Charles Solomon - CFO, Board Member, Investor

Welcome to another Founder Wisdom pod. We have Charles Salomon with us today. Solomon, should I say. He's a CFO, board member, investor in New York City. Uh, some of his companies, right? So Sentry Petal Advisors, uh, they're strategic fractional executive for startup clients. They raised $115 mil, uh, in debt and equity in the last couple of years. Charles been CFO at a bunch of company, Adventurer, our adventure, uh, Appwork, Megadata Health System, and so forth. So Charles, welcome to the podcast. Tell us a bit more about yourself and what you've been up to.

Yeah, Charles, uh, fellow Charles, I should say. Thank you very much for having me. Um, yeah, I run Centripetal Advisors, right? Um, we provide fractional CFO services to kind of seed stage and beyond, uh, B2B tech, internet, software, AI companies. Um, I've been doing it for 8 years. Um, like you said, some, some really nice headline numbers— raised over $125 million, been involved in 25 transactions. Don't ask how many books we closed or how many board reports or decks we've built. Um, but yeah, we've got a wonderful business. Um, I know we can talk a lot about finance and, and thinking about trade-offs and metrics for companies. We also do invest in, in some of our clients as well, um, and have some, some nice early, uh, on-paper returns that we feel really good about, um, and we can get into that. But yes, the other thing you mentioned, even in my role, uh, at Centripetal as the founder, I still deploy myself into engagements. So, um, I never wanna be stale or hide behind a desk, so to speak. I'm very plugged into what's going on because I make it my business to be active and have my hands-on with companies.

You've built something quite special, right? Like, I feel it's like a fractional CFO firm, but also like venture studio hybrid 'cause you take shares. I also do that with my clients. I run a GTM firm and we take rev share and equity. I didn't raise capital for that one though. Like, why raise $150 mil? Where did you— is it to deploy that capital in your clients? Like, a bit more?

Yeah, yeah, let's talk about it. So, um, and I want to be clear, so we've done $125 in transactions. We haven't raised money, um, uh, for our own vehicle or anything like that. I have dreamt about it, and there is a VC who will remain nameless, or two, when I said, here's someone I was thinking about, like, a creative way to do it, they're like, you got to do it, it's a great idea. Um, so I think it's coming.

So it's for your clients. Okay, yeah, I got it.

So, and, and working with clients, so it's interesting, um, we, we try to— I think in almost every circumstance, I think except for one, uh, or in our history two, uh, when we're getting ownership in businesses, it's because we're putting our, our personal money to work, uh, my money to work, or a team member wants to invest in a business, or or people in our network that want to invest in clients. So we get to know clients really well. They get to know us. Sometimes we move quickly, sometimes we move slowly. Sometimes, you know, in my career, of course, I've invested outside of the client base. I feel a certain level of comfort investing in the client base because the way I feel comfortable and confident in evaluating companies, and, and knowing where maybe I'm not as good at evaluating companies. But, uh, yeah, that's, that's a bit about how we think about equity. There's only been a handful of cases we've got some shares. Everyone pays for service, that's normal. Um, then we, we go out of our wallets and put skin in the game when it's appropriate.

In what percentage— what, what's the case in which you take equity in a client? Because Sometimes, most of the time, clients want to give us equity because they're broke, right? So does— and that's like not a good factor for the further value of their company and me having a potential exit. On your side also, it's incredibly hard to pick a winner, right? So I feel it's like very rare cases. You're a smart guy and you won't work for free basically unless you think you can have a multi-million dollar exit, uh, years down the line. So what's your criteria for that?

