Handling Finances for Founders with Rhonda Pitman

Hosted by Jason Atkins
President & Co-founder, Cake Equity
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Episode notes

We're excited to share insights from our latest podcast episode with Rhonda Pittman, a startup CFO and accountant! 🎙️

Here's a recap of the key takeaways:

  1. Understanding Finances: Founders need to grasp their finances to grow their companies effectively. Avoid dilution and wasted funds by being financially savvy from the start.
  2. Valuation Strategies: Rhonda shared valuable insights on driving revenue to increase valuation. Strategic financial planning can protect founder equity during funding rounds.
  3. Diverse Funding Options: Explore various funding avenues beyond traditional equity. Consider debt, revenue-based financing, and personal financial wellness to support your business growth.
  4. Personal Financial Health: Your financial well-being impacts your business success. Take care of your finances to build a strong foundation for your startup journey.

Listen to the full episode for more expert advice on startup equity and finance!


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Transcription to follow!

Jason Atkins: Okay, let's go bring it! Podcast time! Welcome, everyone, to Startup Equity Matters, the podcast that helps you understand startup equity so we can create more value. Today, we have Rhonda Pitman. I'm excited about this. Rhonda is a CFO and an accountant for startups based in LA. She's a powerhouse when it comes to understanding how to fund your startup. We've got some really interesting stuff we're gonna talk about today. This is not Capital Raising 101, this is real insights and experiences from Rhonda who's been helping startups scale and fund and grow. A specific topic is going to be how founders really need to understand their finances to be able to grow their company well. I'm a huge advocate for this as a former CFO. I've seen so many startups waste their money and wreck their cap table by having to raise so many rounds and dilute themselves terribly, so this is a very important topic. Rhonda and I are going to try and bring a bit more party to this episode, I hear, which is great. So here we go. Welcome, Rhonda!

Rhonda Pitman: Hi. Thank you for having me. I'm excited to be on with you. We'll bring the party to the geek out because I think people's eyes roll back in their heads when we start talking about these topics. And I’m like, “No, stay with us. This is actually really sexy and super important for your business.”

Jason Atkins: Yeah. Well, we'll try and stay away from the super jargony stuff that put people to sleep. We'll talk about how to have massive amounts of equity in your own company or not run out of money and have to have like the most stressful month of your whole life.

Rhonda Pitman: Oh my gosh. Or year of your life. However that translates.

Jason Atkins: I've been through that. I've run a forecast that has no money in it and you're trying to just like get it going an extra bit longer. We don't want any founders having to do that if we can avoid it.

Rhonda Pitman: No. Well, so there's so much to talk about in that tiny little bit that you said. Where do we where do we begin?

Jason Atkins: Well, let's tell us a bit about Rhonda Pitman. R&Co. Is that what it is? Tell us a bit about what you're up to these days.

Rhonda Pitman: Well, I just, for the top of 2024, did a little bit of retooling. I'm a fractional CFO, so I work with a variety of clients and I'm always reassessing like, where am I in terms of my progression learning and the things that I'm good at and where I add value. And then where are my clients and am I able to work with them and actually help them out? Like, are they too early stage or are they like, they're somebody else's client now because they've gotten so big or whatever that looks like. Cause you're not always a perfect fit, depending on the stage you're at. did a little bit of house cleaning. And I also think some relationships are not good relationships and you need to break up and that's just reality. So that's good for startup founders to hear, I think. So as I'm retooling, I'm continuing to do what I've done for a long time, which is I have what I consider like a full stack offer, which is everything from keeping an accounting up to you know, CFO level services. So I really act in that CFO space and a strategic partnership space with founders and C-suite, depending on what they are, like if they're trying to scale or if we've got a sale that we're targeting and we know that we've got to ramp up our valuation, which means generally we have to ramp up our sales. And what does that look like? So I work with like all parts of the team to do that. And I kind of view that as like the operational finance piece of my business because I just can't uncouple operations from finance and all the sales functions and all the pieces that fit together to operate the business. And then there's a new part of my business that I'm, I guess we'll call it launching, but it's not like a launch. It's just, I decided to start working with people more in an advisory capacity where my team and I am not responsible for their books and accounting and all of that. And it's more just that partnership and strategic piece with the founders and the C-suite to focus on those objectives. And it takes pressure off my team to do all the work. And then if somebody has a great team or a couple of people running the finance side of their business, they keep them. And I just kind of Integrate seamlessly with the team, but really give them a new perspective on the finance and scale or strategy pieces. And then, you know, there's this thing that you and I talked about. is this big content thing that I have around like classes and training and teaching founders how to do all these things from like ground zero or like kind of anywhere along the journey and pointing out these really critical and important elements of personal finance and finance in the business kind of demystifying it and breaking it down into these really palatable and understandable trainings so that they can apply them to their business with templates and like all of this. And so I'm not sure exactly how that's launching. It could be a book format. It could be online courses that is still getting worked out, but do check with me because something's happening. It's like bubbling.

