fractional CFO. This role provides experienced support without the full cost, assisting with board reporting and forecasting.
  • Scale (Series B+): A full-time CFO usually joins, leading finance strategy and preparing the business for external investors and acquirers. The team becomes more specialised, potentially including a controller, senior accountant, financial planning and analysis (FP&A) analysts, and even RevOps personnel.
  • Exit: The finance function becomes a comprehensive department that manages treasury, compliance, investor relations, and corporate development, supported by external advisors for complex issues.
• Compliance:
  • Early Stage: Most compliance (tax filings, company office updates) is outsourced.
  • Growth: Basic internal management of payroll or basic Inland Revenue Department (IRD) filings, with specialised areas like R&D claims or international tax still outsourced.
  • Scale: Core compliance moves in-house, possibly with a small internal tax function, especially for multi-country operations, supported by external advisors.
  • Exit: Compliance is non-negotiable and requires full regulatory adherence across all operating jurisdictions. Buyers expect a well-ordered financial house, as deficiencies can impact valuation.
• Internal Expertise & Controls:
  • Early Stage: Founders manage finance, leveraging software like Xero for discipline and potentially external accountants for advice. Controls are basic and informal, focusing on clean separation of accounts and tracking cash burn.
  • Growth: Increased internal skills become necessary. External advisors remain crucial for complex situations. Controls evolve to accrual accounting, approval workflows, and integrated payroll/accounting systems.
  • Scale: Expertise deepens with team members experienced in growth companies, metric tracking, and building dashboards using tools like Spotlight, Approval Max, and Power BI. Controls become formal, with monthly closes, internal approvals, and tighter governance. Internal audits or finance function reviews may be conducted.
  • Exit: Deep internal expertise is vital, covering international compliance, investor relations, and IPO preparation. Controls must be “bulletproof” to build trust with buyers and public investors.

Strategic Forecasting and Budgeting: Navigating Financial Horizons

Budgeting and forecasting transform from rough sketches to sophisticated strategic tools that inform decisions, build investor confidence, and ensure control.

• Budgeting Focus:
  • Early Stage: Simple, basic budgets in Excel focus on core costs (salaries, marketing, product) using zero-based budgeting to keep burn lean.
  • Growth (Series A): Budgets become more robust, tracking costs by department or market as revenue and headcount grow.
  • Scale: Budgets are sophisticated, broken down by region, product line, and sales team, aligning with hiring plans, sales targets, and capital expenditure. Guardrails for spending are established.
  • Exit: Budgeting is strategic and investor-facing, demonstrating deliberate capital deployment and optimising for growth, profitability, or exit readiness.
• Forecasting Horizon and Flexibility: Forecasts differ from budgets by accounting for current business changes.
  • Early Stage: Month-by-month, possibly weekly, forecasting due to tight cash flow and close runway monitoring to reach the next milestone or funding round.
  • Growth: Forecasts extend 12-24 months, incorporating sales targets, hiring plans, and product timelines. Variance analysis (budget vs. actuals) becomes essential, and founders must explain deviations to investors.
  • Scale: Forecasts typically extend 3-5 years, becoming more granular with detailed revenue modelling, cash flow planning, and assumptions around expansion funding. Focus shifts to capital efficiency, margin, and long-term returns.
  • Exit: Forecasts become public or diligence-facing documents, requiring realism, defensibility, and strong documentation for IPOs or sales processes.
• Scenario Planning: Essential for navigating uncertainty.
  • Early Stage: Simple base and stretch cases (e.g., faster growth, delayed development).
  • Growth: At least three scenarios (base, optimistic, conservative) to model impacts of delays, missed sales targets, or pivot spend, especially with VC funding.
  • Scale: Scenario planning integrates into major decisions, considering foreign exchange exposure, market shocks, customer concentration, and supplier delays.
  • Exit: Feeds into information memoranda or IPO prospectuses, demonstrating mapped downside risks and mitigation strategies.
• Tools: From simple Excel to integrated platforms.
  • Early/Growth Stage: Excel is flexible, cheap, and sufficient, though it has limits for complex scenarios or version control.
  • Growth/Scale: Dedicated forecasting tools like Fathom, Spotlight, or Sift automate rolling forecasts, create dashboards, and allow multi-user collaboration. Xero forms a base for accounting and is integrated with payroll and expense automation.
  • Exit: Tools must withstand scrutiny, be audit-ready, secure, and produce board and investor reports efficiently.
• Focus Metrics:
  • Early Stage: Solely cash flow, bank balance, burn rate, and runway. Triggers for cost-cutting or fundraising are tight cash.
  • Growth: Variance analysis, unit economics (CAC, churn, LTV), assessing marketing spend effectiveness and hiring needs.
  • Scale: Efficiency and margins, managing spend across regions, gross margin by product line, CapEx/OpEx, and forecasting capital structure/funding runway.
  • Exit: Investor-centric metrics: earnings quality (recurring revenue), net income, EBITDA, and cash generation to demonstrate a strong, predictable performance profile that drives valuation.

