Prof. Angela Lee on Startup Finance and Growth Strategies
Joy Wallet is advertiser-supported: we may earn compensation from the products and offers mentioned in this article. However, any expressed opinions are our own and aren't influenced by compensation. To read our full disclosure, click here.
Angela Lee is a prominent professor of professional practice at Columbia Business School and the founder of an investing network called 37 Angels. This network evaluated over 20k startups, investing in 100. Angela herself has started four startups and is a venture partner at Fresco Capital, an early-stage venture fund that focuses on the future of work, digital health, and sustainability. She was recognized by Crain’s as a Notable Women in Tech, by Inc. as one of 17 Inspiring Women to Watch, and by Entrepreneur Magazine as one of 6 Innovative Women to Watch.
In her career, Angela has spoken at the White House and NASA and appeared on major financial news outlets, such as CNBC, Bloomberg TV, MSNBC, and Fox Business, so she has plenty of wisdom to share about the strategies that drive entrepreneurial success — from the importance of financial literacy for founders to achieving sustained growth and stability.
In this article
Key financial metrics
Joy Wallet: What financial metrics do you consider most important for investors when evaluating a startup’s financial health?
Angela: There are many metrics to look at when evaluating a startup, but some key ones are:
- Revenue growth rate — This indicates how quickly the company is increasing its sales. Some investors want to see as high as 30% month-over-month growth, but a more common metric is tripling year-over-year early on, then doubling year-over-year later.
- Burn rate — This is how much cash a startup spends each month. Typically, founders raise a round of capital every 18 months, so investors want to ensure founders are raising enough to get them to their next round. Investors will also look to see whether the funds are being spent thoughtfully.
- Customer acquisition cost (CAC) and lifetime value (LTV) — This refers to the cost associated with acquiring a new customer and the total revenue expected from a customer over their entire relationship with the company. At a minimum, investors want to see a 3:1 LTV to CAC ratio, but higher is better.
- Churn rate — Since churn rate is the percentage of customers who leave a startup each month or year, a lower churn rate indicates better customer retention.
- Engagement metrics — Investors want to see a highly engaged customer base. How often is a customer logging into the app, and how long is each session? What percentage of employees are using the app, and is there customer feedback?
- Debt — If you are pursuing angel and VC investment, be careful about taking on debt. Before you do so, speak with someone in the ecosystem (another founder, a VC or angel investor, or a venture lawyer) to see if taking on debt might make you less attractive to those types of investors.
Managing cash flow
Joy Wallet: For entrepreneurs, what’s your advice on managing cash flow during the initial stages of a business?
Angela: My first piece of advice is simply to measure and track cash. So many founders track revenue and expenses, but that is not the same thing as cash. I have seen many businesses fail while generating revenue because they literally ran out of cash.
You must create a statement of cash flows with each month's starting and ending cash balances, as well as cash inflows and outflows. Once you do that, think about ways to be more cash-efficient. Here are some:
- Payment terms — Can you think about the terms of your accounts receivables or payables? In other words, can you ask for payment from customers within 15 days of invoice but pay your vendors within 45 days of invoice?
- Inventory management — Are there ways to be creative about not holding too much inventory? For example, is it possible to only build/print/create your product once the order is in rather than holding inventory? Do you have good data to forecast your inventory needs? Can you work with your manufacturer to have smaller runs without driving up costs?
- SKU management — I have seen a lot of startups have too many product categories too early. Maybe you don’t need eight flavors right off the bat; start with 3–4 and grow from there.
- Understand seasonality — Most businesses have some sort of seasonality to their demand. Recognize those trends and have cash buffers to manage.
Finally, if you are raising venture capital, start raising money at least six months before you run out. Raising a round of venture funding can take 3–6 months, and the last thing you want to do is to raise a round when you are desperate.
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
Financial literacy
Joy Wallet: What role does financial literacy play in the success of founders, and how can they improve their financial acumen?