Jason Atkins: I love it. In our earlier conversations, you seem to have such a passion for it and such a deep knowledge. And so I'm excited to see what comes out on the education front. One thing you touched on there, though, is that huge value creation in the strategic and operational finance piece, which I I'm a huge sort of advocate for. It's quite similar to what cake does. You need to get the nuts and bolts done. So in your field, you need to have your books done and you need to have your tax done. And you need to have all those sort of the basics. Can I call it that without oversimplifying it done? And then from there, you can build on top. And one thing you touched on was improving the valuation. finance is a key driver in ensuring that you get the best valuation when you go to raise. Let's dig into that a little bit. Some of the work you've done recently with some current clients on just taking them and getting them as fit for a raise as possible.

Rhonda Pitman: Well, I'll do a little shout out to Cake because one of my clients does use Cake. We have found it to be profoundly helpful to us and time-saving because it's easy. We can go in and run scenarios. We can see the world of the cap table and we don't have to manage it in a spreadsheet anymore. And I don't have to worry that like, is something broken in the math because you know--you and I've talked about this--that's like the most terrifying thing. I don't really want someone to like write a contract or sign something based off of that particular calculation in Excel. I'd love to have Cake just to manage it. So it's been really helpful in terms of that. But so I think we can talk about valuation because that it's this very esoteric idea and there's all these conceptual notions floating around when you get into this world. And early on, it's really easy for founders to just be like, "Oh, I need help with this thing. I can't pay you, but I'll give you convertible debt." You just do that for a while. You keep doing that and then you actually take real investment money and it's convertible and it's a three-year note and you're like, "Whatever, it's a party. What's going to happen in three years? It'll be fine." It's totally kind of not fine after a while because in every scenario, you go like, "Oh, we're three years in, that note matured, and really it's more like we're five years in, that note matured two years ago. I haven't really talked to that investor or that group of investors." I mean, you're laughing because you know this is true, right?

Jason Atkins
: It's like an insane, maniacal kind of chuckle of just how crazy this stuff can get when you don't look at it for a little while and you just keep signing these things and then you put it in a spreadsheet or hopefully use something like Cake so you don't make an error in your spreadsheet and you're like, whoa, look what I've done to myself.

Rhonda Pitman: Well, so then you get to some point where you're like, where am I in the world? What is my valuation? You've been doing convertible note, then you want to do a price round. And then you've got this magical, mystical thing called a valuation out there. And the valuation, I mean, everybody kind of knows, anybody who's in this world and anyone who's listening to this knows that you can do a valuation based off of a lot of different things. But in general, people say, "What's your revenue? What's a multiple on revenue in this industry?" Very, very generally, we'll say it's so many X times your valuation. That's what you can raise on. Well, if you've raised a lot of money as debt that has to convert into equity when you do a price round and your valuation is too low, you look at how much equity the founders have and you go, "Oh my God, they've been killing themselves for five years, 10 years, eight years." Whatever it is, these people are going to do a price round and they're going to be like squished down to so little. And so, you know, this is an exercise that I've been working on with one of my clients and it's super fun. We're having a great time. We're doing all, we're using all kinds of strategies to play with this, but, um, The biggest thing that we decided to do last year was, Oh, we got to drive revenue. Cause we got to drive the multiple, like we got to drive that piece that you're multiplying off of to drive up the valuation. Because if our equity is only going to be this much in the business, then we need it to be this much of a way bigger pie. So that's kind of like, and then, you know, there's also like clawing back or buying back some of that, those early notes. And cause those early ones have such a low cap on them that they represent a lot of equity.

