What Coconut Software CFO Matt Petrow learned while raising a Series B

When founders raise a Series B round, the stakes are higher than past fundraisings—and investors want to see metrics. But Matt Petrow, CFO of Coconut Software, said it’s about more than simply knowing your numbers and taking the best term sheet available.

In episode one of Float’s Retained Learnings podcast, on the heels of Coconut Software’s $28 million Series B fundraise, Petrow shared his philosophy on fundraising and business metrics.

Fundraise for a reason

Originally founded as a meeting booking software for small businesses, Coconut Software evolved to focus on financial services companies, the organizations that founder Katherine Regnier realized needed a solution like theirs the most. Petrow joined the team in 2019 just as he, Regnier and other executives finalized the company’s new three-year plan, which Regnier called the “33 and 3” strategy: hitting $33 million in revenue in three years.

When the metrics are right and the vision is compelling, startups are likely to receive a couple of different offers from investors. But that doesn’t mean that each offer is the right one.

In order to hit its goal, Petrow said the company would need to aggressively expand into the United States, where the vast majority of financial services activity happens in North America. To accomplish this, Coconut Software needed go-to-market growth through its sales and marketing team, product growth from engineering efforts, and senior leaders who could advise the company through its next phase. This redoubled effort would help not only close new customers but also build more solutions to offer to Coconut Software’s current customers.

“The two pillars of growth behind the plan were accelerating our growth and our penetration in the U.S. financial markets,” said Petrow. “And the other side was introducing more products to our platform, expanding our product, and enabling our team to sell more to our existing customers.”

Aggressive expansion required fundraising, and the original plan was to close a round in 2022. However, Petrow said the company saw the writing on the wall of a possible downturn and decided to close the round in late 2021 instead.

“It was planned more for Q1 of 2022,” said Petrow. “But just looking ahead, [we] had seen that the market was right. There was likely a correction coming down the pipeline as there were a lot of forecasts around rising interest rates. And so we did actually decide to pull it in six months early, which in hindsight ended up being a really good decision.”

Accuracy is key

During Coconut Software’s fundraise, Petrow wanted to tell a story about revenue growth, customer success, go-to-market efficiency, and overall company efficiency. To do that, he shared recurring revenue and rate of revenue growth over time, which told the money story. Customer trends came from both net and gross dollar retention metrics. Go-to-market efficiency came from customer acquisition cost (CAC), cap ratio, CAC payback ratio, and lifetime value (LTV). And overall company efficiency came from gross margin return on investment and return on cash.

“This all really sets you apart as a responsible team that understands the growth levers in your business model,” Petrow said.

Petrow cautioned founders looking to fundraise that there are more and less credible ways to calculate metrics. For example, if your business is only five years old, it’s hard to believe an LTV calculation based on a customer lifetime of 15 to 20 years. Yet you could theoretically get to this calculation depending on short-term churn rate—if very few customers churn from year to year, you might make the assumption they will stick around for a while. But you have to take into account the realities of your business, not just the mathematical calculations.

“So that’s an example of knowing where to cap your metrics, and tying them back to your business model is really important,” Petrow added. “You kind of build up that rigour ahead of the process: as you’re putting your data together, you’re able to ask these questions, and talk with your team [about] what makes the most sense.”

Getting ready for marriage

When the metrics are right and the vision is compelling, startups are likely to receive a couple of different offers from investors. But that doesn’t mean that each offer is the right one. From Petrow’s perspective, the right investment partner has three traits:

1. Expertise in their space: for Coconut Software, that’s B2B enterprise SaaS, in particular selling to financial services.

2. Customer connection: whether the investor has a network (or direct experience with) the types of customers you’re selling to.

3. Value-adds: things that set a particular firm apart, such as connections to advisors, a community of portfolio company leaders to support each other, or in-house recruiting.

Above all, Petrow said you have to pick an investment partner you like spending time with.

“The most important thing—and it’s probably easy to overlook this as the offers are flying in fast and furious—is making sure that it’s someone that you will enjoy spending time with, because it’s almost like a marriage, really, that you’re finding someone that you’re going to be spending a lot of time with, a lot of calls, working through a lot of ups and downs,” said Petrow. “And so it needs to be someone that you’re going to partner with, who you’re going to enjoy having along for the adventure. There’s value in that.”

Photo courtesy of PxHere.