Bill Spaself, a longtime Citigroup employee, has seen many business cycles come and go, and has seen many companies raise capital at the wrong point in those cycles. “The result can be a significant reduction in management ownership and shareholder value,” Mr. Spaself says. “It also creates undue pressure and stress throughout the organization.”
After a long career in banking, Spathelf is now CFO and founding partner of Indio, California-based Helicoid Industries, a company with technology to make composites lighter, stronger, more impact resistant and less expensive to produce. As such, he is experiencing the current business cycle from the opposite perspective: a company just entering the commercialization stage, with limited cash and options for growth opportunities.
Katie Kuehner Hebert first interviewed Spatelf in 2021, shortly after he joined Helicoid, and she met with him last month to discuss some of the difficult decisions the company has had to make in a tough capital markets environment.
Helicoid has made great progress since we last spoke, but it also faces challenges common to startups, like balancing cash needs with growth investments. As CFO, you're responsible for many of these issues. How do you manage these challenges?
The short answer is we manage these issues very well, but unfortunately, maximizing growth without taking on unnecessary risk requires daily attention. Fortunately, Helicoid has been successful in commercially licensing its technology and obtaining international government grants for research and development. However, staff must manage dozens of complex projects simultaneously.
Ideally, we would have unlimited resources to identify and advance these opportunities, but as a startup, we have limited funds. We meet as a team multiple times a week to discuss project priorities. Our technologies target different industries, each of which requires a long sales cycle. The cycles vary and can take anywhere from 2 to 15 years to see revenue.
What choices does that entail?
You need to decide whether to focus on short-term, small opportunities or take on larger, longer-term projects that are great and exciting, but could incur all the costs of an engineering and sales team for years before any revenue is realized.
For example, we're constantly debating whether we should spend hundreds of dollars to visit customers in person or do video calls. Would we be better off using those funds for meetings to develop new clients, or would we focus on accelerating revenue generation from existing clients?
We have to balance financial responsibility while working on clients and processes over many years. We have a great dynamic in our company: the CEO focuses on growth and new opportunities, and I manage the financial resources to make sure we are financially prudent.
Like most startups, you need to raise capital for growth but you need to minimize dilution. Raising capital is hard for a non-revenue company, but have you had to make compromises to get funding?
Helicoid continues to grow the company without new external investment. During the testing phase of the project, client revenues are negligible. When capital markets dried up, we implemented three measures to improve liquidity:
First, we began cost-cutting measures. The CEO and I deferred salaries for over a year, and staff agreed to minimize their work hours. To help us weather the tough times when revenue was delayed, we deferred all salaries for a month. We also reduced travel and meeting expenses wherever possible.
Second, in the second half of 2021, we undertook financial engineering to generate additional liquidity. We successfully completed a rights offering that was minimally dilutive; 95% of our more than 60 shareholders participated. Communication with shareholders is important and we remain in regular contact. [providing] Detailed quarterly updates and annual reports.
Third, we targeted grants and other non-dilutive capital. The federal government offers small business innovation research grants that provide predictable cash flows over one to two years and can lead to commercial contracts with government suppliers.
Them [three measures] It worked. Even if it didn't, I had 24 months to spare. [win] There are no additional contracts or grants. Our shareholders and staff continue to support the vision and potential of Helicoid.
You've said Helicoid has had some success with non-dilutive grants, what advice would you give to other CFOs about that option?
Non-dilutive grants can be a great source of funding to cover some of the operating costs and lower burn rates while an organization waits for revenue to materialize. Finding and writing grant proposals requires unique skills, and record-keeping requirements range from audits to company policies and procedures. As a CFO, this was a bit of a learning experience for me, but easily manageable.
As tough financial markets and the pandemic devastated companies without much revenue, Helicoid weathered the storm by aggressively cutting costs and creatively finding other sources of funding.
