CFO 101
Three practices that build financially resilient startups
Financial leadership is one of the most critical, yet often underestimated, skills in early-stage startups. At California Innovation Fund (Cal Fund), we have worked with startups across stages and sectors and identified clear patterns that set strong financial operators apart. Below are three core practices that we have seen in financially resilient companies.
1. Master the 3-Statement Model
In the startup world, things often take longer and cost more than expected. The fact that 38% of startups fail because they run out of money is a clear testament to this reality. Market conditions shift, pilot contracts fall through, and costs can escalate without warning. At Cal Fund, we have seen the most adaptable companies navigate uncertainty by building their financial infrastructure early. This starts with the fundamental 3-statement model—a set of integrated financial statements that includes the profit and loss statement, balance sheet, and cash flow statement.
This model is critical for several reasons. Combined, these statements capture historical data and forecast future scenarios. Historical figures build investor confidence during fundraising by telling a clear and credible story of a company’s accomplishments. Forecast statements outline the next set of milestones and map out a range of realistic scenarios to achieve them. Between fundraising rounds, the 3-statement model becomes a living tool for decision-making. It should be updated regularly to reflect new information and test potential downside scenarios.
Great financial leadership starts with disciplined forecasting, conservative assumptions, and the ability to make tough decisions that prioritize the health and survivability of the company. The 3-statement model forms the foundation of these habits. Cal Fund prioritizes a thorough evaluation of these statements during diligence and reviews them regularly with our portfolio companies post-investment. We see them as a clear signal of thoughtful and disciplined financial leadership.
2. Build Operational Discipline
Success is often less about bold, defining moments and more about steady, day-to-day discipline. As James Clear writes in Atomic Habits, people often overvalue big outcomes and undervalue the small systems that made them possible. For startups, this means that consistent operational habits that influence burn rate and runway can be more influential than any single strategic decision.
Startups that proactively assess their cost structure and adjust spending before KPIs are missed demonstrate a higher degree of maturity and foresight. Waiting until there are only two months of runway left to initiate cost-cutting or seek bridge financing introduces unnecessary risk and often distracts from core execution.
Cal Fund generally encourages companies to maintain 18–24 months of runway and actively monitor and manage their burn rate. A recent investment decision was shaped by a founder demonstrating operational discipline by altering hiring plans and financial assumptions in response to a market shift. That level of responsiveness demonstrates a clear understanding of the big picture and is often a strong predictor of long-term success.
3. Choose Investors Who Are True Partners
At Cal Fund, we have seen companies perform better when founders view fundraising as an opportunity to build long-term, collaborative relationships with their investors. A strong cap table can help navigate critical challenges, including emotionally complex decisions around team structure, pivots, or exit timing. The wrong investors can give risky financial advice and prioritize their short-term objectives over the long-term interests of the company and other investors and stakeholders.
Cal Fund consistently encourages startups to prioritize alignment on values and engagement style when selecting investors. As active partners post-investment, Cal Fund strives to be a value-add to every cap table we are on. We have connected portfolio companies with high-value customers, mentored them through challenging operational decisions, and collaborated on their future fundraising timelines and narratives.
At Cal Fund, some of the strongest companies we have backed did not start out with perfect financials. What set them apart was their honesty, openness to feedback, and drive to improve. We strive to bring that same mindset to our own work. As a small, cross-functional team, we regularly reflect on our investment decisions and look for opportunities to learn and grow. Entrepreneurs who lead with this mindset tend to build resilient, adaptable companies. Those are also the teams we are most excited to support.
