%20(2).svg)
.svg){kind=icon}
.svg)
.svg)
Episode Description
In this episode of Diving Deep, Subscript's CEO, Sidharth, has an engaging conversation with Waseem Daher, Founder and Executive Chair at Pilot.
Sidharth and Waseem discuss:
- How CFOs can build credibility and become trusted business leaders
- Why finance teams need to shift from backward-looking accounting to forward-thinking strategy
- When CFOs should embrace creativity—and when they shouldn’t
- Why fundraising in 2025 requires a new playbook
- And more!
Show Notes
Follow Sidharth: https://www.linkedin.com/in/sidharthkakkar/
Follow Waseem: https://www.linkedin.com/in/wdaher/
Follow Subscript: https://www.linkedin.com/company/subscript/
Follow Pilot: https://www.linkedin.com/company/pilothq/
About Diving Deep with Subscript
Diving Deep with Subscript is a video series where we dive deep and explore SaaS metrics with leading investors, CEOs, and finance leaders.
Watch the entire series of Diving Deep with Subscript
Get caught up on the entire series right here: https://www.subscript.com/diving-deep
Episode Transcript
Sidharth Kakkar
Welcome to the Diving Deep podcast, Waseem, founder of Pilot. It's lovely to have you here. Thanks for taking the time. Of course. Thanks for having me. Excited to be here. I, I have a set of questions that, um, really wanna pick out the insights that you have given. I feel like you have a particularly unique view on the startup ecosystem, both as, uh, a founder of Pilot, um, where you have.
Worked with so many startups and then as an angel investor, uh, where I think you've invested in quite a few. I don't know what the count is. I don't know if you say what the count is, but I'm pretty sure it's, it's not,
Waseem Daher
I think it's like 40 plus. It's a fair number.
Sidharth Kakkar
I feel like you have a really broad, good view of startups and finance, and so I'm going to try to find the intersection of those two. I think you'll have amazing insights between the intersection of those two.
So the first one that I wanted to ask you is: You work with thousands of startups at Pilot, and you've built three companies across super different markets, so that gives you a pretty good perspective, I think, on what makes for success. How do you compare the companies that scale efficiently versus those that really end up struggling, especially from a financial lens? What are the things that end up holding people back?
Waseem Daher
You know, it's interesting because the early days and the later stage are so different, where in the early days, it really is just product market fit, product market fit, product market fit.
Like are you building a thing people want and lif you aren't doing that, it doesn't matter how good the unit economics are. It doesn't matter what CAC is, just like everything is just irrelevant. And so you can, in some ways—there's a temptation to just ignore that stuff in the early days, and I'm not sure it's wrong.
Now of course, as the company grows and progresses, suddenly that stuff tips from didn't matter at all to actually like of existential importance, which is like, okay, we're trying to scale this thing up. Are we happy about that? Do we even know what this stuff costs us? And how does it scale as we pump more dollars in?
I think the biggest difference between the early stage and later stages—The later stage is all about building a machine where you put in a dollar and you want to get 1.01 dollars out or more, and then just doing that over and over and over again. And I think the challenge is these are pretty different skill sets, right? The people that are good at the first are frequently not as good at the second and vice versa.
Sidharth Kakkar
Yeah. Um. I think the thing you were saying makes total sense and I imagine a lot of people know that this is true, but I imagine that it's actually kind of hard to determine what they should be operating in.
because it's not like a clear, bright line, right? Any thoughts on that? Like where, how to find the line?
Waseem Daher
I mean, historically, probably what people would've said is, as long as it's growing, you kind of get a pass on the rest of this stuff. Is that still the case in 2025? Unclear. The vibe has kind of shifted in, in some interesting ways. Like growth at all costs maybe is a little bit out. Yes, we want growth, but we want sustainable growth and every fundraising round should be your last fundraising round. It's very interesting to see how quickly the narrative has shifted here in a way that, I think, is actually probably healthier in the sense that you, the founder, have more control over your destiny when the business is sustainable or has a path to sustainability as opposed to just YOLO, let's just hope we can land the plane as we're flying it.
Sidharth Kakkar
I do find 2025 to be very funny in that it's not as absolute as 2021 was, and it's not as absolute as 2023 was. Life has become nuanced again.
Waseem Daher
Yes, I agree. There was like a tweet about this just yesterday where I think someone tweeted, like, oh, there's a YC founder who was like, "I wanna summit Everest without supplemental oxygen. Like, we're gonna be super profitable and we're gonna grow." And Parker Conrad was just like, "That's not really how this works." If your thing actually has product market fit and other people are aware that this is a good market, other people are just going to dump VC into this thing and you're going to get hosed by them. I think both are true, meaning like, yes, as a founder you get more optionality by building this thing sustainably.
