Tzakhi (00:02.563)
Hi Ivan
Ivan Hoo (00:04.274)
Zahi, how you doing?
Tzakhi (00:06.293)
Great. Thanks for coming. I'll just quickly introduce you. We're at the Meet Capital Startup Podcast. I'm with Ivan Hu. Ivan, I know you've been advising startups for over four years, and you've been working as a part-time CFO for a lot of startups, helped them raise, what is it, 30 million pounds. And
Ivan Hoo (00:31.85)
Yes, correct.
Tzakhi (00:33.513)
and you've been a startup founder, and I know you've also been an angel investor in a few startups. So you really know the startup world very well. And I'm very happy to have you with us. I'm looking forward to our conversation. Do you wanna say anything more about your background that our listeners should know about you?
Ivan Hoo (00:52.682)
Yeah, sure. Well, first of all, it's a pleasure to be here. Thanks for having me. And we've known each other for a year now. So it's great pleasure to be able to speak on your podcast. You are correct in the intro. So I've been a portfolio CFO in the last four years, helping pre-seed to seed stage companies to raise equity finance from investors.
Tzakhi (01:03.89)
Yeah, thank you.
Ivan Hoo (01:18.706)
And the kind of investors we work with, including family office, VCs, angel investors, or high networks. But prior to this, I've been in the start-up space for more than a decade. The first four years of my career, I was in a biotech company on the founder's side. I was a founder running, well, like a headless chicken, trying to run the business, raise funding, doing everything. All the founders went through.
And at the end of that journey, we had to close the company because of round of funds, we could have raised more money, the same stories like every founders experience. And then I look back and see what I'm good at, what I'm interested in. And then I realized numbers is my calling and helping start founders become my, next 10 years of career, which leads to what I do today.
Tzakhi (02:00.022)
Thank you.
Tzakhi (02:17.722)
Yeah, great. You know, it's interesting. A lot of founders are just the opposite and they're really feel very comfortable building a vision and building a team and bringing something new or they can be very technical. But a lot of founders, not all, but a lot of founders.
have a difficulty understanding and breaking up the financials of their startup. And I know you've helped a lot of startups with that. And for seed startups, it's always a very challenging thing because it's hard to build a financial model when there still isn't enough traction to build on and show on. What do you think are the challenges
the basic stepping stones of building a financial model for a seed startup.
Ivan Hoo (03:10.25)
It's a very good question. So I had a chat this morning with a founder pre-seek. So even earlier than the sixth stage that you listed as an example. And he says, what can I build into a financial model? I don't have any data. My company isn't out there. I've even got my MVP. How do I project from there? Surely it's just fingers in the air, right? But the thing that...
Tzakhi (03:30.117)
Yeah.
Ivan Hoo (03:36.118)
Founders often don't realize this. Investors don't look at a financial model and say, well, this is your plan. I'm going to invest in that. And a year later, if you don't hit the target, I'm going to penalize you on that, because you told me you're going to hit 2 million pounds, 5 million pounds revenue projection. And if investors do that, that's not the right investors for you. Plain and simple, right? But.
Most intelligent investors, experienced investors who are used to investing in startup space at an early stage, they use model not as a way to say you have to hit that target. They use it to assess the knowledge, the understanding of the numbers in the business. If the founder is that founder they want to back.
Tzakhi (04:21.583)
Okay.
Ivan Hoo (04:25.342)
the investor is likely going to work with the founder for the next five to 10 years, right? We say this is patient capital. And to work well with the founder, the founder needs to speak the language the investors could understand, which is your P&L, your cashflow statement, right? You need to be able to explain what is your KPIs, what's the lifetime value, what's your customer acquisition costs, so on and so forth. So by looking at the model, they will be able to understand
the story of the business in the format of numbers, which is the language they speak. So really that is the point of building a financial model. I'll start building from the basic, look at the assumption, what are the drivers in the business? What drives revenue? What drives the cost? And build the model from there.
Tzakhi (05:15.349)
So it's a reflection of your market research and your business assumptions, right?
Ivan Hoo (05:22.734)
Correct.
Tzakhi (05:24.973)
So, how to start? Let's talk about the foundry that you spoke to this morning. How does he or she start building a financial model without having even an MVP? What is the first thing they need to look up?