Yeah, so we've taken equity, um, for service in two situations in our 8-year history. Um, so one was service above and beyond, uh, CFO capacity. So, um, you know, if I— like, for instance, if I get a board seat, then that's, that's outside of the scope of the CFO work. So that's where an appropriate place, and it also has nice alignment. The other instance, we had a client that was going through a harder time and we wanted to stand by them and support them. And so we were able to— we're willing to take some equity to lower our fees. Um, look, at the end of the day, we're a small firm, right? And we can be very flexible. I don't have to go ask someone for approval to ask them for approval. Um, but, uh, I do try and stick with the discipline of knowing our business and our business really at its core, even with using AI to do more and more of the work, it's still a labor arbitrage business, right? Um, we hire someone, uh, and then we use their time over a series of clients, and we charge more than what we're using, right? And so we make that difference. I wouldn't let equity, um, drastically impact those economics. That's why I look for good fits for the business. I look for fits for investment. Sometimes they overlap, and often, often they do because we get to know the businesses well. But if they don't overlap, then that's okay too, um, you know. And, uh, yeah, I'm not gonna— there are a lot of folks, oh, work for equity, that's not interesting, because if you're already in such a difficult spot, um, it's, it's really not a great sign. And there's not— and there may be not a lot of opportunity for us to help, um, when folks have runway, when folks have revenue, significant revenue, like there's so much more we can do, uh, in the finance seat, frankly, to help them. Um, there's so many more plays to run, so to speak. But when you're just up against it, um, can we do it? Have we, have we worked with folks up against it? Sure, but they've got to be willing to pay. And, um, yeah, that's, that's the only way to make it work.

And there's other folks like me that sort of, uh, Well, I think like GTM Ventures, right? Like I have a program that's incredibly sexy one. It's a very cash flowing business and I'm looking to have some of my employees take equity. Well, I mean, they're not employees, right? Because most of them are freelancers, but I'm looking to give them rev share and equity after some time and make them partner. I'm actively seeking that because I think it's a major win for them to have one rev share and equity and makes them more entrepreneurial. Plus it's serious. It would pay them good money, but I believe I'm one of the rare, and I don't let, uh, people easily into that one. They need to have spent a lot of time working with me and earning my trust, right? What do you think about that side, that side of the table? I'm not, by the way, it's like mostly consulting.

Yeah.

Um, so for the McKinsey model, ultimately, like Deloitte, McKinsey, Big Four model, that's what they do, right? They have partners or—

yeah, the partner. I would say like, um, you know, we're kind of like I've been at this for 8 years. We've been trying to scale for the past like, uh, year and a half, almost 2 years. So, um, we started that process, uh, as simply as we could with like hourly people. Um, just, you know, hey, if there's work, let's do the work, here's what I'll pay you. And, um, now we're getting to a place where we're hiring full-time. So that, that's where we're graduating to in terms of like how we, you know, more advanced incentives beyond that. I think that's something that we're going to have to think about, um, you know, uh, and evaluate. We're trying to come up with— or I'm trying to start to think more and more about like, hey, what could a bonus program look like? So, you know, kind of going like a more traditional consulting professional services model that way. And then eventually, yes, you get to the, the partner model. I've had people say, oh, you should do a buy-in, oh, you shouldn't. I haven't, you know, gone too far down that road. It's, hey, We get some part-time folks right now, get some full-time folks, I get some full-time folks with fixed and variable. Um, and then let's see what we can do in terms of equity and kind of just, you know, move the incentives along as the business improves. But I, I, you know, we can interview you now and you can tell me all about your, uh, your model because I think that sounds fascinating. I'd love to learn more.

Yeah, yeah, we could, I, we could spend lots of time talking about that. We can do another one, you and I, after that. I'm sort of laughing because I'm looking at the quote on your website. Without numerical fluency in the part of life most of us inhabit, you are like a one-legged man in an ass-kicking contest by Charlie Munger.

Yes.

Isn't that like the funniest fucking quote? You can imagine, I don't know, one-legged man trying to ass-kick someone. Um, Charlie is like one of your top guys, isn't he? Like, this guy, in terms of mental model, he's really hard to beat, isn't he?