And also if that's not what your competition is doing, you definitely risk having your lunch eaten. So you have to know what game you're playing. And that's always true, right? If you get VC backing for a company that really wants to be a lifestyle business, and I don't use that term pejoratively, you're not gonna be happy.
And similarly, like if you're trying to play the VC game, but you are cash-constrained, you are going to struggle to, to play against the people who have bigger wallets who are opening them and spending more freely.
Sidharth Kakkar
Especially having operated companies through various markets, you've been doing this a while, across three companies. What are financial habits that you have developed over time that reflect your personal development, the startup's development and the various weathers, so to speak, that you have operated through?
Waseem Daher
So we started the first company that we did in 2008 and we bootstrapped. This was just after the financial crisis and we bootstrapped it. So we had no external capital. We like won a business plan competition and we got a government grant, neither of which I really recommend as funding sources, but that's how we happened to do it.
And there was this real like east coast discipline to the business. Like you just couldn't spend money that you didn't have. If you wanted to hire someone, you needed to get more revenue. And so as revenue grew, we would look at it and be like, oh, okay, we're now generating enough profit where we can safely do X, Y, Z.
So we were very hawk-eyed on the financials and specifically really around like burn rate and runway to make sure that we can safely do these things without running out of money. And I think that has served us very well. That discipline is still good to have even in a world where cash is being distributed very generously, and where it's easy and tempting to forget that.
And actually even worse, where your investors will tell you like, "Hey, you just raised a bunch of money. Go spend it. Go spend it to grow faster." It's like, actually that is some very dangerous advice in certain cases.
So I think that that was a product, I think of our first company starting in 2008, and that I think has served us well through lifetime of the company. One of the things, I think the lesson of Pilot for me is really about the importance of gross margin. Honestly, gross margin was not a topic I thought a lot about in our previous companies and I didn't really have to because they were pure software companies and the nature of B2B SaaS by default is like the gross margins are pretty reasonable, unless you do something to cause them not to be.
In our business, in this kind of tech-enabled services business, the margins want to be bad and you have to work explicitly to make them good. And so I think it was interesting being forced to focus on a metric that honestly, we historically had not paid much attention to in our previous ventures.
And in fact, I sort of wish we had scrutinized that harder in the earlier days because I think it would've influenced structurally some of the decisions we made about how to do what it is we're doing.
Sidharth Kakkar
Is there like a good way to generalize that advice? Because if you were building a software company and you scrutinize gross margins early, you're totally doing it wrong, but there's probably something else that you probably do want to scrutinize early.
Waseem Daher
Probably SaaS metrics, right? Like what is your retention? What is ACV? What does an expansion look like? You know, all of this stuff is kind of business model appropriate. The shorthand—this is not very first principles—but it's still helpful—it's like, what are your investors looking at? I think it is a very healthy simulator to say, okay, if we wanted to raise a next round, what are they going to ask and what thresholds do those metrics need to clear and how do we track them so that we make sure we're on a trajectory to clear them?
Or what is the path between where we are and profitability. You kind of have to be pointed at one of those two targets and you don't have to necessarily commit, but you have to know, okay, this is option A, this is option B. There's a dead zone in between where you just, where the company fails.
So you kind of either have to steer the ship all the way over to option B or all the way over to option A. And so I think understanding how far you are from each, even if you're not necessarily going to go to it, does really matter.
Sidharth Kakkar
I like that because what investors are looking at is a compressed answer to the question of building a certain type of good business. And it's funny because I feel like amongst founder circles, sometimes the narrative is like, oh, the investors are the most important people in the room. Or sometimes the narrative is the exact opposite, which is like, these people are complete idiots and like you should trust nothing that they say.
Waseem Daher
And sort of, both are true actually.
Sidharth Kakkar
Right. How do you tell people how to think about that? Which one is true?
Waseem Daher
I actually have a good answer to this, which is the things that are specific to your business, you are going to know better than your investors if you're doing a good job.
I say this with respect because our investors are great and I like them, and guys, if you're listening, keep with good work or whatever, but I never wanna hear product advice from our investors. If you know more about what we should be building than I do, I'm not spending enough time with customers.
And it's pretty unlikely that you have like some leverage or, or an edge or an information asymmetry there that I don't have now. But what do you do? What do you have an information asymmetry on right now? You're talking to companies all the time, you know what's getting funded.
I love listening to our investors on two things: One is market dynamics, like what's it going to take to raise some more money? What terms are things clearing at? What are ARR multiples these days? They have good market data on this because that's their job. And the second is like best practices around the mechanics of running your company.