Angela: I don’t think that founders need to be quant jocks before they start their companies, but it is important for them either to learn and/or outsource. On the outsourcing side, one resource for finding a part-time CFO is Early Growth Financial Services. On the learning side, it’s important to have a high-level understanding of your numbers. For example, what are your annual/monthly revenue and expenses? What is your month-over-month growth rate for revenue and customers?
I would do several things to learn:
- Take a class — For example, Columbia Business School offers Finance and Accounting for the Nonfinancial Professional. Khan Academy also offers many online courses on financial literacy.
- Read — There are several books that are helpful in this space, such as Financial Intelligence by Karen Berman and The Personal MBA by Josh Kaufman.
- Get a mentor — This can be a founder who is a couple of years ahead of you on the startup journey or someone else in the startup ecosystem. Ask them what numbers matter, and ask them for the spreadsheet they use to manage their finances.
Avoiding common pitfalls
Joy Wallet: What do you believe is the most common mistake startups make in their financial planning that leads to early failure?
Angela: I’ve found these to be very common:
- Not setting expectations with your inner circle — Founders need to have honest conversations with their inner circle (e.g., significant others or roommates) about what life will look like for several years, what hours they will be working, and what salary they will realistically be making. If you have a family, it’s not just you making financial sacrifices.
- Being unrealistic — I find that founders are optimistic by nature; thus, their financial predictions are often overly optimistic. Don’t raise barely enough money so that if everything goes right, you will be successful. Build in a buffer. Make sure you have a financial cushion if you have to pivot.
- Misforecasting sales & marketing costs — Founders often underestimate costs. This is for a number of reasons. Your earliest customers are often the cheapest to acquire, or you are acquiring them through no/low-cost channels. For example, the founder works “for free” to write email copy or cold call customers. This isn’t sustainable for the long term, so be realistic when forecasting sales/marketing costs.
Preparing for investors
Joy Wallet: How can startups best prepare their financials for potential investors, especially when seeking seed funding?
Angela: For early-stage investments, the financials investors need to see are pretty simple. We want to know high-level metrics like these:
- LTV/CAC ratio
- Marketing channel mix
- Revenue and expense numbers (historical as well as future projections)
- Month-over-month and year-over-year revenue and customer growth rates
- Margins
- Hiring plan
In your startup pitch deck, this can be one simple page (don’t have tons of charts and tables). In diligence, showing us whatever you use to manage your financials is sufficient (e.g., Excel, Google Sheets). Early-stage investors do not need to see audited financials.
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
Setting realistic financial goals
Joy Wallet: What advice would you give entrepreneurs about setting realistic financial goals while aiming for growth?
Angela: Base your projections on your actual data, not a Google search or talking to a friend. For example, if historically, 5% of your customers pay for the premium version of your app, don’t assume that next year, that number will jump to 10%, even if that is the average conversion rate on Hubspot.
Profitability vs. growth
Joy Wallet: How should startups balance profitability and growth, particularly in industries where scaling quickly is key?
Angela: If you are seeking venture capital funding, profitability is not important in the short term. While VCs do want to see a path to profitability in the longer term, this is not something you need to worry about for at least the first few years of your startup. Top-line revenue growth is much more important.
That said, pay attention to your customer acquisition cost payback period — ideally, it should be less than 12 months. For example, if it costs you $50 to acquire a customer, then ideally, you want that customer to spend at least $50 within the first 12 months of their relationship with you. Shorter is better.
If you are planning to bootstrap your startup, then profitable growth in the first couple of years is much more important because otherwise, you will not be able to afford to keep running your business.
Bootstrapping vs. external funding
Joy Wallet: What’s your perspective on bootstrapping versus seeking external funding, and what financial discipline does bootstrapping require?
Angela: External funding is not for everyone. The pros of VC and angel funding are a quick injection of capital, advice, and access to a network that can open doors to strategic partnerships, customers, and potential acquisitions. Unfortunately, it can mean the loss of control as VCs often want board seats, and it can mean that you will be forced to grow at a breakneck pace. Lastly, VCs and angel investors want their money back, so you will be required to exit (IPO or sell to an acquirer). If you want to run your business for the next 20 years and pass it on to your kids, you can’t take VC or angel funding.
