3 financial red flags to avoid by Village Global

Early-stage founders need every possible advantage to distinguish themselves. 

That means knowing your business inside and out — and understanding how your north star metrics and KPIs drive you towards specific growth goals.

Anne Dwane, Co-Founder and Partner at Village Global, agrees. Her early-stage VC firm funds tech-driven companies around the world, with backing from LPs like Anne Wojcicki, Bill Gates, Mark Zuckerberg, Reid Hoffman, and Sara Blakely. 

The Puzzle team sat down with Anne to dive deep on how founders can leverage their numbers for outsized success across growth stages. Below, we unpack: 

1. Why every early-stage founder should know their numbers
2. What are investors’ financial priorities during early-stage diligence
3. How founders can use investor updates to their advantage
4. Red flags to avoid with your metrics and financials

“Not knowing your numbers is paralyzing. Clarity and focus are so important in startups because there's already a lot of chaos. Add in an adverse macroeconomic environment, and the stress levels go up.” 

Why every early-stage founder should know their numbers

In Anne’s words, “Cash is oxygen for little businesses, so they can’t run out of it.” When you run out of money, you run out of time to figure out your business. 

By extension, mastering your finances will maximize your time to build a stellar business. This is an essential capability, no matter the economic climate. 

Founders can start interrogating their numbers by asking questions like: 

• Which factors drive our business? What drives revenue, costs, and usage metrics that indicate adoption and retention?   
• Can we variabilize costs so that they’re tied to revenue and/or usage?  This makes costs into investments into metrics that matter.  
• What experiments can we run quickly and cheaply to gauge what works? 

How do accounting & bookkeeping directly impact growth? 

According to Anne, “Entrepreneurship is creating value beyond resources currently controlled.” 

To make the most of your resources, you must know what you have and what it could lead to. This is where the processes of airtight accounting and bookkeeping are so important. 

With this, founders should reframe how they think about spending. Think of costs as investments to drive company metrics. 

When your financials feed your operating models, it hugely simplifies the business. 

Investors’ financial priorities during early-stage diligence

Village Global invests very early. And Anne finds that what’s more important than the actual numbers is how a founder thinks about the numbers. 

After all, they’re searching for founders who seek to create overwhelming value, then have a plan on how to capture a piece of that. 

• A product that is only slightly better is unlikely to change customer behavior. 
• Products must be 10x better, cheaper or faster than alternatives and substitutes to gain adoption and usage.

Ultimately, to create a compelling case for their product, founders need to: 

1. Understand market size and walk investors through the scale of opportunity
2. Explain how they’re going to create measurable, outsized value – and capture a portion of that (which will be much higher than the cost to provide the product or service in the long run)

Often, founders are identifying and tackling a market that doesn't quite exist yet. Even then, they can provide stats that show tailwinds and reasons why the market is on the rise. 

“The big thing we’re looking for is 10x faster, cheaper or better than alternatives or substitutes. That kind of overwhelming value prop makes your consumer really want to adopt. Over time, you should be able to capture a portion of the value you create…and that exceeds your costs to produce your offering.” 

How to take advantage of the investor update

Here’s a tip from Anne: Founders can leverage investor updates for their team as well for external stakeholders. 

At a startup, if you don’t have a plan, everything seems like progress. Founders always have a million things to do. However, the truth is: Doing the right things is more important than doing many things “right”. So, investor updates are an opportunity to zoom out and gain valuable perspective. When writing an update, ask yourself: 

• How are our actuals trending vs. our plan? 
• What have we learned?  What will we do more of, less of, or do differently? 
• Where are we moving the needle on what matters? 

Knowing your numbers as you ask these questions will allow you to recalibrate. 

• If you’re close to the target, optimize. 
• If you’re exceeding target values, that’s great. You can raise targets. 
• If you’re way below target, evaluate.  Do we need to rethink our approach?  Should this even be a goal? 

Beyond the numbers, investors updates are opportunities to: 

1. Stay top of mind for stakeholders — It’s a scalable approach to maintaining contact with existing investors, prospective investors, future hires, early champions, and more. . 
2. Share progress with the team internally — “That kind of transparency unleashes productivity and ingenuity,” says Anne. 
3. Ask stakeholders for advice or help — You don’t have to follow it, but leveraging your startup’s support network for diverse perspectives is smart. 

“Making time for your team to reflect on the actuals vs. the plan over time and to codify that can be really helpful. It’s very easy in startups to be overwhelmed by daily activities. You have to make the time to step back and reflect on the drivers of the business.  This is powerful - you don’t need to do everything if you get the big drivers right.” 

Avoid these red flags when handling numbers & finances

Anne lists the red flags to look out for in your numbers: 

1. Not having any numbers — This is easily the biggest red flag. 
2. “Hand waving” through the numbers — This is second only to having no numbers at all. 
3. Having too many numbers — If you have too many priorities, you really have none. 

Having the most important numbers available allows you to look past the complexities. 

Too many numbers — or too few of them — will hinder you. 

Make sure to avoid this financial mistake

In Anne’s experience, the biggest mistake a founder can make is overconfidence. 

She tells us, “The only advantage a startup really has is to be a learning machine.” You should eagerly learn about your customer, your capabilities, and so on. If self-confidence gets in the way of being experimental and curious, that is a problem. 

Yes, founders should have the confidence to form hypotheses and run with them. 

But that confidence should stem from trust in your team’s ability to figure things out — not from thinking you have all the answers. 

“The good news is that big ideas don’t cost more than small ideas. It’s really a strategy of saying, ‘Here is the big vision. And this is the path to discover how to get there in a responsible, measured way.’” 

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