Financial and Investor Reporting: Building Confidence and Trust

Investor reporting is a strategic advantage, moving beyond compliance to build confidence, provide meaningful updates, and demonstrate control.

• Reporting Evolution:
  • Early Stage: Simple but consistent. Transparency in sharing product milestones, customer sign-ups, and cash burn through short quarterly or six-monthly updates builds trust.
  • Growth (Series A): Formalised reports, such as monthly or quarterly investor updates, structured board meetings, and reports including profit and loss, cash flow, and balance sheet.
  • Scale: Professionalised reporting with monthly board packs led by the CFO, featuring full financials, updated metrics, and commentary to avoid surprises.
  • Exit: Reporting becomes effectively public-facing, adhering to high standards of accuracy, consistency, and transparency, whether for IPO dry runs or due diligence data rooms for trade sales.
• Dashboards and Key Metrics:
  • Early Stage: Basic dashboards with key charts demonstrating traction, such as Monthly Average Users (MAU), sign-ups, cash burn, and basic growth rates.
  • Growth: More refined dashboards focusing on metrics like Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), Lifetime Value (LTV), customer churn, and engagement—the language investors speak.
  • Scale: Analytical and visual dashboards as part of board packs, including net new ARR (split by new, upsell, downsell, churn), gross margins, LTV: CAC ratio, and Rule of 40, telling a story about growth quality.
  • Exit: Dashboards are fine-tuned for external investors/acquirers, highlighting predictability, profitability, concentration risk, EBITDA, net income, and operating cash flow.
• Accounting Standards: While seemingly dry, standards become increasingly important.
  • Early/Growth Stage: Special-purpose financial statements are common. However, for international investors, voluntarily adopting IFRS or US GAAP a few years early can prepare for future capital raises.
  • Scale: Accounting matures, involving group consolidations, foreign exchange, deferred revenue recognition, and potential audits.
  • Exit: Accounts must meet the highest possible standards for IPOs or private sales, ensuring robust numbers for buyers.
• Cash Burn Management: This is pivotal for founder-investor trust, as unexpected cash shortfalls cause significant anxiety.
  • Early Stage: Tracking burn is paramount; investors are more interested in burn control and milestones than exact forecast adherence.
  • Growth: Burn is framed in the context of growth efficiency, linking spending to outcomes (new revenue, product milestones), and aligning with acquisition costs, LTV, and future fundraising timing.
  • Scale: Burn is scrutinised for predictability and control, with confident cash forecasting and reports flagging deviations proactively.
  • Exit: Cash flow forecasting is critical, directly impacting valuation. Investors expect a clean financial story.

Changing Investor Expectations: Aligning for Future Capital

Investor expectations evolve significantly with each stage, driven by investor type and market conditions.