Scalability signals
Joy Wallet: When evaluating a startup for investment, what financial indicators or patterns make you confident about the company’s potential for scalability?
Angela: Investors are looking for a few financial indicators:
- LTV to CAC — This needs to be at least 3:1.
- Fast growth rate — You’ll need to at least triple year over year in the first couple of years.
- Scalable costs — It is cheaper to service your 1,000th customer than your 100th.
- Engaged customers — We want to see an indication that people like the product or service. As an example, what percent of people who download the app use it on a daily/weekly basis?
Big Think Capital provides business borrowers with a straightforward and transparent funding platform.
- Business lines of credit from $10k – $1m
- Term as long as 5 years
- Rates as low as 7%
- Decisions as fast as 24 hours
- Quick access to your funds once approved
- Applying won't affect your credit score
Weathering financial downturns
Joy Wallet: In the current market, how can startups protect themselves from financial downturns and ensure long-term stability?
Angela: There are a few things that startups should focus on:
- Customer concentration — It can be a risk if you have very few customers or if one customer represents a significant percentage of your revenue. Have many customers, and think about different customer types so that if one sector is hit, you have another sector to sell into.
- Product variety — Similarly, don’t have your products be too reliant on trends or fads. Think about products that will be attractive in the longer term.
- Seasonality — If you have seasonality in your sales cycle, are there things you can do to smooth out that seasonality or ways to see a different product in the off-season?
Alternative financing
Joy Wallet: What advice would you give to entrepreneurs looking to raise funds through alternative financing methods like revenue-based financing or crowdfunding?
Angela: My advice to any founder raising capital is to understand what matters to each type of investor. These are some examples:
- Revenue-based financing — These investors care about the predictability of revenue and margin. This is why subscription-based businesses with a recurring revenue model are often favored.
- Equity crowdfunding — Recognize that this isn’t a free roll of the dice. If you have an unsuccessful campaign (e.g., you try to raise $250K but can only raise $100K), that is a bad sign. So, you need to market your crowdfunding campaign to ensure success. Also, deals tend to be more successful when led by a VC firm. For example, on Wefunder, you can sort by whether a deal is VC-backed or even backed by a Tier 1 VC.
Finding joy
Joy Wallet: What brings you the most joy in life?
Angela: Honestly, I really love teaching. Nothing brings me more joy than watching a student have an “A-ha” learning moment where they suddenly “get it.” That, and an amazing meal shared with close friends. Finally, tiny things. I have so many mini-versions of things — I think I was an elf in a past life!
Joy Wallet is an independent publisher and comparison service, not an investment advisor, financial advisor, loan broker, insurance producer, or insurance broker. Its articles, interactive tools and other content are provided to you for free, as self-help tools and for informational purposes only. They are not intended to provide investment advice. Joy Wallet does not and cannot guarantee the accuracy or applicability of any information in regard to your individual circumstances. We encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Featured estimates are based on past market performance, and past performance is not a guarantee of future performance.
Our site doesn’t feature every company or financial product available on the market. We are compensated by our partners, which may influence which products we review and write about (and where those products appear on our site), but it in no way affects our recommendations or advice. Our editorials are grounded on independent research. Our partners cannot pay us to guarantee favorable reviews of their products or services.
We value your privacy. We work with trusted partners to provide relevant advertising based on information about your use of Joy Wallet’s and third-party websites and applications. This includes, but is not limited to, sharing information about your web browsing activities with Meta (Facebook) and Google. All of the web browsing information that is shared is anonymized. To learn more, click on our Privacy Policy link.
Images appearing across JoyWallet are courtesy of shutterstock.com.
Joy Wallet
We are entrepreneurs, investors, fintech enthusiasts, journalists, and masters of aggregating and deciphering data. We have been working in the financial services industry for over seven years and wanted to build a place where we can bring together the brightest minds and organizations to help you make more money.
With access to the right opportunities, you can take care of the ones you love and create a more prosperous lifestyle. We made Joy Wallet out of a desire to find the best financial partners, strategies and tools to help you achieve your life goals and make the most of money.
Share this article