Jason Atkins: Oh, okay. Let's dig into that a little bit. So first of all, we said debt or convertible debt. So in this instance, we're talking about convertible notes, which are a type of debt and safe, which even though they're technically a type of debt operate more or less in the same way, when it comes to equity anyway. So that's mainly what we're talking about. A lot of people will run SAFE for pre-seed and seed and they'll be using SAFE for sweat equity and for their advisors and a whole bunch of things. And so that can become a considerable amount. And you could have a valuation cap that's really high, like just say for arguments that you've got to, you could even have an unlimited, you know, no cap. So it's like, wow, you know, like I can convert this at 100 million one day. Great. And it's going to be like a tiny amount of equity. But then when you go to do your price round, That's like the real investors come in and not to be too cynical, but it's like they come in with the really sharp pencil and they say, OK, where's the revenue at? OK, I'm only going to get six times now when we're going to do a price round. I'm probably being a little bit sharp, but. And then you go, hang on a sec, I've raised all this money in safes. And now I'm about to get a much lower valuation than I thought. And a much bigger percentage of my company's equity is about to go out the door. So this is the trap. And so this is a combination of how much you raise in SAFEs, the valuation of the company, how fast you allocate the money, and then how fast you hit your milestones. Because the faster you hit the milestones, the more you can protect your equity. Because if you do happen to triple your revenue three years in a row, you're probably not going to have a problem. It's going to be amazing because you're going to get the big valuation and the safes are going to convert into a nice small or manageable amount of equity and everything's cool. But what happens if you do 50% per annum revenue growth for two or three years? You're going to be in a much more challenging situation.

Rhonda Pitman: Which by the way, let's get real 50% growth for a year over year for like three years is phenomenal.

Jason Atkins: It's really great.

Rhonda Pitman: It's amazing. So I'm going to just take a little step to the side here and say, this is the world of raising capital in this way and building businesses in this way. And I don't know that, I think founders really have to give it a hard look and decide if they're fully aligned with it, because is that the game that you want to play? It's never good enough. Even though it's extraordinary, it's never good enough. I don't know that that's a great thing. And also, I don't know that every business needs to have its eye on we're going to be a unicorn or we're going to sell for, I don't know, some number that's crazy. Like that's who I have to be. I think some businesses could just be wildly successful and you determine what that success is. And if it's 50, if my business grew 50% a year, I would be like, this is amazing. But it's a different scenario in that world. So now I'll step back into this lane. Sorry. I just had to say that.

Jason Atkins: I think that's an amazing call out. Any regular business that grows 50% per year, if you can do that for five or eight or 10 years, you're going to have an amazing business. That's probably not going to be a venture capital backed business. They do want double or triple every year, and that is what's required to continue to get venture capital. That's fine because that's a very specific type of funding for a very specific type of business that is just like right in the sweet spot with every single thing going for it and every tailwind under the sun. And that's what venture capital is chasing and not every business is that. And there are lots of other ways to fund the company and you can still build an amazing business. I think it's a worthwhile call out when we're talking about creating real value, you know, and having a financial lens to that. You can still raise capital and allocate it well, build a great business, create wealth without doing triple, triple, double, double, double on the venture capital path.

Rhonda Pitman: I'll just say one more thing. You and I did talk about this before, that I think it so dramatically impacts your values as a business and who you say matters. Because if you're taking on, not all venture is like, it's not bad. It's just a choice. It's a way to do it. There are many ways to do it. But if you take on venture capital, if you take on a If you take on doing this in a way where you're prioritizing your investors, number one, or you're like, we're going to go public and we're going to prioritize shareholders, number one, then that's really different than saying I prioritize my stakeholders and my stakeholders are me. Because I own this or I run this, my partners, whoever they are, my community that I run this business in, the employees, like all of the things that make it possible, you shift that with like that value system and what you prioritize in a very dramatic way. And I think that's really important to think about early on in a business because I think often I've seen founders kind of get down the line and be so compromised by what an investor wants them to do or a group of investors. And they're trying to raise around and they've got like all these people, just humans, not like they're gods. They're just humans pulling them in these directions. And there's this thinking that like, oh, they have all the money, so they know it's right. And that's not necessarily true. And so I feel like it can very easily just get founders in this super waffly place where they get unclear for a while about what it is that they're doing.

Jason Atkins
: I couldn't agree more. I've seen this many times myself. I don't want to overshare too much as well, but on the cake journey. But, you know, it is an unbelievable thing to do to balance out revenue growth and building a generational company and keeping your team and stakeholders like sane and alive and happy and growing. And it is a big part of the founder journey. One thing we could talk a little bit about, because this is great topic, loving where we're going, is like two parts I would add to that. So there are venture capital investors that don't necessarily need the unicorn or bust. They, of course, want to have very high returns. So before I said it's like VC or not, but I think that's not necessarily true. It's about trying to find The investors with the similar mindset, of course, they're still going to want outsized returns. Their LPs are still going to want to see the company get big. But can you grow 50, 70% per year instead of 200% per year? And I think different VCs have different mandates. One thing I've noticed in the U.S. is Silicon Valley is much more, you know, your traditional triple, triple, double, double, double. Generalizing, of course, there's going to be outliers in every area. But outside of Silicon Valley, if you look, say, across the center of America or outside of the biggest tech centers, I have noticed a slightly more balanced approach of trying to find really good, say, software companies that are going to end up in the middle building great companies. And so perhaps that's something that people can look for.

