#196: Startup Secrets: A VC Insider's Guide to Funding and Growth
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Welcome back to another episode of The Richer Geek Podcast. Today, we talked to Kevin White, co-founder of Exbo Group, a firm specializing in finance operations, strategy support, and M&A diligence for growth-stage companies. Kevin shares valuable insights on fundraising strategies, financial operations, and M&A diligence.
In this episode, we’re discussing...
The Changing VC Landscape: Learn how the VC landscape has shifted post-pandemic, with a focus on profitability and cash efficiency.
The Role of the Modern CFO: Discover the essential qualities of a modern CFO and how Exbo Group helps companies build strong financial teams.
Fundraising Strategies: Gain practical tips on crafting compelling pitch decks and navigating the fundraising process in a challenging market.
The Importance of Financial Discipline: Understand the critical role of financial discipline in securing investments and achieving long-term success.
The Power of M&A: Explore the strategic advantages of mergers and acquisitions and how to execute them successfully.
The Future of Venture Capital: Gain insights into emerging trends and opportunities in the VC industry.
Resources from Kevin
LinkedIn | Exbo Group | Email
Resources from Mike and Nichole
+ Read the transcript
Mike Stohler
Hey, everybody, welcome back to another episode of The Richer Geek Podcast. Today's episode is brought to you byREI Words. Your go-to SEO agency for increasing traffic to your website. Check them out at reiwords.com.
Mike Stohler
Today, we welcome Kevin White, co-founder of Exbo Group. They started in 2017, he helped provide finance operations, strategy support to growth stage companies and M&A diligence support to fund management. He focuses on bridging the gap between investors and founders, helping CEOs build premier finance functions that appeal to investors. Area focus is education, software e commerce. How are you doing, Kevin?
Kevin White
Great and thank you for having me on.
Mike Stohler
Absolutely. I always like to get background of who we're talking to. Where are you from? How did you get to the point where you co founded Exbo Group?
Kevin White
Yeah. I'll give you the journey. So Exbo Group is based out of New York, but serves clients nationally. I grew up not far from the city. Grew up in New Jersey, mostly Northern Jersey, kind of bopped around a little bit, went out to school in Pennsylvania, and when I came back to the city, I started working for Ernst and Young and I worked there for the better part of a decade, a little bit over a decade. The first part of my career was in sort of the StratOps strategy, which, at the time, I think a lot of people felt very boring, and now I'm insanely grateful for because it's like a critical cornerstone of running my business. And then the sort of second half of the EY career was in transaction services and M&A, which was a really good experience in terms of just sort of learning how deals work and and understanding, you know, what a good financial model looks like, and all that good stuff. So yeah, I worked at Ernst for a long time, got my MBA at Columbia, and then during my time there, I ended up working for a venture capital fund called Rethink Education. And Rethink was a $500 million fund, a VC fund based out of New York. They focused on a lot of things like Series C through Series B fundraising, and I really focused on sort of investment sourcing and sort of strong finance fundamentals, as we were sort of assessing different investments. But pretty quickly it sort of became apparent, hadn't having had been a lifetime consultant, it just kind of became obvious to me that the port codes could use a lot of help, and actually some of my time being spent supporting, a series A fundraiser, Series B fundraise of an existing investment actually, like, paid huge dividends in terms of investment on time. I did that. I started helping one of Rethink’s port cos, just sort of getting their financial act together for fundraising. And it worked really well. The partners of the fund were like, "Hey, you should do more of this." And I said, "Well, that's great, but if I do, it needs to be as a separate entity, and the companies need to pay me, not the fund, because if you're installed there by your investor, you're a watchdog, right?" But working on their side of the table, that's a very different situation. And so it worked really well. I started doing it. We didn't take any money from the fund, but they sort of seeded us with an initial portfolio of clients that we could actually take on. And we bootstrapped from there. And now we're 50 people across the US. We've got a team in India as well. We grew out of the ed tech investment industry, but now we really expand to health tech and enterprise software and business services. So it's been quite the ride.
Mike Stohler
I can't imagine some of the differences of the seed stage of what the VCA landscape was, 2019 to maybe just after Covid, probably maybe exploded a little bit in 2022 and now we're in a whole other world. It's like, "Man, can we get a break?" It's like, Covid, then this, then this, and take us through what you saw then, and some of the challenges, or are there no challenges, people just throwing still, they're still seeding capital now.
