So what are you fundraising for?

Joyce Mackenzie Liu
4 min readJul 23, 2020


“Time is the coin of your life…and only you can determine how it will be spent.” ― Carl Sandburg

The last article discussed how a B2B software startup could build relationships with potential investors by emphasizing in the same manner it would with prospective customers. Make their jobs easier to win them over.

To continue this theme and topics discussed in Key Tips for a Successful Fundraise and The Science of Financing a Software Startup (Part 1 of 2), this article will address two key questions often asked by investors during a fundraise:

  • Why now?
  • What will the money be used for?

In order to answer these questions, it is important to think of a business holistically in terms of what has happened, what is currently underway, what could happen going forward. Once you’ve gone through this exercise, then consider creating a plan which shows cash needs separated into 3 categories:

  1. Working capital
  2. Proven growth
  3. Experimental growth

As the world and startup ecosystem shifts away from “growth at all costs” towards lean, capital efficient, sustainable businesses, understanding #1 and #2 are key to scaling success. It enables a business to continue growing predictably and attracting investor interest. Let’s unfold these concepts in more detail.

Working capital relies on optimizing cash movements

Working capital or operational cash flow represents the excess (or deficit) cash available inside the business based on timing differences between when money is sent and received.

B2B SaaS businesses have significant advantage over companies that sell physical goods with inventory and a supply chain — when managed efficiently at scale, the cash is received from customers in advance of paying salaries to talent within the business. In finance jargon, this phenomenon is known as negative working capital — it is generally viewed favorably by investors when the company is growing since the extra cash can be used to fuel more growth and minimize funding needs. This is one of the reasons why private and public investors tend to value B2B software companies at a premium to other types of business models.

As a recent article released by CFO Connect and Spendesk suggests, operational cash flow or working capital should be financed using a revolving credit facility (also referred to as “working capital line”) provided by a bank. It is most cost-effective financing instrument and can expand & contract with changes in the business (e.g. seasonality).

Proven growth is replicating value delivered to customers

Another form of predictable growth is proven and measurable customer acquisition. In other words, which use cases, customer profiles, geographies, and go-to market motions would produce a similar outcome if the business proportionately increased spend in marketing, sales, and product multiple times over? Which parts have shown that it can scale after new talent has been onboarded?

This is most tricky to figure out for a fast-scaling company as it requires high quality data, insights and alignment across teams and the overall business which is constantly evolving. Therefore it is crucial to be meticulous about inputting and gathering data, having a ‘single source of truth’ for the business to derive relevant insights, and an operating cadence of continuous communication and actions.

Predictable growth for startups can be financed through a combination of equity and debt.

Experimental growth is everything else

Experiments are the creative initiatives and projects that the Finance and Operations team likely aren’t the biggest fans of. At best, this area of growth is a well-research, educated bet on a new product, buyer persona, lead channel, team, or geography. Even for experienced SaaS leaders, taking old ‘playbooks’ that worked in prior businesses may not necessarily translate to success in the current company.

Many well-funded startups have been investing heavily in experimentation in recent years. This activity has significantly reduced over the past several months. The key reasons behind scaling back are due to an emphasis on cash preservation and lower resulting customer and investor appetite on non-essential spend.

Pro tip: If you’re a startup founder looking to raise capital, consider including a slide in the investor deck which illustrates where the money will be invested, broken down by both (i) team function and (ii) type of growth.

If you’re curious to learn more about the different financing options available to startups, check out the resources section of CFO Connect. CFO Connect is a community of over 3,000 finance and operational leaders across Europe and the US. It is a great initiative launched by Spendesk, a modern spend management software company.

I was really excited to share my views on What is Venture Debt? A complementary alternative to venture capital as a part of the Startup Financing Instruments series which launched a couple weeks ago.

More collaboration is underway…so stay tuned and make sure you subscribe to their blogs!



Joyce Mackenzie Liu

European Tech 🚀 Founder of Pegafund 🐎 Software Investor 🤖 Writer🖋️ 3rd Cultured 🌍 Foodaholic 🐷 Yogi 🧘🏻‍♀️