Does Australia need a financial services firm dedicated to startups like NY’s Nomad Financial?

- February 26, 2015 8 MIN READ

Two decades ago, Sean Silverthorne enthusiastically wrote, “Today’s finance chief may be the Air Jordan you need to slam-dunk the competition”. Perhaps the metaphor is a little outdated, but he’s right about Chief Financial Officers (CFOs). The role of the CFO has undergone a pretty significant transformation. Where before CFOs would just track and report results, close the books every quarter, and establish company budgets, today they play bigger, more crucial roles in running high-growth companies. CFOs are key decisions when it comes to a company’s financial growth strategy. Silverthorne predicted that CFOs will become “even more important as margins decline, joint ventures proliferate, consolidation continues, cycle times quicken and companies look for fresh financing vehicles”.

Yet early-stage startup founders, who often wear multiple professional hats, aren’t always quick to hire a full-time CFO, unhelped by the limited resources they’re working with. But many founders don’t possess the financial knowledge to be able to independently and sufficiently handle taxes, superannuation, acquisitions, capital raises, and other financial aspects of running a startup. And wishful thinking first-time founders can sometimes overestimate sales, underestimate expenses, overestimate margins, and underestimate the time, effort and resources is takes to grow a startup fast. Unfortunately, large accounting firms don’t target early-stage ventures. They’re structured to work with big companies and generate large bills.

This is where Nomad Financial comes in. Launched in August 2013, Nomad Financial is a New York headquartered company providing financial services to early-stage startups. What makes Nomad Financial unique is its all-encompassing approach to providing those services as well as its staff, all of whom are experienced in working in or founding startups. The company is nimble and has structured itself to support the startup market.

Nomad Financial was founded by Jonathan Gass (Vimeo’s former Head of Finance, Mergers & Acquisitions and Financial Planning & Analysis at IAC), Mark Peter Davis (co-founder of Kohort, Venture Partner at High Peaks Venture Partners and former associate at DFJ Gotham) and Deepen Parikh (serial entrepreneur and organiser of NYVC Sports). Startup Daily spoke with Gass, who said all three co-founders are passionate about startups and helping entrepreneurs succeed in their endeavours.

“Founders are creating jobs, they’re putting new products in the market, they’re actively trying to change the world and it’s incredibly exciting. It’s a space I’ve always been passionate about; the same goes for Mark and Deepen. For us, it was a natural fit, and we knew managing finance is a major painpoint for startups. Large companies have the money to build their financial team, they can afford to hire an experienced panel on a full-time basis. Even large growth startups that are Series D and beyond can afford to hire and give away equity for a full-time role. But what about the smaller guys?” said Gass.

Nomad Financial is made up of two key groups: bookkeepers and CFOs. The CFOs all have experience working with startups, according to Gass. They’ve experienced significant wins when it comes to raising rounds of capital; they’re well-versed in the processes that scaling companies undertake; they’ve helped companies achieve their end-goals whether it’s achieving profitability or getting acquired.

“[Founders] know what it means to be living in the trenches, sweating and stressing out about everything that’s going on around the business. But despite all that, you have to make better decisions for your employees, for the company and for the investors in the company,” said Gass.

The bookkeepers are also oriented towards working with early-stage companies, particularly ones with more complex accounting systems – like SaaS startups, inventory-based companies, ecommerce businesses, etc.

Gass told Startup Daily that Nomad’s overarching mission is to help early-stage startup founders be more successful by “reducing the financial friction of running and starting a company”. He added that one of the biggest challenges entrepreneurs face is finding appropriate financial resources.

“We thought about how we can help founders find that first financial resource that knows how a startup operates. We pictured what it means to have a part-time CFO. There are a lot of things that founders don’t need to do themselves – it’s something the CFO should handle,” said Gass.

Using Nomad Financial is like having an experienced CFO worked part-time for your startup. For the CFO part of the service, startups pay a monthly fee, which is determined by the number of hours a CFO will need to work to help the startup. CFOs will assist the startup in areas like fundraising (and capital structure), financial modelling, investor relations, international growth, tax and audit preparation, insurance, organisational processes and more.

“We want our clients to understand what trajectory they’re on, what bets they are making, the nature of those bets and when they need to decide whether something is working or not working. We help clients decide when to double down, stop and pivot. It’s one thing to be focused on the time it takes to develop products or services, but the reality is cash is king. We want to make sure that people don’t run out of money unnecessarily; we think planning is a big deal,” said Gass.

For bookkeepers, on the other hand, startups need to pay an hourly fee, which is fairly standard.

But how does Nomad Financial fare against hiring a full-time CFO or outsourcing bookkeeping to other accountants? Gass told Startup Daily that the company doesn’t want to be seen as ‘the low price solution’. It wants to be seen as the ‘high quality solution with the right price’. This may sound expensive, but Gass stressed the company’s belief in the lean method: “don’t spend money if you don’t need to”. He added that opting for the cheaper solution can end up being significantly more expensive.

“At some point, the financial stuff has to be dealt with. If you pay someone cheaper and they do it wrong, or you do it yourself the wrong way, it’s so much more expensive to fix. It takes more time to reverse what has been done the wrong way,” said Gass.