Kevin White
There's still capital out there. Obviously, it's a much more challenging fundraising environment than it used to be. And we've got a pretty job with a lot of funds, and then we have our own portfolio clients, and so we have a lot of insight into what works and what doesn't, sort of how the market's gone. What I found thinking back to 2021, 2022, people remember that was like a free money giveaway, right? Like everyone, if you were working in DC back then, there was just this huge bounce from the pandemic that took all these tech companies like Zoom blew up and all types of information, information sharing companies. But really at that point you could go out, and most people sort of would fund your C idea. And then the party ended in 2023 really the end of 2023 and then the first half of this year, it's been quieter, but starting to come back a little bit. At first in the 22 seed stage, funding actually became more available. So going into 2023 as things started to sour a little bit, and the reason is, is that valuations at the sort of, what I'll call it, the mid.
Kevin White
Size B, C companies, which might be Series B, C, D, they dip so low that I want to have to do a down round. And so what a lot of the bigger funds inside partners in Sequoia ended up doing is they switched to making more seed investments. They did follow ons with their existing companies in order to extend the cash flow where they needed to. But then they started to make a lot of seed investments with the thought of, "Hey, if I put some money down here, this company will then have some time to grow and get traction, and sort of can turn around when things get better." There was a little bit of a tail of an extension of where you get a lot of seed money, unfortunately that I would say that that has also ended at this point. The interest rates just remain elevated for too long. And the reality is, the money at the LP level, at all these funds is now scarce, right? Because of the liquidity at an early stage, VC has been so poor, and everyone's trying to do secondaries to get cash on the funds. There's just not as much investment going on in general. And what that means is a lot of the investments have focused on keeping alive the existing pork goes right. So as opposed to going out and hunting for new companies, they don't want to lose all the money they've sunk into whatever company over a four round period. So they're very focused on sort of keeping those alive and not taking, like a huge write down of their existing poor codes. Good news is the growth equity side of things, while certainly quieted, is starting to tick up. So if you're cash flow positive company, there's still quite a bit of activity, and M&A activity, fundraising activity, and then on the VC side, we have seen some sort of glimmers of light at the end of the tunnel with a lot of this stuff too, where more and the barometer I always use is how many inbound companies with about $2 million plus of investment are coming and talking to us. That's probably the smallest client that we take, right? Something, $1-$2 million investment would be very small for us. In 2022 we must have had 100 inbounds from companies like that, right? Some of which we worked with, some which we didn't, but it was plentiful. But then that really, all those, those sort of seed companies, really went away, because not as many new companies were getting funded. But I would say, the last, just toward the end of Q2 this year, and going into now, over the summer, I've noticed, quite a bit of seed investment taking out again, and the funds that were able to raise additional capital from LPs, they're now, during this difficult pandemic time, that money is starting deployed, and that's getting deployed to companies that has to it's definitely been a cycle. I think that until interest rates come down in meaningful way, we probably won't sort of see the consistent 2020, 2021, levels of investment, because there's just, you could go and invest in a venture capital fund, or you can go and invest in a fixed income security and get 5% it really makes sense. So, yeah, that's how it's going.
Mike Stohler
Yeah, I get it in my world. Also, it's just hard because it's the sellers and the buyers, and they both have different ideas of what an asset should be worth, the sellers want the 2019 numbers. The buyers want the 20, you know, because the interest rates and the DSCR, it just doesn't cover it. And it's just like, how can we deploy the capital now? So it's kind of a waiting game on a lot of sides, and until, like you said, the interest rates go down. It's like, "How can I buy something? When it's there's negative DSCR?"
Mike Stohler
We kind of talked about your group, the Exbo Group. What is it that, who is Exbo Group?
Kevin White
Yeah, sure.