Rhonda Pitman: I think it's also industry specific. So I think when people are when you're I think that, so we might as well just talk about this a little bit, the investor side of it, which is that if you are going to find investors, you know, there's all kinds of strategies and how to do this. I've seen many, you've probably seen many, and you've actually done it yourself, right, for CAIG. But I think that there's always a sort of financial climate that's a reality of the world. So is the world going through some financial crisis? I mean, COVID had a huge impact on things. I think, you know, in the US we have elections every four years, which really have a huge impact on things. And then are we having a recession? Are we not? What's that sentiment, right? I think that there's just like feelings that people have and you kind of like lick your finger and stick it up in the air and you go like, okay, which way is the wind blowing right now? That's part of the reality. But as you're looking for investors, there's a lot of questions to ask, which is like, oh, I just got introduced. I got a list of investors or VCs or whatever. Are they the right fit for you? Do they invest in your industry. And that's important because it tells you whether they're going to understand your business or not. Because every business is not a SaaS business that makes money in this very straightforward, clear way. Some businesses are really complex, but they do extraordinary things and they make a lot of money. And some investors can't always wrap their brain around that. And they just want to invest. And so then I think it's like, oh, there's VC. And are you raising enough money that VC will invest in you? Do you need to go find angel investors because you want smaller checks? Or then there's this whole world of family offices, which I don't know how it is globally. But in the US, family offices are a real strategy for people. I know a little bit about it, not a ton, but it is definitely something that's come up in some of the conversations that like currently having in the past, because many of them, you know, they're just, they're people from a variety of backgrounds or their teams are made up of like very diverse people. And they're interested in like, not just SAS businesses. Like I have a client that's a media company and like some of the family offices understand media in a way that VCs don't. And people like our business because we do exceptional things. And so they're like, oh, we understand it. We'll consider an investment in this. Or a VC might just be like, no, we don't understand how this works. We've got to walk away. So I think those are really important things for people to consider. Because in your myopic world of your own little universe and what you're building, it's so logical to you how it works. It's so logical. How could you not want to invest in this when it's going well? But in fact, it can be so, so challenging. And, you know, I mean, you know how challenging it can be.

Jason Atkins: That's an incredibly challenging part of building a company. One thing we can do, and you mentioned this earlier, when you're coming into a round is, you know, essentially push a bit harder. So you might be doing three or 4% a month, and can you get that to five or 6% a month for a period? Can we dig into that a little bit, or maybe growing into a valuation as well?

Rhonda Pitman: Yeah, yeah. I think that, I mean, I think there's a little bit of like brute force, like you say, like forcing it a little bit. I would actually say that we've employed brute force in certain scenarios, but I think that that's what happens. It takes a while to launch a business and run it and figure out what the business is and what it does and how it makes money. And I think there's a feedback loop with the industry or the business that you're in. So you're betting on this thing and you're saying like, well, is it going to work? I don't know if it's going to work. We're making a bet that it's going to work. And so sometimes It takes longer for the thing to work out. And then you like reassess and then you kind of go like, Oh, we struck gold here. This is the thing. How are we going to push super, super hard and grow this thing? Because it's going to make us the most money. We're betting on like these five things or these three things, and this is the one that's going to work. And so my experience with it is it's really. it's kind of, it's not just a push. I think it's like an all-out brute force. The whole team comes together, you know, depending on whether it's a sales organization or what it is, like, this is the strategy. Everything has to point to this true north and this strategy. And we build the business. And like, sometimes you got to retool operations a little bit. You got to retool communications. That's really the operational piece of this, that this isn't just about having a great idea. It's can you execute on it and can you execute on it in an elegant way? Can you execute on it in a way where people that pay you to do the thing will keep paying you and more people will because you're doing it really well? I think it's a serious, serious push once you find that sweet spot of the thing that really is winning and making money. I don't know if that sort of gets into it enough for you, but I just think it's like all out just hard, hard push.