“Plus, most accounting firms want to focus on tax, reverse acquisitions and large transactions – that’s their focus. Many companies raise small ‘friends and family rounds’ and that’s an area we can cover. It’s not that expensive for clients because they don’t have that many transactions going on a monthly basis. Nomad is still a relatively affordable solution for them … We have clients that are bootstrapping. They’re not large, but they’re health small-sized businesses and they prefer to use us.”

Because Nomad Financial is a services business, it has to keep a close eye on its growth, which means being selective about the clients the company agrees to work with. Gass said that the company doesn’t turn down that many clients, but feels it’s critical to work with the right people. There could be a multitude of reasons why certain relationships are ill-fitting like personality clashes or operational differences.

The company itself has been bootstrapped from the get-go, something that Gass said will continue on in the upcoming years.

“My partners and I have funded it ourselves. As a services business, we believe that you can grow steadily and organically and hire on need. On some nights, it’s long hours, but we didn’t want to take outside capital,” said Gass.

He also pointed out that startup founders need to be aware of a number of things when they’re raising capital – one is independence. With external capital, startups must be conscious of the investors’ expectations, of what they want to get out of their investment. If you go to a third party, you’re diluting equity which may be problematic in the long-run. Gass said that startups also have to be very stringent on their spending of raised capital.

“I don’t think there’s anything obvious that we would do with cash that would change how we would run the business. This type of business does not have a level of exponential growth that investors look for. Some investors are really just looking for major exits,” Gass added.

In the US, particularly San Francisco, there are fundraising trends and expectations that have developed because the startup ecosystem is larger and stronger. But even in the US  market, Gass noted, there are founders that try to avoid raising capital altogether because of the terms of investment. Australians certainly have a perception that fundraising in Silicon Valley is a seamless process.

“But a lot of people get caught in the different elements of a term sheet. They might get caught up in control, they might get caught up in valuation. There are so many pieces and they all matter. These are things we want to advise our clients on, so they understand the deal they’re signing. Regardless of whether we think it’s a good deal or not, they’re understanding what leveraging position they’re in,” said Gass.

There are a lot of blind spots founders have when it comes to finances, according to Gass. He said that in the US, founders sometimes feel it’s easier to just write their employees cheques rather than put them on a payroll. If this is done for too long, the IRS will eventually notice and go after startups for payroll tax. Sales tax is another blind spot for some founders in the US. When these taxes are not paid in a timely and appropriate, it ends up coming straight out the business’ margins.

In Australia, income tax and superannuation is a major painpoint. Without financial advice, founders aren’t always aware of how much needs to be paid and by what date. Non-compliance can lead to hefty fines, which eventually comes out of the business’ margins.

Nomad Financial’s most interesting growth strategy revolves around staff. Gass told Startup Daily that the company expands into different regions based on the location of people it hires. The business is currently operating in multiple states including Seattle and Los Angeles.

“We grow based on the people we hire. If we find people in other cities who we feel are a good addition to Nomad, then that’s where we’re going to expand and grow,” said Gass.

He admitted though that recruiting is hard. Gass said every stage of the recruitment process needs to be done right from job description to interview questions. If it’s not done right, the challenge becomes impossible, according to Gass.

He also said that it’s easy to get distracted by urgency. Even if founders need to find someone to fill a position, they need to be willing to say no.

“You have to recognise sometimes that it’s better to not have this person for everybody’s sake. Saying no can pay off if it seems like a bad fit. You’ll eventually find the right person,” said Gass.

For Nomad Financial, the right person is entrepreneurial with a strong financial background, but most importantly has startups in their DNA.

“We also want the opportunity we’re presenting to be something more than just a job for someone. There needs to be more to it for them,” said Gass.

“For instance, with bookkeepers, they need to have been in a senior financial position in a high growth company. We don’t want someone who stepped out of investment banking and into our company. We want someone who can through a client’s door and immediately add value. Often, CFOs know more about a business than the founder does. That’s important to us. Our job is to make sure that’s the case for every client.”

Gass also shared a piece of advice that many founders have communicated: surround yourself with people smarter and better at the job than you are.

“I want everybody to be better at the job than I would ever be. I want our bookkeepers to be the best bookkeepers. I want out CFOs to be better than me, more experienced than me. Those are musts,” said Gass.

One thing that Gass takes pride in is his passionate staff who he says absolutely love their jobs. Whereas many employees can’t think of anything worse than hanging out with their colleagues after-hours, Nomad Financial’s team will happily spend a long weekend together.

“We’ve built a team of people who are truly excited about what they’re doing and who they’re working with. Some people here have had jobs in the past that felt like work. Our goal has always been to make sure that when our employees wake up, going to work is an exciting thing. They’re working in a space they’re truly passionate about,” said Gass.

He’s also proud that Nomad Financial has been able to make meaningful differences in the lives of their clients, saying that the company has provided financial literacy and transparency that didn’t exist before.

“This has allowed clients to go out and raise additional capital. It’s allowed them to make better decisions for their businesses. It has improved their relationship with investors and potential future investors. I never want to under-stress how important that is,” said Gass.

“In the end, the only way we can judge ourselves is by seeing whether the founders we work with have been more successful than they would have been otherwise and more successful than the industry as a whole. When we can truly measure and see that, then we’ll know we’re on the right track.”

When asked about whether Australia and New Zealand are markets that Nomad Financial would be interested in breaking into, Gass was very open to that prospect as long as there is interest on behalf of local CFOs to take on a contractor role at Nomad. The company is open to receiving emails of interest.