Like, we're hiring a VP of Sales, what should we comp them? Or like, what does an equity package usually look like? Or we're thinking about starting an SDR team, how should we do it? There's best practice stuff that is generalizable across companies that is not your company specific, where frankly you should not be innovating, where you actually do want to copy paste the winning playbook. And they have seen the winning playbook more than you have because you have n equals one or however many companies you've done. Whereas, definitionally, they have a whole portfolio. So that's I think where I like to listen and where I don't like to listen.
Sidharth Kakkar
I like that a lot. I feel like that's actually a really clear framework. I really appreciate that one. Changing gears a little bit: As a founder, you pretty much wear all the hats, right? And in particular, you often wear the CFO and the CRO hat at the same time, which later you'll, of course, separate—but in many like sales-led SaaS businesses, finance and revenue teams don't always work well together. Tt works well when it's all inside your head, but less so in two people's heads. Like for example, pricing is often treated as either a sales or product decision. Even though financial planning and pricing models and complexity, all that impacts everything that the CFO pays attention to. What would your advice be to SaaS CFOs to shift their approach to better partner with product and sales orgs?
Waseem Daher
I think two things. One is you kind of have to have credibility as a real business leader and I think that requires you to actually deeply understand the product and the customer. And the second is I think you need to avoid, and I would give the same exact advice to legal teams because I think the dynamic is pretty similar.
You have to avoid a dynamic where it feels like people come to you and you say no. And I'm not saying you should like let people do things that they shouldn't do that are bad for the company, but there has to be a real get to yes attitude in the function because if the take of the sales leaders is, I come to the CFO and they just tell me no, well guess what's gonna start happening? They're just going to stop going to the CFO.
Sidharth Kakkar
Right.
Waseem Daher
And so I think you need the credibility of like, hey, listen, I have a seat at the table. I have a voice because I have done the work. I'm not just going to opine about—well, you know, I haven't talked to customers, but this is what they might want. It's like, oh actually no, this is what we're seeing and this is maybe why we want to price this thing in X, Y, Z way.
And the second is like sometimes the business will want to do things that put it in a slightly more precarious financial position. And the answer can't be no. The answer should be, listen, we could do that, but this is what you should understand. These are the risks of doing it. If it goes poorly, these are the benefits of doing it if it goes well. I think both of these roles are really advisory roles, and I think the job of the advisor is not to make the decision. It's to help the group understand the various facets of the decisions so that we can make the kind of like globally optimal decision, knowing what we know. And so I think you want the CFO to have a seat at the table because you want to know like, what is the financial impact of X, Y, Z?
Like, what is this going to do to our cash burn? What is this going to do to the various metrics we care about. But I think it doesn't work when the answer's like, well, no, gross margin can never drop below X. Like, that's the rule. It's not that simple.
Sidharth Kakkar
Totally. I think especially as the, the CFOs get sort of more tooling and more expanded strategic scope, their role is kind of changing in how they're playing with the rest of the team to achieve the goals, you know? When you think about CFOs who are really good at this, rather than a being an absolutist in working with the teams, what else, rather than being an absolutist, really thinking problems through with the rest of the team, what else do you find that they're doing, especially when it comes to leveraging modern tools or really seeing the bigger picture in a way that maybe CFOs didn't when they were just bean counters.
Waseem Daher
I think there is the finance and accounting part of the role. And then there's like the strategic finance, like what if the future looks this way? What does that imply? And that second bucket, I think, is more strategic. Like look, the accounting stuff is obviously important. That's what we do as a business. We have a fractional CFO arm, we close your books for you, we do tax prep. Of course it's important that it's done well, but fundamentally it is the rearview mirror.
It tells you where you've been. It doesn't tell you where you're going. And startups principally ought to care about where they're going. And so I think with that orientation, it's like, okay, how will this play out if we continue on the current path? And what does that imply about the health of the company?
And do we urgently need to change course or actually, are we very happy kind of doing what we're currently doing? Those are the kinds of conversations that I think are very interesting and very strategic and actually are only enabled by good insight into the health of the business and good ability to model where it's going.
Sidharth Kakkar
Connecting that back to if you're, for example, looking for a CFO, what makes for a great one, who can do those things that we're talking about?
Waseem Daher
It's interesting because I think at the end of the day, you want someone fairly interdisciplinary. Being great at Excel is helpful, but it's, in some ways, not the highest order bet on, you know, is this person going be a good thought leader to the company? And I think that's actually the question, which is table stakes. I'm assuming that the candidates you're talking to have the skills that they need to do the job. Of course you should vet that. But the difference between good and great—it's not that.