Kevin White
We really started as a company, sort of supporting thatRethink Education. Support goes initially, but have grown pretty substantially then to do several different things. Now, I would say there's still two core branches of our business. The first is CFO and controllership advisory work, and so that can come in a lot of different forms. If it's a smaller company, and smaller for us is like sub ten million of top line. We're usually the entire outsourced finance team, right where the accountant, controller and CFO were everything. Once you get past that point, we tend to play a more specific role, because usually that point you want to hire someone in house anyway, but because we have a lot of institutional knowledge and our team's talented, we often will stay on with the CFOs in a capacity, either one taking over just controllership responsibility, because you might hire a CFO and really wants to the financial model or materials be very strategic, but isn't so interested in the debits and credits and wants talented support with that. So we'll handle that, or we will sort of act as this crack FP&A team for the CFO, a certain office of the CFO. We're really supporting a lot of the strategic work they're doing in terms of budgeting, fundraising, forecasting, board, reporting, KPI packages, that's pretty common. It's very common with growth equity funds that are going in, and maybe they buy a company called $60 million topline. What will happen often? We work with big funds like multibillion dollar funds doing a lot of this stuff when they make those investments. The existing CFO, at the mid sized company, was probably a great person getting the company to where it was, but doesn't really actually have an interest in staying on and doing the 6x as much work that will be required by the institutional investor coming in to actually change things over, right? So it's not even like a pushing people out thing. They actually just don't want to hang around. What we do is a lot of funds that we have, we've done great jobs for and have good relationships with. They'll install us as sort of this bridge right where they come in. We take what we need from the old CFO, we create a new financial model, create an industrial strength, a KPI package, and then do some of the board reporting. And then by the time the new CFO comes in, there's already a really solid FP&A foundation in place, and then often we'll continue to work with that CFO to help do things, but at least we got the company over the hump through the acquisition. That's side one and then side two, our transaction advisory group, and so that really focuses on tax due diligence and financial due diligence. It's mostly working directly with the funds themselves. So you have a private equity company, they'll go out, they'll have a roll up strategy. We'll do the quality of earnings for all the acquisitions.
Kevin White
Also, if there's an add on strategy and they're consolidating all these targets into one company will also help do the sort of post close integration work to actually get them onto NetSuite, or whatever it is, so that, again, they have a really strong foundation for finance frequently, as many people who invest or work in sort of the middle market space know, a lot of the accounting is messy these companies because they're unaudited, right? Or sometimes they're the bookkeeping that has been sort of half run by the founder for 15 years, or whatever it is. And so often what we'll do is we'll for when the acquisitions happen, we'll transform the company to have, like, gap based accounting that's auditable, and then we'll consolidate it onto whatever parent code that they have. So we're kind of like a little bit of a Swiss Army knife for these PE companies in that sense. And a lot of the time we work on both sides of the table. We'll do transaction work, and then they'll say, "Hey, this person could really use some FBA support going forward post acquisition." So it's a lot of catalytic in the sense that we're able to cross all these services.
Mike Stohler
I keep kind of going back to the economy a little bit. These people that are raising money. How are they changing tactics? You know, because you had a free for all, basically, and now you don't. Is the pitch a little bit different? What's the change as far as tactics?
Kevin White
Absolutely. Yeah, very different. So I can give you perspective. So when we were supporting fundraising with our clients in 2021-2022. To give context, like we come up with a financial model, you do three statement projections, you do your P&L balance sheet, cash flow statement, and you get comfortable with what the forecast looks like, and sort of the output. Besides being the high level KPIs that you'll run potential investors through, is also the cash runway. And so in 2021-2022 usually what you'd see is a big burn of cash and then another raise, and then a burn of cash and maybe another raise, and then reaching in year seven or eight, or, who knows, reaching sort of this inflection point where you're actually achieving free cash flow? And that was okay back then, because everything was about increasing your revenue as much as possible. So as long as your model showed that you had strong revenue growth, we usually like that the unicorn was the 3x twice and then two x3 times, right? So that's what everyone always told you is what you wanted to do. Some models we had were showing that we thought the company could be big. But the point is, if you just wanted to show as much revenue growth as possible and paint a picture that that was feasible based on the cash invested. If I'm going to increase my ARR by $80 million, how am I doing that, right? Like, how many sales professionals am I hiring that are driving X amount of sales targets, or new contracts. You're painting a picture in that model of like, "Yeah, if I have this cash, it is reasonable to assume if I hire these sales people this time and structure my organization this way, I should be able to drive to this number of revenue." And so it became this sanity check. Where could you achieve these revenue numbers? What do you think about it? And if you had a very well thought out model, the fundraising would go pretty smooth right back then it would so long as you could show good revenue. Nowadays, revenue is obviously still very important.
Kevin White
Lot of people talk about burning multiple, how much cash you're burning, and to sort of grow the company. But now, in that sort of output piece, that cash piece, there is no second fundraise, right? Everyone is showing a direct path to profitability, pretty much, right off the bat. So pitch, someone will sit down and they're like, "Okay, how many months until you achieve this possibility?" It doesn't matter if you're a $2 million topline company or $50 million topline company. That's what everyone wants to see now. So. If you're a $2 million topline company, they still want to see some sort of path, 24-month period, hopefully that you're actually able to start generating cash and not actually have to go back and fundraise again. So the narratives differ, it's like, how do I, how do I do enough with a little. Before it was like, "How do I grow as much as possible with my cash?" And now it's like, "How do I grow, but how do I conserve my cash long enough that I can actually make this work and make this be a profitable company?" And really,that's the picture that you have to paint. Now, you want to get off the call and have the potential investors really believe, like, "Okay, they really could be profitable in 18 months." I can see that based on these hirings, based on these revenue targets, the growth is reasonable in this market, it aligns with benchmarks, we've seen other clients.