Oh, I mean, he's, he's the, the godfather of like the mental model approach, for sure. Um, yeah, he's a big guy. Uh, I think around COVID, um, I started— I stumbled across a podcast, um, uh, CMQ, called Compound Money Quietly, is is the— what the acronym stands for. And, uh, there's a lot of Charlie Munger content on there, a lot of Warren Buffett, Charlie Munger content. And I liked it so much, I actually reached out to the host. Um, I was like, I listen to all your podcasts, I follow your Instagram page, I read all the quotes. Um, I think this resonates with me a lot, and let's meet up. And now he's my friend. Actually, it's funny, the first time I, um, invited to my birthday party and I was introducing people I was like, this guy's from hockey, this guy's from this, and this is my internet friend. It's like, you know, now I finally have an internet friend. Um, but Chris Franco is his name. He's awesome. Um, and yeah, I've gone on to study Charlie more and more. I think I love the mental models approach. I love, you know, the basic inversion to the mean approach. Um, I have given out Charlie Munger's Almanac as a Christmas gift. I don't think a lot of people that received it read it. Um, But, uh, because it's such a great book, has illustrations and all, right? There aren't too many illustrations like, like visually, but I mean, I always tell people like, listen, if you can make it to the Coca-Cola case and just read through that, um, you'll be good. Those are some of like the 5 best pages of reading of like, you know, my life. Um, and, uh, yeah, just a huge fan of the way he thinks, his approach. Um, and Buffett to a degree too. Obviously they're partners. And obviously we're here to talk about technology companies, which they stayed away from for a long time. Obviously Berkshire just did a nice purchase of Alphabet, you know, they bought a bunch of shares and apparently Buffett was behind it. Um, and he's done Apple and everything. But, um, and we could talk a little bit about value investing, which has almost no place in AI investing and even software investing, but Um, those things do inform some of my thinking, even if it's weird or broken, uh, to some. I do think it matters. I do think it's important. Um, and, uh, yeah, those are the guys. They're, they're absolutely my guys.

Yeah, I mean, value investing, challenging time. Um, do you feel it will pursue— like, do you think it, it still has its place, uh, in the next decades, or has that gone out the window now that AI is so wild and the upside might be so big on the other side, or is that just like grandiose, uh, AI overseer talk?

Yeah, it's an interesting question. Um, the fundamental answer I think is that value investing will never go out of style, no matter what. Um, I think the idea of investing is to acquire something, uh, that you think is more valuable than the price at which you're acquiring it, or will become far more valuable at the price at which you're acquiring it. Um, and, uh, yeah, and so, yeah, you have to think about its value, not just, uh, go gambling. Um, you can, you can pay a high price for something, great, that, that, that's not, um, inappropriate, uh, or against doctrine. It doesn't mean, you know, old school Warren Buffett, like cigarette butt style investing, you know, or cigar butts, you get a few extra puffs and then you cast them aside. I mean, you can do cheap stuff, but you don't have to. Um, you know, it's about paying the right price for a great business that, uh, that's going to do really, really, really well over time. So I think that will never go out of style. I think obviously you see some of the valuations on some of these AI companies, I don't think they fit a value investing framework, right? Um, that doesn't mean they won't justify their price over 10, 15, 20 years. Doesn't mean folks can't do well investing in them. You don't have to be a value investor to make a lot of money. You can be aggressive, you can gamble. But yeah, I do think it never goes out of style. The discipline is always going to be the discipline. It doesn't apply to obviously the AI businesses the way they're being valued right now. I'm sorry, background noise. My daughter's coming upstairs and she's a little upset.

Yeah, I heard the singer.

Summer's tough. There's no camp on Friday. It's a bit wild.

I have a 4-month-old singer myself. She's with the nanny now, but when she's right next to me, she loves singing and screaming and wanting your attention, right? They're always— I mean, we're hardwired to do that as humans. I feel you're one of the only guys in the fractional CFO space that actively goes after founders, right? Like, your background is quite particular. Why go after these guys? And do you feel that this market is underserved, right? Like, uh, this— most people don't want to work with startup founders because their revenue is so low. Do you also take pre-revenue? Tell us a bit more about the business.

Yes, okay. Oh, let me answer backwards. And, uh, sorry, that— do we take pre-revenue? Uh, rarely. Um, there are companies that are— I don't know about pre-revenue, but, you know, very early in their journey, but they've raised a decent chunk of change. And there's a really good use case for finance there because they're going to be deploying very quickly. They're going to need to measure a lot of those results, you know, update forecasts. They've got investors, they have investor reporting to do. And so, and they expect to get revenue, you know, somewhat soon. So getting someone in the seat, getting things set up, getting ready to rock can make sense if they're really well financed and pre-revenue. But like, Hey, some guy's starting, he's in his garage, he's trying to tinker. Go find product market fit and then we'll talk, right? There's just, you got other things to do than worry about us and we're not gonna add that much value. So you need to talk to customers. So that's my view on pre-revenue. Is the market underserved?

The CFO level, you know, I do think so. I don't think there's a lot of CFOs that will go after them.