Jason Atkins: 100%. And then that's part of the narrative when you're raising and say, hey, we've been working on this for some time. We finally cracked it. And here's the results. Look, bam, bam, bam. Here's our revenue going. Here's our cost and our unit economics coming under control. And now we're in an amazing place to build. And therefore, our valuation should be higher. We can definitely handle this money. We know how to allocate it. And this is just like, I think, a wonderful way for people to think about how to raise with a good valuation. So you don't necessarily have to have every single month is an amazing month. Of course, you can if you can. Great. But if you've had a period where it's been a bit harder and then you do manage to crack it, the revenue growth kicks up, unit economics are lining up well. This is a wonderful place to look to raise from a valuation perspective, from getting investor interest perspective. And I think it's a really smart strategy for protecting the energy of the team as well.

Rhonda Pitman: I think, I think the other, so I think that it's important in terms of how to engineer this is you can sort of reverse engineer this and say like, Oh, I did, you know, let's say 5 million in revenue last year. How do I get it to 10 or how do I get it to 12? What would it take? And then you sort of reverse engineer, like here's how many customers or here's how many deals I would have to do. And here's what they would have to look like. And maybe I have to increase my price and maybe I have to add a new salesperson or like these things. And then you have to go and you have to execute on those things. and take those steps and then just drive everyone. So I think that it's important for people to know that you're going to constantly be retooling. And then there's that sales cycle. So you have to know what your sales cycle is or what your marketing cycle is, because in some industries, I've seen people have a 12-month sales cycle. That's painful if you're trying to generate revenue. So if you can shorten that sales cycle from open to close, if you can figure out what the formula is, Then I think that's the game to play and just focus on operations, focus on making money. And then like, you'll back into, you know, what's the, you know, like all the little hack and then this and that, that LTV, like all these things, you'll back into that. You just got to like, go and run it and make money.

Jason Atkins: Amazing. In a minute, I'm going to hit you up about maybe like top three tips for founders, things they should know about their finances. I'm a big believer that they have to have some finance skill, because if you're going to get a million or two or five million, probably by the time you get to five million, you've got some finance skill in your company. But just say you're after half a million or a million dollars. You've got to have some financial skill. And a lot of founders have very little not to criticize. It's just their backgrounds are not aligned. How did you get into doing finance for startups in the first place? And then what has your startup career to date taught you about big things for founders to be on top of when it comes to, I guess, creating value?

Rhonda Pitman: Also, real talk. This is how I got into it. I worked for an asset management firm. A lot of people know the firm, doesn't matter. I was sort of like working in the back office in a pretty interesting like mix of roles, but I wanted to move to the front office. Basically back office is like operations, finance, that kind of stuff for people who don't know. And I wanted to move to the front office, which is where deals are made and there's more like analysis happening on deals.

Jason Atkins
: I always have the same passion. And for all you back office people out there that want to be in the front office, go for it. You can definitely do it.

Rhonda Pitman: Some people can. But I remember I met with somebody in the front office and they said to me, they're a portfolio manager. And they were like, you don't even know how to build a financial model. And I just thought to myself, like, so? Like, I can't figure that out. How hard is it? Whatever. So I I think that it just, it shifted my perspective a lot. I also knew that like me having like a job, it's never nine to five in that world. It's like eight to eight or something or eight to seven in that world. But I just knew I didn't really fit in that culture. So I left after a few years. I learned a lot. I'm so grateful for that experience. It also made me comfortable with like big numbers with lots of zeros. which I think you have to have.

Jason Atkins: And I remember the rounding errors in MasterCard in London. And I was like, whoa, that's like a whole company is like a rounding error for our marketing. Yeah.

Rhonda Pitman: You're like, that's a whole economic system over there. So I left that and I initially started doing like operations consulting for small companies that like wanted to sell scale or sell. And I think that I naturally just gravitated toward the marriage of operations and finance because I always wanted to, I always needed to see the numbers. And so eventually over time, things happened. I like, I did, I did teach myself, actually self-taught how to build financial models. And, you know, it's 15 years later and I have my whole my own personal methodology and templates for how I work and and how I tie them together. But, um, so you don't have to know how to do that to figure it out on your own and put it together. You just kind of have to be diligent and smart and, you know, do the work. But I really, I felt like I could never answer the question of like what's working, what's not working, unless I had a full view of the money and the operations. And so it just kept leading back to this over and over and over again. And I'd already had like early in my career.

Jason Atkins: That's because you're trying to solve the whole problem. You're like curious and your problems lower and you're thinking about things from first principles, which is like such a great way to think when you're in a startup because you don't have much opportunity to make mistakes. You've got to be super switched on as much as you can be.