Mike Stohler
And they are looking at, nowadays it's like, they want the founder to be a little more experienced. They're not taking as much risk with newer founders.
Kevin White
Yeah, definitely. We've seen a lot of that. It was always the case that the serial entrepreneurs would get the best looks anyway. And it makes sense, right? Like you've got somebody who successfully didn't exit at an $8 million company, and they're like, "This is my next thing." Of course, I was gonna pile on that, right? So some level of experience is pretty critical. I would actually say, yeah, for seed fundraising, for initial fundraising from institutional capital, some sort of direct experience, either already running the company, or very closely tracked experience, like, if you think about like medical devices, right? Like, have you built another medical device before? Really closely tracked experience with exactly what you're trying to do. That's really, it's harder to just sort of quit your consulting job and be a founder these days, that's for sure.
Mike Stohler
Yeah, exactly. On the CFO side, and I'm kind of curious, what are comparing your CFO against your regular CPA, or maybe a mid-sized CPA. What are some of the different tools? Why are you better than a CPA? What is it that you do, and what kind of different tools do you use in order to do the entire CFO job?
Kevin White
Yeah, it's a good question. And a lot of it comes down to teams. Our teams are all ex-Big Four, and they're talented. They know what they're doing, but a lot of it comes down to just price and efficiency too. So here's the thing, with finance, there's two sorts of personalities, let's call them. There's the CFO personality, and that's a person who's either been in banking or FP&A. They absolutely love Excel modeling. And they'll get up in front of your board, and they'll give the nice presentation a KPI package, they'll tell you what your budget should be. And then there's the controller, right? As a second personality, that person's usually CPA background, understands how to do good balance sheet reconciliations, understands how to review the accounting well to make sure that every single month, month over month, as you see variances, that they're explainable and that you sort of have a very good handle on sort of cash going in and out of the business. The challenge is, with smaller companies, those two people are rarely the same person because they're somewhat different tracks. And so if you are, if you start as a CPA and you go to FP&A, great, you might have both of those, but they're at larger companies. And even, the way it's taught, it's really two separate groups. It's like having an accounting major in college or a finance major in college, right? And so a big challenge for these companies, if you want to have a really good accounting department and finance department, if you want to do it full time, you really have to hire two separate people.
Kevin White
Now, there are some people who are willing to do bookkeeping, who also can do financial modeling, but those are pretty hard to find most of the time. If you're finding a good CFO, the only thing that they want to do is deal with the model board. They don't want to do the tax and credits. And so the value prop for Exbo has been especially these sub 10 million topline companies of topline is that we can essentially put a team together that really equals a little less than you would pay one full time accounting resource, and they'll do all of it, right? They'll do the FP&A, they'll do so you can kind of use a consulting team to make up one person. It's a little bit more cost effective because it's less than the salary you'd probably go to market to get someone with comparable skill sets. But that sort of team will actually be able to do front to back, everything, all the bookkeeping, all the finance, all the board interactions. And so that's really what's driven a lot of our growth, is the sheer. It's not rocket science, right? It's just like the sheer math behind it is. Okay. Well, these guys are doing stuff all day. They're good at it, and they're less expensive than an alternative, full time hire. And so really, it kind of sells itself, right? Like, we get a lot of inbounds and because a lot of people just need the help
Mike Stohler
Also,I have a CFO for hire, part time CFO. And it was, ladies and gentlemen, if you get to the point where it's like, for me, it was all of a sudden, it's like, "I really don't know. I have too much going on." You know, with me, it's different hotels, it's just different assets, and all of a sudden it's like, there's just too much going on. I don't know. How am I doing it? Right? It's to find your unique ability as a founder and hire the professionals to do it. It got to that point where I was like, "I'm spending way too much time. I hate accounting."
Kevin White
Yeah.
Mike Stohler
Can't stand it. I'm an economist, and the counters, it's like, the debits and credits are opposite.
Kevin White
Yeah.