It's is this a person whose voice I want to have around the table when I'm making the substantive and important decisions of the company. It's, it is the same bar in a way, as you should hold for your board members or any other execs that you hire, which is like they're gonna be in the meeting. They're gonna hear stuff, they're gonna say stuff, and that's going to influence the outcome of the company.
Do you feel good about that? If you don't feel good about that, like it's probably not the right choice.
Sidharth Kakkar
Yeah. Um, when it comes to some of the things that are not at the highest level, where like it's not the most, um. Well actually for, for any given bit of it, maybe even at the highest level, how do you see like, um, automation and AI transforming things about the office of the CFO broadly?
Uh, yeah. Um, on, on any level.
Waseem Daher
Yeah. My sense, and obviously like some of this is like, it is embedded in the Pilot thesis as well, where we think there are huge gains to be made here, is like the challenge with the function historically. And with lots of functions is like they didn't have access to software, which means there's a bunch of things that are done super manually or really kind of hackily because those were the tools that were available. That was the skillset that was available to the people on the team.
I think we're really entering a world where there's a proliferation of great tools and that helps a lot obviously. And the cost to write code is also dropping dramatically, so I expect to see much more automation. First on very basic things like, how do we get the data from place A to place B?
And if we can actually do that nightly or in real time instead of once a week or once a month. Like that's pretty interesting. That unlocks stuff. So I think we'll see increasingly more of that. This is a pretty out of left field example, but I was talking to a restaurant owner of this restaurant in Boston and he said, listen, one of the things we did that no restaurants do is we generated a P&L every week because we want to know what happened this week. Did we make money or did we lose money? Because what happens is your restaurant is actually going out of business this whole time, and you don't even know it because you're not looking at the numbers, you're not sampling aggressively enough to know what is happening to help the business.
Now obviously a SaaS company's very different than a restaurant, but I think the same thing is sort of true. I think in the limit, the notion of the monthly close, the monthly forecast, the monthly budget, like hopefully all that stuff is going away in favor of something that is a little bit more real time, a little bit more responsive. That actually like lets you react more quickly when stuff happens.
Sidharth Kakkar
I really appreciate the restaurant example because the shorter timeframe makes it even more clear that if you, if you make the change on week one, the next three weeks could be profitable. Right? Whereas if you don't, then you basically like...
Waseem Daher
Right, and then you look back at the end of the month. And, oh actually we're further in the hole. Again, it's this idea that you are going out of business, you just don't know it yet. That's pretty terrifying. And I think that's actually the case for most restaurants for some structural reasons, too. Not just tooling, but...
Sidharth Kakkar
Some of them do manage to make money.
Waseem Daher
It's true. It's hard.
Sidharth Kakkar
I think especially given that, there's at least this perception that, finance teams are reluctant to adopt tooling. Do you feel like that's real or it's just perception? And if it's true, in either case, why do you think it is?
Waseem Daher
I think it probably is real, or at least stereotypically, it's real, and I think it's because what is drilled in your head in the profession is a vibe of conservatism and that's generally a good thing. You actually don't want your accountant to be creative. That's a very bad adjective for your accountant. The same is true of your CFO. The same is true of your lawyer. You want them to do the conservative well-trodden thing typically because there are no outsized benefits to straying from the well-hewn path.
I tell this to founders all the time. I'm like, don't innovate on the back office. Do the same thing everyone else is doing. This is not going to kill or make your company, it's just going to cause you heartburn down the road. Just copy paste what other best companies are doing.
And I think that attitude gets drilled into the heads of finance teams and I think it is generally correct.
Now I think we happen to be at a pretty unique time in the office of the CFO, where the reason we said not to be creative is because there were no real benefits to being creative. It was purely downside. Now it's like, okay, actually, creativity on tools is very different than creativity on other stuff. It's like, oh, can we make smarter decisions if we took advantage of system X, Y, Z, or tool X, Y, Z? And I think increasingly folks are kind of warming to that idea, especially when like a bunch of labor can be saved.
Like if you can say, oh, I can do this a lot faster, I can do this a lot more accurately. And that makes me a better partner to the business. Now that's actually pretty interesting.
Sidharth Kakkar
On that note, when you do adopt something as a finance team, by definition you're going to change something operationally, right? And that always carries this set of risks with it, of potentially disrupting things in a negative way, in how things are working. What can they do to, to do this with getting as much of the upside and the promise, and limiting the downside or the disruption?
Waseem Daher
The analogy I'm going to give you here is our second company, a group chat tool for businesses. It was a Slack-like product at its time, when Slack was making a mobile game. And the big lesson for me from that company, which Dropbox ultimately acquired about two years into it, was you have to pick one of two paths when you're asking someone to do something new.
