Finance and Operations at a Series A Startup: the Job, the Equity and the Cash

A Series A in one number: months of cash

A Series A is usually the first priced round led by an institutional investor, after the pre-seed and seed stages that are often raised on SAFEs or convertible notes. The sizes vary widely by market and year, so the figure here is an illustration and not a median. Suppose the company raises $12 million and spends a net $500,000 a month. That is 24 months of cash at today’s burn, which is the number the board will quote and the one that governs almost every decision a finance hire makes.

Seed rounds raised on a SAFE or a note convert into shares at this round, which is why the cap table a finance hire inherits is often more complicated than the headline round suggests. The word “today’s” carries the risk. A Series A company raises in order to grow its team, so burn rises after the round closes, and the real runway is shorter than the division suggests. A first finance hire learns early that runway is a forecast, and that the forecast is re-run every month.

The job in the first ninety days

Titles vary: head of finance, finance manager, business operations lead, chief of staff. The work, in a company with perhaps twenty to sixty people, tends to fall into three parts.

• Cash and control: reconcile the bank accounts, close the month, run a 13-week cash forecast, and make sure nothing leaves the account that should not.
• Numbers the board reads: revenue and annual recurring revenue where the company sells software, gross margin, net burn, and the burn multiple, which is net burn divided by net new annual recurring revenue.
• Plumbing: payroll, contracts, procurement, tax filings, insurance and the data room that the next round will want.

One metric worth knowing

The burn multiple shows how much cash the company spends to add a unit of recurring revenue. If it burns $1.5 million in a quarter and adds $1.0 million of net new annual recurring revenue, its burn multiple is 1.5. A lower figure means growth is cheaper. Thresholds such as “under 1.5 is good at this stage” are rules of thumb that investors repeat and not laws, but the metric is useful because it connects the cash forecast to the growth plan, which is where a finance hire earns credibility.

The 13-week cash forecast is the tool for the other end of the problem. It is short enough to be accurate, and its purpose is to find the week the cash gets tight while there is still time to act.

The equity: what the grant is, and what it can be worth

A stock option is the right to buy shares at a fixed price, called the strike. A typical grant vests over four years with a one-year cliff, so nothing is yours until you have stayed a year. In the United States, someone who leaves usually has a limited window to exercise, commonly 90 days, and the cost of exercising is real money. In the United Kingdom, options under an Enterprise Management Incentive scheme can be taxed as capital gains rather than income, within conditions that HMRC publishes: at the time of writing, up to £250,000 of options per employee, a £3 million cap per company, gross assets of £30 million or less and fewer than 250 employees. Check the current rules for your offer.

The arithmetic below uses invented inputs. Suppose the grant is 0.25 per cent of the fully diluted company at the Series A. Later priced rounds dilute everyone, and a figure of 15 to 25 per cent per round is a common convention. At 20 per cent for each of two further rounds, 0.25 per cent becomes 0.25 × 0.8 × 0.8, or 0.16 per cent. If the company is sold for $300 million, 0.16 per cent is $480,000, before tax and before the strike price. That is a life-changing amount for some people and a modest one for others, depending on what else they were paid along the way.

How to think about a number that can be zero

The second row of that table is the lesson. The same percentage is worth $480,000 or nothing, and which one it turns out to be depends on the exit, the preference stack and the dilution, none of which you control. There is no figure we can cite for the chance that a given company reaches an exit that pays common shareholders, so value the grant as an option that may expire worthless and put your own probability on it.

A practical consequence follows. Treat the salary as the thing you are paid and the equity as the thing you might be paid. If the cash is below what you could earn elsewhere, the equity is what you are offered in exchange for the gap. That can be a good trade for someone who wants the scope and can afford the gap, and a poor one for someone who is counting on the option to fund a deposit.

Questions to ask before you sign

A founder who has raised a Series A will usually answer these directly, and the quality of the answers is itself information.

• How many months of cash are there at the current burn, and when does the plan assume the next raise?
• What are the preference terms from the last round, and what is the total liquidation preference?
• What percentage of the fully diluted company does my grant represent, and what is the strike price?
• What is the exercise window if I leave, and does the company have a policy on extending it?
• How much of the option pool remains, and is a new pool planned for the next round?

Who it suits

The seat suits someone who wants ownership of a whole function earlier than a larger company would give it, who is comfortable being the only person who knows how to do the work, and who can tolerate a plan that changes every quarter. It suits people who build things from a blank sheet. It is a worse fit for someone who wants a structured training programme and a defined ladder, which a company of this size cannot offer.

Backgrounds that move in include banking, consulting and audit. The most direct way to show you can do the job is to bring a worked model of a company like theirs to the interview, and the guides and models below are the place to build one.