I think that for founders, um, I'm sure there are a lot of founders, a lot of founders that could have more financial sophistication in their organizations. Um, I'm comfortable saying that, and, and have more financial sophistication at their fingertips.

Um, you can bite them down even if they raise a round. Most of them don't raise properly and cash in properly. There's taxes, there's all kinds of future bites them down in the ass down the line.

Yeah, you like, you make, yeah, you make a lot of mistakes in the fundraising round even with growth and, and, and good product and everything because, you know, the investors might, might find a way, hey, your retention's actually 5 points lower. We, they still want to do the deal because they still like it, but they'll negotiate with you on price and you might lose a little chunk of your business. Where if you could just run retention calcs and you know, maybe do some adjustments and defend them, you can really help yourself. And maybe if you did that also and had better headline numbers, you'd have a few more folks at the table, so you have better negotiating power. So yes, a lack of financial fluency can cost you, and in, in different ways for sure, even for good companies. I think AI is helping some folks. I think there's there's expertise required that AI doesn't have. Um, I, I test it frequently to see if it can produce right answers. Um, and so I still think there's a need for expertise. Um, I do think founders get served different ways, right? They're willing to live without paying anything and just winging it. They're willing to live with a bookkeeper who maybe kind of organizes the numbers. They're willing to live with the cost of them doing some of the work in a spreadsheet that they sometimes remember to update. Right, but the, you know, the cost of that is especially what happens at the next round, or do you make the right decisions when it comes to hiring and then face certain trade-offs and are able to market your business properly and talk about what you really have. Um, I don't see a lot of other fractional CFOs do what we do, um, where they're putting in, you know, at the low end 5, at the high end 20+ hours a week on a company. Covering the breadth and depth, you know, constantly talking to investors because we got clients that are raising. We talk to like 100 equity investors a year, give or take, 25 debt providers. So we're dangerous across the capital stack. We do M&A. Um, and look, finance talent— I talked to an investor, good finance talent, really good finance talent, it's worth like $500K. It's like, that, that's the deal. You might be right, might be wrong, but the market for finance talent is rich. So having some, someone or a couple people who come down market and can meet a founder where they're at, understand their world, be really good at their context, but also have that level of skill, it's just really rare. Um, and that's what we're trying to bring, and that's why I think we're having success.

So what's the scale of the company right now? Like, how much, uh, clients do you have? Where do you want to take it, uh, at the end of this year? What are your main goals?

Yes, we got about 4 clients right now, um, and like I said, we're pretty hands-on, so it can be quite consuming. Um, I think this year we want to finish with, with 6, um, and the goals I think are to get the business to a place where something like 20, 25, um, I want to be in a— I picked those numbers for a reason. I want to be in a place where we can still serve well, um, we can still pay attention to our clients, um, and be, be really embedded, but You know, our clients, because they're— even though we have a couple close to 5-year relationships, some churn after a year, some churn after 2, some roll with us 5 or more. Um, if you're at 20 and, you know, you know, uh, 5 clients churn, we can easily replace 5 good clients in a year. If we were at 100 and we had to replace 20 clients in a year, like, that's pretty hard for us to find 20 quality companies to work with that we want to work with. And the scale of that, I don't think makes sense. So I think there's a subscale that's a fit for us where we don't have to go crazy investing in sales and marketing, which would screw with our margins, which would screw with our prices, which isn't good for customers. But we can have, you know, we can replace those that come and have a really good steady state of really strong companies. I feel really good about working with, helping, and potentially investing in at certain points.

And the exact ICP, so it would be a founder that has raised seeds, right? Their revenues about that $1 million in tech, either New York and SF, is that usually who you go after?

Yeah, so US-based companies, you've either raised a really good chunk of change, you need someone to help you, you know, monitor and manage the finance side of the house, or more, and frankly, more commonly, you got like $1 to $2 million of ARR, you got good growth, and you're thinking, all right, How do I finance this? What are the right next moves? You know, what are the trade-offs I have to face if I want to keep bootstrapping or keep, you know, not, not go the institutional route? Or if I do want to go the institutional route, and when? Maybe I thought a little bit about debt. Do I want to try that? And, you know, um, and, uh, can I get someone who really knows that world, understands that world, can protect me, can protect the business, um, and help shepherd us through that? And, and once, once we find folks like that, we can do a lot of really good work.

What's the fundraising climate like right now? What have you observed?