Either you have to give them something that is basically isomorphic to something they already know how to do. That is just marginally better or more efficient or whatever in some way. Like you get behind the wheel of the electric car, and it approximately drives like a gas-powered car. You don't have to learn to drive again. You just like hop in. You're like, oh, this is faster and I can charge it at home. That's pretty cool. That's convenient. Great.
That's a pretty easy adoption curve in some sense in that you don't have to adjust user behavior. The other option is I do ask you to adjust your behavior. And if I do that, I need to show you the carrot or the light at the end of the tunnel very clearly early on. Because the kind of commitment I'm making to you is do it my different and weird way. And in exchange I promise you that things are gonna be better. And I'm giving you a little taste of how and why they're gonna be better to keep you hooked.
And I think this is the reasoning I would apply to the finance team, which is like, if you're adopting something and the output essentially is isomorphic to what you were getting before, it feels the same if the users interact with it in approximately the same way. That's very easy to just drop in and it's fine.
Because no one had to change their workflow.
Now if people have to change their workflows, then you need to bring them along for the ride and they need to understand why. Hey, yes, you're breaking my workflow. I'm instead going to do this workflow. But I'm giving you a taste of like, well, this is why it's gonna be so much better, when you do it my way.
So I think the uncanny valley, the danger zone to be in is, I'm making you do it differently, but I haven't motivated why you ought to do it differently. And then probably it just doesn't get adopted or people complain or whatever because you haven't motivated what's in it for them.
Sidharth Kakkar
Something that I think about related to that when we're building and selling Subscript is I have a lot of empathy for my buyer because I can say a lot of things and I know them to be true, like I'm not lying to anybody. But how do they know that this is true? Like how do they know that the benefit I'm promising is real? Or how do they know that the efficiency I'm promising is real?
And, it's a really tough gig for finance leaders when adopting technology. If you were in their seat, how would you deal with that—when it's so opaque whether the thing is gonna work? And if it doesn't, the consequences in finance are not trivial because generally you're investing quite a lot of time and effort and attention and changing processes. So how do you mitigate that?
Waseem Daher
It's tough and it doesn't help that there have been decades of false promises on this stuff, too. I think everyone probably has a story of like, well, we put in system X, Y, Z because we thought it was gonna A, B, C, and in fact, it did not.
I think there are two options. The question is, how do I get you over the hump at the time of sale and how do I get you over the hump at the time of implementation? And in some ways, at the time of sale, it's a little bit easier because ideally you lean on your brand or your reference customers or whatever.
And like Pilot actually has this problem in a big way, too, which is you can't really try, "we do tax prep for you". You can't really try like "we do accounting for you." There's no like trial of your accountant. And so the buying decision ends up being very brand driven, actually. It's like, do my friends use this? Does this seem like a real company? Are they responsive? Do I like their website?
These things are pretty uncorrelated with whether we're good at accounting and tax. We happen to be, but not structurally for those reasons. And I liken it to when you pick a doctor. You go and like, are they wearing a white coat? Is their office clean? Do my friends go here? Is there a diploma on the wall?
You don't quiz them about like, what do the kidneys do? Or what is this particular enzyme? It's like you actually have no ability to assess whether or not they're really going to deliver. You're relying on these secondary signals at time of sale.
It's unfortunate that that's the case, but you sort of have to lean into the secondary signals. I think at time of use or time of implementation, I think the best thing you can do is really just like clearly mutually set expectations. The times that people are unhappy are not when it didn't work, it's when they thought a certain thing was going to happen at a certain time and it didn't.
That's the thing that freaks people out. If I think it's gonna take eight weeks and it takes eight weeks, fine. If I think it's gonna take two weeks and it takes eight weeks, I'm pretty annoyed. And so there's just a lot of mutual expectation setting and checking in that I think gives people the confidence that like, yeah, I'm on track, or this is going according to plan. I shouldn't be worried and importantly, I'm not going to look bad. Right? Because I've also probably told my boss like, oh X, Y, Z is gonna happen by A, B, C date. It's like, you've got to now help me not look bad. Or ideally, you're helping me look good.
Sidharth Kakkar
Yeah. Hmm. And how do you look good?
Waseem Daher
Well, ideally, by achieving whatever the outcome is, right?
Like we make better decisions faster. Oh, I saved you a bunch of money or I made you look smart in a meeting. Or I helped you identify this problem with your business. There are variety of ways you can make me look good. But it's interesting because sometimes actually, it's very hard to make you look good. Sometimes the only thing you can do is basically be neutral or make you look bad. Like tax, like we do tax prep for businesses all the time and it is rare that we finish a tax return and someone's like, oh my God, you guys nailed it. That's awesome. It's like, yeah, you did my tax return. You had one job, you did it. Good job. Congratulations. You want me to pat you on the back? Of course you did it. Now, in the rare event something goes wrong, people are furious. Actually, your set points are either met expectations or disappointment. And so that can be hard. How can you figure out how to either get a win for the customer or inject some delight or something that actually takes to where do you have some hope of winning as opposed to some hope of just not losing.