Rhonda Pitman: So even now when people come to me and they want to hire me or they're having problems with like, you know, if they have outsourced finance solution, kind of like what I do, if they're unhappy, I still look at it and I think like, you know, I'll be on an email, I'll be reading through something that's working, not working. And I always think like, what's the process? Something's broken in the process. What's the process that's broken? Because if you hire me, I'm the kind of person who's going to like have a call with everyone on the team and be like, what's your contribution to this? Oh, you're using Salesforce. You're using this product. You're using that product. Well, does finance get to see that? Are the, or is the sales team seeing this thing? Are they responsible for this? Like, is everyone actually working together and are they headed toward the same goal? Have you defined that? And I can't stop being that person. So I just, you know, this is it. If, you know, like, it's just, I just keep showing up in this way and I keep like hammering on like, what's working, not working. And that's just how I got here. And I really, really, really love entrepreneurs. My dad was an entrepreneur. He owned a small business. I grew up with that. And I think I'm inherently an entrepreneur and I love the spirit and like the ballsyness of people who are willing to take this kind of risk. But I will say that a lot of people want to take the risk and they try it and they're just not made for it.

Jason Atkins: There's a lot of athletes, but very few Olympians. And I think entrepreneurial, it is unfortunately quite like that. It's very, very, very difficult to get it done and get it right. And a lot of it's luck and timing and other things as well. But let's talk about the entrepreneur, then let's talk about the founders and that cake we like. I mean, I know this isn't a cake thing, but for me, I think those early team members as well, they have the entrepreneurial spirit. They're getting in early. They got some skin in the game. How do we best use finance to help them retain as much equity as possible throughout the journey?

Rhonda Pitman: I think, you know, when you roll out your ASAP program or whatever it is that you're doing, I think you bring the whole team together and you educate them. I mean, actually. This is a great example. We did this last year with one of my clients and we use cake and we rolled out the ASAP program to the team. And I did a presentation with like a offsite and I rolled it out and people got to, you know, sort of rapid fire questions at me. Thank God they were like pretty nice about it, but I. But there are a lot of questions that they had because many of them had not participated in something like that before. So I think educating them, giving them access to cake or just telling them like, hey, here's where you can go read about these things and understand. And if you have more questions, ask us. We're here for you. We want you to understand that like you're a part of this and you're a part of the growth. And what I would what I would want if it's my business and it's the equity that I'm granting to team is that they would feel like their, their work directly contributes to the value of that because it's true. I mean, that's the idea. So I think that, I think it's that, and it's really making it like you're a part of this. We value you and we want you to value this.

Jason Atkins: What about on the funding side of things? Um, are there some elements of the fundraising strategy and planning process that can help, you know, retain equity over time?

Rhonda Pitman: On the fundraising side. Yeah, I think so. I mean, I think it's really those things that we talked about being very measured and clear. I mean, like, do you need to oversubscribe every round? Like that can really start to bite you in the ass after a while, just like what we were talking about in the beginning of the podcast about giving out like equity to people or safe, convertible notes to people who do work for you, that stuff adds up. And so while it's very cool and it's like, it's exciting to be oversubscribed, I don't know that that's great for your cap table or the. the equity that you're going to retain as founders. If you don't need it, you don't need to take the money because there's other ways to get money and finance the business without taking on money from investors. But that's another.

Jason Atkins: Now, give us a few ideas. What else can we do? I'm all for funding types. I'm not just equity, equity, equity. I don't think that makes sense. And the problem is if you only use equity, you're probably going to end up with less of your own equity. So it's good to have a balance.

Rhonda Pitman: Yeah. I mean, I think that it's pretty clear when I talk about this. I'm an evangelist of debt. I'm not an evangelist of like, just go get wild and take on a ton of debt. And so I'm an evangelist for convertible debt or safes. The only thing I'll say about safes is that in the US anyway, there are a lot of investors that won't invest in a safe. They prefer a convertible note. I think it's just because it's what they know. So that's just a thing. You can do that, but I think that if you actually have cash flow and you're covering your burn, or if you're figuring that out and you have receivables. Something that I've done is if one of my clients, we have receivables, but our receivables, our terms are not 60 on everything, but we get paid, but 90 or 120, it's painful. But we've done invoice financing or asset financing, depending on where you are, what it's called. You have to go through some steps to set those up, but those deals are amazing because you're just basically have a cost of capital associated with it. And you got to drive kind of hard to get a good deal because money is expensive right now. However, If you have a good business, somebody understands your business on the financing side, you can cashflow your business with your own invoices. And maybe you're paying like three to 5% cost of capital on that. And that's like, that's life-changing because then you don't have to go raise a million, $2 million, $3 million.

