Hello founders! This Summy is brought to you by Nurit Benjamini, Partner & CFO at F2 Venture Capital. I'm Stephanie and I'll be your digital host. Today, we're diving into managing finances at the pre-seed and seed stages, specifically for Israeli tech entrepreneurs.
Once you've secured your initial funding, one of your first tasks is to handle your company's early financial operations. These decisions are crucial as they help you communicate effectively with investors, build credibility, and monitor your financial runway to ensure stability.
With over two decades of experience as a CFO in the Israeli tech industry, including roles at Wix and CrazyLabs, I’ve seen it all. Now, as Partner & CFO at F2 Venture Capital, I assist our portfolio founders in navigating these early financial decisions. It might seem daunting, especially for those of you with a technical background, but with a few best practices, you can handle these decisions with confidence.
When you're setting up your company, there are several factors to consider, and the company's structure is the first. Think about where your leadership team will be, your target market, and tax considerations. Typically, Israeli founding teams establish a parent company in Israel and a subsidiary in the US. Israel offers an attractive tax regime for Israeli companies. However, if the majority of your team is based in the US, it might be preferable to establish your parent company there. Always discuss these options with your tax advisors to avoid having to reverse this decision later on.
Choosing your financial partners is critical. Opt for top-tier providers with experience in the high-tech industry. This not only enhances your credibility with VCs but ensures you get the necessary support. Personal relationships can be tempting, but professional experience matters more. And remember, good chemistry with your team is important for a long-term relationship.
Budgeting isn’t the most thrilling part of starting a venture, but it’s essential. A well-planned budget helps you make rational decisions from the start and is crucial for due diligence when fundraising. Your budget should reflect your strategic plan, showing milestones and KPIs for at least the next two years. Major expenses will likely include team salaries. Plan your budget from both a monthly and quarterly perspective, and consider exchange rates carefully if you have teams in both Israel and the US. While funding will be provided in US dollars, operational costs such as office rent, salaries, and other expenses will be in the local currency. Choosing a conversion rate that considers market fluctuations is crucial to avoid any surprises later on. When determining the budget rate, I suggest looking at the average exchange rate of the last three to six months to determine the rate you use to plan your budget and to take a conservative approach.
After incorporating, you'll need to set up stock option plans to attract and retain talent. These typically include a four-year vesting period with a one-year cliff. This means 25% of options vest after one year, with the rest vesting over the next three years. Ensure your equity pool is appropriately sized and consider the long-term implications of granting equity. There are various types of plans available to ensure that equity is earned proportionally over time and tied to ongoing contributions. As a founder, you want to make sure that you have a good grasp on the equity pool allocated for stock options. The appropriate size of the equity pool depends on factors such as the company’s growth stage, hiring plans and industry standards. When granting stock options or other equity incentives you should consider mitigating the risk of granting excessive equity to employees who may not stay with the company long-term.
Finally, leveraging financial decisions to demonstrate strength is key. Your focus should be on building and marketing your product, not constantly fixing financial issues. A solid financial foundation lets you adapt to market changes, hire the right people, and avoid future distractions. Good financial decisions show investors that you can execute your vision effectively.
Thanks for listening! With these tips, you'll be well on your way to establishing a strong financial foundation for your startup. Best of luck on your journey!
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