Sidharth Kakkar
I really like that. I think of it as a pass/fail business versus one where you can get an A plus. You can't get an A plus when preparing tax returns.
Waseem Daher
Not really. I mean, maybe if I saved you a ton of money. The times when you can get the A plus is like, you write us a panicked letter about this notice you got from the IRS about how you owe all this money and we fix it for you.
Then it's like, okay, cool. You saved me. I like that.
But hopefully that doesn't happen or it doesn't happen that often. And also hopefully you're not the cause of it, right? If you get the panicked letter because of something we messed up. Even when we go to great lengths to fix it, you're like, yeah, of course you did. You were the ones who messed it up.
Sidharth Kakkar
Switching gears a little bit to the earlier topic we had about the different environments in which companies have interactions with the VCs. Subscript recently raised a Series A and you have raised so many rounds and so much capital in your career with the three startups.
What do you now, in 2025? What is the advice that you're giving founders who are raising capital, especially given your large angel portfolio?
Waseem Daher
It depends on the kind of business. I think it's like the sweet spot. This is sort of like not very valuable advice. It's like raise the right amount. There are dangers to raising too much.
There are very material dangers to raising too little. If you have to pick one, I probably recommend you raise too much, but then also don't spend it. Like we raised a very big round, you know, in early 2020, and we were very, very disciplined about what we did with it. It's all still on the balance sheet basically, and that has really served us very well.
Whereas I think if we had raised a ton of money and immediately ratcheted up the burn...Here's my piece of advice: Your burn basically only ratchets up. It requires extreme pain on the part of the company to reduce the burn rate. And so if you're going to increase burn, make sure you understand what you're getting in exchange for doing it and that that is worth it because it is sort of a one-way door.
Sidharth Kakkar
How do you figure out the right amount? How do you figure out the right amount to raise or spend?
Waseem Daher
I like the burn multiple as a good rule of thumb. Like the ratio of net ARR to burn. Is that healthy? And the reason I like it is that it's a good catchall rule of thumb. Like if it's off, something is probably wrong in the business. It's like check engine light. It doesn't tell you exactly what needs to be fixed, but tells you that you should probably double-click on something here.
Sidharth Kakkar
And the amount to raise?
Waseem Daher
More than you think you need. Again, I feel like you think about the path.
The fund raise needs to get you to one of two spots. It needs, you get to profitability, sustainability, or it needs to get you to being able to raise the next round. And so with every round, I encourage folks to say, okay, fine. What would my metrics need to be to raise the next round? How long do I think it will take me to get there? What do I think I'm gonna do from a personnel perspective, et cetera. Build in some buffer. That's ideal. That's the most principled way to determine how much you should raise. And I do think ideally you have done some work to formulate that number.
Sometimes the amount you raise is just the amount you can raise and it's a little bit less principled. It's like, well, these people would be willing to give me X at Y valuation. And like, yeah, intuitively it feels like I could get to the next level with that amount of money.
But I think that's the rough calculus that I encourage folks to do because if you over-raise, there's some dilution, but it's like not the end of the world if you don't spend it. If you under-raise, you get stuck in the dead zone. You haven't achieved enough to get more money, and you're probably pretty far from the profitability course. That's where you really get burned. You really have to stay in one lane or the other.
Sidharth Kakkar
I feel like the opinions on how to use a model for this purpose are extremely varied, where some people are like the whole purpose of the model is for me to torture it, to give the conclusion that I want. And for some people it's like, I don't care about this at all and just do whatever. And some people are like, I live and die by this thing, every cell matters to me. Where do you fall on that spectrum?
Waseem Daher
I'm somewhere in between. It's a little bit of a vibes thing for me, which is like, you want someone who has done the rigorous work. My challenge with the super rigorous work is that you can sometimes trick yourself because there's such high variance on the inputs. And you think, oh, I've mathematically figured out exactly when we're gonna hit whatever.
But it's actually like we have no real idea what the growth rate is gonna look like over the next 18 months or whatever. So I think you want it to pass the smell test and obviously the more infrastructure you have here, the easier that is to do. The more sophisticated your kind of internal tracking of this, the easier it is to do.
At the same time, I think you need to be a little bit careful about overly trusting the model. Now in practice, that's probably not what happens in practice. People probably under-model, it's probably not the case that people over-model. So if you have to do one, I think probably you should do the math to make sure you're comfortable with the approximate shape of what this is gonna look like.