I think it's good to be an AI company right now.

Or not, if you're a rapper.

Yeah, sure. Yeah, yeah. I think you can debate what's an AI company, but no, I mean, it's good to be small, but for the rest of us, it's like, yeah, yeah, for the rest of us. But on the AI side, it's great. I think I just wrote about this on LinkedIn, like, a month or two ago were pitched by some Y Combinator companies at, you know, pre-revenue $30 million valuation. Or, um, another one's like, yeah, we got like $50K live and $400K signed and we want $70 million. That's insane, right? Uh, we were, you know, there are other SaaS companies out there that we see selling in the market, you know, 3, 4, 5x, right? And and they've got tens of millions of dollars of revenue, like, you know, vertical SaaS plays. So I think public markets, I think the SaaS multiples have gone up a bit. I checked Sami Abdulla's website, Sami of Blossom Street. I'm happy to plug him, he's a great guy, to track multiples. I think they've come up a bit. But yeah, I think SaaS isn't what it was, and SaaS that are in spaces that are AI vulnerable, um, are particularly hit. SaaS that are systems of record that are more protected, that can, you know, more directly leverage AI, are doing better. Um, so I think I used to joke, like, if you want to get an investment, you know, this is 3 years ago, like, for a SaaS company, you just go through like this assembly line analysis. What's your growth rate? What's revenue by customer? What are your retention numbers? And then what's your efficiency, like looking at your, your, your burn? And like literally you can get a check, this company's investible, earn X. There's no thought of compa— I mean, there was competitive dynamics, folks do their diligence, but you could hit certain metrics and you'd be really, really likely to raise. Um, now I think there's, okay, we do that, but we also have to look at like what part of the software stack are you in? How vulnerable are you to AI? How are you going to use AI to grow? Have you proven that you can do that? There's a whole other technology set of questions, um, for non-AI companies that are really, really relevant. Um, and that's definitely changed.

What do you mean by SaaSpocalypse also?

Um, I mean, uh, there's a— you can argue if we're still going through it or not, but there's certainly a period, uh, Q1 this year spilling into Q2 where SaaS companies are just getting killed in terms of valuation in the public markets. And then private markets, um, really, really struggling to get funding to do deals, uh, to close deals. Um, everyone was— and probably still is— everything was so new, um, and everyone was so afraid and so many concerns, they just sat on their hands. And, and, you know, a lot of technology investors are not technology people, they're finance people. So when the technology really, uh, gets away from them, um, and they don't feel like they have their predictability and they don't have the ability to analyze and kind of see into the future, they just sit on their hands, right? So, so money doesn't go out, right? Because they don't want to, want to be wrong. And, you know, it's February— back in February, March, I think people are wising up a little bit that it's not so realistic, but Um, it was like, oh, people will just, you know, I don't need a CRM, I'll just build them for myself. And there are companies that are doing that. I'm not saying it's impossible, but, uh, or that that isn't where this is going. But, oh, people just vibe code all of the SaaS tools that they use now and then they won't pay anything. Um, I think it's a little bit harder than to, to do than that. But, um, yeah, that, that was a big thing. Um, or, oh yeah, all these businesses they're all just vulnerable. AI-native versions of them will come disrupt them, um, and, uh, you know, they'll get destroyed. So there's no point investing in them, they're going to be worth nothing in the future, so we're going to stay away from that. So anything that looks— that folks could dream could be vibe-coded by some smart people, or that looked like, hey, this is a pretty nice opportunity, someone else is going to come along and do it from an AI-native perspective, um, all that stuff was, was just not getting touched no matter how well it had performed to date almost. I mean, I guess if your performance is outstanding, if you really got growth going, maybe you can still get something done, but really tough re-trades, you know, even on high-quality assets. It's a really tough environment.

I love it. Charles, thanks for being on the pod. Where can people find out more about you in the business?

Yeah, I'm pretty active on LinkedIn these days. Um, check out what we're posting. We try to post stuff that's That's, uh, that's really what we're thinking and how we're approaching the world. So I think look for us there, and you can always shoot me an email. Um, I don't know if it'll be in like the show link or anything, but it's charles@centripetaladvisors.com. Um, and, uh, I'll be happy to respond, say you came from, uh, the other Charles's show, and, uh, I'll look out for it.

I was Charles and Charles for another CEO