Ivan Hoo (05:42.838)
Well, so if I take the example in the morning, right? So this is a business that is building a software for gyms to help retain their memberships. Now he has two routes to the market. One is directly sell to the gyms. And the other routes will be to sell it to the CRM software that is already supplying to the gyms. So we are now talking about two go-to-market strategy, right?
Tzakhi (05:55.129)
Okay.
Ivan Hoo (06:12.35)
And that can be modeled. Now, on the other hand, we are talking about gyms with, let's say, thousands of members. But there are many kinds of gyms. You have the public list, a huge gym chain across the UK. And you've got a local independent gym with one or multiple sites only. So...
their purchase behavior are going to be different, right? As a founder, you make a decision in your business how to grow your company, how to acquire your customers. You'll be thinking, let's say I segment the customers, the gyms into these two groups. How do I allocate my resources? How do I acquire them as my customer? Now that's another driver in the business. Two distinct customer group with different matters of acquiring them and the cost. Now within...
that customer, you have multiple kinds of members as well. So if you take a gym with thousand members. Now, are that 1000 members your ideal customer profile? The answer is not. And we spoke briefly about what's his ideal customer profile and we work out maybe around 50% of that thousand members could become your customers. So again, that's the second driver in the business, right? Now, if you combine all of that together,
you can start to model them out on the financial model. Now, do you start to go out to the local gym, one to independent sites, or do you address, or you go to acquire the public gym from day one? That will change your cost structure entirely, your speed of customer acquisition. Now we can spend hours, talk about all of this, talk about the theories, what's the strategy, et cetera.
But if you put all of them down in the financial model, it takes the investors just 10, 20 minutes to read through, suddenly understand, ah, so that's your strategy. You want to go after the big chain. You believe each site has thousand customers, members, and 50% of them are your ideal customer profile, so on and so forth. That's the beauty of financial model that we can present.
Tzakhi (08:27.989)
So I assume, like in the example you gave, almost any product or company could go different paths within their own potential market and even within their own niche. So would you say that the first step is to decide on who is gonna be your customer and what would be your sales channel and your marketing channel, your main marketing channel for that?
Ivan Hoo (08:30.894)
Thanks for watching!
Tzakhi (08:58.165)
for that customer as the stepping stone for building your financial model.
Ivan Hoo (08:59.935)
Oh yeah, definitely.
Ivan Hoo (09:06.722)
Definitely, without customers there will be no business, right? Every company needs to make profits. So we will start from identifying who's your customer and then how are you going to acquire them? How are you going to charge them, right? And how do they behave as a customer, right? Is this a transaction where they buy one off from you or they buy multiple times?
And do they buy within a year and then they churn or they stick with you for five years, six years. So that then extend into the question about what's your lifetime value of this customer, right? What's your cost of acquiring them? It's layer upon layer and you work through the logic down and suddenly, you know, if you follow up with the process of building that logic, it will arrive at a number that you can present in a P&L format.
suddenly invest, it's like a light bulb moment to the investor. Ah, I finally get it. I understand what you've been trying to tell me in the last hour. I can now sit in a spreadsheet.
Tzakhi (10:10.717)
Yeah. And if you still don't know the answer to what will be your marketing channel or who will be your ideal client or how exactly you will sell, then I'm guessing that the right thing to do is to make an assumption and build your financial model around that.
Ivan Hoo (10:20.716)
Thanks for watching.
Ivan Hoo (10:30.718)
Yeah, correct. And every founders will go through this process, right? They start with a theory, a hypothesis. They go out, they try it, it doesn't work. They then come back to the drawing plan and come up with a new plan. You present plan A, but there is plan A to plan Z. That is often the case. And it's all about experimentation.
So what you try to present to the investor is a plan A. It is what you believe is right today. He believed there is two types of customer. He believes this is his go-to-market strategy and he's going to work on it in the next six months. And that's precisely why he needs to raise funds. But after six months, maybe he learned something that changed his plan altogether. Now, it will be foolish and anyone will agree to that if he realized that plan A doesn't quite work.
Tzakhi (11:13.085)
Yeah.
Ivan Hoo (11:29.374)
And there's a better plan, plan B that he should work on. And investors not going to come around and say, no, I invest in your plan A. Show that it sucks, but I want you to carry on with plan A. No, they will say, let's go with plan B, let's pivot. So pivot is a very common thing in start because there's so much uncertainties there. And...