Even the very simple math of, I have X amount of cash, my burn rate is currently Y, I contemplate the burn rate going up to Z. What does that imply about the number of months of runway I have? Do I think I can get there in time with enough spare runway to raise the next round? You should definitely do that.
And that is like a pretty quick back of the envelope thing. Now, should you be more sophisticated than that? I think it depends on who you are.
Sidharth Kakkar
Yeah. I'm more or less with you, but I have a pitch for why I really do love a good model.
And the reason for it actually is purely psychological, which is, uncertainty is very uncomfortable and very stressful. And the uncertainty doesn't go away when you have a model at all. But it does give you one potential picture of the future.
Waseem Daher
That's true.
Sidharth Kakkar
And it's totally not the actual picture of what the future will be, but it gives you just an anchor point.
So you can see in what ways the future is developing differently and it gives you one way to visualize a plausible future. And I find that to be calming, you know?
Waseem Daher
Yeah. I mean, even understanding the parameters of like, look, if this is X rather than Y, is that catastrophic or is that fine? What's interesting is it's like taking notes.
For me in school, and I think there's lots of people, but for me, I would meticulously take notes during class and I would never look at the notes. And it was actually just the act of writing the notes that helped me remember. And similarly, you're building the model just to force yourself in a structured way to wrap your arms around the business, even if you never consult the model again.
I guess the only reason, too, is you want to be sharp on the details when folks ask you. One of the things that our board member from Sequoia says, which I think is exactly right, he's like, if you don't like have good forecasts, it's because you actually don't understand how your business works.
And the goal, if you really understood the drivers of your business, you would be able to predict it.
No one really does, but the closer you get to that, it's like, oh no, we actually do understand how this works. We know that when X, Y, Z leads come in, it converts at this rate and it turns to this many ops and this much revenue.
And if you're just surprised every month at where the month ends, that suggests that you have not really gotten your arms around how your business works. And the same is true of the model.
Sidharth Kakkar
I also love related to that, a pre-mortem of like, here's all the variables that will drive the thing, and then what are the things that could impact those variables.
So you should know what drives the business and you should know which variables matter, but you should also know what are the assumptions or the conditions that make the variables go one way or another. So when things don't go according to the plan, because they won't, you are like, oh, it was that. I knew that was one of the things and yes, it turned out to be that.
Waseem Daher
Yes. Like, oh, we actually hit the right number of leads, but actually ACVs are down, and that's expected because we're targeting different customer base and they buy the baby SKU. And so okay, fine, we understand why that happened and we know what we need to do about it.
Sidharth Kakkar
Which is a great place to be. It doesn't seem like a great place to be because new revenue's down or whatever, but it's still a great place to be because you see more of the cards, right? So now you can decide what your next move is.
Waseem Daher
Right. You at least know what to do, like you have diagnosed the problem. The times that have been the most frustrating or challenging for me, in my own founder journey, is like, the number is not what we wanted it to be, and no one knows why. And people have competing theories. The head of sales says, "Oh, marketing isn't giving us enough good leads."
The marketing person says, "Well, no see, they're great leads and sales reps are not calling them fast enough. They're not closing them." And then you have to just like really get into the weeds to diagnose what happened. And it's like, actually if you had the dashboard, you could look. Where is it red? Ah, yes, the lead to op conversion rate or whatever. That's where the issue is. Let's figure out why that is.
Sidharth Kakkar
Another random thought that brought for me is like, you have to take great execution off the table as a potential factor. Because if you're always wondering if you have great execution, then you can't ever figure out whether your strategy is right because you're stuck figuring out whether you have great execution. So that needs to be off the table for you to do anything, right?
Waseem Daher
And the challenge with that is there are no real cheat codes to determine if it's being done.
When it's going well, you can assume that execution is good when it is not going well, I have found that you really need to get into the weeds and see why. And then there's an anecdote from one of our advisors where their company was starting a European office and it wasn't working in Europe for some reason.
People weren't buying the thing. And people have various theories like, well, maybe the European market isn't ready. Maybe we haven't sufficiently localized the product. And so the guy gets on a plane and goes to the London office or whatever it is. He's there and it's 10 o'clock and the sales reps are just starting to show up and they're making espresso. And they're like chit-chatting. It's like, oh, it's not working because we have the wrong people here. It's purely an execution problem.
And then they just rebooted the team. And lo and behold, it worked. It was not a strategy problem. It was purely an execution problem and you would not know that from California. You actually probably did in fact need to go and see the work that was being done to understand whether it was working or not working and, and why.
Sidharth Kakkar
I think that's the three letter, piece of advice from this whole video is just always show up.