• Valuation Drivers:
  • Early Stage: Angels and pre-seed funds primarily back the founding team and the long-term vision, looking for ambition, clarity, and enough traction to validate the opportunity. Even here, discipline is expected, with a clear path to tangible outcomes from funds raised. The investors often set the valuation, making it difficult for pre-revenue companies.
  • Growth (Series A): Investors become metrics-driven, seeking evidence of execution. The lead VC often sets the tone: grow fast, show product-market fit, and avoid running out of money.
  • Scale: Late-stage VCs, growth equity, or PE firms focus on scalability and profitability on the horizon. Growth is valued, but operational maturity, strong systems, predictable forecasts, and lower risk are expected. Metrics like “capital efficiency” and “Rule of 40” become common.
  • Exit: Public markets expect regular performance updates and clear guidance, while acquirers demand predictability post-deal performance and confidence in integration. Investors focus on growth predictability and earnings quality (EBITDA, cash flow, customer concentration).
• Business Plan Evolution:
  • Seed Round: Focus on milestones (MRR target, product launch, pricing model validation) rather than financial precision.
  • Growth Stage: Evidence of execution against the plan is key. Series A plans should include a clear go-to-market strategy, customer acquisition metrics, and unit economics.
  • Scale: Business plans show a path to profitability or a value realisation event (IPO, acquisition, or reaching significant revenue milestones). Repeatability is evaluated.
  • Exit: Public investors seek clarity on strategy and market, while acquirers want a plan that integrates into their roadmap and confidence in the transition.
• Growth and Efficiency: Every investor loves growth, but expectations for achieving growth evolve.
  • Early Stage: Prudent spending and demonstrating how every dollar moves the business forward are crucial, not just high burn rates.
  • Series A: Consistent month-on-month revenue growth, increasing retention rates, and decreasing CAC are vital, alongside signs of efficiency.
  • Scale: Real scrutiny on growth efficiency, with terms like “Rule of 40” (revenue growth percentage + profit margin percentage >= 40-50%) becoming key indicators. The goal is rapid, yet capital-efficient, growth.
  • Exit: Growth remains essential, but predictability and earnings quality dominate, with a focus on metrics like EBITDA and cash flow.
• AI and Global Mindset: These cross-cutting themes influence investor perspectives.
  • AI: Early on, a differentiator is core to the product, but hype is insufficient; investors want to see a defensible application solving real problems. At growth, AI should be operationalised and reflected in metrics (e.g., reduced support costs, higher engagement). At scale, AI should contribute a real edge. At exit, AI can influence valuation if it delivers real value and aligns with strategy.
  • Global Ambition: Investors often expect a global mindset from day one, even for New Zealand-based companies. This means designing for scale, seeking early feedback from overseas users, and tapping global networks. By Series A, global ambition is expected. Handling cross-border complexity (international tax, transfer pricing, GDPR) without drama is assumed at scale. At exit, vision is judged on strategic fit and deliverability in global markets.

Debt vs. Equity Investors and Valuations

The session clarified distinct expectations between debt (e.g., banks) and equity investors. Banks are more open to funding non-profitable companies if strong revenue growth and precise cash forecasts are presented. However, debt must be repaid, and banks may require tangible assets. US banks, for instance, might offer high-risk lending based on recurring revenue or EBITDA, typically requiring a higher scale of business (e.g., USD 5M EBITDA for EBITDA lending). Conversely, equity investors are normally more aligned with the company’s journey and day-to-day operations.

Regarding company valuation, particularly for seed raises, it’s often influenced by what investors are willing to put in, as it’s difficult to value pre-revenue. While valuations saw highs in 2020-2022, they have since stabilised. Current revenue multipliers for exits or capital raises typically range from 3x to 7x, though exceptions like a recent 12x revenue multiplier have been observed. Growth rates, market opportunity, and burn rate all factor into valuations, with smaller businesses facing higher growth expectations. Non-dilutive R&D funding options, like the R&D tax incentive or tax loss cash-out, are also available in New Zealand.

Conclusion

Mastering financial fundamentals requires founders to constantly adapt their approach to align with their business’s stage of growth and evolving investor expectations. The key is not to implement everything at once, but to make deliberate decisions about when to build out finance capabilities, formalise reporting, and engage with different types of capital. Strategic financial management, characterised by prudent cash burn, transparent reporting, and proactive planning, builds trust and confidence, ultimately leading to sustainable growth and successful value realisation. PwC, through initiatives like its “Come Think With Us” sessions, aims to support New Zealand founders in navigating these complexities and thriving on the global stage.