Tzakhi (11:42.885)
Yeah.
Ivan Hoo (11:55.386)
When the founders trying to put the assumptions, sometimes they've got the data. Perhaps they have already started advertising on Facebook, so they know what's the CPA roughly, the conversion rate. So we use that data to form the assumptions, right? But in some cases, they don't have the data yet. They don't know what's the cost of TikTok, you know, or Influencers program. They think it's a good idea, they want to try it, but they don't have the data from the...
because they haven't executed the plan. So in that circumstances, they could look at what's been done by other companies out there. What's the average industry benchmark and use that to as a educated guess, as a first input point, and you can update that later, two months, three months.
Tzakhi (12:45.393)
Yeah. What do you think is the right practice? When you're building a plan, and obviously, if it's very early stage, like you spoke to this pre-seed startup before, they don't probably really know a lot about their market, or they don't have everything figured out even in terms of pricing, costs of customer acquisition. A lot of things are in the haze.
Do you recommend that they show a financial model that has some flexibility and some options, we're going to try this, if this doesn't work, we go on to this? Or should they just choose one path and present that one path, that one option or that one plan A, as you spoke of before, with full confidence, knowing internally and the investor also knows that it might not work out. But
The plan that they show is a very decisive one direction plan.
Ivan Hoo (13:48.406)
Yeah, with a financial model, you can go as detailed as you like. What you just described there is called scenario planning, right? We do that a lot. What is your best case scenario? What is your worst case scenario? And each scenario have a different setting so you can set the price differently because you say, well, I intend to charge this amount, but maybe I go to a market and realize the customers are not willing to pay this, right? They want to...
Tzakhi (14:14.354)
Yeah.
Ivan Hoo (14:15.29)
we have to lower our price. What would be the consequence of that? What is the scenario that comes out of that? And you can go as many scenarios as you like. In fact, the more serious company that raised significant amount of money, very often the investors will come back to us and say, can we look at a different scenario? What if the company has these assumptions instead? What would become the cash flow, the cash balance in the next 12 months, 18 months?
But for pre-seed, I don't expect the company to go to that sort of level of scenario planning. We start off with a set of assumptions, right? And you present the plan to the investors. Now, if the investors assess the plan and they want to play with the assumptions, the model is designed to let them play with that on the spot. In some cases, I did see investors asking for very specific scenarios.
And they asked us to build that, which was fine. So the founders and I then subsequently worked on a second plan, just updating some figures, produce a second version, and share with the investors. And that satisfied their curiosity, right? They are satisfied, so they invest. That's fine. And I would say that should be the position taken by the company, rather than spending all the time doing the scenarios plan. Because like I say, you can plan for all the scenarios, yet investors, if they want, they could come with a $%&!
15 scenario and ask you to project money. So it's better to just spend time doing one scenario, go out, speak to investors. If they need a second scenario, we can always build that later.
Tzakhi (15:54.777)
But I assume it is beneficial to show awareness of other possibilities and understanding that things might not work out as you planned or that there are other scenarios, as you call them, that could become the reality of the startup as they go ahead. I'm going back to the beginning of our conversation that the financial model is not so much as to get...
Ivan Hoo (16:16.877)
Mm.
Tzakhi (16:23.085)
an exact prediction of the future, so as to show that the founders, founding team has an understanding of where they're operating, what they're up against and how they're going to win, how their startup is going to win in the market.
Ivan Hoo (16:39.274)
Yeah, absolutely. You are correct. If the objective is to show that the founders have an understanding of the variables that could happen in his business, and are mentally prepared or strategically prepared for that, then maybe the way to go will be to...
show it on the financial model with scenario planning. So you generate a second version of the model, say that's the plan B with a different assumptions. But what I was trying to explain is that's always a time and cost to generating more and more reports. And my default advice to pre-sig companies is to generate the plan A, but leave the uncertainties and in...
spreadsheet, point out as such, and in the verbal communication with the investors. Make it plain, make it clear, be transparent. Don't hide and pretend that this is definite because you're going to make a fool of yourself. Nothing is definite, right? Investors know that. But be transparent in the communication. The pure fact that if a founder has done his financial planning and is capable of explaining all the logics, the drivers, the unique economics in the business.
Tzakhi (17:40.997)
Yeah.
