The profile and demands of CFOs, especially in venture backed technology companies, has evolved enormously over the last five or six years. Fundamentally their role today is less about reporting historic numbers and more about future and forward planning. Being a CFO in these rapidly scaling and uniquely challenging environments is no longer about being a number cruncher, they need to deliver their value in different ways as their remit evolves and they play a more active leadership role. Hiring the right CFO is a game changer.
Why and when do people come to Erevena?
If we look at why companies approach us to help with searches for finance leadership roles, it tends to be at specific inflexion points in their evolution and with each of those scenarios the requisite skill set can be very different.
Erevena are typically engaged from Series A onwards for the simple reason that at seed stage companies tend to not need much in the way of finance leadership; the business is small; there’s not much to manage and not much to value; there’s likely no Board and most things can be automated or outsourced from a finance perspective.
Most tech companies who have successfully raised a Series A will have started to scale; they are building a board; they have capital to deploy; and they need to start looking at the core financial plumbing of the business, as well as managing audits and so on and might not have the capability internally to do this. At this point they need a CFO to come in, roll up their sleeves, put the processes and systems in place to support their growth and start readying the business for a Series B.
The focus at this stage should be on traditional finance functionality such as accounting, controlling, budgeting, FP&A and may in fact be more of the profile of a VP Finance. There’s often healthy debate about whether now is the right time to hire the first senior finance head. To an extent it depends on the skill set of the existing Founder and where their time is spent but invariably the answer is yes!
If an early stage company has made the commitment to invest in a CFO, there is often a temptation to over hire with one eye on what the business will need in 36 months’ time and to avoid the need to go to market again. In our experience there are few examples of the right CFO at Series A being the right CFO post Series C because the skill set and requirement is fundamentally different, and if you fail to address the financial needs of the next 12 months, there won’t be that 36 month anniversary! In addition, whilst it may be a statement of intent, you may well fail to extract the full value of your investment until the complexity of the business demands it, and if growth stalls at any point you may also find the person you have hired lacks challenge and becomes disengaged.
As companies head towards securing or have secured their Series B there starts to need to be more of a strategic influence. If the early focus is on prioritizing the issues and dealing with cash flow and risk assessment, at Series B you are quickly looking at more strategic levers that will move the needle for the business. They’ll be working with banking partners and commercial partners, looking at product expansion but will still need to be very good at the ‘nuts and bolts’.
In all these scenarios, there is no cookie cutter approach and every business is different. There are times when your first finance head can make that transition and keep scaling, and there are times when the Founder can close a series B themselves but often it is the trigger for change.
We repeatedly find at this point it’s the investors themselves who are the primary advocates of the search and there is more emphasis on the CFO to work closely with the CEO on the future strategy of the business, as well as being the first point of contact for fund raising and IR.
From Series C onwards, we are typically engaged by companies who are thinking about a two to three-year exit plan or IPO, and this is where the role of the strategic CFO really comes into its own.
There is now a great deal more complexity and sophistication at play, and it’s where recently the role of the CFO has seen the biggest transformation from number cruncher to business adviser, to the extent that a large proportion of their time is spent on non-finance activities. The CFO is not just there reporting the numbers, but they heavily influence decisions the business takes to achieves its ambitions.
A CEO will often view their CFO as their most important right hand man or business partner – certainly retrospectively! – and in the world of Founder led businesses you’ll often have a CFO with far greater experience than a founding CEO which can make for a really interesting dynamic, with investors expecting a CFO to act almost as a mentor particularly when the Founders has deep product or technical backgrounds. The CEO is likely to rely heavily on their CFO when managing investors especially when it comes to fund raising because it is rare that the numbers simply speak for themselves in venture so the ability to tell a story and bring credibility is huge.
The value of a strategic CFO
We are often asked in practical terms what value does a modern strategic CFO really bring to the table. If traditional finance activity is centred around accounting, controlling, budgeting, FP&A as well as more specialist finance elements like treasury, audit, tax, fund raising & IR then the focus at the strategic end can be across strategic leadership, organisational transformation, performance management, capital allocation, data and analytics, risk management, and increasingly also analysis and insight into technology trends, opportunity identification, and product development. There is also an emphasis on managing cybersecurity, and for this newer breed of CFO those new responsibilities present opportunities for them to differentiate themselves as does the willingness to embrace cutting edge technology to analyse data, work on financial advanced modelling and contribute in a whole new way.
There is also an opportunity to relieve workload and reporting lines from the CEO. Whereas in days gone by CFOs might expect just the finance team to report to them, often now this extends to Legal, HR, risk, regulatory compliance, M&A, IT, security and digitization, procurement, and corporate strategy.
Changing the mould
This shift to increased time spent on non-financial, non-core accounting activity has given rise to CFOs from a different background entirely, and we’re seeing a fascinating growing trend, of the conversion of Investment Bankers into operational CFO’s, particularly in late stage venture companies or companies seeking a “mega raise”.
We are also seeing companies hire this profile CFO when finding the “IPO CFO” especially in Europe where there isn’t a wealth of people with that experience, but there are people who have that experience from the other side of the fence and have been involved with multiple deals and understand the complexity of that process and how to paint the equity story.
There is an overwhelming correlation between companies whose CFO is involved with the overall strategy of the business and those which succeed, and furthermore, organisations who are not only positioning CFO’s at the centre of their businesses but doing so sooner are seeing the biggest gains.
There remains a viewpoint in some quarters that a full time CFO pre-series B is an unnecessary expense in a company so young, but whilst it might indeed be a considerable expense, as a rule of thumb installing a CFO as early as you can afford to reaps enormous benefits down the line. A good finance exec will pay for themselves almost immediately, whether through a better fundraise, optimised forecasting, spending and cash flow, or increased revenue due to their market insight. We frequently hear from CEOs who do finally hire a great CFO that they wish they had done so sooner.