Technology & SaaS 23.07.21

The 3 Types of Start-Up CFO

As a Founder or Investor, what should you expect from your CFO? How should this evolve as you shift from Seed through to Series E or IPO? Chris Short, our Boston-based SaaS expert for Harmonic Finance has the some of the answers.

In the fast-moving world of start-ups, funding and venture capital; the role of the CFO is paramount. Many CEOs talk about the ‘feast and famine’ of funding – going from shoestring budgets to multimillion-pound funding rounds (and sometimes, back again!). You’d be forgiven for thinking that navigating this financial rollercoaster is the sole purpose of the startup CFO, but you’d be wrong. Start-up culture has in many ways reshaped the traditional CFO role into leaders of business, influencing the very strategy on which the business is based.

It’s not just the plethora of ‘hats’ to wear that makes the startup CFO different, however. The various life cycles through which a successful startup must pass, also require different skills and mindsets. This article explores the three main ‘types’ of startup CFO, from seed to IPO. That’s not to say it can’t be one person throughout, but if that’s your plan, you’ll need to hire wisely in order to find that one special CFO (…we can help you there!).

The Fundraiser: Series A-C

This is the CFO you need in those formative early days of a startup, guiding you from Series A – C. Typically this is the point at which startups move on from simply having an outsourced finance team or part-time support, to needing a fully-fledged CFO.

Unless you’re starting off with millions of dollars in the bank, or an untapped well of family finances, these funding rounds will involve going to Angels, VCs or Institutional Investors and asking for large sums of money. And guess what? They want to know that you can manage the money effectively. They need to be approached in the right way and when it comes to the language of money, you need to be speaking their lingo. In fact, we’ve written about why investors love CFOs before! They’re a match made in heaven when it comes to funding.

It’s not just helping you find the money that’s important, though. A good CFO will help you track the performance of your company effectively, building out robust metrics / KPI’s that will allow you to make well informed decisions and highlight areas for improvement. These should cover (but not be restricted to): Pricing, Cash Flow forecasting, Cost of Acquisition Per Customer, Lifetime Value of Customer, Churn etc. Which will undoubtedly help you spend that more wisely. Your CFO should also support you with building out the early finance team: perhaps a Controller, FP&A Analyst and a Senior Accountant to form the bedrock of your finance department. In other words, a good CFO at this stage will help to acquire and then maximise your runway, which is vital to survival in the startup world.

As with all startups, in this early stage it’s also expected that the CFO rolls up their sleeves and pitches-in where necessary in other areas of the business. A modern start-up CFO should be prepared to get their hands dirty where necessary with more transactional tasks (payroll, invoicing) as well as contributing cross-departmentally with colleagues in Legal, HR, Product and B.I./Data (think: “up in the clouds as well as down in the weeds”). A CFO who just wants to lock-in on strategy at this stage is not the right full-time hire. Instead search for a CFO who can help you analyse your entire business through a financial prism- the right colleague here is an invaluable font of information and source of support for time-starved CEOs, helping with operations, sales, marketing, recruitment and whatever else is in their wheelhouse!

The Strategist: Series C-F

At this stage, we generally start to see more ‘specialist’ CFOs; those less likely to have spent significant periods within technical accounting roles. That’s because – as the name suggests – at this stage our focus is on their contribution to financial strategy. Many candidates with this profile will have experience within top-tier advisory firms within M&A / Transaction Services, or may have spent periods in advisory roles for start-up accelerators, VC funds or tech-focussed management consultancies. They will focus on Target Operating Models, Business Transformation and Market Analysis (including competitors and total addressable market), and will typically seek to delegate more technical accounting duties to colleagues.

Of course, fundraising is still of the utmost importance. Typically, these rounds involve tens (if not hundreds) of millions in investment, which means your start-up’s reporting and forecasting needs to be absolutely bomb-proof. Your CFO needs to be able to demonstrate that the go-to-market strategy is robust and that their strategy is being heard and implemented company-wide. With these sums of money on the table (and increasing complexity of tax liabilities), there is little room for error. This generally means that startups will bring in seasoned professionals who have navigated these waters before. At this stage, nobody wants surprises!

By now your CFO should be building highly-specialised teams, split between accounting and FP&A, potentially with a director or VP for each area. They should also be seeking to get further insight from the data they have available by bringing in a strong BI, Analytics and Rev Ops function. Having the right support to allow them to fulfil their function is of the utmost important, so getting those hires right is absolutely crucial.

The Exiter: E-Exit

The final furlong. The stages here can vary: some have exited by now and some will fundraise a few more rounds. Whatever your start-up’s path, your CFO should by now be working towards and exploring those exit options (IPO, strategic acquisition, Private Equity sale). In fact, a good CFO should have been thinking about for exit route from the very beginning.

The CFO role here is pivotal to not only the exit process, but the valuations. The CFO controls the forecasting and financial data of the company, that handle on current and future performance is paramount to achieving the best possible valuation. Their work should lay the groundwork of forming credibility in the eyes of buyers (or Institutional and Retail investors if IPO if the goal). The importance of instilling in buyers the confidence to close the deal cannot be overstated. Well-articulated plans backed up by data evidence is the key here – this is where the The Exiter truly shines.

As you might imagine, there are also plenty of hoops to jump through, no matter which exit option you opt for. The business needs to be totally compliant with all external reporting; this can include US GAAP, SOX404 and SEC reporting. In addition to compliance, there is also a heavy focus on FP&A – naturally.

If you’re looking for your star CFO, for whichever stage you’re at in the journey, we’re here to help. Much like a seasoned CFO we have been there and done that, we know what’s required and we know how to deliver. This is one hire you don’t want to get wrong. For a discussion about your needs, please contact me on: [email protected] / 16178612564

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