Ivan Hoo (17:55.89)
It's really a leap away ahead of a lot of the founders out there. Right. So I'll say, build the plan a, allow the variables uncertainty. Built within the model, make a note somewhere to say, you're not too certain of the price. You believe, well, this is a plan. It's going to be tested. Five months later, you might change your plan. Make, put that down as a note in the financial model. And then when you communicate with the investors, make it clear and transparent.
if you do need to actually plan, do a scenario planning, we can always do that.
Tzakhi (18:31.001)
Yeah. Is this the kind of work that you work on with the entire team, the entire founding team?
Ivan Hoo (18:38.702)
Most of the time it's with the founders, which is perhaps one or two individuals. Sometimes the company has a CFO themselves who's very good at running the budget, the financial planning of the company, but they need some help with the financial forecast for investments. So I sometimes work with their finance team as well.
Tzakhi (19:00.701)
But I would assume that this is, you know, these, especially at early stage, these are basics of the company. And if there's a founding team, whoever's on it should be well aware of what the plan is. Whoever it is on the, if there's a CTO, then they need to understand what they're building and who they're building for. If there's head of marketing early on, then...
They need to know what is the marketing plan and who they're going to target. So everyone needs to be on board on this. You might even say that a financial plan is a prerequisite to even setting up any company or building it or even going out to raise money.
Ivan Hoo (19:42.866)
Absolutely. If it is a warning sign, right, a red flag, if the founder is not willing to participate in this process, because financials, the numbers, it's everything about the startups, right? If you want to allocate budget to your sales team, your marketing team, you talk about numbers, talk about budget. If you want to raise funds, you talk about numbers. If you want to speak to your investors, you also need to talk about numbers.
So when I build the model with the founders, they come to me because they need help with the Excel spreadsheet. They need help to build the logics in the business. Founders doesn't need to have that knowledge, how to build the Excel, right? But they do need to have the knowledge about their business, the numbers in the business. And working together, this is a learning process. Now,
I learned in the first session, I learned from them everything about their business, the plan in his head. I put them down in a logic built out on Excel. And then the next time we meet, it's their turn to learn from the spreadsheet. How to present the numbers, how to communicate with the investors, right? And how the sense of how the numbers in the business affects the output at the end, which affects his strategy.
So yes, I do work with the CFOs or their finance team if they have one, but we always have the founders in the team because ultimately they need to be the driver of this. I'm building them a car, they need to be the driver.
Tzakhi (21:18.545)
Yeah. And they also need to be the ones that do the research and are in touch with their own market.
Ivan Hoo (21:27.19)
Exactly. If a founder doesn't understand his customers, that's a red flag, isn't it?
Tzakhi (21:34.289)
Yeah.
Tzakhi (21:39.798)
What kind of questions do you see when startups come to you in the beginning? Where do most founders find you? In a sense of their need for a financial model.
Ivan Hoo (21:49.282)
Well, founders, yeah.
Ivan Hoo (21:56.758)
I would say fundraising is a trigger point. As a founder, you are likely a sales expert or you're a product expert. You are an engineer, you are the genius in the product. And you start the business, you build it up and the accounts, the finance side, you have an accountant, you have a bookkeeper. That's it. That's the bare minimum you need. The first time you think about financial planning.
is when you actually need to raise funds from external investors. And you think, oh, gosh, my accountant couldn't help me. I don't know how to start. I need to speak to someone who can help me to raise funds, can help me with the financial modeling planning, building all the documents. So that's how investors start, founders start to think about me or people like me.
And I get referrals from accelerators, Founders Factory, for example. I get referrals from other founders as well. People search, people, when they first realize they need a financial advisor, they will go to LinkedIn, for example. So I've got a strong presence on LinkedIn. They found me. Financial model will be, you know, that thing that reminds them they need a financial advisor.
Tzakhi (23:15.385)
But where are they when they meet you in terms of, do they have some of the plan already built up? Usually they have part of the research already done, or do you find that founders come to you and they discover that their whole idea of how things are going to work and how they're going to sell and how they're going to grow as a business gets completely turned around once you start asking them questions.
Ivan Hoo (23:43.254)
They come in all shapes and fonts, Ducky. You have some come to you right at the pre-planning phase. They know straight away they need to speak to somebody before they even start planning. And you have some who has already worked on the plans for months, they even speak to investors. And then they realize something is fundamentally wrong with how they approach the investors. And then somebody points out to them, well, probably you need to speak to an advisor.