Jason Atkins: You're just technically and financially equity is the most expensive way to fund a company that would be less expensive. Something like revenue based finance or financing your receivables would normally be like towards the cheaper end of what it's actually going to cost you overall as a company. But then obviously your own cash flows, your revenue, you know, is less costly. I mean, some could say it's free, but it might not be free when, you know, you could have, you could grow a lot quicker if you're looking for other types of finance. So it's all a bit of a balance between speed and the types of finance you can get, the interest rates you can get, the market in that year. But, you know, and equity is historically the most expensive way to fund your company. So just something to bear in mind for all new founders out there.

Rhonda Pitman: But you can do a combination of all of the above. And if you're really smart about it and you kind of are mindful as you do these things and just take a pop, I mean, like nothing happens overnight, so you can always pause for a moment. So like, okay, what's the impact of this? Does this align with what I'm trying to do? Does this align with what I said I was going to do? And like, just take stock, have your team work with you to take stock and then, and then move forward. I think answer those questions, make sure you're protecting yourself and you're always protecting the business and as much equity as you can.

Jason Atkins: I talk about it as a funding strategy. It's not like, hey, I have a capital raising strategy. It's like I have a funding strategy and I have revenue and I have grants and I have, you know, maybe there's some debt. And then, of course, you've got your convertible debt and then, you know, actually selling shares or stocks as well. So it's like you kind of have to have all of it in the mix to to get the best outcome.

Rhonda Pitman: Yeah, I think so. I think I think it's just overwhelming as a founder. to feel like you have to be an expert in all these things. And you don't have to be an expert. You just need to email and ask the right people who will lead you to the other right people who will help you get through a period of time.

Jason Atkins: It's important. Totally. Was there anything that we haven't covered that you think we should impart on our founders out there and people that are listening about how finance and financial skill can help create value for startups?

Rhonda Pitman: Yeah, I'll say like one last thing that I work on, I've had this repeatedly over about a decade I keep coming into contact with like, you know, amazing people that are founders, and really like my business in particular I focus on. founders with diverse backgrounds. So founders of color, women, queer, trans, are just like founders doing really interesting things to challenge status quo in the world. It's really interesting, the people that I've gotten to work with and what they're trying to do in the world. And I want to be part of that. And I think that maybe as a result of some of these people, you know, having roles like, like I had, um, a client that I worked with for a while, they were all like medical practitioners. They're not traditional business people. And, you know, there's like marketers that I've worked with. They're not traditional, like finance business people. There's a big gap for a lot of them in terms of like, some people may have their personal finances in really good order. Some people may not. And one of the things that I think is so important is to understand how just your personal finances, forget about your business, your relationship to money and your personal finances, your credit score. Do you have some cash in the bank? Are you taking care of yourself? If you have a business, are you paying yourself? I hope your answer to all of those things is yes, because the business is so dependent upon you as a founder or a team of founders to operate and run. And it can't happen because you're a human in a body. And so you have to take care of this human in this body and all the things that it needs so that you can focus on doing your job as a founder. And a lot of people who are founders, I've seen this so many times, they don't pay themselves. They have debt. They have money issues. They have bad credit. And they're exceptional. It's not a personal judgment. Those are just stats on paper. And we really, I end up doing a lot of work with them around their relationship to money, their, how they take care of themselves. Cause that's going to translate into a few things. One is you want to get an office space for your, for your business. Well, you know, it's like a personal guarantee. So you have to have decent credit. Number one, or just other, I do want to get a loan for the business. You want to get an SBA loan, do all these things. have to put your ass on the line for it as, as a human, not the business. And people, a lot of times don't know that. And the other thing is like, you got to show up for all these people that work for you, all these people that you're serving who are customers, clients, and maybe investors. And you want to show up as the best version of you that is taking care of you and can take care of them and deliver on what you commit to. Right? I know this gets a little woo-woo, but this is real.

Jason Atkins: This is leadership. Oh my goodness. What's wrong with the world is that stuff is woo-woo. That should be the first thing we always talk about is our health.

Rhonda Pitman: That's all that matters.