Mike Stohler
What is that? And so I was like, "Find your unique ability."Mine's finding assets, analyzing things. And I got to the point where it's like, I need more. I need an advisor, not just a bookkeeper. So where does that come in? At what point, kind of like me, all of a sudden, I need more help than just a part-time bookkeeper, a full-time bookkeeper,
Kevin White
Several entry points to go look for someone that I'd suggest. The first is, if you are part of a company that's raising money.Whether that's tech or whatever it is, if you're going on doing fundraising, the first time that you have an institutional investor, that's usually a point that you should bring somebody in. And the reason is because, you can raise a friend and a family round or angel investors, they'll be pretty relaxed, right? Like you can give them, just send them some email updates and let them know everything's going okay, and that's your board, right? But the second you have an institutional investor, the amount of requests and what they're going to want to see at board meetings almost becomes a full time job, right? And if you're trying to do that as a founder, and then also appease your board and make sure that you've got all of your rejections in place, your board, materials, balls start to get dropped. That's definitely one point.
Kevin White
The other piece is that I think a really good CFO does, and I sort of really truly appreciate this till I start my own company. But most of the time when you're making business decisions, they will impact three months from now, right? And so like the bigger your company gets, you go from from being in a little bit of a rowboat, where you can sort of pivot really quickly on a dime, and then all sudden you're in a speed boat, turns a little slower right, and it's a bigger boat, a bigger boat sooner, sooner or later, if you want to steer the ship, it might take you three months to actually make a turn right. And so what having a good CFO does is projecting enough in the future that you can make decisions proactively, so that by the time you get there, the decision was made three months ago and then takes effect. So you're looking at sales targets. You're like, "Okay, we lost a salesperson." That means that we're actually or we didn't lose a salesperson, our sales are now, will be the Hollywood let's bring that forecast down, all right? Well, that means that our cash flow out date just moved up four months, right? Our sales targets aren't there. We had to adjust the forecast. If you take action now, you can cut headcount or reduce costs in order to extend that cash runway back to where you need to be, so that you'll be able to get a follow-on investment. If you don't realize that until four months later, you're in a world of hurt, right? Because it takes, you know, you might have to let people go, you might have to pay severance, you might have to reduce certain bills, whatever it is and time is everything, if you're getting to the point where you feel like you're constantly on the back foot, a lot of these decisions or or numbers surprise you in terms of your P&L, that's sort of a driving factor to get a CFO to actually help you sort of look forward.
Mike Stohler
Yeah, it was just so important. And it's one of those things where at some point you have to spend money to make money and to keep the companies going. And I think that this part of it, the CFO, and ladies and gentlemen, you don't have to hire these CFOs full time. It could be they're working with you. You meet quarterly or monthly. It's they're not full-time salaried people like you said. It's like, "My god, I can't imagine a CFO controller." You know how much that is, and you guys are a fraction of the cost. And instead of two heads, you have an entire team of experts.
Kevin White
It's hard to find a resource that has the CFO, the controllership, the tax experience, all those things like financial transformation experience and systems experience. So we just try to create, we take all of our different specialists who are really good at those things and sort of put them together to make the sort of ideal resource, so to speak.
Mike Stohler
Yeah, absolutely. Well, Kevin, it's been a pleasure. Is there anything that you'd like to tell our audience that maybe I didn't get to that's something you feel is important for our listeners?
Kevin White
I think you covered most of this great. We went through a lot of good stuff here. I think I'll leave on the message that the environment's tough, but if you're an entrepreneur, don't be discouraged, right? There is still capital out there. There are people who care. The types of investors may have changed, right? You might have to take on some more angel investment for a longer period if you find it, or you might have to go to sort of a new VC fund that's focusing on C, whatever it is, but you are still in a position. Where you're able to fundraise, even in this environment, everything can still work if you just sort of put the effort in.
Mike Stohler
There you go. Everybody, don't lose sight and I won't lose sight either, as I'm trying to raise money also. So it's good to hear that Kevin White, co-founder Exbo Group. Thank you so much for coming on The Richer Geek Podcast.
Kevin White
Thank you, Michael. Appreciate it.
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ABOUT KEVIN WHITE
Kevin White is a finance and strategy expert. As co-founder of Exbo Group, he supports high-growth companies and fund managers. His focus is on bridging the gap between investors and founders, helping CEOs build strong finance teams, and providing strategic guidance.
With a background in consulting at Ernst & Young and venture capital at Rethink Education, Kevin brings a wealth of experience in M&A, restructuring, and growth strategy. He holds degrees from Columbia Business School, Lehigh University, and is a CPA.