Tzakhi (23:45.926)
Okay.
Tzakhi (23:55.025)
Yeah.
Ivan Hoo (24:11.054)
So really all shapes and forms. I tell you an example. I had a founder who came to me and say, he needs to raise funds. He's been fundraising for some time. I look at the case, I say, okay, interesting, but there's something fundamentally wrong. You have been trying to get into phone calls with VCs and you don't understand why they ghost you.
or they took on one call and then they say, it's not right for them. I pointed out in their plan, this is a business that will plateau at around five, 10 million revenue. This is hardly scalable, is it? This is hardly the kind of exits that a VC investors would be able to invest in. So that is something fundamentally wrong.
Tzakhi (24:54.459)
Yeah.
Tzakhi (25:01.853)
Yeah.
Ivan Hoo (25:04.022)
They have wasted months preparing the documents for the VCs and spending time outreach to VCs when they should have focused on either the business planning, changing a business model, or speak to angel investors who might be interested in that sector, that kind of business model.
Tzakhi (25:22.973)
Yeah, or a different, or a completely different type of financing, which is also fine. Yeah.
Ivan Hoo (25:28.818)
Exactly. Asset back finance or revenue based model which is quite popular in the last two or three years.
Tzakhi (25:35.997)
Do you find yourself also advising founders about what type of financing they need and the amount of financing they need to plan for?
Ivan Hoo (25:47.21)
Yeah, so inevitably as part of your job, when you do the financial planning, once you open the bonnet, you look into the detail and you realize, well, maybe you shouldn't have started talking to investors, you should have explored this option first. Have you thought about this? I'll start asking questions. And then they realize, ah, there is actually this possibility. Maybe I should have done this before I go out to speak to investors.
I'm not going to push them. And in fact, I'm going to encourage them not to speak to investors first, work on this instead. So some projects actually changes after I get into the detail. And we realized, well, let's move in tension, work on your business, restructure, and then we'll talk about fundraising later. And that's also part of the job of a financial advisor. I shouldn't be, you know, just because they come to me for fundraising and I get paid for that doesn't mean that.
That is the only way, or the right way for the business. And it's my job duty to tell them, well, you need to look at other options that's better and right for your business at this stage.
Tzakhi (26:56.913)
Yeah, and I guess it's also a question of timing. Maybe there's some work to be done to be prepared before even reaching out to investors. It's not just a question of the type of financing, but also in terms of preparedness and the type of finance that you need to grow at the current stage.
Ivan Hoo (27:22.026)
Absolutely. If you open the bonnet and you realize there's something fundamentally wrong, it's hardly a business that we can present to the investors, right? You may pass through the first presentation, you woo them with a flashy, beautiful story. You show them a data room that is, you know, beautiful, planning, organized. But once they look at your balance sheet and they realize, well,
Tzakhi (27:32.007)
Yeah.
Ivan Hoo (27:46.446)
This is something wrong. The company has a wrong accounting matter. The inventory is overinflated, for example. Or there is a line of debt that is huge, too huge for the company. Suddenly it's become less appealing to the investor, right? So there's always a lot of fundamental issues that the founders need to work on, think about.
before they are ready to raise funds. And if we spotted that, we just have to spend the time to address it before we go back out again.
Tzakhi (28:23.445)
Okay, Ivan, thanks so much. Really, I think we covered a lot and I think we touched on quite important points, especially for startups that haven't built a financial model yet. And I guess we'll understand how they need to approach it and who they need to talk to get started on that. Who should reach out to you and how?
Ivan Hoo (28:46.642)
If you are a pre-seed to seed stage founders and you need advice on how to do financial planning, how to raise funds, who do you speak to, please reach out. LinkedIn will be the best place to contact me. I post a lot on LinkedIn as well, so you can learn from my content. I talk about startups, I talk about financial planning. But if you need one-to-one review of your case, you can reach out to me via LinkedIn as well.
Tzakhi (29:16.565)
Okay, cool. We'll share your LinkedIn profile URL in the notes so that people can find you easily. Ivan, thanks so much. This was very useful and very interesting. Thank you very much.
Ivan Hoo (29:29.602)
Thank you, Zaki. Thanks for having me.