Waseem Daher
Sure. There's no substitute for just being there, unfortunately.
Like you wish there were. You're like, I hired this great exec, now I don't need to think about this. You, you kind of still do need to think about it
Sidharth Kakkar
For sure. You have spectacular history of both fundraising and selling companies. You've raised from Sequoia, Stripe, Jeff Bezos, others. Yyou've sold two companies. When it comes to how folks evaluate financials, what is something that startups get wrong when preparing for those events?
Waseem Daher
I think you have to understand what kind of deal your deal is. Meaning, is it a bet on the team? Is it a bet on the narrative or is it a bet on the metrics?
And as you get later stage, it becomes less and less a story round and more a spreadsheet round, where it's just like, look, the bet we're making here is that you have a machine that we can scale. And like the way we determine that is like looking at the numbers. The story always matters, never under-invest in the story.
And I think even on spreadsheet rounds, people fail to appreciate the importance of the story. But I think you have to understand what is your pitch and what is being de-risked in this round? And you need the financials and the data room and all that stuff need to tell the right story for that stage of, I don't want to say diligence exactly, but like, what are the things that investors are trying to de-risk to decide whether to put more money into this?
And sometimes that is a deep look at the financials. Sometimes it's, "I wanna talk to three customers who rave about how good you are," and for the financials, actually, it's a little bit too soon to say anyway, so let's not bother with them.
Sidharth Kakkar
That's a great point. And so like if you were to characterize the financial maturity when it comes to these various rounds, how would you characterize the evolution?
Waseem Daher
I mean, it definitely has to get more sophisticated. The expectation in each subsequent round is like you have your house more in order, and it will depend on the business. And again, like for our business for example, gross margin was very heavily scrutinized at every fundraising round of ours.
And so you need good reporting on gross margin and you need a story for why it's trending the way it's trending, and that that happened to be a thing that investors really lasered in on in Pilot's funding rounds.
For another business, it could matter less. And actually maybe what the investors are gonna care much more about is the SaaS metrics, which is like, how's ARR trending? What is net retention like? What is the churn rate? You know, what is CAC to LTV? It's very business-specific and stage-specific. And again, it goes with, what are we trying to de-risk in this round, or what do we need to believe about the world for this to be true. In the early days, it's like, I believe the team is good and that the future's gonna look like this.
They maybe in the next round, it's like, I believe that they found product market fit. They have a small number of passionate people and the bet is like, can they start to scale it? Then it's like, okay, they start to scale it. Can they really build a repeatable go-to-market motion around it and what are the economics of that go-to-market motion? And have they gotten to like a dollar in $1.01 out?
That's kind of the trajectory of over time. The questions in some ways focus and it becomes much more about, mechanically, how good a business is this? Will this ultimately generate some discounted cash flows.
Sidharth Kakkar
Right. As we're reaching sort of the end, a question I have around financial advice is: Looking ahead, what's one piece of financial advice that more SaaS founders and CFOs should take more seriously?
Waseem Daher
I think the drum has beaten on this enough, but I do think folks need to understand that the last round you raised may in fact be your last round and that actually, there's probably a pretty high bar to clear to get access to additional capital and you should not assume that that is a sure thing. If you're growing well, or whatever, like if the underlying metrics are super healthy, sure you may have access to capital, but I think there was this attitude, you know, in 2020, 2021, which was like, yeah, we can always go back to the well and get more.
I just don't really think that's true. The bar is even higher now, right? People look at the graph of Cursor's ARR growth or that kind of thing. It's like, "Oh yeah, you added a hundred million in a year or whatever? Yes, we wanna fund that." If you doubled year-over-year, it's impressive, but the game has changed around people's expectations and I think you need to make sure you're not playing by the old rules.
Sidharth Kakkar
How do you deal with the fact that by the time you're playing the game again, i.e. by the time you're fundraising again, chances are the rules will have changed. You've seen this repeatedly, every couple of years is a different regime. How do you deal with that uncertainty? Because there's no way to predict how that's going to unfold?
Waseem Daher
The cheat code is that you have to build a business that is sustainable or that has a credible path to sustainability, meaning you don't have to be on that path, but you want the emergency pull handle to be available and if you have to pull it and stop the train, you can.
If you have that, you have a credible alternative and if you have a credible alternative, you have leverage. And if you have leverage, you will get to good outcomes. If your only option is to take money. And you'll accept any terms because you have to, that's a tough spot to be in.
And so to control your own destiny, you have to have a credible alternative.
Sidharth Kakkar
Yeah. And that gives you a little bit of insurance against the ways that the world changes.
Waseem Daher
Yeah. And you may not want to take that alternative, but if needed you could. You might not be happy about it, but it is an option.