Jason Atkins: Like us as humans, if we're not safe and empowered and and connected, then we can't contribute like well into the world. Our energy is not there. It's so hard to tackle challenges. Our minds are shut down. You know, we can't build amazing relationships or we're sort of taking all that energy to our work relationships. And then we're destroying all our personal relationships because we're just so overloaded and stressed. So We always finish with like creative, healthy lifestyle corner. And you went and nailed it before I even asked the question, because I always say, you know, how do we, you know, use our health and to come into the world to have the power to be creative and make the change that we want to see. you touched on something that isn't often talked about and it's your financial health. And it's such an important part of, I don't know, I'm not like a psychologist or anything, but what's that? Maslow's hierarchy of needs. I mean, if the base layer, which is like, can I pay my rent? Can I pay my mortgage? Is my credit okay? If I need a space, can I even go and get myself a space for my office? If you can't operate at that base level, it's so much more difficult to achieve these huge outcomes that we want to achieve. So I'm so grateful for you bringing that up. Absolutely perfect point to make on a finance version of the Startup Equity Matters pod. So, so grateful for that. And I've lived through this, you know, the first few years of cake, you know, there's no income or it's very low. Sometimes it goes from very low back to zero for a bit because you have to use all your money to pay whatever team you've got left to get through like a really hard little period. You have to sort of make deals with your partners and your spouses to get through these times. And it's really challenging. So, yeah, put yourself first. You do need to go through some hardship to make it with a brand new company. So I don't think you should expect to have it all easy, but you have to invest in this stuff. Otherwise, you probably can't make it.

Rhonda Pitman: I also think that If you are going to go raise a lot of capital, like if you come to me and you say, I want to raise a million dollars and be like, like you and I both know a million dollars isn't that much money. And so I want to know what your relationship is.

Jason Atkins: If you've got it and you have no relationship with money, it's a huge amount of money, but in the grand scheme of things, it's like nothing. So it's like, how do you take the hurdle to be capable of handling that amount of money? So then down the track, you're capable of handling real money.

Rhonda Pitman: So what I do, I have this little thing I call like founder financial wellness. It's like a little thing I do with people and I work with them around their relationship to money, but also getting that money is a construct, that it's like this very fluid thing. And people really don't want to go there with me, but I'm like, you have to go there with me because now you're telling me that you want to do this thing for $10 million from zero or $20 million from zero, or like you want a billion dollar valuation. You don't know what that means.

Jason Atkins: You can't even manage your own house budget. Right.

Rhonda Pitman: That's it. And investors are thinking about that, too. They may not articulate it the way I articulate it or you do, Jason, but you and I know they're thinking about it. And so let's be real. Like what's your track record? Can you take care of basics? And I think in terms of building a financial model, which I've done so many times for so long, and then in building a business, do you have the mental flexibility and creativity and fluidity with money? to actually figure out what am I going to do with all this money? What am I going to, how am I going to build this thing to make this money? Or are you going to get stuck in like this emotional state in yourself? That's like really, really intense. And I'm doing this in the center of my body, like with my fist, because it's like, it's this stuckness and it lives in our bodies and our psyche. Yeah, it's really serious stuff. But that, that is what comes out and plays out in businesses as people are trying to do this. And so we want to like, Give that I want to give that as much love as I can when I'm working with people. And in general, because, you know, like we've all have a personal journey around that. I have my own. And so, and you have your own. And so if we can all come to that, if we can catch that, honestly.

Jason Atkins: Some deep stuff. This is where it's all at. If you can't get this stuff under control, it's very difficult to get a business in any way, shape or form under control. So I think we hit the jackpot here at the end today. We did some good stuff along the way, but this is really powerful stuff. I think we should pull some more content together around this, Rhonda.

Rhonda Pitman: My content that I was talking about early on, I think it's going to center around a lot of this and treating founders as a whole person, a whole complete person that's then going to go do this pretty big thing. And how do we take care of that and love that up or build that up and sustain it?

Jason Atkins: Amazing. We couldn't leave. We couldn't end on a better note. So Rhonda, you're a gem. I'm glad we were working together.

Rhonda Pitman: Did we bring the party, Jason?

Jason Atkins: This lasted a while. I think at the end there, we really got to the heart of something really powerful. So I'm stoked for that.

Rhonda Pitman: Well, I think we brought the party. I feel good about it.

Jason Atkins: We're going to get some background music next time you come on.

Rhonda Pitman: OK, awesome. I like it.

Jason Atkins: All right. Thank you.

Rhonda Pitman: It's a pleasure. Thank you.

Jason Atkins: It was a pleasure. I look forward to continuing this mad journey with you as we help founders and their teams to create real value and change the world. I love how you touched on teams that are a little bit less fortunate when it comes to opportunity. I'm a huge advocate for breaking down power structures and creating opportunity and helping people achieve. I'd just love to have everyone having as much confidence as I do, they can change the world. So let's bring it.

Rhonda Pitman: Yeah, let's do it. Thanks, Jason.

Jason Atkins: Thanks, Rhonda.

Rhonda Pitman: Bye.

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